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Tonga’s Financial Sector: Progress and Challenges

The Asian Development Bank (ADB) has released a Finance Sector Brief on Tonga, highlighting key indicators and trends in the country’s financial sector. This report provides valuable insights into the progress made by Tonga in improving access to finance and credit for its private sector.

Credit to the Private Sector

  • The ratio of non-performing loans (NPLs) decreased from 11.7% in 2011 to 3.6% in 2017.
  • Private sector credit has been increasing steadily since 2012, with a growth rate of around 5-10%.

The decrease in NPLs and steady increase in private sector credit indicate that Tonga’s financial sector is becoming more stable and supportive of its private sector.

Financial Access Indicators

Improving Access to Financial Services

  • The number of bank branches and ATMs increased over the years, indicating improved access to financial services.
  • However, the number of deposit accounts and loan accounts fluctuated.

Areas for Improvement

While there has been progress in increasing access to financial services, fluctuations in deposit and loan accounts suggest that more work is needed to ensure consistent growth.

Reforms and Initiatives

Supporting Small and Medium-Sized Enterprises (SMEs)

  • The National Reserve Bank of Tonga (NRBT) is implementing projects to finance SMEs.
  • A survey will be conducted to determine the extent of credit demand across the country.

Land Reform: Unlocking Collateral Potential

Revisions to Tonga’s Land Act could allow more people access to formal finance if land can be used as collateral for personal and business loans.

Conclusion

While there are positive trends in Tonga’s financial sector, more efforts are needed to increase access to credit for SMEs and improve the use of collateral, such as land.