Excessive liquidity worries Bank

[posted 6 July 2011,1430]

Bank of Baroda chief executive Pabitra Kumar Das is worried that a lack of borrowers and the excessive liquidity in the system will impact adversely on his bank’s performance.

At Baroda’s 50th anniversary celebrations, Mr Das said (Fiji Times 6/7/11) with half a billion dollars of excess liquidity in the market and no takers, banks were worried about their future:

“We have surplus funds but no prospective taker for the loans. They said it is going to improve in the second quarter but we are almost at the end of the second quarter.”

Mr Das newly arrived in Fiji, worried that with business confidence at low levels, the Bank had not improved its figures since March. Some areas had even faced reductions.

Baroda has approached the Reserve Bank for help in identifying agricultural projects that they could finance. He said the only potential appeared to be in the rural agricultural sector.

In a statement this week Reserve Bank Governor Barry Whiteside has also expressed concern at the low volume of lending and the “historically high level of liquidity in the banking system”.

He says the RBF has expressed concern with individual banks as well as the Association of Banks on the issue, and has warned that among other measures to mop up excessive liquidity, the central bank may move to bring down lending rates.

The very low demand for funds reflects both a depressed economic climate and the lack of confidence in Fiji by both investors as well as the people due to continuing political instability.

While the RBF can try to encourage measures to stimulate demand in the short term, past experience has shown us that real confidence and economic growth will not take place unless political stability is fully restored.

Independent international financial institutions have highlighted this in their reports on Fiji. In its East Asia and Pacific Economic Update released October last year, the World Bank noted the low investment levels in Fiji and stated: “Political uncertainties are likely to continue to constrain investment in the near term”.

Similarly in February this year, the International Monetary Fund in its report at the conclusion of Article IV consultations with Fiji, noted that economic growth had been low or negative for four years. Political uncertainty was one of the main reasons listed.

Return to political stability and along with it investor confidence, will mean restoration of constitutional rule, the lifting of the Public Emergency Regulations with its excessive curb on media freedom and other human rights violations such as restrictions on freedom of association and assembly, interference with the judiciary and the increasing militarization of civil institutions.

MP Chaudhry