Fiji’s financial landscape has shown remarkable resilience, with its banking sector maintaining robust asset levels despite ongoing economic challenges. As of June 30, 2024, the country’s financial system boasts gross assets totaling $36.2 billion, underscored by the dominance of commercial banks. This strength is crucial as Fiji navigates through a period marked by liquidity concerns and debt repayment pressures.
Commercial Banks Lead the Financial System
Commercial banks continue to be the backbone of Fiji’s financial system, holding the largest share of assets at 41.0 percent. This dominance ensures stability and confidence among investors and consumers alike. The Reserve Bank of Fiji (RBF) highlighted in its October Financial Stability Review that commercial banks account for 78.3 percent of all loans, significantly outpacing non-bank lenders who hold the remaining 21.7 percent.
Breakdown of Commercial Bank Loans
The distribution of loans within the commercial banking sector reveals a focused approach towards supporting key areas of the economy. Private sector business entities are the primary beneficiaries, securing 66.6 percent of total commercial bank loans. Households follow with 27.0 percent, while other sectors receive 6.4 percent.
| Loan Recipient | Percentage of Total Commercial Bank Loans |
|---|---|
| Private Sector Business | 66.6% |
| Households | 27.0% |
| Others | 6.4% |
This strategic allocation underscores the banks’ commitment to fueling economic growth by supporting businesses in wholesale, retail, hotels and restaurants, real estate, and building and construction sectors.
Growth in Aggregate Credit Reflects Economic Activity
The aggregate credit within Fiji’s financial system has seen substantial growth, reaching $11.8 billion by the end of June 2024. This represents an annual increase of $1.0 billion, or 9.3 percent, compared to the previous year’s $0.6 billion growth. This uptick is largely driven by the commercial banks, which have recorded an 11.8 percent annual growth rate in loans as of June 30, 2024.
Factors Contributing to Credit Growth:
- Ample Liquidity: Ensures banks have sufficient funds to extend loans.
- Easing Credit Standards: Makes it easier for borrowers to obtain financing.
- Positive Loan Demand: Increased appetite for loans from both businesses and individuals.
- Low Lending Rates: Encourages borrowing by making loans more affordable.
The positive credit growth is a testament to the banks’ ability to adapt and support the economy during times of financial strain.
Strategic Liquidity Management and Debt Repayment
Fiji’s banks have adeptly managed their liquidity by building substantial foreign currency (FCY) balances abroad, reaching $3.7 billion by the second quarter of 2024. This strategic reserve buildup is a critical component of liquidity risk management, especially in a domestic forex market facing deficits.
“The banking sector significantly improved their balances with financial institutions abroad since 2021 to meet their liquidity needs in FCY, in an environment where a FCY liquidity deficit was prevailing in the domestic forex market,” stated the central bank’s financial stability review.
Reduction in Foreign Borrowings
Since peaking at over $4 billion in the third quarter of 2023, FCY borrowings have steadily declined, standing at $836 million by the end of Q2 2024. This reduction is primarily due to banks settling their obligations and repaying government dollar borrowings in rupees as part of debt restructuring efforts. Additionally, banks have leveraged their forex balances to cover provisions against defaulted sovereign bonds and settle maturing credit lines.
Key Actions Taken:
- Debt Restructuring: Converting government bonds from dollars to rupees.
- Provisioning: Building reserves to cover potential defaults.
- Settlement of Credit Lines: Clearing existing foreign borrowings to reduce liabilities.
These measures have been essential in mitigating the impact of Sri Lanka’s downgraded credit rating and addressing the forex shortages caused by aggressive monetary policies aimed at controlling inflation.
Future Outlook: Sustaining Growth and Stability
Looking forward, Fiji’s banking sector is poised to continue its growth trajectory, supported by key policy priorities aimed at unlocking further credit expansion. The RBF anticipates that the current loans pipeline, totaling $2.5 billion in unutilised limits, with $1.2 billion pending disbursement, will drive future growth.
Upcoming Initiatives:
- Policy Enhancements: Implementing measures to sustain and boost credit growth.
- Technological Investments: Adopting advanced banking technologies to improve service delivery.
- Strengthening Partnerships: Collaborating with international financial institutions to enhance liquidity management.
As banks maintain their focus on prudent liquidity management and strategic debt repayment, Fiji’s financial system is expected to remain resilient, supporting ongoing economic recovery and development.
