The Association of Banking in Fiji (ABIF) would like to clarify the situation on the level of bank liquidity in the system.
The bank liquidity is surplus funds that are deposited with the Reserve Bank of Fiji.
The current level of around $300 million is adequate to meet the demands of the banks.
There is a cost of holding high surplus funds since interest is paid on the deposits.
Each bank has its own internal liquidity policy.
The level of how much each bank holds as liquidity is depended on a number of factors including approved loan pipelines or committed loans,
level of deposits, trend in import payments by clients, amount of precautionary balances etc.
Bank liquidity varies across individual banks or is not evenly distributed. However, banks that have lower liquidity level or shortfall needs are able to source liquidity from other commercial banks on an overnight basis or from the Reserve Bank.
This is not something that is new but has been in existence for a very long time.
One key area that the banks have been working collaboratively to assist in managing system and individual liquidity is through encouraging more electronic transactions.
The ABIF is of the strong view there is room to reduce currency in circulation which is currently around $850 million.
Hence, all the banks fully support the use of EFTPOS by the general public as this has the potential to increase bank liquidity as withdrawal of cash
reduces liquidity by the same amount.
The ABIF has been in close consultation with RBF on the level of liquidity and in the economy and know that the current levels are well above historical average.