Tonga PM Wants Banks To Lower Interest Rate, Limit Profits

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Pohiva: Businesses can’t afford to borrow, foreign owners take-over

By Pesi Fonua

NUKU‘ALOFA, Tonga (Matangi Tonga, Aug. 27, 2015) – Tonga’s Prime Minister, Hon. ‘Akilisi Pohiva told the Parliament yesterday, 26 August, he thinks commercial banks should reduce their interest rates and keep their profit margins to less than $2 million pa’anga [US$900,000] per annum.

The Prime Minister believed that the situation where he said that the banks have a lot of money but the people are reluctant to borrow because of very high interest rates, has led to a growing number of Tongan businesses closing down. He said their properties are taken over by foreign owners, which is a very dangerous position.

He likened the situation to neo-colonialism "it is colonialism but dressing up differently."

"I move that we should do something, we can’t let them go on collecting, collecting. Let’s do something about it!"

He suggested that the House should ask the Reserve Bank to tell the commercial banks that to collect profits of more than $2 million a year is too much, and "if not, tell them to go."

He also suggested for the National Retirement Fund, which has collected about $110 million [US$50 million] should set up a bank.

Annual Report

Lord Vaea in response to the Prime Minister told the House that he did not understand what the Prime Minister was talking about. He reminded the House of the prime responsibility of the Reserve Bank which is to maintain a trading link between Tonga and the rest of the world. He moved for the House to pass the Annual Report of the National Reserve Bank.

The House was debating over the 2014 Annual Report of the National Reserve Bank, that was presented to the House by the Minister of Finance and National Planning, Dr ‘Aisake Eke. The Minister of Finance is responsible for appointing the Governor of the Reserve Bank and the members of the Board of the Reserve Bank.

In response to concern over the profits made by commercial banks, he said that the total profit for all the commercial banks was $12.2 million [US$5.4 million] or 2.3% of the total amount they lend, actually less than the profit demanded by the shareholders of the banks, which is 7%.

He also reminded the House that the Reserve Bank legally has the right to set the interest rates, but the approach is for the Reserve Bank and the banks to agree on an acceptable rate.

The Annual Report of the Reserve Bank, however, presented a different picture of the state of the Tongan economy to what some of the members of the House have.

During the 2013-2014 financial year the Reserve Bank made a profit of $3.5m [US$1.6 million], more than the year before which was $2.7 million [US$1.2 million]. The bank also holds enough foreign reserves to enable Tonga to cover its current rate of import for nine months. It also predicted a jump in economic growth during the current financial year of 2.9%.

The Prime Minister was, however, reacting to the report which according to him was different from the situation on the ground where he believed that many local businesses were closing down and being taken over by banks.

Wasteful spending

Debate in the House got out of control when Lord Tu’ilakepa queried what has the Prime Minister and his government has done about it since it came into power nine months ago? He pointed out that all they knew so far was wasteful spending by the government.

The debate then turned into a screaming match, to the point when it got out of the control of the Chairman of the Whole House Committee and he actually turned-off the sound system of the House.

Then before the House closed for the day, the Prime Minister thanked the House for a good debate, and said that he believed "the people enjoyed what they heard".

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