Corporate sector credit momentum improved

THE credit momentum of the corporate sector picked up in spite of subdued economic activity, according to the Reserve Bank of Fiji's Financial Stability Review 2019.

In the report the central bank stated that over the past 10 years, corporate sector credit had increased by $3.3 billion (133.6 per cent) to $5.7b as at June 2019, signifying the strong growth of the corporate sector.

It was also noted that while the growth was somewhat in line with the economic growth trajectory, certain vulnerabilities remained for the sector, particularly in terms of credit risk.

The review stated that despite the subdued economic performance and tighter market conditions, credit growth of the corporate sector has picked up from 6.3 per cent in June 2018 to 9.4 per cent in June 2019, largely attributed to prevailing low interest rate environment (though an increase in lending rates was noted, they remain below historical high levels) which continues to support debt-servicing costs.

It was indicated by the June 2019 Credit Conditions Survey that demand for credit would remain positive in the second half of 2019, in spite of tighter credit conditions.

The share of corporate credit is distributed among various sectors, with the largest share concentrated within the wholesale, retail, hotels and restaurants (WRHR) sector (30.1 per cent), followed by the real estate (22.8 per cent) and building and construction (16.3 per cent) sector, while the other sectors represent less than 10 per cent concentration.

According to the review concentration risk is further amplified for sectors such as agriculture and WRHR, as they are considered to be directly vulnerable to adverse weather conditions, which ultimately affect the performance of corporates within these sectors.

It stated that other sectors such as building and construction, real estate and transport and storage were also vulnerable to the effects of natural disasters, though indirectly.

It said in therefore seeking to mitigate the level of credit losses from recent natural disasters, the banking industry was noted to have implemented measures to ensure corporates impacted by adverse weather conditions are provided structured packages which assist in servicing debt obligations, and easing pressures on their business operations.