ToRobert Haus Cnr Douglas & Cuthbertson St

P. O. Box 121 , NCD 121 BANK OF PAPUA

Ref:

Governor Date: 28 July 2017

Ms Rachael King Review Editor Central Banking Publication Infopro Digital Ltd, 4th floor, Haymarket House 28029 Hatmarket LONDON SWIY4RX United Kingdom

Dear Ms King

Thank you for taking the time to shine a spotlight on the Bank of Papua New Guinea’s corporate governance.

We are delighted to share with your readership how our commitment to strong corporate governance policies translates into prudent, transparent, at arms’ length practices and behaviours.

Good governance starts with the law

The very foundation of the Bank of Papua New Guinea is the Central Banking Act 2000 (“The CBA”), which was enacted to ensure the ’s independence and in response to the evolving role and responsibilities of central banks around the world. The CBA gave the Bank a clear mandate to perform a range of central banking functions autonomously and positioned it as a unique national institution operating under specific statutory governance and funding arrangements.

In a nutshell, the CBA sets out very clear provisions that define the Bank of Papua New Guinea’s objectives, duties and responsibilities. For example, under the terms of the CBA the Bank is mandated, inter alia, to issue currency, act as banker and financial agent to the Government and regulate banking, credit and other financial services as empowered by law.

As well, the CBA includes specific provisions that require the Bank to have ongoing liaison with Government and provide direct advice to Government in certain specified circumstances. It is important to note here that the Bank is independent of the Government and does not rely on the Government for funding, so the advice and information the Bank provides to the Government is impartial and non-partisan.

The Act also prescribes the structure of the Bank’s board and the term of the members’ engagement. The Governor, who is also Chairman of the Board, is appointed for a 7 year term. The selection process is stringent, as required by the CBA and also the Regulatory Statutory Authorities (Appointment to Certain Offices) Act 2004. My own first 7 year term ended at the end of 2016. My re-appointment as Governor was confirmed in December last year, after rigorous scrutiny by a number of independent ‘adjudicators’ confirmed that my performance in the position to date, the Bank’s achievements under my stewardship and

Telephone: (675) 3227 251, Fax: (675) 321 4900, Website: www.bankpng.gov.pg

-2- their assessment that I met the “of good moral standing” test warranted a further seven year term.

The Deputy Governor is a member of the Board and is appointed to a 5 year term.

The other members of the board are either appointed

 ex officio by virtue of the offices they hold (the Chairman of the PNG Council of Churches, the President of Certified Practising Accounts, Papua New Guinea, the Chairman of the Securities Commission of PNG, the President of the PNG Trade Union Congress and the President of Papua New Guinea Chamber of Commerce and Industry), or  non-ex officio (3 members) for a three year term appointed by the Head of State.

In line with good governance principles, board members must pass the ‘fit and proper persons’ test before they can be appointed to the Board.

The Bank’s financial position is also carefully scrutinised in line with the CBA, which requires the Bank’s annual financial statements to be audited each year by the PNG Auditor- General, again a very rigorous process.

Internal checks and external balances

The Bank has several checks and balances in place, internal and external, to ensure its activities are conducted in plain view and with probity.

Internal safeguards include formal board committees, such as the Board Audit & Governance Committee. This Committee is currently comprised of non-executive board members. Its role is to provide the board a level of understanding of the Bank’s operations and management and, in so doing, give assurance that the Bank’s performance in financial reporting, internal controls, risk management, compliance and other governance practices and processes meet the required standards and expectations.

The independent and objective internal audit function keeps a close eye on the Bank’s operations with an ongoing program of audits and specific reviews.

A range of external verification measures are also part of the Bank’s comprehensive governance ‘tool kit’. These include peer review relationships with the central banks of and New Zealand, the International Monetary Fund, regulatory authorities from other countries and through its membership of South East Asian Central Banks (SEACEN) and the Pacific Financial Technical Assistance Centre (PFTAC).

Augmenting these forums, it has been the Bank’s practice for a number of years to ‘check the pulse’ of the business, commercial and financial sectors in PNG through industry consultation, such as when developing new prudential standards. Industry participants are encouraged to raise any areas of concern, thereby providing yet another layer of review of the Bank’s activities.

Governance as a fundamental component of the Bank’s Strategic Plan

Principles of good governance are woven into the fabric of the Bank’s current strategic plan (Strategic Plan 2016-2020). Whether an activity is designated in the strategic plan as a ‘strategic initiative and program’, a ‘business improvement project’ or a ‘business as usual’ output, accountability and transparency of transactions are factored in and reported on. On

Telephone: (675) 3227 251, Fax: (675) 321 4900, Website: www.bankpng.gov.pg

-3- that point the Bank makes no secret of the need for improvement. The Strategic Plan 2016- 2020 is a public document, readily available to all as a free download from the Bank’s website.

Where to from here?

Through the strategic plan’s formalised process of analysis, improvement and evaluation, along with embarking on collaborative operations with other organisations, the Bank of Papua New Guinea is moving away from out-dated and limited notions of central banking and towards additional responsibilities. Activities such as financial intelligence monitoring as part of the international Anti Money Laundering and Counter Terrorist Financing effort and nation-building roles such as financial inclusion advocacy and sovereign wealth fund development have been added to the Bank’s portfolio.

Maintaining careful guardianship of the nation’s ‘cash box’, providing insightful monetary counsel to Government and industry and keeping a close eye on the activities of financial sector participants will remain among our key responsibilities, as will our other core functions set out for us by the CBA. We will continue to work towards our vision of “excelling in performing our core functions”.

And I am proud to report the Bank’s efforts towards achieving the rest of our vision as a "contemporary central bank", “making a distinct and valuable contribution to the economic well- being of Papua New Guinea” by championing financial inclusion, promoting financial literacy and encouraging innovators to provide new ways of giving more people the chance to build their own financial security.

Yours sincerely

signed

Loi M. Bakani CMG Governor and Chairman of the Board Bank of Papua New Guinea

Telephone: (675) 3227 251, Fax: (675) 321 4900, Website: www.bankpng.gov.pg