Despite a tight supply of foreign exchange and a slowdown in economic growth in 2018, Papua New Guinea’s banking sector remained well capitalised and registered a robust performance, aided by supportive policies from both the government and the Bank of PNG, the country’s central bank. The successful issuance in September 2018 of the country’s first dollar-denominated sovereign bond raised $500m at a relatively attractive interest rate of 8.375%, helping to relieve some of the foreign exchange pressures, while ongoing economic stabilisation efforts supported business growth. Although commercial banks responded well to challenging macroeconomic conditions, their overall performance remains hindered by the lowest loan-to-deposit ratio of any country in the Pacific region, a consequence of PNG’s legacy of community-based mutual credit transactions. Domestic commercial banks remain well capitalised, but they are nevertheless part of a system that is under some strain.
This chapter also contains an interview with Loi Bakani, Governor, Bank of Papua New Guinea; and a viewpoint from Mark Baker, Managing Director, ANZ Papua New Guinea.