Tonga Chamber of Commerce Says Prime Minister Misinformed on Business Failure Featured
National Reserve Bank of Tonga
31 August, 2015. The Tonga Chamber of Commerce says the Prime Minister Akilisi Pohiva has mistakenly blamed banks for failed businesses.
This week the Prime Minister told Parliament high interest rates are discouraging people from borrowing which is contributing to the closure of businesses.
But the president of the Tonga Chamber of Commerce, John Paul Chapman, says the Prime Minister has been misinformed.
"The cost of credit in Tonga, relative to other Pacific Islands economies, is actually quite reasonable, quite low. That's where the Prime Minister should be benchmarking against, plus I think I read a stat there the other day that said 80 percent of businesses actually closed down because of poor management and I think that's been the case in Tonga, rather than the cost of interest from the banks."
John Paul Chapman says the focus needs to be on addressing legislation around bankruptcy, insolvency, and land tenure to help businesses survive.
Source: Radio New Zealand
3 comments
-
Totes
I thank you for sharing your view which is highly important. I wish that Economist and Accountants disburse valid information as you provided to help their future plan. Decision makers/Politicians these days should also becareful with what they are giving out to Public. But I wonder if there is an urge to decrease the bank liquidity by encouraging loan on low interest rate, is this may help build our economy or not?
Sharing legitimate information is very important for Tonga now!
I thank You -
I doubt banks are deliberately charging high rates with the intention of sabotaging businesses. It just doesn't make business sense. It would make more business sense to see it as monetising insights as it is about capital. It makes more business sense that banks' relationships with the customers is to provide not only financial capital but intellectual capital by providing insights on what's happening in the market place (in the sense of yield & returns etc).
Lower rates can be less effective in forcing businesses to seek out more productive investment options. There are operational risks where not all financial institutions have the system ability to provide lower interest rates. There are credit risks of whether our economy after becoming used to low interest rates would cope with rate increases as and when it comes. What will central banks do if inflation suddenly starts to take off? there may be an increase in bad debts as borrowers struggle to cope with higher funding costs.
If low rates are imposed, it may compel banks to paying more to replace higher yield portfolios they are currently carrying. As more cheaper debt matures it is replaced by more expensive (lower yield) debt to keep regulators satisfied. The amount of debt, while at low rates, grows in real terms and the financial sector is exposed to greater credit risk. The financial implications that may cripple the banking system here.
But then again that's probably the govt's intention. -
Tonga Chamber has been involved hot issues lately. They seems to correct others but who would correct them? How can we believe that PM was misinformed? And how can you justify your comment from an unknown data?
How would Bankruptcy, Insolvency and Land Tenure legislation help businesses survival? If we can't comply with the existing legislations why making new legislations?
PM is having a great point, high interest rate discouraging borrowing. High security assets demanded from Banks is another factor. There are more discussion to this, but I will continue later ...!