Presented by: Ruth T. Penaia
BASIC INFORMATION ON SAMOA
OVERVIEW OF FINANCIAL SECTOR
CENTRAL BANK OF SAMOA FUNCTIONS
CBS SUPERVISION & REGULATION
COMMERCIAL BANKS IN SAMOA
ECONOMIC UPDATE
MACROMACRO-ECONOMICS FORECAST 2010/11
CHALLENGES & OPPORTUNITIES
Oceania, group of islands in the South Pacific Ocean, about
half way between Hawaii and New Zealand. First Polynesian
nation to gain independence in 1962.
Population :180,741
Population growth : 0.30.9% p.a over 1971 – 2007
Climate – Tropical
Language : English/Samoa
Land Area: 2,820 km2
EEZ : 98,500 km2
GDP per capita: $7,802
Currency: Tala
USD$1:SAT$2.45
EURO$1:SAT$3.45
Vulnerable to
devastating storms
Dependent aid,
remittances, tourism,
agriculture & fishing
Since 1998, financial sector reforms included:
Removing all credit ceilings and interest rate
controls
◦ banks free to set their own interest rates;
◦ credit growth controlled through open market
operations of Central bank instruments
strengthen the capacity of CBS to manage liquidity
and undertake prudential supervision, and of the
NPF and DBS
Financial sector reforms increased
opportunities for financing small businesses
Gaps remained in terms of financing available
◦ Commercial banks remained constraint in ability to
provide longer term debt financing to small
businesses due to short term nature of deposit
products.
Due to the nature of the land tenure system in
Samoa, where over 80 percent of land is
customary land, commercial banks have
problem obtaining satisfactory security.
Acts as a banker to the government and the
commercial banks.
ACTS
◦
◦
◦
◦
Central Bank of Samoa Act 1984
Financial Institutions ACT 1996
Money Laundering Prevention Act 2009
Insurance Act 2007
OBJECTIVES
◦ Promote Sustainable Real Economic growth by:
maintaining price stability,
international Reserves Viability and
Sound Financial System.
Undertakes formulation & implementation of monetary policy &
related measures
Manage rate Samoa’s Tala is exchanged with currencies of other
countries & administers foreign exchange control measures.
Custody role & management of Samoa’s reserves
Design & issue of currency notes and coins
Issues own CB securities to the commercial banks & non bank public
& maintains a registry service, rediscount & repurchase facilities
Provides facility for the clearing &settlement of inter-bank payments
Custodian of commercial banks’ statutory minimum deposit reserves
Financial Institutions Act 1996, issues licenses to financial
institutions and undertakes prudential supervisions
Amendments 2001, supervisory roles extended to NBFI: SNPF, DBS,
& IC
Money Laundering Act mandates CBS as MLPA– Financial Intelligence
Unit est. in the CB. Collect STR
Insurance act 2007 appoints Governor as Insurance Commissioner,
empowering CBS to license insurance entities & supervise industry.
i.
Expand the statutory functions of the Bank to supervise &
regulate
ii.
Establish business relations with selected non-bank financial
institutions
•
•
Allow institutions to establish accounts with the Bank and
qualify them to borrow funds at concessional rates
Extend term for granting advances from 182 days to 5 years
iii. Control of margins
provide flexibility for CBS to intervene as necessary when fees &
charges are inappropriately excessive
iv. Promoting financial inclusion & financial literacy
Reaffirms the Bank’s commitment to reach out to people who
have little/no access to formal financial services (unbanked)
Aims to promote public confidence in banks &
maintain health & stability of the financial system
Assess performance through offsite/onsite
surveillance activities :
Attention to capital & liquidity adequacy, asset
concentration & risk exposure, asset quality &
adequacy of provisions for loses & interest
suspension
Collect & evaluate periodic reports from banks
On site frequency, scope & techniques vary &
depends on condition and level of sophistication of
bank
Banking system activities quarter ended 31 Mar 2010 reflected negative
growth in total assets despite an upward trend in liquidity level over
previous quarters. Commercial Banks maintained strong capital adequacy
level with ratios comfortably above CB minimum requirement of 15%.
Source: CBS Bullentin June Qtr 2010
Overall level NPL reduced 11.4% ($6.8m) to $53.0m in qtr. As compared
to prior year. It registered decrease of 7.7% ($4.4m) respectively. Total
provision for bad & doubtful debts of $33.9m provides a 64.0% buffer
against possible loan losses as a result of NPLs. In proportion to total
loans & advances, total provision stood at 4.6% respectively. Close
monitoring ongoing.
Source: CBS Bulletin June Qtr 2010
SOURCE: CBS MONETARY SURVEY JAN 2011
SOURCE: CBS MONETARY SURVEY JAN 2011
•2006
20062006-2008: strong growth in loans and advances dominated by construction
construction sector
• SPG Games in 2007
• low system liquidity
Source: CBS 2011
• 2005 – 2008: strong profitability performance.
•Average
Average from 98 to 09 of: total income - $76.6 million; and total expenses - $49.9 million.
•WBS
2001.
1.
WBS changed its financial year from December to September in 200
•SCB
SCB came into operation in April 2003.
Source: CBS
CBS 2011
•2006
2006 to 2008 – strong interest income growth (approx. 70.6 percent of total)
•Non
NonNon-interest income – include fees & charges, foreign exchange profit, other income.
•Average
Average from 98 to 09 of: interest income - $49.6 million; and nonnon-interest income - $27.1
million.
SOURCE: CBS 2011
2011
SOURCE: CBS 2011
Gov’t net position:
fell 8 percent to
$181.1m, representing
a $16.5 m cash deficit.
SOURCE:CBS 2011
•Intention: Easing Stance
Excess Reserves
fell $9.8 million
to $151.2 million
in Oct’10
SOURCE:CBS 2011
COMMERCIAL BANKS’ TOTAL LIQUIDITY
Tala
Million
($m)
Oct
2009
June
2010
Sept
2010
Oct
2010
Vault
Cash
9.20
8.87
10.4
4
10.5
9
CBS
Securiti
es
27.50
27.5
0
27.5
0
27.5
0
Excess
Reserve
s
105.26
129.
14
161.
06
151.
24
TOTAL
($m)
141.96
165.
51
199.
00
189.
33
SOURCE: CBS 2011
SOURCE:CBS 2011
COMMERCIAL
BANK INTEREST
RATES
* At their lowest so far since
financial system
deregulation in Jan’98:
W/Avg. deposit rate – fell
6 basis points to 2.38%
W/Avg. lending rate – fell
7 basis points to 10.26%
Int. Spread (narrowed 1
bp to 7.88% in Oct’10)
SOURCE: CBS 2011
26
700
600
500
400
Level (Lefthand)
Annual Average Percent Change (Righthand)
Ann Avg Target
Pt-to-Pt
300
200
100
20
18
16
14
12
10
8
6
4
2
0
Percent Change, %
“Professional and business services”
(+$10.5m) “trade” (+$6.7m), “building &
construction” (+$2.7m), and “transport &
commn” (+$0.1m)
“Manufacturing” (-$8.5m), “other
activities” (-$0.7m),“agriculture and
fisheries” (-$0.2m) and “electricity &
water” (-$0.02m).
Commercial Bank Loans
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Comm. Banks Credit to
Private Sector & Public
Institutions (up $10.5m or +1
percent to $736.8m in Oct
2010)
Amount, Tala Million
Annual average credit growth rose to
4.4% from 4.2% at end September
2010
SOURCE: CBS 2011
27
Exports (fell $168k or -7% to
$2.2m in Oct‘10)
Beer (-$0.2m), f/fish (-$0.1m), re-export (-$52k),
taro (-$40k), spring water (-$36k), cigarettes (-$9k),
banana (-$2k)
Absent from export scene after shipment in Sept10:
coconut cream, handicraft and Samoan cocoa
nonu juice (+$0.2m), coconut oil (+$32k), coconuts
(+$31k), nonu fruit (+$22k) soft drinks (+$6k) and
copra meal (+$4k),
SOURCE:CBS 2011
28
Oct-10
Sep-10
Aug-10
Gov't
Jul-10
Jun-10
May-10
Apr-10
Non-petroleum (-$4.9m to
$38.7m)
Petroleum
Mar-10
~ reflecting increased volume
Feb-10
Petroleum (+$0.2m to
$12.6m)
Jan-10
MOF and more medical equipment
and supplies for NHS
Dec-09
~ reflecting materials consigned to
Non-petroleum
Nov-09
Government (+$7.4m to
$14.7)
100
90
80
70
60
50
40
30
20
10
0
Oct-09
Imports (rose 4% or
+$2.7m to $66.0m in
Oct’10)
Amount, Tala Million
SOURCE:CBS 2011
29
Tourism earnings (-$5.8m
or -20% to $23.3m in Oct’10)
Remittances
(-$0.8m or
-3% to $27.3m in Oct’10)
SOURCE:CBS 2011
30
Forecast
2009/10 2010/11
Exports
(000) Total
% change
Imports
(mn)
Total Value
% change
Earnings
Tourism (mn)
% change
Remit.
BOP
Total
% change
Surplus
Gross
reserves
30,366 26,457
8.0%
-12.9%
650.1
668.5
3.8%
2.8%
300.70 293.04
-6.6%
-2.5%
346.80 325.08
-5.3%
-6.3%
-151.41 -11.66
410.7
• Total exports expected to
decline by 13% in 2010/11.
• Total imports is expected to
increase by 3% in 2010/11.
• Total arrivals in 10/11
expected to decline by 4%.
• Total earnings is estimated
to drop by 2.5%.
• Gross remittances expected
to decline by 6%.
• The balance of payments is
expected to record another
surplus pushing up reserves
to 8.0 months of cover.
422.4
SOURCE: CBS 2011
Forecast
2009/10
2010/11
1,071
1,105
1.0%
3.2%
Other Manufacturing
89.4
95.0
Construction
129.3
131.5
Public Administration
95.1
102.7
Finance & Business
110.6
114.2
Overall Budget
deficit (mn)
160.8
140.5
Real GDP (mn)
% change
The world economy is
expected to rebound by
4.5% while inflation is
expected to pick up
slightly.
On the domestic side,
the Samoan economy is
expected to grow
strongly on the back of
expansionary Govt.
Budget.
Real GDP is expected to
rise by 3.2% in 10/11.
SOURCE: CBS 2011
Forecast
2009/10
2010/11
Headline
Inflation (%) inflation rate
-0.2%
3.0%
Underlying
inflation rate
1.1%
2.4%
• Inflation is expected to
increase but within the
target of 3.0 percent
• Due to expected recovery
in imported inflation as
world prices start to
recover from weak
demand in past 2 years.
• Domestic inflation is also
expected to rebound due
to recovery in the economy
and consumer demand.
SOURCE: CBS 2011
Despite the strong expected recovery, real
GDP is still expected to be lower than in the
fiscal years before 2009/10.
With inflation falling and international
reserves at a record level, the environment is
ideal for ‘boosting and maintaining an upward
momentum for economic growth.
Growth is expected to be driven largely by the
Govt. Budget whereas the tourism, exports
and private remittances are expected to
remain depressed in 2010/11.
SOURCE: CBS 2011
CHALLENGES
ACTIONS
•Weak property rights, lack of a
collateral framework, difficulty in
collecting debts and poor credit history
of borrowers
• Finalize Personal Property Security Act
and design/establish the PPs registry to
improve collateral framework, including
debt collection.
•Further growth in bank lending.
•Lack of credit information available &
cost of loan recovery high
•Establish credit bureau & debt
collection agency to facilitate better
information provision.
•Enter into agreements with credit
bureaus in Australia/NZ to extend
availability of credit on a regional basis.
•Very limited economic use of
customary land because proprietary
rights cannot be mortgaged,
•Finalize review & start dialogue with
banks on leases as collateral for
securing loans
CHALLENGES
ACTIONS
•The lack of resolution of key sector
issues (such as the role of the public
sector) and the resulting underinvestment by the public and the private
sectors in agriculture over the past
decade.
•Samoa to develop more efficient farmer
support services (including a demandand market-driven research and
extension system to facilitate the
adoption of improved technologies).
Encourage Public-private policy dialogue
and industry coordination
•Samoa is remote and transport costs are •Encourage Agricultural farming for
high because of distance to markets and commercialisation from subsistence.
small cargo volumes
•Import substitution
•Government to subsidize
•Vulnerability to natural disasters
•Develop disaster plan and off site premises
for back up system
CHALLENGES
ACTIONS
Changes in regulation & legislation
•Review and update policies and procedures.
•Increase staff awareness on changes &
importance of roles & responsibilities.
•Management to take the lead
•Maintain regular dialogue with regulators on
issues of importance and regular reporting.
•Product development & expansion
•Rapid changes in information technology
•Develop/Review processes/ procedures to
mitigate the risks.
•Invest in staff training and development.
•Invest in research and development.
•Service Standards & Building customer
relationships
•Design a sign a system to make service fail
safe.
•Customer satisfaction surveys
Bureaucracy in Govt payment system
•Raise issue with appropriate Ministry to
ensure timely payments to reduce cashflow
stress on clients.
CHALLENGES
ACTIONS
Management of risk:
Liquidity risk
Credit risk
Interest rate risk
Operational risks
•Invest in information gathering/monitoring.
•Insist on collateral
•Credit rationing
•Develop long term relationships with customers
•Monitor borrowers behaviour with proceeds.
•Loan covenants
Increase in impaired loans
•Establish special assets committee
•Close monitoring and be alert on warning signs.
•Strengthen staff capacity in loan appraisal
•Align behaviour of every individual in loan
organisation with management priorities
•Banks survival & ability to compete depends on
ability to maintain a healthy loan portfolio.
•Enhance Supervision & Regulatory Framework
NO VIABLE POTENTIAL PROJECTS. STILL PROBLEM WITH ADEQUATE SECURITIES
COST OF PRODUCTION HIGH/SMALL ECONOMIES OF SCALE
HUGE COMPETITION FROM AGRICULTURAL SECTOR – HUGE DECLINE IN COCOAL
AND CORPRA COMPARED TO 20 YEARS AGO
ASIA/ECUADOR
FUNGAL DISEASE – 1966 AFTER CYCLONE BANANA LEAFDISEASE. EARLY 1990
TARO PLIGHT IMPORTED CHEMICALS TO CONTROL BUT WAS EXPENSIVE. GOVT
USED TO SUBSIDIZE BUT NOT ANYMORE
1960S HAD COCO AND COPRA BOARD, BUT NOW ABOLISH OR MADE DEFUNCT
NEED A MARKETING AUTHORITY – MARKET IN NZ
IMPORT SUBSTITUTION ENCOURAGE IN TERMS OF LIVESTOCK, EGG FACTORY, HAM
TWISTIES, SAUSAGE AND MANUFACTURING
COCONUT OIL HUGE MARKET FOR EXPORT/ SUBSTITUTE FOR DIESEL
Samoa is remote and transport costs are high because of distance to markets and
small cargo volumes
Samoa is susceptible to natural disasters, periodic droughts and exp cyclones
The sector is vulnerable to natural disasters (the country has been hit by 3 major
cyclones since 1990), pests and diseases (e.g. the taro blight which wiped out taro
exports in the mid-1990s, or currently the rhino beetle for coconut) and the
environmental basse is fragile;