banking & finance issues in seychelles as a small island state
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Banking & Finance Issues in Seychelles as a Small Island State
Banking & Finance Issues in Seychelles as a Small Island State
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The Presentation
Banking & Finance Issues in Seychelles as a Small Island State
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, andPublic finance issues.
Banking & Finance Issues in Seychelles as a Small Island State
A group of 115 Islands lying in the Indian Ocean,
Estimated Population as at end of Year 2004 – 81,000
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 7 Ministers,
Civil Law is based on French Napoleonic Code,
Criminal Law is based on English Laws, and
Banking systems follows the International Banking Practice.
Banking & Finance Issues in Seychelles as a Small Island State
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:(a) Buying and selling of foreign currencies,(b) Acceptance of Deposits using IOU receipts,© Cash withdrawals, and(d) Granting of short-term advances using properties as Collaterals.
Banking & Finance Issues in Seychelles as a Small Island State
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.
Banking & Finance Issues in Seychelles as a Small Island State
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
Banking & Finance Issues in Seychelles as a Small Island State
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
Banking & Finance Issues in Seychelles as a Small Island State
* 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)
Banking & Finance Issues in Seychelles as a Small Island State
♦ 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.
Banking & Finance Issues in Seychelles as a Small Island State
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
Banking & Finance Issues in Seychelles as a Small Island State
Development Bank of Seychelles
Housing Finance Corporation
Property Management Company
Seychelles Credit Union Limited
Insurance Companies (2)
Social Security Fund
Seychelles Pension Fund
Banking & Finance Issues in Seychelles as a Small Island State
• 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.
Banking & Finance Issues in Seychelles as a Small Island State
• 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.
Banking & Finance Issues in Seychelles as a Small Island State
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.
Banking & Finance Issues in Seychelles as a Small Island State
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
Banking & Finance Issues in Seychelles as a Small Island State
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
Banking & Finance Issues in Seychelles as a Small Island State
Advantages – Internal Factors
Flexible Tax System,Company Registration Procedure,Fair Legal System,Political Stability,National Security,Low Country Risk,Investors Protection,Business Confidentiality,Multi-lingual Workforce,Friendly Community, andAbide to International Accounting Standards & Reporting
Banking & Finance Issues in Seychelles as a Small Island State
Disadvantages – Internal Factors
No Sovereign Rating,
Lack of an Investment Code,
Shortage of Foreign Currencies,
Inadequate Offshore Specialists,
No Forward Exchange Market, and
Inadequate experience of the Market.
Banking & Finance Issues in Seychelles as a Small Island State
Advantages – External Factors
Strategic Location,
International Relations,
Time Zone,
International Reputation,
Good Communication Systems, and
Anti-Money Laundering Regulations.
Banking & Finance Issues in Seychelles as a Small Island State
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.
Banking & Finance Issues in Seychelles as a Small Island State
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”,
Banking & Finance Issues in Seychelles as a Small Island State
Possibility to introduce Deposit Protection Insurance & Credit Risk Insurance, and
Implementation of Anti-Money Laundering Mechanism.
Continues…..
Banking & Finance Issues in Seychelles as a Small Island State
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.
Banking & Finance Issues in Seychelles as a Small Island State
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Banking & Finance Issues in Seychelles as a Small Island State
Banking & Finance Issues in Seychelles as a Small Island State
Banking & Finance Issues in Seychelles as a Small Island State