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Bank of Papua New Guinea Strategic Plan 2012 - 2015

Table of Contents
Foreword 2
Background and Environment 4
Mission, Vision and Values 8
Economic Environment and Challenges 10
Monetary Policy 13
Financial System Stability 16

Payments System 20
Economic Growth 24
Internal Efciency and Effectiveness 27
Organisational Management Structure 30
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
1. FOREWORD
The Banks rst four-year strategic plan for 2005 to 2008 outlined strategies required under each
core function of the Bank, as stipulated under the legislation, that were backed up with specic
tasks to be carried out in order to achieve the stated objectives. The strategic plan also dened the
Banks mission statement and outlined the core values that are to guide and shape the attitudes of
the staff in the discharge of their designated duties towards the realization of the strategy. The Bank
has been successful in implementing many of the initiatives.
This second strategic plan intends to build on those achievements by setting out the Banks strategic
direction for the period 2012 to 2015, under which it will perform its responsibilities by carrying out
ongoing tasks as well as strategic projects and work programs. Considering the evolving economic,
social, political, and physical environment, both internal and external, it sets a path that needs to be
followed in order for the Bank to continue to improve on its performance towards the realization of
the Banks vision and mission. Some of the initiatives are consistent with the National Governments
development intentions as contained in the Vision 2050 document.
The envisaged economic environment, both external and internal, over the next four years poses
some macro-policy challenges, which call for careful and coordinated policy responses.
The development of this Strategic Plan, involved a consultation process, done internally and
externally with some stakeholders. From this process several major key issues stood out and these
will require attention through careful policy management and/or strategic projects. These include:
The importance of continued effective implementation of monetary policy at a cost to the Bank
(note that balance sheet consideration should not be a restraint and constraint to monetary policy
management);
More than ever before, the need for a stronger and better coordination effort between scal and
monetary policies in an environment of strong economic growth, increase budget size, rising
liquidity from the already high level, and inationary pressures;
The need to reform the National Payments System to better serve the economy in an evolving
domestic and global nancial system.
Promotion of nancial inclusion of the population in the rural areas, including the non-monetized
parts of the economy, and nancial literacy for both the rural and urban population, for better
management of money as a mechanism to empower them to contribute to economic growth
and increase wealth, consistent with the Governments long term development vision or vision
2050.
Continue to strengthen the Banks internal capacity and improve governance for continued
effective and efcient delivery of services to its stakeholders.
The recent global nancial crisis demonstrates that even with all the wisdom and knowledge of how
nancial markets and economy work, what we think may happen in the future may not occur. So the
Bank remains alert to the need to revisit this plan and to review its priorities and programs should
the evolving economic environment warrant a change. The strategies outlined in the ensuing pages
provide the direction the Bank should follow in the period 2012 to 2015.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
Loi M. akani
Covernor
I am most grateful to all those who contributed to the preparation of this plan, including my fellow
Board members, Dr. Jakob Weiss, Dr. Gae Kauzi, staff of the Bank, the consultants- Mr. Peter
Ferguson and Mr. John Vivian who produced an earlier draft of the plan, and the stakeholders.
Similar participation for the rst plan was noteworthy. The ownership and support for the strategies
and initiatives in this second plan will be equally strong. The plan is an important element in
ensuring we remain forward-looking and prepared to deliver on our core mandate and support
the Governments macroeconomic policies. The implementation of the plan will enable the Bank
to remain true to its vision - a contemporary central bank and regulator excelling in performing
its core functions and making a distinct and valuable contribution to the economic prosperity of
Papua New Guinea.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
2. BACKGROUND AND ENVIRONMENT
Background
The Central Banking Act 2000 that superseded the Central Banking Act 1973 (amended in 1991 and
1993), under which the Bank of Papua New Guinea was established, entails signicant changes for
the Central Bank. It establishes the Banks independence, separates debt management from the
conduct of monetary policy, redenes the relationship between the Bank and the Government to
safeguard against excessive nancing of budget decit, and redenes the overall objective of
monetary policy to that of achieving and maintaining price stability. The revised Banks and
Financial Institutions Act 2000, aims at broadening and strengthening the regulation, supervision
and effectiveness of the nancial system. The broadening of the supervision scope was further
facilitated by the Life Insurance Act 2000and Superannuation Act 2000 which entrusted the Bank
to also regulate and supervise life insurance companies and superannuation funds.
The enactment of these Acts were important milestones for the nancial system in PNG and provide
the foundation for the advancement of the sector. They entail signicant changes that give the Bank
the basis to advance in adopting market oriented practices, which are in line with trends around the
world, in the conduct of monetary policy, and in adopting best practices and adapting to changes in
the discharge of its core functions.
Roles and Objectives
The Central Banking Act 2000 entrusts the Bank with four core responsibilities, which are to be
carried out for the benet of the people of Papua New Guinea:
to formulate and implement monetary policy with a view to achieving and maintaining price 1.
stability;
to formulate nancial regulation and prudential standards to ensure stability of the nancial 2.
system in Papua New Guinea;
to promote an efcient national and international payments system; and 3.
subject to the above, to promote macro-economic stability and growth 4.
Governance
The Central Banking Act 2000provides that the primary responsibility of the Governor is to manage
the Bank and direct its affairs. To that end, the Governor has the sole responsibility for the
formulation and implementation of monetary policy, and for regulation of the nancial system.
The Board, on the other hand, is responsible for determining policies, other than monetary policy
and nancial supervision, of the Central Bank. The Board and the Governor (who is also the
Chairman of the Board) act in partnership to ensure the efciency and effectiveness of the Banks
operations.
As at 31
st
December 2010, the Bank has a staff of 300, grouped into eleven Departments. To better
place the Bank to perform its functions in a changing environment (both internal and external) and
meet future challenges, the top management was restructured in 2011 so that there is only one
Deputy Governor and four Assistant Governors responsible for key areas in the Bank.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
A chart showing the organisational management structure, approved in 2011, is provided at the end
of the document.
Stakeholders
In developing this plan and in the discharge of the functions of the Central Bank, the needs of major
stakeholders, the need to enhance and maintain close working relationships with them, and the
provision of quality services to them are all taken as a priority. These stakeholders include the
general public (people), the business community, the nancial community, the Government, the
international community and the Banks own staff.
The People
The people of Papua New Guinea are the owners of the Central Bank. A high proportion of the
total population does not have access to banking and nancial services. It is a joint responsibility of
the Central Bank, the Government and the nancial intermediaries to create a policy environment
and a program that will enable nancial services to reach these people so that the monetized and
nancially inclusive population is greatly increased over time.
Ultimately, there should be a safe, sound, and prudently managed nancial system for the public to
have condence in and conduct their activities. To this end, the people need:
notes and coins of the domestic currency in circulation that are authentic, in good condition, and
are in ready supply;
access to banks and other nancial institutions and to payments arrangements, which are
efcient, well managed and properly supervised;
access to efcient and cost effective remittance services;
access to sound and reliable economic statistics and analysis;
stability (no large uctuations) in the value of their income savings through the implementation
of sound monetary policy, assisted by prudent scal policy;
effective communication of the Banks monetary policy stance and other relevant macroeconomic
policies, and the supporting realized and forecast economic data so that they can make informed
decisions;
information on the nancial system and condence that banks and nancial institutions are
sound and stable, as well as transparent in their dealings with the public;
assurance that the other policies and operations of the Central Bank are for the benet of the
people; and
condence in the Banks integrity and transparency.
The Business community
The business community of the private sector contributes greatly to economic activity and growth
of the economy. The business houses need:
a stable and predictable ination environment to enable it to plan its income streams and
investments; and
a stable and predictable exchange rate to enable it to plan its operations in the domestic and
international markets.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
The Financial community
Commercial banks, nance companies, savings and loan societies, micro banks, general and life
insurance companies, superannuation funds, investment managers, fund administrators, and the
National Development Bank are all intermediaries in; the transmission of monetary policy; playing
their respective roles of advancing credit, facilitating deposit and withdrawal transactions; facilitating
payments; and making the nancial system work.
For the advancement and maintenance of a sound, prudent, efcient and low cost nancial system;
monetary policy and scal policy must operate in tandem so as not to undermine nancial
stability, affect the price of nancial instruments, and retard its development and
sustainability;
the ability to fund long-term development borrowing requirements with shorter-term liability
holdings is enhanced;
the prudential framework within which the intermediaries work is evenhanded, can address
and minimize risks and can serve the public interests;
a two-way process of effective supervision by the Central Bank and adherence by the
intermediaries to prudential framework is maintained and enhanced through application of best
practices in line with the evolving nancial environment;
the central bank and the intermediaries work together to promote a payment system that is
modern and efcient; and
the intermediaries must have access to accurate and up-to-date nancial and economic data and
information and forecasts to assist their business decisions, and also contribute to the provision
of these data and information.
The Government
The Bank is the banker and nancial agent for the Government. It provides banking services to the
Government, its departments and statutory bodies. It also administers (issues, conducts auctions,
maintains a registry and provides reports for) the Governments debt instruments. The implementation
of the Treasury bills auctions and Inscribed stock tenders are part of liquidity management from the
Banks perspective.
While maintaining operational independence, the Bank will;
work closely with the Government in the coordination and implementation of monetary and
scal policies to ensure adherence to annual budgets and effective liquidity management for
macroeconomic stability;
enhance the efciency with which it serves the Government; and
ensure that its strategies are consistent with the governments own long-term development
vision for the country.
Regional and International Organisations
The Bank has good and cordial working relationships with many overseas central banks and
prudential regulatory authorities, as well as major international nancial institutions such as the
IMF, World Bank and its subsidiaries, and ADB.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
In its dealings with these stakeholders, the Bank will:
endeavour to be responsive and efcient, and maintain the relationship for the mutual benet
of both parties; and
participate in programs that will assist the Bank deliver on its core functions.
Bank Staff
Staff are central to the discharge of the Banks functions, the implementation of this strategic plan,
and the success of the organization.
In carrying out their responsibilities, staff:
should abide by and demonstrate the stated values of the Bank;
be engaged in training programs that will enhance their skills and enable them to continue to
improve on their performances; and
be rewarded appropriately so that the Bank can retain quality staff.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
3. MISSION, VISION AND VALUES
The Mission, Vision and Values of the Bank of Papua New Guinea were dened in 2005. The Bank
Board subsequently endorsed these.
In the development of this new plan, the Banks Mission, Vision and Values were revisited to see
whether they properly describe how the Banks role and culture are perceived in the period ahead.
This re-examination has essentially conrmed the relevance of the 2005 statements.
Mission
The Bank of Papua New Guinea is the central bank and prudential regulator (for commercial banks
and specied nancial institutions) in Papua New Guinea.
The mission statement is drawn directly from the Central Banking Act 2000.
Mission
to serve the people of Papua New Guinea by conducting effective monetary policy and
maintaining a sound nancial system. We will act at all times to promote macro-economic
stability, provide a rst class payments system and help foster economic growth of our
country
Vision
The Banks vision needs to be aligned with the legislated mission, and also provide a guide for
forward planning.
Vision
a contemporary central bank and regulator excelling in performing its core functions and
making a distinct and valuable contribution to the economic prosperity of Papua New
Guinea
Values
The values represent a set of principles that guide the actions and shape the attitudes of staff.
Collectively developed by the managers, they have been adopted by staff and are widely displayed
and communicated internally and externally. They dene the Banks culture, provide leadership
and direction and send a clear message to stakeholders of the Banks commitment to the mission of
the Bank. The adoption of these values, and the transfusion of them into daily behavior of staff, is
a critical element in the overall transformation, and development and implementation of this plan.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
Values
Value Generally accepted principle
Integrity With integrity we build good governance and credibility
Transparency With transparency our decisions stand scrutiny
Accountability
Through accountability we take responsibility for our decisions and
actions
Efciency With efciency we produce quality results, on time and on budget
Teamwork
Through teamwork we benet from sharing skills, knowledge and
experience
Professionalism Through professionalism we strive for best practice
These values guide the way staff:
Carry out work;
Make decisions;
Relate to others internally and externally;
Design structures and procedures; and
Set priorities.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
4. ECONOMIC ENVIRONMENT AND CHALLENGES
The Environment Ahead
The Central Bank operates in a dynamic and evolving environment. Therefore, the Bank will
endeavour to employ best practices in line with trends around the world and adapt to changes in the
discharge of its core functions that are specied by statute and/or practice. The strategic planning
framework must be exible enough to accommodate change.
The period of this strategic plan is likely to be characterised by an environment in which there is:
a slow recovery of the international nancial system and major world economies to stability and
growth;
an increased focus on nancial regulation and global exchange rate imbalances;
an upsurge in domestic economic activity, generated largely by the development of new resource
projects, and a lengthy period of relative macroeconomic stability;
an increase in the volume of PNGs trade with the rest of the world, an increase in capital ows
(both inow and outow), and in foreign exchange earnings;
an increase in liquidity level in the banking system and the economy that will pose a major
challenge for the Central Bank in liquidity management and the associated implications for
aggregate demand, exchange rate, and macroeconomic stability;
a serious need for close working relationship between the Bank and the Treasury and Finance
Departments in the coordination of monetary and scal policies for a disciplined management
of the revenue windfall from the development of the resources and effective liquidity management
for sustainable economic growth and macroeconomic stability;
the potential for consolidation of a two-speed domestic economy, with expanding mineral,
transport, manufacturing and construction sectors, and slower growing agricultural and
traditional sectors;
continued expansion and product innovation in the developed part of the nancial system,
despite concentration and limited competition;
a rapid growth in the use of technology, including mobile phones and the internet;
increased public awareness of the costs of nancial services and consumer protection; and
an increased national impetus and determination to improve nancial inclusion for the bulk of
the unbanked PNG population into the nancial sector.
Key Challenges
The economic environment in the next four years will create policy challenges for the Bank.
Amongst a range of issues, six key strategic and management challenges have been identied, to
which attention needs to be given.
Monetary Policy Management
Increased investment inows, trade-related foreign exchange inows, and Government spending
associated with resource project developments will lead to further increases in liquidity levels in the
banking system and the economy and threaten the monetary policy objective of price stability. For
the Bank to effectively manage liquidity at a sustainable level that is neither inationary nor
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
hindering economic growth, it will require:
sound monetary policy formulation; i.
appropriate liquidity management strategies using current policy instruments; ii.
development of new instruments where necessary; and iii.
a closer coordination between the Governments debt management and spending, and the iv.
Banks conduct of monetary policy.
Unless the windfall taxation and other revenue streams from the development of PNGs major
resource projects are prudently managed, macroeconomic stability will come under severe pressure.
A sound and disciplined scal management regime in this period of more resource development
could entail an arrangement, such as a Sovereign Wealth Fund, whereby part of the windfall revenue
is saved offshore and draw downs are linked to the annual budget process. The Government should
refrain from the use of Trust Accounts to deposit windfall tax revenue.
Developing strategies such as fostering efcient and effective coordination between the Bank and
relevant government departments, would be needed for sound macroeconomic management.
Financial Market and Foreign Reserve Management
Foreign reserve levels are at historical highs and are expected to increase further with more capital
inows and taxation income from the resource sector. This has and will continue to contribute to
the excessive level of liquidity. Therefore the Bank will need to:
have sound research and analysis of the developments; i.
rene its monetary policy implementation through use of current and new instruments; ii.
adopt and adapt best practices in foreign exchange reserve management under evolving iii.
external and domestic nancial market conditions and in settlement banking and payment
services;
lead and/or assist in the development and deepening of the nancial markets, including the iv.
foreign exchange and the capital markets in PNG.
Payments System Reform
A large proportion of the population of PNG is unbanked or has limited access to the formal
nancial systems and services. Much of the country is still subsistence-based and cash money is
predominantly used as the medium of exchange, following the era of barter trade. The Bank will
have to reform the countrys payments system to ensure a safe, efcient, reliable and cost-effective
system for the general public, businesses and nancial institutions within PNG. This will include
the adoption of modern technology, consistent with advances in payment systems elsewhere.
There is a need to improve nancial inclusion of the population, reduce costs of transactions and
improve efciency with respect to timely clearing of transactions, reduce risks, and adapt the
regulatory framework.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
Supervision of the nancial system and its development
The Bank will continue to improve on its manpower and application of appropriate regulatory and
prudential framework for the supervision of the licensed intermediaries. A two-way process of
effective supervision by the Central Bank and adherence by the bank and non-bank nancial
institutions to the prudential framework is maintained and enhanced through the application of best
practices.
Financial inclusion and nancial literacy
The Bank recognises that expanding nancial services can encourage the participation of more
Papua New Guineans, especially those in rural areas and urban settlements, in development activities
in both the formal and informal sectors of the economy, and that the benets of growth and
technology need to be widely shared. Many Papua New Guineans nd themselves on the fringes of
the monetary economy with little understanding of, or access to nancial services. Improvement in
the proportion of the banked population and the nancial literacy of this population will empower
them to improve outcomes in savings, investment and sharing of the benets of economic growth.
The Bank, given its various roles and functions, is well placed to assist in this endeavour through
the advancement of micro-nance, internet and mobile phone banking initiatives and other programs.
Achieving this strategy would meet the Governments long-term vision of an educated, and
nancially inclusive and literate population.
Upgrading internal capacity
A key challenge for the Bank is to ensure that it has the capability, adaptability and result-focus
necessary to deliver on the mandated and prescribed goals, that it is operationally efcient and
effective, and a high standard of internal governance is demonstrated and maintained.
The Bank will endeavour to build on its internal staff capacity and knowledge, retain qualied staff,
anticipate future needs, and ensure that all the service and support arms of the organisation human
resources, accounting/budgeting, IT, risk management, and corporate affairs - work cohesively to
support the four core objectives. All these present a special challenge for the Bank in the context of
an increasingly competitive labour market, and will require the development of innovative and
workable strategies.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
5. MONETARY POLICY
Formulate and implement monetary policy with a view to achieving and maintaining
price stability
It is now widely accepted that the achievement and maintenance of price stability over a period of
time can lead to macroeconomic stability, increase business condence and promote economic
growth.
To formulate effective monetary policy, sound analysis that covers updated data and information on
market conditions, understanding of the transmission process, based on research that encompasses
surveys, forecasting models and economic analysis, must be pursued.
To implement monetary policy, effective use of current instruments and development of new
instruments, continued renement of the operations for the conduct of monetary policy are required.
In addition, policy measures to assist in the deepening of the nancial market must be pursued and
are necessary to improve the efciency of the markets, which will improve the effectiveness of
monetary policy. A critical strategy for the effectiveness of monetary policy will be a close working
relationship between the Bank and the Treasury and Finance Departments in the coordination of
monetary and scal policies.
To help ensure sustainability of policy, prudent management of the Banks portfolio of domestic and
foreign assets and a tradeoff between the risks and returns involved is required to optimise the
benets for the Banks owners (the people of PNG). Prudent management of these assets would
make the Bank nancially independent and provide the impetus for it to operate more effectively in
nancial markets.
To ensure a good level of dissemination, understanding and appreciation of the Banks monetary
policy stance, continued improvement and renement in the ways of communication and commentary
to the stakeholders is required.
From these, vekey strategic goals are identied.
Continue to formulate appropriate monetary policy, based on enhanced understanding 1.
of the dynamics of the markets and transmission of monetary policy through sound
research and analysis.
Effective use of current policy instruments, review and renement of the operational 2.
framework and process, development of new instruments in line with evolving markets
and trends around the world.
Promote deepening of the nancial markets for efciency and effectiveness of monetary 3.
policy.
Foster close working relationship between the Bank and the Treasury and Finance 4.
Departments in the coordination of monetary and scal policies.
Enhance communication of monetary policy to the general public for better 5.
understanding and appreciation of the policy.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
PRINCIPAL OBJECTIVE ONE
Formulate and Implement Monetary Policy to Achieve and Maintain Price Stability
STRATEGY ACTION
Continue to formulate 1.
monetary policy, based on
enhanced understanding of
the dynamics of markets and
monetary policy transmission
mechanism, through sound
research and analysis.
Continue to develop and enhance research
capacity and analytical input into monetary policy
formulation.
Rene and enhance current forecasting models and
research modules (methods) and processes.
Redene price stability under evolving economic
and market conditions.
Improve, expand, make better use of data, and re-
assess policy data needs, including strengthening
of monetary data and business surveys, balance of
payments, national accounts, and price data.
Effective use of the current 2.
policy instruments, review
and rene the operational
framework and process, and
develop new instruments in
line with evolving markets
and trends around the world.
Improve liaison and dialogue with the Treasury &
Finance Departments to obtain reliable Government
cashow for liquidity management.
Enhance understanding of the open market
operation process and market conditions to enable
decision making in liquidity management.
Develop and introduce new policy instruments
and processes where necessary and appropriate as
markets and economic conditions evolve over time.
Review and revise exchange rate intervention
strategies where appropriate.
Utilise a TAP facility for trade of securities in small
amounts to encourage small investor participation
and enhance the monetary transmission process.
Integrate the securities settlement arrangements into
wider national payments system reforms.
Support the development of the secondary
securities market and enhance liaison with market
stakeholders to ensure wider participation in the
nancial markets.
Promote deepening of 3.
thenancial market for
efciency of the market and
effectiveness of monetary
policy.
Periodic assessment of market developments
and economic conditions to determine deepening
measures and changes.
Introduce policy measures where appropriate and
necessary, including in the exchange rate market, to
improve competition.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
Foster close working 4.
relationship between the
Bank and the Treasury and
Finance Departments in the
coordination of monetary and
scal policies.
Hold consultative meetings regularly and improve
data reliability from both sides to aid policy
decisions.
Hold regular seminars to improve understanding
of staff on the workings and complexities of the
other partys work area and relationship between
monetary and scal operations and their impact on
the economy, to aid policy decisions.
The Heads of the three institutions to hold monthly
meetings, between themselves and with the Minister,
to update each other on the measures taken and
implementation of decisions and their implications/
impact.
Contribute to the framing of the National Budget and
MPS through regular exchange of data and forecasts.
Make combined presentation/submission
to Government Committees or Cabinet on
macroeconomic issues where necessary.
Enhance communication 5.
of monetary policy stance
to the general public for
better understanding and
appreciation of the policy.
Have seminars or public presentations on
Monetary Policy Statement or any monetary policy
announcement after it is released.
Explore ways to improve the public communication
activities on monetary policy stance and changes.
Continue to publish and disseminate policy issues,
research papers and other publications.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
6. FINANCIAL SYSTEM STABILITY
Formulate nancial regulation and prudential standards to ensure stability of the
nancial system
A stable and efcient nancial system is important for the smooth working of the various markets
(goods and services, nancial, etc) and the economy. It can: improve the effectiveness of the nancial
intermediation process, and thereby enhance the transmission process of monetary policy; and
contribute to overall economic growth, wealth and welfare of the population.
With little exposure to the troubled international nancial institutions, the PNG nancial system
has largely withstood the severe effects of the global nancial crisis that beset nancial systems in
many advanced, emerging and developing economies, and whose uncertainties still overhang the
world nancial system as this plan is being developed. Nevertheless the lessons of that global crisis
cannot be ignored. The domestic nancial system needs to be prepared for such occurrences:
contagion can spread quickly across national boundaries, exchange rate relativities can shift rapidly,
risky nancial products and non-prudent practices can quickly emerge, and cohesion needs to exist
between overall nancial stability and the prudential supervision of nancial institutions. Recent
experiences abroad suggest it is also important to pay close attention to the supervision of systemically
important institutions, of which PNG has several.
The Bank will continue to develop innovative approaches, best market practices and upgrade staff
skills to effectively supervise an expanding nancial system, including a growing number of small-
scale local savings and credit institutions.
With this background and a review of all the initiatives set out in the previous strategic plan, the
following areas will continue to be given attention.
Development of an internationally acceptable best practice prudential regulatory framework is well
advanced. For the banks, superannuation funds and life insurance rms that the Bank supervises,
appropriate legislative provisions, and directives and standards are in place. Ten prudential standards
for banks and six for superannuation funds are in force. There is further work to be done in
developing and completing new bank standards and to strengthen others. The strategic challenge is
to ensure that all standards continue to conform to best practice by keeping abreast of evolving
international benchmarks, with adaptation to local circumstances where required.
The Bank will develop the requirements and standards for mobile phone banking service and ensure
the service is efcient and low-cost and that the interest of the public is safeguarded.
While tightening the compliance regime, the Bank aims to continue the strategy enunciated in the
previous plan to gradually move the regime towards some reliance on internal risk management, by
requiring the managers and directors of nancial service providers to properly perform their
duciary responsibilities, while not moving into a regime of self regulation.
The current regulatory framework for small-scale credit and savings institutions will be reviewed,
with a view to having a regulatory framework that will promote linkage between Papua New
Guineans and the wider nancial system, and which will enhance public condence and operational
standards.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
At the macro-level, the Bank will endeavour to improve its analysis of systemically critical
institutions and pay more attention to issues of overall nancial system stability. Concentration and
limited competition are issues of interest as well as pressures from resource project development.
Finally, experience for the past few years has conrmed that high quality and experienced prudential
supervisors are essential for effective supervision and maintenance of a sound nancial system.
Enhancing the skills of supervision staff is essential for the Bank to deliver on its strategic goals in
a rapidly changing nancial environment.
Five strategic goals are identied from the above.
1. Consolidate and improve the current staff strength, and enhance staff skills and
supervisory methods and practices of the Bank.
2. A two-way process of effective supervision by the Central Bank and compliance by
the intermediaries to prudential framework is maintained and enhanced through the
application of best market practices.
3. Continue to encourage and require nancial institutions to strengthen their risk
management capabilities.
4. Develop an analysis of nancial system stability and resilience of systematically
important institutions, to enable the Bank to monitor developments.
5. Increase focus on the regulation and supervision of small institutions that cater for
Papua New Guineans involvement in nancial inclusion.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
PRINCIPAL OBJECTIVE TWO
Formulate Financial Regulations and Prudential Standards to Ensure Stability of the
Financial System
STRATEGY ACTION
Consolidate and improve 1.
on the current staff strength,
and enhance staff skills and
supervisory methods and
practices of the Bank for
effective supervision.
Upgrade staff skills and competency level.
Continue to deepen our technical cooperation with
other supervisory agencies.
Rene current supervisory procedures, methods
and practices in line with best market practices.
Ensure that standards remain best practice.
Consolidate the application of current on-site and
off-site supervisory methods on a timely basis.
Continue to maintain and 2.
introduce new prudential
standards, where necessary,
and ensure compliance by the
intermediaries to the prudential
framework is maintained.
Maintain on-going review of prudential standards
to assess application to PNG.
Review bank standards against Basle II and
III capital adequacy, leverage and liquidity
requirements.
Complete issue of standards on key risks and
strengthen existing standards.
Complete the issue of life company standards.
Develop regulation and standards on mobile phone
banking.
Finalise cross-border understandings with other
regional supervisors and monitor potential cross-
border institutional stresses.
Continue monitoring of the non-supervised fringe
nancial sector
Maintain liaison with Financial Intelligence Unit
on money laundering issues.
Expand program of on-site reviews, strengthen
on-site techniques and improve response times to
supervised entities.
Enforce submission and timeliness of returns by
supervised entities.
Enforce adherence to legal superannuation
requirements by non-complying employers.
Ensure new applicants seeking market entry are
competently managed with appropriate business
models.
Implement electronic data transmission and
monitoring from supervised entities as part of an
expanded data warehouse.
19
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Continue to encourage and 3.
requirenancial institutions
under the Banks supervision
to strengthen their internal risk
management capability, while
not moving into a regime of
self regulation.
Ensure risk protocols exist for all classes of
supervised entities.
Enhance on-site assessment of internal risk and
governance protocols.
Develop an education program to assist risk
management.
Enhance the current program of prudential linkage
with external auditors.
Develop an analysis of 4.
nancial system stability and
resilience of systematically
important institutions.
Adopt and adapt reporting standards and
approaches to system stability.
Develop system stability guidelines and reporting
framework.
Increase focus on the 5.
regulation and supervision of
small institutions that cater
for Papua New Guineans
involvement in nancial
inclusion.
Increase resources devoted to development and
encouragement of micro-nance, mobile phone
banking service, and locally based savings and
credit intermediaries.
Adapt prudential standards to the micro
environment.
Consider appropriate supervision arrangements
for unregulated micro-entities.
20
Bank of Papua New Guinea Strategic Plan 2012 - 2015
7. PAYMENTS SYSTEM
Promote an efcient national and international payments system
Payment system is part of the core nancial infrastructure that underpins a nancial system and the
economy as a whole. Payment systems enable transfers and ows of funds between banks,
institutions, business houses and individuals. An efcient, low-cost and sound payments system can
be a catalyst for effective monetary policy transmission and overall economic management.
The Bank has statutory responsibilities and operational roles in the payments system:
It oversees the nations payments system;
It issues currency notes and coins, and coordinate the distribution of currency throughout the
country;
It conducts Exchange Settlement Accounts which are used to settle obligations between the
Bank of PNG and commercial banks;
It is the banker to the National Government;
It acts as the central clearing house for the daily clearing of cheques and other inter-bank
settlements;
It buys, sells and settles government securities with market participants;
It buys, sells and trades in foreign currencies and settle these electronically with off-shore
institutions; and
It manages the collateral of participants in the system to meet their obligations;
Payments systems globally are undergoing rapid changes as more people have access to electronic
means of nancial transactions. The Internet and mobile telephones are becoming increasingly
important means of transactions and they provide a means to take banking services to the unbanked
rural areas. More and more of these services are being provided by institutions other than banks.
PNGs payments system should take advantage of these changes to take nancial services to the
unbanked population in the rural areas.
In this area (payments system) of responsibility, the Bank has two strategies in this plan. The rst
is to reform the countrys payments system. This is a major project, with series of parts, which will
impact on individuals, businesses and nancial institutions throughout the country. In the domestic
part of the payments system, PNG is heavily reliant on cash and cheques as a means of payment and
the project aims to support the introduction of new measures of electronic payments and improve
linkages between various parts of the payments system.
The objectives of the project are to:
improve nancial inclusion of the population; -
reduce costs of transactions and improve efciency with respect to timely clearing of -
transactions; and
reduce risks. -
The Bank is ensuring that sufcient resources are devoted to the project over the next four years.
21
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Developing an appropriate vision and policy strategy, and implementing the required operational
arrangements are essential. To guide the way forward in the reform, the Bank in consultation with
stakeholders developed a Vision and Strategy for the future PNG National Payments System (NPS)
in 2008. The project will be given priority in the time span of this plan.
The second component involves the currency. Notes and coins are still the primary means of
conducting nancial transactions for most of the population. PNG is the second country after
Australia to have all its notes in polymer. The security of the Papua New Guinea currency note/font
issue remains very highwith no incidence of counterfeit of polymer notes since 1991 when polymer
notes were rst introduced. The Bank will continue to ensure there is adequate supply of notes and
coins in circulation to meet public demand, and maintain good quality currency as part of its Clean
Note Policy.
Five strategic goals are identied.
1. Reform the current payments system, with enabling legislation where appropriate, to
improve efciency with respect to timely clearing of transactions, reduction in costs
and risks, within PNG and with the rest of the world.
2. Reduce the reliance on cash and cheque payments and move towards electronic
payments.
3. Improve the linkages between the various parts of the payments system.
4. Improve and advance the payment system services, including mobile phone banking,
to the rural areas to increase nancial inclusion of the population.
Continue to issue quality bank notes and coins to meet public demand. 5.
PRINCIPAL OBJECTIVE THREE
22
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Promote an efcient national and international payments system
STRATEGY ACTION
Reform the current 1.
payments system, with
enabling legislation
where appropriate, to
improve efciency
with respect to timely
clearing of transactions,
reduction in costs and
risks.
Dene clearly the Banks payments system objectives and
its role to reinvigorate the process of reform.
Introduce appropriate legal structure to enable the reform
underpinning the payments, settlement and clearing
systems.
Outline the necessary parts of reform and establish the
steps needed to be undertaken.
Procure and operate a system to process large value and/or
time-critical payments and other interbank payments.
Issue industry standards for cheque security and encourage
greater use of mechanized and electronic payments to
improve the efciency of cheque clearing process.
Establish operational guidelines for new payment and
settlement arrangements.
Facilitate the automation and integration of government
collections and disbursements into the National Payments
System.
Implement and manage securities clearance, settlement and
depository systems which are safe, efcient, and compliant
with international standards and support capital market
development.
Promote efcient international remittances and other cross-
border transactions.
Reduce the reliance 2.
on cash and cheque
payments and move
towards electronic
payments.
Promote retail payment systems, including mobile
banking, which are safe, efcient and convenient.
Support the provision of payment instruments and services,
which are widely accessible and affordable.
Encourage establishment of common nationwide networks
to net and clear ATM, EFTPOS and other payment
arrangements.
Reduce risks by moving to real time settlement of inter-
bank transactions.
Improve the linkages 3.
between the various
parts of the payments
system.
Under the reform, identify and correct for lack of linkages
in the various parts of payments system.
Work with relevant stake holders to remove barriers for
efcient and low cost payments transactions.
23
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Improve and advance 4.
the payment system
services, including
mobile phone banking,
to the rural areas to
increasenancial
inclusion of the
population.
Identify and undertake programs that will expand the
payments service to the rural communities.
Promote the expansion of mobile phone banking and micro
nance banking to the rural population.
Identify and/or encourage the participation of a broad
range of payment service providers under the supervision
of the Bank.
Issue standards for licensing and supervision of mobile
banking.
Issue regulations under relevant legislation to supervise
mobile banking.
Continue to issue 5.
quality notes and coins
to meet public demand.
Maintain and implement the clean note policy,
Engage in continuous dialogue with all stakeholders.
Carry out analysis of demand and supply to optimise
procurement and storage.
Conduct and research and develop currency production and
issue strategies
Improve efciency of note and coin distribution/and
destruction.
Upgrade marketing of commemorative and special issue of
notes and coins.
Expand public communication and education in currency
matters.
Research and develop the decision process on the
substitution between currency and electronic or mobile
money.
Reduce risks by introducing real time settlement of
currency issuing processes.
24
Bank of Papua New Guinea Strategic Plan 2012 - 2015
8. ECONOMIC GROWTH
Subject to the three core objectives, promote macro-economic stability and economic
growth in Papua New Guinea
A central bank cannot contribute directly to economic growth but it can inuence nancial and
economic conditions, through the conduct of monetary policy and the implementation of other
functions of central banking, that can lead to macroeconomic stability, which in turn is conducive
for investment, capital formation and economic growth. Achievement of price stability, nancial
system stability, and sound and efcient payments system can lay the foundation for macroeconomic
stability and economic growth. Price stability is a crucial part of macroeconomic stability as it
encompasses stable low ination, stable interest rates and exchange rates, which can give condence
to participants in economic activity, for their forward planning and investment.
Macro-economic stability and economic growth objectives can be in conict as they may not be
attainable at the same time. There is a trade-off between the two objectives. This is especially so in
the current and future environment that confronts Papua New Guinea. While the LNG project and
other resource development projects provide an opportunity for the PNG economy to achieve
signicant growth, the increase in economic activity and aggregate domestic demand can be
inationary. The challenge for the Bank is to carefully assess and evaluate the trade-off between
higher economic growth and ination so as not to discourage domestic economic activity and ensure
that ination does not spiral out of control.
The Bank can also do things within the domain of its responsibilities to help Papua New Guineans
to be a part of the development process. In this regard, the Bank can promote the inclusion of more
people in nancial services and contribute to their nancial literacy. This will in the long run lead
to better management of money and capacity which can increase the participation of people in
economic activity and thus in economic growth. Promotion of nancial inclusion is consistent with
Papua New Guinea Vision 2050 plan.
To support the Governments longer-term vision, especially in the area of wealth-creation, specic
assistance in the area of nancial literacy programs will be encouraged to bring more Papua New
Guineans within the orbit of the broader nancial system. This focus on improving nancial
inclusion and nancial literacy is consistent with world trends. The Bank intends to continue to
support the growth of savings and loan societies, micro-nance institutions, and mobile phone
banking by ensuring they can ourish within an appropriate legal framework and supervisory
guidelines, assisted by training resources and adequate eld support. In this way nancial capability
can be promoted. Also, more public awareness is required for people to know various nancial
products and services available with nancial institutions. Our national payments system strategy
will contribute by facilitating future developments in nancial markets.
25
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Two strategic goals are identied
1. Assess and evaluate the trade-off between higher economic growth and ination and
ensure appropriate conduct of monetary policy that will not discourage growth in
domestic economic activity while ensuring that ination does not spiral out of
control.
2. Promote the inclusion of more people in nancial services and contribute to their
nancial literacy and capacity.
26
Bank of Papua New Guinea Strategic Plan 2012 - 2015
SECONDARY OBJECTIVE
Promote macro-economic stability and economic growth
STRATEGY ACTION
Assess and evaluate the trade-off 1.
between higher economic growth and
ination and steer a course, in the
conduct of monetary policy, so as not
to discourage economic activity and
ensure that ination does not spiral out
of control.
Maintain a close relationship with all the
agencies entrusted with scal operations
and macroeconomic management to ensure
compatibility of macroeconomic policies.
Carry out sound analysis of economic
developments and conditions so that
appropriate decisions are made on the balance
between macroeconomic stability, particularly
price stability, and economic growth.
Promote the inclusion of more people 2.
innancial services and contribute
to the development of their nancial
literacy, which will then contribute to
the development process.
Encourage wider nancial sector
understanding and participation under the
Vision 2050.
Work with other agencies and nancial
institutions to develop effective nancial
inclusion and literacy programs in schools.
Develop strategies to improve the rural
penetration of nancial services, including
mobile phone banking.
Ensure national payments system reforms
support nancial inclusion.
Continue promoting public awareness to
discourage investment in fast money scams
and borrowing from loan sharks.
Direct banks and other nancial institutions
to establish and manage codes of good
practice, standards of service and simply-
explained information on their products.
Ensure banks have appropriate internal
mechanisms to resolve customer complaint
issues.
Support the growth of savings and loan
societies, micro-nance institutions, and
mobile phone banking service by ensuring
they can ourish within an appropriate legal
framework and supervisory guidelines,
assisted by training resources and adequate
eld support.
27
Bank of Papua New Guinea Strategic Plan 2012 - 2015
9. INTERNAL EFFICIENCY AND EFFECTIVENESS
Foster an efcient and cost effective organisation with motivated and skilled staff
The Bank recognizes that efcient and effective management and application of resources, including
skilled manpower, is important for the successful delivery of the specied core objectives. These
values underpin the legislative responsibility of the Bank to act for the advantage of the people of
Papua New Guinea.
The Bank re-congured decision-making at the senior level through the restructure of its management
and redening its committees and their charters, sought to inculcate a performance-based culture,
and proposed a series of initiatives to improve efciency and reduce costs in the day- to-day
administration and processes. It will continue to review the organisational structure at reasonable
intervals to ensure the structure responds to the Banks strategic and operational needs. Project
management skills have been strengthened, as has the identication and management of internal
risks. Consolidation in the use of appropriate information technology systems and introduction of
new ones to enhance efciency in the functions of the Departments is on-going. The internal budget
process also reects cost-effectiveness and project implementation.
Five strategic goals are identied for internal efciency and effectiveness.
Ensure efcient and effective resource management. 1.
Apply high standard of good governance. 2.
Maintain and retain high level of staff skills in line with changing work 3.
environment.
Ensure our information technology systems and other support services 4.
meet the Banks business and operational needs.
Ensure the physical environment is appropriate and conducive for an efcient operation. 5.
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Bank of Papua New Guinea Strategic Plan 2012 - 2015
SECONDARY OBJECTIVE
Foster an efcient and cost effective organisation with motivated and skilled staff
STRATEGY ACTION
Ensure efcient 1.
and effective
resource
management.
Extend the budget horizon and improve linkage between work
plans, budget and project implementation.
Improve strategic oversight of balance sheet projections.
Implement guidelines on administrative expenditure growth.
Strengthen project management capacity and implementation.
Continue assessment of cost savings through outsourcing of non-
core functions.
Enhance efciency in all operations and processes.
Identify and apply strategic performance measures.
Apply high 2.
standards of good
governance.
Develop and communicate a statement of corporate
governance, which reects Bank core values.
Strengthen awareness of internal code of conduct/ethics for
staff.
Enhance and extend the risk management framework
to achieve comprehensive enterprise risk management,
encompassing the ownership and management of all tangible
and intangible risks.
Develop and apply business continuity planning.
Establish clear procedures for dealing with alleged breaches of
the corporate governance statement and ensure all allegations
of substance are dealt with according to these procedures.
Enhance external communication activities website,
publications, press statements.
Build internal legal support capacity.
Maintain high 3.
level of staff
skills through a
capability and
succession plan,
in line with
changing work
environment.
Reinforce organisation values and ensure conformity to the
values by staff.
Strengthen implementation of performance management system
and reward structure.
Improve internal communication and an appropriate
communications strategy.
Identify capacity shortfalls throughout the Bank and address
bank-wide training needs and priorities.
Explore remuneration exibility against appropriate external
benchmarks to improve staff retention and meet staff
expectations.
Develop long term career paths for staff.
Develop and implement succession planning.
Review all policies relating to human resources to ensure they
serve future organisational needs.
29
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Ensure the 4.
information and
communication
technology
systems and
support services
meet the Banks
business and
operational
needs.
Continue to align technology strategy and architecture to
support business operations and all major projects and sub-
systems.
Optimise services and risk management in alignment with
industry best practice.
Support development of an organisation wide intra-net,
management information system, data warehouse and payments
systems.
Instill a high quality service and support culture.
Develop a communication strategy for the Bank Website and
other information technology.
Ensure the 5.
physical
environment
is appropriate
and conducive
for an efcient
operation.
Complete the review on the Bank building premises to improve
ofce space for Departments.
Ensure internal and external security arrangements protect the
bank and its staff.
Seek efciencies through outsourcing of non-core functions.
30
Bank of Papua New Guinea Strategic Plan 2012 - 2015
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31
Bank of Papua New Guinea Strategic Plan 2012 - 2015
Notes;