A Bad Year for Banking in Tonga

It’s been said that when America sneezes, the rest of the world gets a cold.   That may not be as true today as it was 25 years ago, but the current economic crisis in the United States is having an impact in places as far away as the Kingdom of Tonga.

There are three commercial banks in Tonga plus one development bank.   Last year, Westpac Bank of Tonga lost six million pa’anga or about 3 million US dollars.    ANZ, another  commercial bank lost about one million US dollars.   The third commercial bank, which is Malaysian based MBF has not reported its year end numbers as of the end of March. 

The Tonga Development Bank, where I work is owned 100% by the government.   It was able to make a small profit of about 450 thousand US dollars last year, but that was down from previous years. (The Tonga Development Bank is one of just three enterprises owned by the Tongan government that turns a profit.   The majority of government owned enterprises in Tonga are in the red.)

Some of the reasons for the bad turn in the Tongan banking industry are the same as in the USA, especially bad loans.  But another problem that is just starting to show up is a reduction in the amount of remittances that Tongans receive from families overseas.

The number one source of income for Tonga is overseas remittances followed by foreign aid.   As Tongans in the US, Australia and New Zealand suffer financial hardships, it is having a trickle down effect on the Tongans here.   That means that many Tongans who were paying back loans with remittances from families overseas are now unable to fulfill their obligations.

The Development Bank recently asked me to help it put on a workshop to address the problems being faced by the banks in Tonga and to help come up with new ways doing business.   For three days, we huddled in a room on the third floor of the bank with all of the banks employees participating.  The goal was to be able to “Manage at a Higher Level”.

We even worked on a Saturday.  In the photo above are all of the people I work with on a daily basis except for ‘Ofa and Hangale, who were absent because ‘Ofa’s mother just died.

The bank organized similar workshops at each branch and in each department at the head office in Nuku’alofa.   I give the bank a lot of credit for having the foresight to realize that it can’t continue to operate the way it always has.   And unlike American banks, the Tonga banks have many additional culture barriers to overcome as well.

The workshop was not always easy and it was tough on many of the Tongan staff to learn that more is going to be expected of them in the coming year.

At the end of the workshop, everyone got a Snickers bar.   (OK I know that doesn’t sound very Tongan and actually the Snickers bars were my idea.).  It’s very rare for us to have American chocolate here and I thought it would be a nice treat.  

The bank employees were also given a little over US$7.00 for working on a Saturday.    Hopefully some of what we did over the three day workshop will help the bank have a better year next year.