Financial Crime World

Finance Sector in Papua New Guinea Faces Challenges

The finance sector in Papua New Guinea is facing significant challenges, including a high ratio of non-performing loans and limited access to credit for small and medium-sized enterprises.

Key Challenges

  • High ratio of non-performing loans: 6% as of June 2016, above the stable 10-year average of around 5%.
  • Limited access to credit for small and medium-sized enterprises.
  • Structural constraints such as law and order, contract enforceability, property rights, and land tenure.

Report by the Asian Development Bank (ADB)

According to a report by the ADB, the country’s finance sector has made progress in recent years. However, the ratio of non-performing loans to total risk-weighted assets was around 6%, above the stable 10-year average of around 5%.

  • Banks in PNG hold only around half of their assets as loans, with the other half held largely as short-term securities and cash.
  • The ADB report highlights that strengthening bank governance is key to addressing credit risk.

Government Efforts

The government has taken steps to reform the finance sector and make it more inclusive. These efforts include:

  • Strengthening bank governance
  • Increasing worker participation in superannuation funds
  • Promoting financial literacy
  • Broadening insurance coverage
  • Creating a financial consumer protection system
  • Providing financial services to informal and agricultural enterprises
  • Enhancing financial access for small and medium-sized enterprises
  • Promoting the expansion of digital financial services

ADB’s Financial Inclusion Strategy

The ADB has launched a national financial inclusion strategy for PNG, which aims to increase access to financial services for low-income households and micro, small, and medium-sized enterprises. The strategy includes initiatives such as:

  • Strengthening bank governance
  • Improving credit information systems
  • Enhancing financial literacy
  • Promoting the expansion of digital financial services
  • Providing financial services to informal and agricultural enterprises

Financial Access Survey

The ADB has also launched a Financial Access Survey, which aims to provide a comprehensive picture of financial access in PNG. The survey found that:

  • Around 70% of the population in PNG had a bank account.
  • Around 30% did not have access to formal banking services.
  • Small and medium-sized enterprises faced significant challenges in accessing credit and other financial services.

Conclusion

The finance sector in Papua New Guinea faces significant challenges, including a high ratio of non-performing loans and limited access to credit for small and medium-sized enterprises. However, the government’s efforts to reform the sector are welcome, and more needs to be done to support small businesses and individuals. The ADB’s financial inclusion strategy aims to increase access to financial services for low-income households and micro, small, and medium-sized enterprises, and the Financial Access Survey will provide valuable insights for policymakers and financial institutions to address the financial inclusion challenge.