## Samoa: Financial Sector Assessment Program

_IMF Staff Country Reports, July 20, 2015_

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## Bibliographic details
- Published: July 20, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513565040.002

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### Executive summary — structure and market composition
- The Samoan financial sector is dominated by commercial banks and Public Financial Institutions (PFIs).
- The four commercial banks provide almost 60 percent of credit to the economy.
- The most important PFIs, the Samoa National Provident Fund, and the Development Bank of Samoa, account for around 30 percent.
- There is also a small and shrinking offshore banking sector without linkages to the domestic financial sector.

### Key findings on bank health and risks
- Banks are liquid and report high capitalization.
- High and rising non-performing loans (NPLs) require close supervisory attention.
- Banks are still dealing with the effects from past natural disasters.
- Assessments of bank health are impeded by significant uncertainty surrounding the quality of balance sheet data, in particular on asset quality and provisioning.
- High loan concentration and exposure to natural disasters represent significant risks to the financial system.
- The stress tests illustrate that the local banks are relatively less resilient and could not withstand a severely adverse scenario.

### Public Financial Institutions (PFIs) — vulnerabilities and spillovers
- PFIs are particularly vulnerable to shocks due to low asset quality and strong linkages with state owned enterprises.
- The vulnerability is largely the result of increased policy lending in response to the extraordinary economic stress from recent natural disasters.
- Significant stress in PFIs could have significant impact on other financial institutions (FIs) through the effect on the economy.
- Explicit and implicit government guarantees raise potential fiscal risks.
- Recommendation: step up oversight of the PFIs, including through enhanced data collection and on-site reviews.
- Recommendation: where substantial adjustments are needed, new lending should be restricted.

### Supervisory capacity, recent reforms, and remaining gaps
- The Central Bank of Samoa (CBS), as the main supervisor and regulator of domestic financial institutions, has made important efforts to strengthen its oversight in recent years.
  - Efforts include conducting on-site inspections, introducing elements of risk-based supervision, expanding staff resources, initiating PFI supervision, submission of a new CBS Act (CBA) to reform governance and safeguards, promoting financial inclusion, and progress on Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT).
- Remaining priorities include:
  - Improving the quality and coverage of the financial sector data.
  - Upgrading legal, regulatory and supervisory frameworks.
  - Building capacity and staff.
- Operational priorities: close monitoring through on-site supervision and asset quality reviews, paired with prompt corrective action and a plan to address NPLs (including in PFIs) as needed.

### Policy recommendations and priorities
- Prioritize on-site supervision and asset quality reviews for banks and PFIs.
- Implement prompt corrective actions where asset quality or provisioning are inadequate.
- Enhance oversight of PFIs with better data collection and on-site reviews.
- Restrict new lending by PFIs when substantial adjustments are required.
- Strengthen CBS governance and safeguards through the proposed CBA and continue capacity building.
- Maintain focus on AML/CFT progress and financial inclusion initiatives.

*Source: Samoa: Financial Sector Assessment Program, IMF Staff Country Reports (July 20, 2015).*

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_Source: https://www.imf.org/en/publications/cr/issues/2016/12/31/samoa-financial-sector-assessment-program-43097_