HERALD WEEKLY ISSUE 608: 21 March 2012

Banking Review report released
At a media conference on Wednesday 5 September Minister of Finance Hon Mark Brown accompanied by his Finance Secretary Richard Neves, released copies to the media of the findings of the Banking Review conducted by former Kiwi Bank CEO Sam Knowles.
In his 15 page review of the Cook Islands banking systems Knowles made several conclusions and seven recommendations for government to consider on reducing the cost of banking for businesses, improve accessibility to banking for both businesses and residents and minimize the need for Government financial support.
Of the key recommendations outlined in the Banking Review it was suggested that a possible changing of bank licenses to encourage Cook Islands banks to move towards a model that provides customers access to the scale and range of services provided by the New Zealand and Australian banking system could contribute towards the restructure of the economy so that there is continued sustainable growth.
Minister Brown announced that the report will be available for public inspection and will be officially released on the Ministry of Finance’s website on Wednesday evening.
The Ministry of Finance plans a series of public workshops to commence in November to discuss Knowles conclusions and recommendations before addressing government with the possibility of legislating appropriate systems beneficial to the Cook Islands current banking system.
Key conclusions:
The banking system is operating on a developing country model while business customers have developed country needs and expectations;
Low scale of the banking systems makes it a high cost model;
Profitability of the banking sector is relatively low, and is possibly at unsustainable levels;
The system has a significant non-performing loan problem (non-performing loans sit at around 16 per cent -$45 million - of lending, which is high) that is a major drag on the economy;
The structure and operation of the current suite of property legislation is the major underlying cause of high bank lending rates.
A point in relation to non-performing loans raised by Knowles is that these loans are estimated to cover over $60 million of leases that the banks are seeking to clear through mortgagee sales and given current sales levels of 10 to 12 properties per year, the non-performing loans will take many years to clear.
Key recommendations:
MFEM establish a task force with independent Chair that includes the Financial Secretary, Banking Regulator, a legal representative and the three bank CEOs or their representatives to fully define the problem and recommend within 90 days an action plan to reduce the non performing loans from 16 percent to below 5 percent of loans within 18 months;
Amend existing laws to make lending a lower cost process for the banks;
Change bank licensing to encourage banks to move towards a model that provides customers access to the scale and range of services provided by the NZ and Australian banking system (Knowles reported that on the basis of a small sample, balances held by Cook Islands businesses in NZ based banks may be around $20-$40 million and that some tax leakage is likely to be resulting from this situation).;
Undertake a review of relevant land legislation that considers how to best establish a property category that is better aligned to the banking requirements for securing loans while at the same time preserving the cultural significance of landownership. -Maria Tanner

Herald Issue 608 21 March
- Terms of one China Policy document should be reviewed
- Pacific Media Assistance Scheme Seeks Innovation
- Successful NZ visit by PM
- Rerekura Teaurere New Climate Change Coordinator
- News Briefs

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