NATIONAL BANK OF FIJI COLLAPSE WAS AVOIDABLE: ACADEMICS

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By Mosmi Bhim

SUVA, Fiji Islands (September 9, 2002 – USP Beat)---The National Bank of Fiji (NBF) collapse was a fiasco that could have been avoided. However, a combination of incompetence, disregard for procedures, dishonesty, indifference and a lack of personal courage resulted in a national financial disaster.

This is the view of the three authors of the book ‘Crisis: The Collapse of the National Bank of Fiji,’ which details Fiji’s biggest financial scandal to date – the collapse of the NBF with debts of around F$ 220 million (US$ 101,178,000) or eight percent of Fiji’s GDP. The book was recently launched by USP Vice Chancellor Mr. Savenaca Siwatibau at the University’s Laucala Campus, Suva, Fiji.

Professor in Accounting at USP, Michael White, co-authored the book with two former USP academics, economist Mr. Roman Greenberg and historian Mr. Doug Munro. All three authors worked at USP during the NBF crisis and watched the scandal unfold with the rest of Fiji residents.

Writing in the preface of the book, authors Mr. Greenberg and Munro said the NBF crisis was not the only financial scandal in Fiji’s recent history, but the most serious, with a culture of mismanagement and corruption widespread.

"Six years after the collapse of the bank, there still has been no public enquiry nor has anyone ever been punished for the NBF disaster. The NBF example serves as a most public example of the worst economic abuses of the post-coup era. No single incident more clearly exemplified and highlighted the perception amongst the population that a small portion of the ruling elite had prospered in the wake of the 1987 coups, while possibly leaving most ethnic Fijians no better, if not worse, off. What is certainly clear is that the institutions of state that were charged with the responsibility of protecting the public interest clearly failed in their legal and fiduciary responsibility," they wrote.

Launching the book, Mr. Siwatibau described the NBF saga as a sad story of bad governance in the public sector and of enormous consequences.

"The prudential laws of good banking were ignored completely by the management of that bank, also the directors and the supervisor were found wanting. Management was very weak and certainly not up to the task. The auditor was not as bold as he should have been. Powerful debtors of the bank, who helped to bring the bank to its knees are to a large degree, still to be made accountable for what they owe that bank," Mr. Siwatibau said.

Writing in the forward of the book, Mr. Siwatibau said, "It is worth remembering that the bulk of the money lent out by the NBF to borrowers or invested in securities came from the thousands of depositors, many of them small ones, who deposited hard-earned savings with the bank. The new management installed after the 1987 coups did not have the depth and breadth required to run an international bank. The management consistently ignored the supervisory authority’s (Reserve Bank of Fiji [RBF]) requests to moderate its lending.

"Government, unwilling to inject needed capital into the NBF, decided, in the early 1980s, to amend the banking law through the NBF Act enabling the NBF to lend more than 25 percent of its capital to any one borrower. This led to the concentration of lending to one big borrower prior to the events of 1987. This borrower, when it ran into difficulties, started the bank on its irreversible downward path to ultimate collapse.

"For the nationals and residents of Fiji, the cost and burden of the scandal which they now collectively bear is enormous. The government, which guarantees depositors’ money in the NBF, had to borrow some F$ 220 million (US$ 101,178,000) to replace funds irresponsibly lent out to non-performing borrowers. By the time this amount is repaid in full, the taxpayers of Fiji will have paid over F$ 300 million (US$ 137,970,000)," Mr. Siwatibau said.

Writing in the prologue of the book, Professor White said that neighboring Pacific Island countries that established their own national banks did so by initially establishing a joint venture arrangement with a well established and reputable commercial bank operating in Australia and/or New Zealand. The overseas partner made appropriate senior appointments and trained locals to the point where they could take on the full bank operations.

"In contrast, the NBF entered into no such arrangement. The transition phase from savings bank to commercial bank was undertaken with the oversight not of another commercial bank, but of the Commonwealth Bank of Australia (CBA). The training and development of local staff at the NBF was therefore piecemeal and incomplete," Professor White said.

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