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presented by Boas Irima, Unit Manager, Banks & Finance Companies Unit

Bank of Papua New Guinea (BPNG) Non-bank Supervision Practices and Regulation. presented by Boas Irima, Unit Manager, Banks & Finance Companies Unit Banking Supervision Department, BPNG for Pacific Financial Inclusion Working Group Meeting 26 January 2012. Presentation Outline.

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presented by Boas Irima, Unit Manager, Banks & Finance Companies Unit

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  1. Bank of Papua New Guinea (BPNG) Non-bank Supervision Practices and Regulation presented by Boas Irima, Unit Manager, Banks & Finance Companies Unit Banking Supervision Department, BPNG for Pacific Financial Inclusion Working Group Meeting 26 January 2012

  2. Presentation Outline • Overview of PNG Financial System • BPNG Organisation Structure • Supervisory Approach • The Way Ahead

  3. Overview of PNG Financial System • Central Banking Act 1973, as amended in 2000, gives BPNG power to formulate and implement monetary policy, regulate and supervise the financial system and ensure an efficient national and international payments system. • BPNG supervises all depository corporations; commercial banks, financial companies, microfinance institutions, savings and loans societies, and financial corporations (i.e. superannuation funds and life insurance companies and brokers).

  4. Acts relating to the regulation and supervision of the financial system administered by BPNG: Overview of PNG Financial System (cont…)

  5. Size of PNG Financial System Source: Quarterly Call Returns, 30 September 2011.

  6. Microfinance Institutions KPIs (%) Source: Quarterly Call Returns.

  7. BPNG Organizational Structure

  8. Financial System Supervision Structure

  9. Supervisory Approach Following financial sector reform in 2000, BPNG introduced: • Stringent supervision of financial institutions by enforcing the Acts • Issuance of a number of prudential standards, directives and regulations under the Acts • Enhance supervisory techniques of supervised institutions

  10. Supervisory Approach (cont…) Two Supervisory Methods: • On-site Inspections • Assessment of risk during visits to supervised institutions, covering liquidity, operational, credit and market risks. Include review of risk governance, board, management, strategy/planning and capital • Determination of appropriate supervisory response • Issue Report of Examination (ROE)

  11. Supervisory Approach (cont…) • Off-site Monitoring • Assessment of risk through information received from supervised institutions such as financial returns, correspondences and discussions at prudential meetings. Include review of supervised institutions responses to matters requiring attention from on-site inspections • Determination of appropriate supervisory response • Follow through on matters requiring attention until these are closed off In addition BPNG also does: • Licensing and Policy Work • Enforcement and Compliance

  12. Supervisory Approach (cont…) Analysis Supervisory Strategy & Planning/Scope Follow-up Knowledge of Business/ Strategy Follow-up Documents Institution Supervisory Plan Supervisory Letter/ Report of Examination Review notes & Materials Monitoring & Onsite Reviews Reporting & Intervention Risk Assessment Summary Risk Assessment/ Identification of Issues Risk Based Supervisory Cycle Supervisory Process Documents

  13. Supervisory Approach (cont…) CAMELS rating system used to rate financial institutions, an acronym for: • C – Capital Adequacy • A – Asset Quality • M – Management • E – Earnings • L – Liquidity • S – Sensitivity to Market Risk A rating between 1-5 is used on each acronym as well as overall with number 1=Very Good to 5 = Poor.

  14. Supervisory Approach (cont…) Ratings assigned, used for: • Off-site monitoring of trends and severity of problems • Prioritising on-site inspections Eg. On-site reviews are done every two years for well managed institutions (CAMELS 1-2 rated institutions). For institutions rated 3-5, reviews are done more frequently • Determining the appropriate supervisory responses and enforcement actions

  15. The Way Ahead • Explore separate regulatory framework for MFIs • Microfinance unit to eventually take on MFI supervision • Review of the Savings and Loans Societies Act

  16. Questions???

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