PNG ADVISED TO PREPARE FOR WORLD FINANCIAL CRISIS

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Shares on Port Moresby Stock Exchange plummet

PORT MORESBY, Papua New Guinea (PNG Post-Courier, Oct. 28, 2008) - The Bank of Papua New Guinea (BPNG) has broken its silence on the impact of the global financial crisis on PNG as the kina swept past the 60 Australian cents mark yesterday.

BPNG governor Wilson Kamit revealed yesterday the likely impacts of the crisis on the country, including:

Over the last few weeks shares on the Port Moresby Stock Exchange have dropped dramatically, mainly shares of companies that are listed on the local bourse and also on overseas stock markets such as Oil Search Limited. During that time, POMSOX had warned the Government to ready a rescue plan for the country if the worst came to the worst.

Mr. Kamit also said institutions and companies such as the superannuation funds and PNG dual-listed companies in overseas stock markets might fall prey to the crisis.

"The two major superannuation funds, the Nambawan Super Ltd and Nasfund Ltd have some of their assets invested in off-shore equities, while the rest are invested in commodity-based stocks that are dual-listed in PNG and overseas markets. Despite the downturn in the stock markets, the superannuation funds are confident that they will realize positive returns in 2008," Kamit said.

He added that the crisis would have "limited effects" on the country’s economy, adding the effects of the slowdown in world economic growth had resulted in commodity prices plunging to an all-time low.

"This would lead to lower production and export revenue as well as reduced tax revenue to the Government. The weakening of the Australian dollar against the US dollar has resulted in a sharp appreciation of the kina against the Australian dollar," Kamit said.

The kina yesterday continued making gains against the Australian dollar after fears of a global recession saw the dollar open weaker for the fifth day in a row. The kina rate was AU$0.6057 cents, an AU$0.0123 cents jump from Monday’s rate of AU$0.5934.

"While the appreciation of the kina against the Australian dollar will reduce inflationary pressure, it would have immediate adverse impact on revaluations of off-shore investments by financial institutions and companies in PNG," Kamit said.

He added that PNG’s banking system or the financial system ‘appears to be shielded from the most immediate effects of the crisis."

He said this was because the country’s banking system raised most of its funds through deposit takings within the country and then invested those funds within PNG or within the South Pacific region.

He added the commercial banks had adequate capital adequacy ratios and were not exposed to sophisticated financial products that were linked to the sub-prime market.

He said despite the high level of liquidity in the banking system which had provided commercial banks sufficient funds and restricted them from borrowing overseas, the banks lending was prudent with non-performing loans declining over the years.

"The banks in PNG are well managed and closely regulated and so far, have not been affected by the global financial crisis. The two subsidiaries of Australian banks (ANZ and Westpac) in PNG have in place guarantees from their parent banks for any lending in excess of prudential exposure limited set by the Bank of PNG and this provides the confidence to stability of the financial system," Kamit said.

The current global crisis was triggered after the collapse of sub-prime mortgage market in the United States which had affected the global financial system.

Governments and central banks in some countries have pumped billions of dollars as rescue packages for their ailing domestic financial institutions. Shares on stock markets have also fallen to record low levels.

Commodity prices, especially for crude oil, have also declined dramatically. "The crisis is expected to have a significant down-turn on global economic growth," Kamit said.

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