Presentation By Mr. Loi M. Bakani, CMG Governor of the Bank of PNG (Central Bank) Philippines Chinese Chamber of Commerce & Industry Port Moresby
Mr. Loi Martin Bakani, CMG
Governor of the Bank of Papua New Guinea (Central Bank)
Philippines Chinese Chamber of Commerce & Industry
Port Moresby, 18th January 2016
The Financial and Banking Sector in PNG.
The Bank of PNG is the Central Bank of PNG, like the People’s Bank of China and Bankgo Sentral Ng Philipinas in the Philippines. We have 3 main roles, set out under our legislation, the Central Banking Act 2000.
1. Managing monetary policy to achieve and maintain price stability
2. Supervision to ensure a prudently managed and sound financial system
3. Ensure a safe, efficient and reliable payment system.
PNG has experienced 14 years of successive growth, much of it in the last 5 years with the construction and production of the PNG LNG project. With this transformational project for the PNG Economy, there has been growth in all other sectors. The main sectors that experienced high growth over the recent years are:
1. Telecommunication – the opening up of this sector to international mobile phone companies saw the rapid rise in mobile phone usage and introduction of new products and services in telecommunication as well as in financial services.
2. Building and construction- continued to grow after the construction of the PNG LNG project and its spin-off activities, and the Government’s on-going budget expenditures, for both building and infrastructure projects such as roads, bridges, wharves, airstrips, etc,
3. Wholesale/retail – this sector continues to grow as the economy expands with a growing middles class and more people participate in the monetized economy.
4. Manufacturing – production of small industrial goods is an expanding activity, especially for items (materials) used as inputs in other business activities.
5. Import–export business – this is another growing sector, particularly imports for consumption items (food, clothes, etc).
To conduct business activity in PNG, Business entities are required to open up account to conduct their transactions, usually with one of the four commercial banks. The account can be in either kina or foreign currency. For a foreign currency account (e.g; in US dollar, yen, renminbi, Philippine peso, etc), BPNG’s prior approval is required.
Foreign exchange controls were liberalized between 2005 and 2007, and there are no controls or limits on bringing funds into PNG, either from your own savings or borrowed funds to invest in a business venture or a project.
There are also no controls on funds to be taken out (sent abroad) as dividends, savings or investments. However, a tax clearance certificate (TCC) which is a requirement of Internal Revenue Commission (IRC), must be provided with other documents to the commercial banks and other authorized foreign exchange dealers (AFEDs) before the transaction can be processed. The other documents beside the TCC include commercial invoices, bill of lading, Customs clearance form (Form 15), board resolution and minutes for declaration of dividend payments, etc. While foreign currency can be sent abroad, outward kina remittances must be first converted into foreign currency by a bank or one of the AFED.
There is a limit on taking out physical currency (coins and banknotes). Only up to K20,000 or its foreign currency equivalent can be out of the country in physical cash.
To facilitate business activities and conduct financial transaction, there are a number of financial institutions in PNG. Besides the commercial banks, there are finance companies, micro-banks, microfinance institutions and savings and loan societies (credit unions). There are also superannuation (pension) funds and insurance (general and life) companies. It is advisable to use these licensed financial institutions to conduct your business because the Central Bank has oversight over them and ensure they are prudently managed.
There are various opportunities in PNG for foreign investors like yourselves, especially in the financial sector which we regulate. These opportunities include:
1. New entrants into the financial system – we have an open door policy for new banks and other financial institutions to apply for a licence and operate in the country. Interested foreign banks and financial institution are encouraged to apply. The licence application fee for a bank is K15 million and for a finance company is K1.5 million
2. Government securities market– we encouraged foreign investors to purchase Government securities, including treasury bills and inscribed stocks (treasury bonds). Treasury bills are short-term papers and issued for 63, 91, 182 and 364 days. The interest rates for treasury bills ranged between 2% to 7%. Inscribed stocks are issued for longer term, for 5 to 15 years. Our commercial banks rates are quite low, with deposit rates ranging between 0.7% to just over 2.0% and reflect the very high level of liquidity in the banking system
3. Financing small medium enterprises (SMEs) – this is line with the PNG Government’s policy to expand the economic base of the country. SMEs are encouraged in important sectors such as agriculture and tourism where there is a lot of potential that is not fully utilized.
4. Power (energy) generation – this is a critical are where there is need for reliable power generation in the country.
5. Telecommunication – As already mentioned, telecommunication has a lot of potential to grow the economy.