New loan commitments rise by more than double

Banking Sector Developments
April 2018

  Apr 18
Mar 18
Feb 18
Jan 18

Deposit rate (%) *r 
2.069 2.091 2.085 2.125
Lending rate (%) *r
7.879 7.863 7.852 7.837

Total Deposits (T$m) r
585.5 595.8 591.3 588.6
Total Lending (T$m) r
444.8 443.6 439.5 437.5
New Commitments (T$m) 18.7 8.7 8.8 6.8
Broad Money (T$m) 547.1 558.7 558.2 552.5

* - Weighted Average calculated as a function of interest rate and volume of deposits and loans.
r - Revised due to inclusion of Government Development Loan data.

New commitment loans rise by more than double indicating continued credit growth in the future.


Total banks’ lending increased over April and over the year. This resulted in total banks’ lending reaching a new record of $444.8 million. The monthly rise was due to higher lending to households whilst lending to businesses declined. However, the annual rise resulted from higher lending to both businesses and households. At the same time, new loan commitments have risen significantly both over the month and over the year indicating strong credit growth is expected in the coming months.

Lending extended by non-bank financial institutions increased over the month by $1.1 million (0.7%) and over the year by $20.3 million (14.8%) to $157.9 million. The monthly rise resulted from increases in home improvement and small loans as well as household loans to the public as part of Tropical Cyclone (TC) Gita Assistance Packages. The annual increase resulted from higher home improvement loans, small loans, and household loans. This had also offset a decline in Government on-lent loans.

Business Lending

Total banks’ lending to businesses declined over the month. However, over the year, banks’ lending to businesses increased. As of April 2018, the business lending balance was $199.0 million. The monthly decline was driven mainly by a fall in lending to the tourism, wholesale and retail, and manufacturing sectors. However, this was partially offset by increases in lending to the agriculture and construction sectors.

Annually, business lending increased resulting to more loans extended to the wholesale and retail, services, and transport sectors. The manufacturing, construction, and fisheries sectors also contributed to the yearly rise in total business loans. The yearly rise continued to support credit growth and the economic activities in the business sectors. With the inclusion of government on-lent loans, business lending rose annually by $28.6 million (13.0%) reflecting more business loans offsetting repayments of government on-lent loans.

Household Lending

the year to a new high record of $245.0 million. The monthly and annual rise in household loans both resulted solely from an increase in housing loans by $1.7 million (0.7%) and $22.1 million (9.9%) respectively. This offset declines in vehicle and other personal loans for both over April and over the year. The consistent rise in household loans continued to reflect persistent increasing demand of households and rebuilding efforts of the country following TC Gita. Furthermore, this showcases households’ ability and capacity to access loans.

Lending from non-bank financial institutions to households rose over the year by $23.0 million (26.9%) reflecting higher personal loans disbursed throughout the year.

Other Lending

Other loans from banks rose very slightly over April due to a minimal increase in lending to the non-profit institutions sector. However, over the year, other loans from banks declined by $0.4 million (32.7%) resulting from a fall in lending to the nonprofit institutions sector.

Non-performing loans

Bank’s total non-performing loan increased over the month and over the year to $19.8 million. The monthly increase was driven by increases in non-performing loans in the wholesale & retail, manufacturing, and tourism sectors as well as individual housing loans. The non-performing loans represented 4.5% of total loans in April 2018.


Total bank deposits fell over the month yet increased over the year to $585.5 million. The monthly decline resulted from a fall in time and savings deposits (transfer of funds between Government accounts and maturity of Government time deposits) offsetting the increase in demand deposits.

Annually, total bank deposits increased driven mainly by all deposit categories with time deposits contributing the most to the annual growth, followed by demand and saving deposits. Time deposits increased driven mainly by foreign investments, higher investments of retirement funds and higher deposits from the private sector. Demand deposits increased which was attributed to government receipts towards the TC Gita Relief Fund whilst the rise in saving deposits stemmed from private sector and churches. Additionally, receipt of government’s budget support funds and improved government revenue collection during the year contributed to the overall increase in deposits.

Interest Rate Spread

The weighted average interest rate spread widened over April and over the year to 5.810%. The monthly increase reflected an increase in weighted average lending rate and a decline in weighted average deposit rate. The total volume of loans rising over the month affected the weighted average lending rate (particularly for housing and other personal lending rates). Meanwhile, a decline in the demand and savings deposit rates across most commercial banks resulted in the decrease in the weighted average deposit rate.

The yearly rise in the weighted average interest rate spread reflected mainly an increase in the weighted average lending rate and the weighted average deposit rate declined. The weighted average lending rate widened resulting from the high volume of loans over the year. Additionally, housing interest rates increased contributing to the widening of the spread. The weighted average deposit rate declined driven by high growth in the volume of deposits. Overall, despite the rise in lending interest rates, it remained supportive of both the annual credit and deposits growth.

Broad money

Respective decreases in net foreign assets and net domestic assets resulted in driving broad money lower. More specifically, net domestic assets significantly led the monthly movement due to higher government deposits whilst the fall in net foreign assets stemmed from a decrease in foreign reserves.

Over the year, broad money increased. The annual rise resulted from the significant rise in foreign reserves. Budget support funding received during the year contributed to higher government deposits and the higher foreign reserves and corresponded to the increase in net foreign assets.


Liquidity (reserve money)1 in the banking system decreased in April due mainly to the settlement of maturing government bonds at the end of the month. In addition, deposits from the commercial banks to the Reserve Bank vault declined. The banks’ total loans to deposit ratio rose to 76.0% from 74.5% last month. This continues to remain below the minimum requirement of 80% which indicates that excess liquidity in the banking system remains and that there is capacity for further lending by the banks.

Over the year, the banking system liquidity increased due to respective increases in required reserves (statutory required deposits) and in currency in circulation. These growths had offset a withdrawal by the commercial banks from the Reserve Bank’s vault. The increase in the statutory required deposits reflects the revision to raise statutory required deposit requirement ratio from 5% to 10% effective in July 2017.


Commercial banks’ prospects for credit growth continue to remain positive. This is supported by the continued increase in new loan commitments over the month. The Reserve Bank’s projection is supported by improving economic conditions, business confidence, and annual (one-off) events taking place throughout the year. Additionally, cyclone packages (post TC Gita) extended by the banks are expected to assist the public with rebuilding and further expected to contribute to the credit growth. The Reserve Bank’s credit growth forecast of 16% in the year to June 2018 is unlikely to be met given delays in implementing of projects in which loans were approved for. However, the level of competition between banks in terms of housing loans coupled with the accommodative monetary policy is expected to utilize the excess liquidity in future to encourage lending and support economic activity.

The Reserve Bank will continue to closely monitor the credit growth and broad money movements to ensure financial and macroeconomic stability are maintained and that there is no overheating in the economy.

1 - Liquidity in the banking system (reserve money) is a sum of currency in circulation, exchange settlement account balances, and statutory reserve deposits (SRD).


Economics Department
National Reserve Bank of Tonga

Telephone: (676) 24057
Fax: (676) 24201 

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Banking Sector Development - April 2018
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