BSP Reduces Indicator Lending Rate

Date: Monday 30th March 2020

In response to the Governor of the Bank of Papua New Guinea signalling a change in its monetary policy settings, as PNG's economy adjusts to business downturns due to COVID-19, with an announcement that the Kina Facility Rate (KFR) would be reduced by 2%, and also by reducing the Cash Reserve Requirement by 3%, BSP has announced a reduction in its Indicator Lending Rate (ILR) of 1% to 10.1% which will become effective 1 April, 2020.

Robin Fleming , CSM GCEO

BSP's lending products that are linked to its ILR will reduce by 1% from 1 April, 2020, and other products such as its variable rate, Home Loan will reduce by 1% to 5.5%.

Announcing this today, BSP CEO Robin Fleming said: "Our fixed rate loan products are treated slightly different to the variable rate. Our First Home Owner Housing Loan will remain at 4.00% pa fixed. New Personal Loans and New Smart Business Loans/SME Loans will have a 1% reduction in interest rate which in the case of Personal Loans will be 26%."

With lending rates reducing, BSP's deposit rates will also be adjusted with term deposit rates being reduced depending on the term of the deposit when existing term deposits mature. "The interest rates on savings products such as our Plus Saver and Sumatin Account will also reduce."

Mr Fleming said the decision by BSP to reduce its Indicator Lending Rate is a large component of its support package for customers affected by Covid-19 downturns. "BSP's funding base like that of other banks in PNG is largely sourced from our retail and business customers and not from an institutional wholesale market as is the case in Australia and other countries which are directly influenced by cash rates." The interest rates and cost associated with raising deposits is as a consequence independent of the Kina Facility Rate and notwithstanding that the KFR has been reduced by 2%, BSP's interest expense will not reduce by the same amount.  BSP's net interest income will be affected negatively as a result of the reduction in lending rates and its support of the government's stimulus packages.

"To enable our variable home loan customers to get immediate benefit from the lower interest rates, BSP will over the next few weeks align the repayments on those housing loans to the lower variable rate. Business customers who would like to have their repayment schedules revised based on the lower interest rate can contact their Relationship Manager, "said Mr Fleming.

BSP had earlier approached its business and corporate customers in sectors which have been affected by Covid-19 downturns which are primarily airlines, transport, hotels and mine services to discuss support packages that include 3 month interest only payments rather than normal principal and interest payments to ease the burden on their cash flows.

He added; "Repayment relief will also be offered to individuals who were employed by businesses in those sectors for a period of up to 3 months. BSP is not charging any restructure fees for processing repayment relief packages."

BSP acknowledged the positive decision by the Bank of PNG to reduce the Cash Reserve Requirement by 3% at this time as it is important that during conditions such as this that the banking system remains liquid to ensure that Banks have the capacity to provide working capital and other support for businesses. The banking system remains quite liquid and Bank of PNG will continue to monitor conditions.

During the period of the State of Emergency, BSP has been able to keep all of its branches open and the majority of its sub branches notwithstanding challenges it has encountered in getting staff to and from work. BSP thanked its staff for their support during this period.

Mr Fleming concluded saying: "Whilst the State of Emergency is on, and where possible, BSP  customers are encouraged to use the BSP Digital Banking services at the convenience of their homes, be it Mobile Banking or internet banking to ensure you all limit your movements and support the Government in its efforts to minimize/stop the spread of COVID-19. When you do access our branches, please practice social distancing outside and inside our branches at all times."