BSP Financial Group Limited has announced changes to its variable rate lending products that will take effect on Thursday 1st September 2022.
BSP Group CEO Robin Fleming said the changes in the bank’s lending rates is a result of the change in monetary policy stance signalled by the Bank of PNG (BPNG) which increased the Kina Facility Rate (KFR) in July 2022 by 0.25 percent to 3.25 percent to counter high domestic inflation.
“The intent of these monetary policy changes is to slow down economic activity which should lead to a lower rate of inflation and as a consequence ease cost of living pressures for Papua New Guineans. This is achieved by a combination of higher interest rates, which can act as a brake for businesses making investment decisions, and also by reducing the level of domestic liquidity which is available by commercial banks for lending.”
He further added: “To assist with the implementation of these monetary policy objectives, BSP will increase its Indicator Lending Rate by 0.25% on its variable rate lending products effective on the 1st of September 2022.”
Mr Fleming explained the changes would only apply to the bank’s variable rate lending products while fixed rate lending products like the First Home-Owner Loan, Standard Home Loan, Property Investment Loan, Personal Loan, Small Business Loan and Credit Enhancement Scheme Loan would remain unchanged.
The Indicator Lending Rate would increase from 10.10 percent to 10.35 percent while the Business Asset Loan Rate would increase from 11.50 percent to 11.75 percent – an increase of 0.25 percent.
BSP would also increase the interest rates on their key savings products as a means of encouraging savings and to reduce the gap between lending and savings products.
New Deposit Rates:
- Plus Saver increase in rate by 0.75% across all tiers.
- Kids Savings increase in rate by 1.00% across all tiers.
- Kundu Standard increase in rate by 0.60% across all tiers.
- Business Cheque Account with Interest increase in rate by 0.20% for balances over K250,000;
- Term Deposit increase in rate by 0.50% for new and rollover TDs.
The Russian-Ukraine war continues to drive inflation resulting in the increasing price of goods and services in PNG. The Consumer Price Index was at 6.9 percent for the quarter ending March 2022 which is the highest level since 2010 when it peaked at 7.2 percent.
Mr Fleming said the Kina Facility Rate (KFR) had increased by 0.25 percent to 3.25 percent last month (July 2022). The KFR serves as the interest rate at which funds can be lent or borrowed. It is a monthly rate and any changes to it should translate to market interest rates.
On 11th July 2022, the Bank of PNG also increased the Cash Reserve Requirement (this is the non-interest bearing cash deposited with the Central Bank) for all banks by 1% to 8%. The effect of this increase is to remove approximately K280 million of domestic liquidity out of the banking system to Bank of PNG.