Banking & Finance in Seychelles

Issues & Policies

Presented by: Dr. Peter Larose

Sit Back,

Relax,

Enjoy,

The Presentation

Geographic Location of Seychelles from the Map of the World

Located 4 Degrees South of the Equator Line

Country profile,

History of the financial services development,

Evolution of Seychelles economic development,

Banking structure,

Banking issues in Seychelles,

Types of services offered by banks,

Factors affecting offshore development in Seychelles,

Latest development in banking sector, and

Public finance issues.

FOCUS OF THE PRESENTATION

A group of 115 Islands lying in the Indian Ocean,

Estimated Population as at end of Year 2006 – 85,000

Official Languages: English, and French,

French Colony in 1790, and became a British Colony in 1811,

Became a Republic in 1976,

Own Parliament and Legislative Systems,

Government headed by President, and currently 11 Ministers,

Civil Law is based on French Napoleonic Code,

Criminal Law is based on English Laws, and

Banking systems follows the International Banking Practice.

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Seychelles banking history dates back in the early 1900during the British colonization era.

No formal banking system existed at that time.

The small population depended on some merchants(known as trading houses) for basic financial services.

Services were mainly: Buying and selling of foreign currencies,1. Acceptance of Deposits using IOU receipts,2. Cash withdrawals, and3. Granting of short-term advances using properties as collaterals.

Foreign currencies were generated mainly from naval vesselsand merchant ships, which called to Port Victoria, while crossingthe Indian Ocean.

Post Office Savings Bank was the FIRST bank to be establishedby the British Government in 1902.

Its main function was to mobilize savings from the public.

First international commercial bank was Barclays Bank DCO to penetrate the local market in 1959.

At that time, there was No Central Bank, and Barclays wasentrusted to carry out most of govt’s transactions includingpartial function of the monetary authority.

The birth of the Central Bank of Seychelles emerged from thethe establishment of the Seychelles Monetary Authority in 1978.

It is a public authority established under the Central Bank Act1982 - amended in 2004 and became an independent institution.

Central Bank’s main functions in the context of Seychelles:

Act as primary advisor the to Govt on monetary & fiscal matters Provide Clearing & Settlement Facility for banks Implement monetary policy of the Government Supervise the banking sector Manage national debts & foreign exchange reserves Issue and redeem local currencies in circulation Liaise with other Central Banks & international financial institutions Act as Lender of last Resort to the banking community

Stage 1 Pre-Independence

Stage 2 Post-Independence

Stage 3 New Economic Reforms

Colonial Era under the British Rule – Governor Status,

Seychelles was predominantly an agricultural-based economy (exports of copra, cinnamon, vanilla, and other spices),

Lack of Legal, Political, Economic, Social, & Technological progress,

The island relied heavily on external donors,

The National Budget was financed by the British Government

* Legal, Political, Economic & Social changes

* New Economic Vision focusing on Development

* First 5-Year National Development Plan Introduced

* Launch of Macro-economic Objectives (new employment, stable price, stable exchange rate,

promotion of economic growth)

* Thrust of Economic Objectives (inward investments, development of Tourism & Fisheries

sectors, emphasis on services)

* Emphasis on Social Programme (free health & education)

♦ Changes in Political Stance – Multi-party Democracy,

♦ Policy shift in favour of Foreign Direct Investment (FDI),

♦ Legislative Reforms to accommodate market-led economics

♦ Promotion of Seychelles as an Offshore Financial Centre,

♦ Promotion of Offshore Banking Sector to supplement National Income, and

♦ Enactment of Modern Legislations.

Central Bankof

Seychelles

Barclays Bank(Sey) Limited

MauritiusCommercial

Bank

SeychellesMercantile

Banking Corp

SeychellesSavings

Bank

Habib Bank(Sey) Ltd

Bank of Baroda

There are 6 commercial banks operating in the economy of Seychelles

Development Bank of Seychelles

Housing Finance Corporation

Property Management Company

Seychelles Credit Union Limited

Insurance Companies (2)

Social Security Fund

Seychelles Pension Fund

One of the Inner Islands – 5-Star Hotel

• Strengths * Close collaboration

between the banks and specialized financial institutions,

* Regular exchange of economic and banking information through the local Bankers Association,

• Strong inter-bank transactions, and

• Implementation of banking regulations through suasion rather than penalties.

• Weaknesses * Shortage of foreign

currencies prevent banks to expand their operations,

* Corporate strategies of most local banks are driven by their foreign affiliates,

* Banking systems can be easily exposed to systemic risk,

• Banks are slow to adjust to new development in I.T systems, and

• In the context of a small island state economy, there is little scope for business diversification.

Opportunities

Potential opportunities exist for banks to share theI.T. network system & save heavy capital investment,

Scope to cross-sell other financial services with the Offshore Banking sector, and

Scope to list the banks’ shares on the proposed Stock Exchange.

Threats

•Concentration of risk is unavoidable due to lack of economic sectors diversification,

•Easily expose to systemic risk as a result of inter- bank transactions,

•Economic difficulties can create a slack in business - hence, massive loan losses, and

* Country-wise is very susceptible to external shocks

Overdraft,Fixed Rate Short Term Loan, Acceptance Finance, Hire Purchase, Variable Term Loan, Syndicated Loan, Merchandise Loan, Property Construction Loan Mortgage Finance Loan.

Domestic Transfers Cheques, Banker payments, Standing orders instruction, Credit transfers, Bank-to-bank transfers, Direct debits,

Commercial CreditsClean credits,Documentary credits,Import & Export credits

Advantages – Internal Factors

There is an Investment Code Flexible Tax System, Easy Company Registration Procedure – 24 hours Fair Legal System, Political Stability, National Security, Low Country Risk, Sovereign Rating by Sandard & Poors in 2006 (B+) Investors Protection, Business Confidentiality, Multi-lingual Workforce, Friendly Community, and Abide to International Accounting Standards & Reporting

Disadvantages – Internal Factors

Shortage of Foreign Currencies,

Inadequate Offshore Specialists,

No Forward Exchange Market,

Heavy Competition from Established Market

Operate in Different Time Zone from Main Market

Advantages – External Factors

Strategic Location,

International Relations,

Time Zone,

International Reputation,

Good Communication Systems, and

Anti-Money Laundering Regulations.

Disadvantages – External Factors

International Laws & Politics

Competition from Existing Financial Centres,

Actions by International Monetary Authorities,

Lack of Trading Network Systems, and

A Small Jurisdiction.

Corporate Independence of the Central Bank of Seychelles,

Revision of existing banking laws in line with international standards,

New Disclosure requirement for banks on “ Off Balance Sheet Financing”,

Possibility to introduce Deposit Protection Insurance & Credit Risk Insurance, and

Implementation of Anti-Money Laundering Mechanism.

Continues…..

The Central Bank of Seychelles has introduced new rulesAnd regulations concerning terrorist financing,

The authorities are also considering whether to set up afinancial services commission, and

A feasibility is being considered for a stock exchange.

Like all the small island states, Seychelles is suffering fromthe small “size-effect”.

The country is short of land space to consider any form ofmajor industrial development.

The country has been experiencing budget deficits for afairly long time – meaning that it had to live on borrowingsboth local & international markets in order to survive.

The fiscal policy as a result of continued deficits in thepublic finance drives the monetary policy.

The Government issues Treasury bills, bonds, and takecommercial deposits as a means of financing its budget.

The national budget is approved once a year by the legislative assembly, but in the event of a short fall, there isa supplementary budget in the mid year.

Government insist on the Central Bank to manage the rateof interest on savings, deposits, and other financialinstruments.

The exchange rate or Seychelles rupees is pegged to abasket of currency (e.g. Seychelles Weighted Tourist &Trade Basket), whereby the Euros take a high percentagein the basket.

This is principally due that Seychelles benefits from a lotof European tourists – a possibility to minimize our foreignexchange rate risk.

I wish you all, good luck

in your studies.May Be

One Day You Will Visit

Seychelles

Banking & Finance Issues in Seychelles as a Small Island State