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Frank Bainimarama - Source: ONE News -
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Fiji's central bank has directed the Australian banks operating in the island group to cut interest rates and step up their lending to small business.
However, the open-end directive to step up micro-finance support has left senior executives at ANZ Banking Group scratching their heads as to the objectives of Fiji's increasingly hardline military government.
ANZ said it was working with the Reserve Bank of Fiji (RBF) to understand its directives for all banks to cap the interest rate spreads between lending and deposit rates at four per cent by December 31 and bring average lending rates down to December 31 levels.
The RBF also directed the banks to set up micro-finance service centres in all their branches to channel capital to the rural sector.
"We're still trying to understand what those new requirements involve and what exactly they are asking the commercial banks to do," an ANZ spokesperson said.
"Micro-finance can mean anything."
Fiji has looked to promote micro-finance in recent years as a path to growth, although former RBF governor Savenaca Narube noted borrower creditworthiness remained an issue in a speech made to a business forum last May.
Commonwealth Bank of Australia (CBA) said it was reviewing the effect of the RBF's directives on its Fiji arm, Colonial Fiji, which specialises in banking, life insurance and health care.
"The Commonwealth Bank always complies with the regulations of the financial systems that it operates within," a bank spokesman said.
A Westpac spokesman said it was too early to comment.
However, wide interest rate spreads have plagued customers in Fiji, interim Attorney-General Aiyaz Sayed-Khaiyum said.
Officials at the RBF did not return calls.
Colonial Fiji is advertising variable home loans at a standard rate of 9.5% - 3.86% above that charged to Australian customers after last week's interest rate cut by the Reserve Bank of Australia.
Colonial is charging Fiji businesses a base interest rate of 9.2%, and charges Mastercard credit card customers 20.5%, while paying term deposit customers 4.00% on two-year terms, as does Westpac.
ANZ and Westpac charge the same standard variable home loan rate, but ANZ's interest rate on all credit cards is 21%, and it pays term deposit customers 2.75% on two-year terms.
National Australia Bank has no operations in Fiji.
The interest rate spreads are partially a function of tighter liquidity in the financial system over the past two years as Fiji's foreign reserves have all but dried up.
Ratings agency Standard and Poor's lowered its long-term foreign currency credit rating on Fiji from B to B- on Wednesday with a negative outlook, given the political upheaval this week that had former coup leader Commodore Frank Bainimarama reinstated as interim prime minister.
Foreign currency reserves dropped to $US329 million, or 5.4% of GDP, in March, Standard and Poor's said, noting that the effect of floods in January on tourism and sugar exports may shrink the reserves further.
Newly appointed RBF governor Sada Reddy devalued the Fiji dollar by 20% on Wednesday to boost tourism and exports - two sectors that have plunged since Commodore Bainimarama overturned the elected government in 2006.
"The Fiji dollar had appreciated significantly by around 20 per cent since 2007/2008," Reddy said.
"This is unsustainable."
The moves to stop capital flight from Fiji included the suspension of some foreign exchange facilities and limits on foreign exchange transactions.
