We are reliably informed that despite the denials by the Minister and the Banks, there is indeed a problem and it may be quite critical: FLP
Economy Minister Sayed Khaiyum has gone out of his way in the past week to reassure one and all that there is no cause for alarm regarding the state of the nation’s finances.
He has denounced what he described as “significant flow of misinformation on Fiji bank’s liquidity situation”.
Today the Association of Banks also issued a statement denying there is a problem with liquidity in the banking system.
Drawing on the popular adage there is no smoke without fire, one may well ask why the rush to issue all these denials if there is no problem?
We at Labour have posted several articles in the past few days questioning the state of the national economy and State finances, and claiming that Fiji is now definitely in the throes of a recession.
We are reliably informed that despite the denials by the Minister and the Banks, there is indeed a problem and it may be quite critical.
What are the indicators?
Our information is that the Reserve Bank has itself written to all the Banks to say that it will not be providing any further loans to the banking institutions.
We know for a fact that the situation is so tight that banks are rescinding approvals
earlier granted for loans and overdrafts to individuals and companies.
One such letter to customers from a major bank reads: “I wish to advise that there is tight liquidity position in the banking system and as such the bank will not allow any excess position on customers’ accounts… Any excess drawing is not permitted and cheques will be returned.”
In a number of cases we know of, loans earlier approved by at least two other banks, have either been rejected or are being deferred because of a lack of funds. The question is what happens to the documentation costs and down payment made on application for these loans?
Finally the situation is so grim that banks are going around soliciting funds from customers.
Banks have also informed their major corporate clients that interest rates were likely to go up. They warned that they do not see any improvement in the situation over the next 12-18 months.
If this is the situation on the ground, why is the Association of Banks putting out a statement to say there is no problem. Isn’t this just another attempt to mislead the public?
If one looks at statistics, liquidity in the banking system stood at $286m at end of February. This compares with $536m a year ago (March 2018), according to RBF figures. Down by some $250m today. A cause for alarm?
Someone quite close to financial institutions has also warned of an impending crisis:
“The situation is very very drastic. The economy is in a very bad way…”
“Capital flight is a possible reason for the decline in liquidity,” says Labour Leader Mahendra Chaudhry. “Foreign Reserves are way down because people are taking money out of the country. This is hardly surprising when one considers the number of capital works contracts that have been awarded to foreign companies.”
Meanwhile, the tight money situation is affecting businesses all over the country from huge departmental stores to small motor mechanic garages and such like. All of whom are complaining of a worrying downturn in business.
Financial sources are warning that another devaluation of the Fiji dollar may well be on the cards, if the situation continues. God have mercy on our poor if that happens.