State owned banks can assist governments with their development agenda if operated efficiently.
In the Finding Balance 2019 report commissioned by the Asian Development Bank, 13 state-owned banks were reviewed, assessing how they can deliver domestic financial services on commercial terms in the long run without distorting the local markets.
Co-author of the report and a senior financial sector expert, Peter Dirou says if state-owned banks are run competitively and regulated much like the formal finance sector, their value add to governments would be significant.
“We advocate quite strongly these banks should be complying with financial targets such as return on assets and return on equity as opposed to some loose qualitative target. So the stronger the financial discipline, the argument goes the stronger the bank, the sustainability will come through consistent profitability and with that sustainability, the government will be able to achieve whatever development objectives that have been set for the bank through that particular bank.”
Meanwhile, another co-author of the report, state-owned enterprises consultant Laure Darcy says in Fiji’s case, the Fiji Development Bank as the only wholly SOE financial institution here can be commended.
A profitable bank, Darcy says it’s also evident that the FDB continues to deliver financial services to sectors that commercial banks don’t, in particular, the agriculture sector benefits from the bank.
According to the report which looks at eight years of financial records from 2010 to 2017, FDB accounts for six percent of the Fiji Banking Sector credit.
In addition, as at 2017, the majority of FDB’s loan book was attributed to Tourism and Retail accounting for 25 percent, Agriculture was closely behind at 20 percent.