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Pacific Islands Development Program, East-West Center

With Support From Center for Pacific Islands Studies, University of Hawai‘i

Banks Assure Stability Of Market Liquidity In Samoa
Stress put on local economy as borrowers default on loans

By Kolotita Talatalaga

APIA, Samoa (Samoa Observer, Dec. 4, 2012) – Two commercial banks have assuaged fears about a liquidity problem in Samoa although they warn about the need to be prudent given the volatile global financial situation.

Westpac Bank Samoa and the National Bank of Samoa also downplayed reports about a growing number of borrowers defaulting on their loans as their incomes are squeezed by a number of factors.

Responding to questions from the Sunday Samoan, both banks assured that liquidity is "sound."

"The Central Bank of Samoa closely monitors market liquidity and the market as a whole is considered to be sound with WST$111.2 million [US$47.1 million] in liquidity present across the Commercial Banks (as reported in the Central Bank Monetary Survey Report for September 2012)," says the General Manager of Westpac, Michael Mjaskalo.

"This is above the minimum requirements established by the Central Bank of Samoa. As such, Westpac does not believe there is currently a liquidity problem in Samoa.

"However, market liquidity needs to be prudently managed at all times, with careful attention paid to potential triggers or leading indicators that may affect market liquidity."

But according to an Economic Indicators Report by the Central Bank of Samoa, liquidity fell in September. This was the result of a pick up in credit to the private sector and a large outflow of foreign funds. So liquidity fell by 13.3 percent (WST$17.1 million, or US$7.2 million) to WST$111.2 million in September.

The decline in total liquidity was due to a 15.8 percent (WST$15.2 million, or US$6.4 million) drop in commercial banks’ excess reserves to WST$81.0 million [US$34.3 million] together with a 21.2 percent (WST$4.4 million, or US$) decrease in vault cash to WST$16.2 million [US$6.9 million].

Managing liquidity is a daily process, said Mr. Mjaskalo, requiring bankers to monitor and project cash flows to ensure adequate liquidity is maintained.

Maintaining a balance between short-term assets and short-term liabilities is also critical.

Asked if borrowers are defaulting on their loans, Mr. Mjaskalo was unable to discuss the details but said that the global financial conditions continue to impact Samoa’s economy. This in turn has led to a number of customers facing financial stress, he wrote.

"Communication between the bank and the customer is critical here and it is important that customers go to their bank early on if they encounter financial difficulty so that we can support them and put in place plans to ensure their financial obligations can be met," he said.

The Chief Executive Officer of the National Bank of Samoa, Fuimaono Malcolm Johnston also confirmed in an email that liquidity is adequate. He dismissed reports that many borrowers are defaulting on their loans.

Asked to give their opinions on how to generate more money for the local economy, both Mr. Mjaskalo and Fuimaono agreed that increased exports and tourism would create more revenue.

"It is broadly accepted that the best approach to enhance the local economic environment is through the continued development of the tourism and agricultural sectors," said Mr. Mjaskalo.

"Initiatives to foster and invest in these sectors must be jointly coordinated between the Government and the private sector." Fuimaono agrees.

"There are many ways," he said. Increased exports [are] the healthiest way and the best long-term solution for most economies. Exports include – tourism, agricultural produce etc."

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