Our Purpose

The primary purpose of the Bank is the promotion of monetary, credit and exchange condi- tions most favourable to the development of the economy of Samoa

Our Vision

Leading Samoa to economic prosperity

Our Mission

The Central Bank of Samoa is committed to excellence: • In ensuring monetary and financial system stability, • In fostering a sound and progressive financial sector, • In conducting monetary policy to achieve sustained economic growth for the benefit of Samoa Our Mandate

Central Bank of Samoa Act 2015

The Central Bank of Samoa is a body corporate established under the Central Bank of Samoa Act 1984, which contin- ues to operate pursuant to the Central Bank of Samoa Act 2015. The mandated objectives of the Bank (CBS Act 2015), in order of priority are: i. To formulate and implement monetary policy aimed towards achieving and maintaining domestic price stability. ii. To foster and maintain a stable financial system, subject to achieving price stability in the economy. iii. To support the general economic policies of the Government whilst ensuring the achievement of price stability and a stable financial system.

Financial Institutions Act 1996

The Central Bank also administers the Financial Institutions Act which provides for the licensing and supervision of financial institutions in Samoa.

The primary objective of the Central Bank is to maintain confidence in, and promote the soundness and stability of the financial system.

Money Laundering Prevention Act 2007

The Act mandates the Central Bank to make provisions for the prevention of money laundering.

Insurance Act 2007

This Act empowers the Central Bank to license insurance entities and supervise the insurance industry.

The National Payments System 2014

This Act provides the Central Bank with powers to regulate and oversee the National Payments System including licensing payment services providers and operators. Leadership and Organizational Structure

This section provides an overview of developments in the key elements that make up the Bank’s organizational structure and how it is managed and governed. These elements combine to drive the Bank to achieve its various objectives efficiently and effectively. a) Board of Directors

Board of Directors 2017/2018 Sitting: Matai’a Alofipo Tanielu Meredith (Member), Maiava Atalina Ainuu-Enari (Chairperson), Tuala Falani Chan Tung (Member) Standing: Tuala Patrick Isitolo Leota (Member), Namulauulu Sami Leota (Member)

The Board of Directors of the Central Bank is responsible for the policy and the general administration of the Central Bank. Moreover, the Board may exercise any of its powers under the Central Bank of Samoa Act 2015; it may make by- laws for the conduct of its business, and can issue directives for the purpose of effecting the provisions of the Act and other related legislations.

The Members of the Board are appointed by the Head of State, acting upon the advice of Cabinet. The five (5) Members of the Board comprises the Governor, Mrs. Maiava Atalina Ainuu-Enari who is the Chairperson, and four independent Board members who are citizens of Samoa with industrial, commercial or agricultural experience. The independent Board Members are Mr. Mataia Alofipo Tanielu Meredith, Tuala Falani Chan Tung; Namulauulu Sami Leota and Tuala Patrick Isitolo Leota.

The Act stipulates that the Governor shall serve as the Chief Executive of the Bank, and is responsible for the execution of the Bank’s policies and the efficient management of the Bank. In doing so, the Chief Executive must follow any gen- eral or special directions given to him or her by the Board.

The Board met on six (6) occasions during the twelve months to the end of June 2018. b) Governance

There are a number of internal committees within the Bank to provide advice to the Governor in various areas: • Reserve Money Program Committee, which meets monthly to discuss the latest economic, monetary and financial developments that would impact on liquidity levels within the banking system; • Investment Committee, which meets every two months to discuss the Bank’s management of foreign reserves; • Budget Committee, which meets twice a year to discuss issues with regards to the preparation and operations of the Bank’s Budget.

Additionally, there are two specially formed committees:

• National Payments System Committee, which meets regularly to discuss issues relating to the establishment and effective operation of the National Payments System in the country; • Offsite Project Committee that was established to discuss and coordinate procedural responsibilities in the estab- lishment of the Bank’s Backup or Offsite building in the event of natural disasters, times of crisis or emergency.

A non-executive Board Audit Committee, provides auditing oversight over the operations of the Bank. The Committee serves as an independent advisory body mandated to review the functioning of the CBS oversight system; internal and external audit matters; and financial management, accounting and reporting practices. They also ensure the Governor and management team conduct their daily operations in line with best practice and good governance. The Internal Auditor provides administrative and secretarial support to the Audit Committee. As such, the Internal Auditor reports administratively to the Governor and functionally to the Audit Committee.

Management continued to perform periodic reviews and surveys of the most critical areas of the Bank to ensure that risks were controlled and mitigated. Comprehensive reviews were undertaken on internal control systems to ensure that the Bank is efficiently run, operationally sound, technologically well equipped, and risks are mitigated. A close monitoring of the Output budget is undertaken regularly. The focus is mainly on delivering results and implementing preventative actions.

Management also continued to provide a wide assessment of the risks, as well as appropriate compliance review, to provide further process improvement in the system of internal control. These include:

(i) Reliability and integrity of information; (ii) Compliance with policies, plans, procedures, laws, and regulations; (iii) Safeguarding of assets; and (iv) Accomplishment of established objectives and goals for operations or programs.

As part of its role, management will continue to provide advice to address key governance issues which are fundamen- tal to achieving and maintaining an effective and efficient Central Bank. c) Management and Staff

The Central Bank employed a total of ninety eight (98) staff at the end of June 2018. The Bank reviewed and developed several staff policies during the year to improve human resource management and monitoring of staff training. The Bank’s Organizational Structure remained the same as in the previous financial year with twelve (12)1 Depart- ments based on operations and functions allocated under two functional groups (Policy and Operation) under the leadership of two Assistant Governors.

Central Bank of Samoa Organizational Structure FY 2017/2018

CBS ORGANISATIONAL STRUCTURE

Board of Directors Audit Commi�ee

Governor

Policy Group Opera�ons Group

Financial Intelligence Unit/Legal Accounts and Budget Economics Department Internal Auditor Services Department Department

Financial Markets Department Banking and Currency Services Department Governor’s Office

Financial Supervision and Human Resources Department Regulatory Services Department

Financial Systems Development Property and Informa�on Department Technology Department

1 Legal and Financial Intelligence Unit are counted as 1 Department under the Structure, rather than two (2). Table of Contents I. Governor’s foreword 1

II. Monetary policy formulation and the economy 3

III. Monetary policy implementation and exchange control 6

IV. Financial System Supervision 10

V. Financial System Development 17

VI. Money Laundering Prevention and Countering of Terrorist Financing Activities 19

VII. Corporate Services and Administration 22

VIII. Central bank financial performance 27

IX. Chronology of important monetary, prudential and related events 28 I. Governor’s Foreword

he major events of the financial year 2017/2018 brought to the fore the vulnerability of small open island econ- Tomies like Samoa to international developments and natural disasters. At a global scale, the world economy’s of increased local food prices after TC able through the Development Bank growth momentum, while continuing Gita exerted greater inflationary pres- of Samoa (DBS) to support and pro- gradually, has come up against risks sure in the economy. As a result, the vide economic stimulus following the that are more on the downside. Ten headline inflation rate accelerated to impact of TC Gita earlier in the year. years on since the start of the glob- 3.7 percent at the end of the financial This new CLF is for eligible clients al financial crisis, global economic year 2017/2018 from 1.3 percent in within the small and medium enter- growth has steadily recovered with 2016/2017. The short term outlook prises category only in the agricultur- a 3.7 percent growth estimated for for inflation however, is expected al, manufacturing and other business 2017/2018 by the International Mon- to trend back to within the Central sectors. etary Fund (IMF). While this was Bank’s price stability target of below slightly higher than the 3.5 percent 3.0 percent, as inflationary pressures With our prudential responsibility, growth in 2016/2017, it was nonethe- following a natural disaster are al- I am pleased to report that Samoa’s less lower than earlier expectations ways a temporary trend. Against this financial system remained stable following a string of mounting head- backdrop, the Central Bank continued and sound in 2017/2018. The bank- winds which has weighed heavily on its easing monetary policy stance to ing system achieved a comprehen- the global economy since the start assist fiscal policy efforts to stimulate sive profitability performance and a of 2018. These included the rise of further activities in the Samoan econ- steady capital adequacy ratio of 27.3 US trade protectionist measures flar- omy. percent, comfortably ahead of the ing up tensions with some of the top Central Bank’s minimum capital re- global economic powers, increasing Overall, the larger than expected quirement of 15.0 percent. Similar- oil prices and political uncertainties reduction in overall manufacturing ly, the insurance industry performed in the advanced economies amongst activities in the economy, following well, sustaining steady growth in prof- other factors. the closure of the Yazaki manufac- itability of SAT$6.5 million, despite a turing plant, as well as the drop in strong increase on claims paid by gen- Domestically, the major challenges to output from the agricultural, fishing eral insurance to claimants as a result the Samoan economy in 2017/2018 and transportation sectors contribut- of TC Gita. included the complete closure in Au- ed to the slowdown in real econom- gust 2017 of the largest private sec- ic growth to 0.7 percent at end June As part of our efforts as the lead agen- tor manufacturing company in the 2018 from 2.7 percent in the previous cy to combat money laundering and country, Yazaki EDS (Samoa) Limited. year. Nevertheless, Samoa’s exter- counter terrorist financing activities This was due to the closure of the nal sector remained positive with an in Samoa, amendments to the An- car (Ford) manufacturing industry in overall balance of payment surplus of ti-Money Laundering Prevention Act Australia, which was the main market SAT$109.8 million, reflecting amongst 2007 were undertaken and endorsed for Yazaki’s wire-harnessing products. others, the strong improvements in by Parliament in June 2018. This en- Furthermore, with the current fre- visitors’ earnings, private remittances sured that Samoa’s anti-money laun- quency of natural calamities around and large inflow of grant budgets sup- dering framework was strengthened the globe, Samoa also endured its port funds received during the year. As and consistent with international share of these adverse climatic con- a result, Samoa’s official gross foreign standards as set by the Financial Ac- ditions, with Tropical Cyclone Gita hit- reserve levels remained comfortably tion Task Force (FATF). ting the country in February 2018. high at an equivalent of 6.1 months of imports in 2017/2018, compared This year also saw the increasing Due to rising oil prices, global infla- to 4.8 months in 2016/2017. global phenomenon that is cryptocur- tion trended higher to an estimated rency. While this technological devel- 3.3 percent in 2017/2018, from 2.7 Outside its traditional monetary poli- opment has its benefits, there are percent in the previous year. Samoa cy channels, the Bank also approved a also risks that central banks and regu- was not immune to this develop- new credit line facility (CLF) valued at lators worldwide have had to quickly ment, which together with the weight SAT$10.0 million that was made avail- address, particularly where fraudu-

1 lent activities were identified. In view out bank agents (merchant stores). particularly the volatile exchange rate of this, the Bank in the latter half of During the year, the Bank had the movements and that of the ongoing this financial year issued various pub- pleasure to co-host two regional low interest rate environment world- lic awareness programs to inform events in Apia, which brought a num- wide which subsequently impacts the general public of the risks of one ber of participants from around the on the Bank’s primary source of rev- such cryptocurrency program known Pacific Region as well as representa- enue, its interest income on foreign as One Coin, which has reached our tives from international organizations reserves holdings. As such, the Bank shores. We will continue to under- and companies. These events were recorded a total net profit of SAT$3.0 take similar public awareness pro- the: million in 2017/2018 compared to grams on any other identified area of • De La Rue Pacific workshop, held SAT$6.0 million in the previous year. concern, to ensure Samoa’s financial in November 2017 in partnership system is safe and robust against any with De La Rue, a United Kingdom With the events, developments and money laundering and/or terrorist fi- company that prints banknotes challenges of 2017/2018, I wish to nancing activities. for most of the central banks in extend my gratitude and appreci- the region, including Samoa. ation to the Board of Directors for The Bank also continued with its com- • 4th Pacific Island Regional Initia- their support and guidance. I also ac- mitment to foster a sound and pro- tive Annual Meeting in June 2018, knowledge with thanks the manage- gressive financial sector. As part of in collaboration with the Alliance ment and staff of the Central Bank of our efforts to modernize Samoa’s na- on Financial Inclusion (AFI). Samoa, for without your team work, tional payment system, we continued passion and commitment, our jour- to work closely with the World Bank/ These two events are only some of ney throughout the year would not International Finance Corporation to the many opportunities that the Bank have been successfully completed. finalise the procurement of the Au- is involved in to provide capacity de- tomated Transfer System (ATS+) and velopment and knowledge enhance- Central Securities Depository (CSD) ment for its staff, particularly in the software package. Works to have wake of ongoing technological chang- these in place for the financial sys- es that also presents challenges to tem, as soon as practicable, are ongo- our central banking functions. The ing. With the current infrastructure, Bank will continue to provide capac- we note there has been further im- ity development programs and sup- provement in financial services pro- port for the staff, not only for its sus- vided by our financial sector. As at tainability but also in its commitment 30 June 2018, access points servicing to ensuring Samoa’s monetary and Samoa consisted of 24 commercial financial system is sound and stable. bank branches, 65 Automatic Tell- er Machines (ATMs), 548 Electronic In view of its operations, the Bank’s Funds Transfer at Point of Sale (EFT- budget position continues to be in- POS) outlets and 81 cash-in & cash- fluenced by global developments,

2 II. Monetary policy formulation and the economy

he Samoan economy slowed down significantly in FY2017/2018, given weak economic activ- Tities and despite the continued relaxation of monetary conditions. With a marked improve- ment in the banking system’s liquidity levels, market interest rates continued to be at historical lows, particularly those for average lending rates which remained below 9.0 percent. 1. The World Economy2 For FY2018/2019, the latest IMF WEO ing partners, their inflation rates still points to the global economy main- remained lower than their average According to the IMF’s October 2018 taining growth at 3.7 percent, as ex- annual targets of around 3.0 percent. World Economic Outlook (WEO), pansions for emerging market and The exception was New Zealand global growth is estimated to be 3.7 developing economies are expected whose inflation rate fell below its an- percent in 2017/18, slightly up from to remain at 4.7 percent, while the nual mid-point target of 2.0 percent, 3.5 percent in 2016/17. This reflect- advanced economies decline to 2.3 but is expected to trend upwards in ed a 2.4 percent growth in advanced percent. The latter is on the back of the near future on the rebound in in- economies (compared to 2.0 percent downward growth revisions for 2018 ternational fuel prices. On the other in the previous year) and a 4.7 percent in some of the advanced economies hand, labour market conditions con- (namely the Euro area, Japan and tinued to improve worldwide, with expansion in emerging market and the United Kingdom after unexpect- decreased unemployment rates for developing economies (compared to ed weak economic activities earlier Samoa’s major source markets for 4.6 percent in FY2016/2017). The in the year). The United States, on tourism revenue and private remit- major contributors to global growth the other hand, continues to record tances, namely New Zealand, Austra- were the United States, European favourable economic data, underpin- lia and the USA. (Refer to Table 1). Union, Canada and Australia to name ning its approach to gradually tight- a few, reflecting strong economic -ac en its monetary conditions. If trade With the steady improvements in tivities in the six months to December tensions between the US and its global economic conditions, inten- 2017. Improvements in Russia, Bra- major trading partners (particularly, sifying risks and ongoing volatility in zil and India supported the growth China, the European Union and Can- FY2017/2018, most major economies of the emerging markets. However, ada) escalate further, this amongst maintained highly accommodative the latter half of the year indicates an other risks (such as natural disasters monetary policy stances, except for uneven growth momentum, amidst and political unrests in the European the US which has continued with its increasing downside risks stemming Union) would undermine the global gradual tightening approach. from trade tensions in recent months growth outlook in the short term. as well as increasing oil prices and di- Overall, the following monetary pol- verging yields in the global financial On the inflationary front, although icy actions were undertaken by the markets. pressures continued to pick up grad- major reserve banks in FY 2017/2018: ually for most of Samoa’s major trad- • The US Federal Reserve Bank of

TABLE 1: SELECTED GLOBAL ECONOMIC INDICATORS Samoa's main trading partners World Economic Performance New Zealand Australia United States of America Financial year Real GDP CPI Unemployment Real GDP CPI Unemployment Real GDP CPI Infla�on Unemployment Real GDP CPI Infla�on Unemployment (end June) Growth Infla�on Rate Growth Infla�on Rate Growth Rate Rate growth rate rate Rate Rate Rate

Year on Year Change (%) 2010/2011 1.1 5.3 6.0 2.2 3.5 4.9 1.7 3.6 9.1 3.9 4.5 5.7 2011/2012 2.8 1.0 6.3 3.8 1.2 5.2 2.4 1.7 8.2 4.4 3.4 5.6 2012/2013 2.3 0.7 6.0 2.1 2.4 5.7 1.0 1.8 7.5 3.0 3.4 5.6 2013/2014 3.0 1.6 5.3 2.8 3.0 6.1 2.7 2.1 6.2 3.4 3.5 5.5 2014/2015 3.8 0.4 5.5 3.1 1.5 6.1 3.3 0.1 5.4 3.4 3.0 5.5 2015/2016 4.4 0.4 5.1 3.3 1.0 5.8 1.2 1.0 4.9 3.3 2.5 5.5 2016/2017 2.8 1.7 4.8 1.9 1.9 5.6 2.2 1.6 4.4 3.5 2.7 5.6 2017/2018 2.8 1.5 4.5 3.4 2.1 5.4 2.9 2.9 4.0 3.8 (est) 3.1 (est) 5.6 (est) Source: IMF July 2018 Updated WEO, ILO (for World Unemployment rate), Bloomberg, TradingEconomics, WPC Australia & NZ Weekly Updates and specific country's sta�s�cs authori�es

2 Sources: IMF World Economic Outlook, Bloomberg, Westpac Market Outlook 3 New York (FRBNY), as expected, raised its policy rate three times by a total of 75 basis points from a target range of 1.00 percent to 1.25 percent at end FY2016/2017 to 1.75 percent to 2.00 percent; its highest level since the 2008 Global Financial Crisis. • The Reserve Bank of Australia (RBA) maintained its cash rate at proved in July 2017 for the continu- in 2017/18 based on the conscious a low of 1.50 percent following ation of the Bank’s easing monetary efforts by all four banks to consoli- moderate economic growth and policy stance in view of a projected date their asset quality from the high expectations for lower unemploy- slowdown in economic growth while lending growth in the past two years ment rates and a gradual pickup headline inflation was expected to as well as moving past the large one- in inflation during the year. rise moderately to 1.7 percent at end off lending to the corporate sector in • The Reserve Bank of New Zea- June 2018 due to expected increases 2016. Similarly, the annual average land (RBNZ) maintained its offi- in both domestic and external factors. growth rate of money supply (M2) cial cash rate at 1.75 percent as was also expected to decelerate to it aimed to maximise sustainable The forecast slowdown in real GDP to around 1.3 percent in 2017/18. employment and maintain low 1.9 percent3 at end June 2018 from inflation in the country. 2.7 percent in 2016/17 was expected 2.2 Monetary Policy Outcomes • The Bank of England raised their to come from the complete closure of policy rate by 25 basis point to the Yazaki Samoa operations, which In contrast to our original forecasts 0.50 percent in November 2017, would reduce the ‘Other Manufac- in July 2017, actual headline inflation reversing the 25 basis point cut turing’ output as well as much slower was much higher at 3.7 percent at end in August 2016. This policy de- growth expected in the ‘Commerce’ June 2018. This was mainly due to the cision followed expectations for sector after a sharp increase in the adverse impact of Tropical Cyclone medium term inflation to trend past 2 years. Similarly, lower growth Gita in February 2018, on local agri- towards its target level as well were expected for sectors such as ‘Fi- cultural produce, which saw domes- as the release of positive indica- nance’, ‘Fishing’, ‘Business’ and ‘Elec- tic inflation increase to 1.9 percent in tors on the UK economy despite tricity and water’. 2017/18, compared to a forecast of the uncertainty surrounding the -0.3 percent. The continued increase country’s exit from the European On the external front, the balance in international commodity prices ex- Union. of payments was expected to record erted further upward pressure with • The People’s Bank of China main- another surplus of around $18.0 mil- the pickup in fuel prices and select- tained its official policy rate at lion for 2017/18 given anticipated ed food commodities pushing up im- 4.35 percent, as the authorities improvements in visitor earnings, ported inflation to 5.2 percent at end continue to pursue a prudent and exports (of goods), and private remit- June 2018. (See Graph 1 below.) neutral monetary policy to ad- tances of 3.7 percent, 6.8 percent and dress financial leverage and assist 3.6 percent respectively. As a result, For the official foreign reserves, the in economic reform efforts. (Re- gross official foreign reserves were overall balance of payments regis- fer to Table 2). expected to rise to 4.8 months of im- tered a record surplus of $109.8 mil- ports from 4.4 months in the previous lion in FY 2017/18, in contrast to a 2. Domestic Economy year. forecast surplus of $18.1 million. This large divergence mainly reflected 2.1 Monetary Policy Outlook and On monetary conditions, commercial the stronger than expected improve- Targets bank lending to the private sector ments in visitor earnings (up 11.6 and public institutions were forecast percent), private remittances (24.3 For 2017/18, the CBS Board ap- to slow down to around 2.4 percent percent) as well as the larger inflow

3 Revised RGDP growth 4 of grant budget support funds during GRAPH 1 : HEADLINE INFLATION RATE the year. Total exports of goods, 15.0

14.0 on the other hand, dropped by 5.2 12.0 percent in contrast to a 6.8 percent 11.0 9.0 growth forecast due mainly to the 8.0 6.0 reduction in fish exports and coconut 5.0 3.0 oil. Overall, the import cover rose to Percent 2.0 Percent 0.0 6.1 months compared to 4.8 months -1.0 last year, given the sharp hike in for- -3.0 -4.0 eign reserves, which outweighed a -6.0 -7.0 5.9 percent increase in total imports -9.0 -10.0 of goods in 2017/18. (See Graph 2 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 below.) Local Component Imported Component Annual average CBS Target

Liquidity conditions continued to Graph 2 : Gross Official Foreign Reserves improve during the year, with to- 450 8 7.6 tal banking system liquidity rising 400 7 6.4 6.1 to $218.90 million at end June 2018 350 5.7 6 5.5 5.4 from $145.85 million at end June 5.1

300 s

4.8 t

s 5 o r

4.3 p

2017. This reflected the large inflows o n i m l I l 250 i o f M

4 s a

of foreign funds especially those for l h t a 200 T o n the Government budget as well as 3 M earnings from visitor arrivals and pri- 150 2 vate remittances. The CBS maintained 100 its low official interest rates at around 50 1 0 0 0.17 percent at end June 2018, while 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 the commercial banks’ weighted av- Value Months of Imports (RHS) CBS Target erage deposit rates remained at 2.70 percent from last year. The weighted average lending rates, on the other hand, rose to around 8.98 percent at end June 2018. Total commercial bank credit growth slowed to 3.5 percent in 2017/18 from 12.1 per- cent last year, in line with CBS fore- casts. Given the sharp increase in net foreign inflows, the growth of broad money accelerated to 12.1 percent at end June 2018 from 6.6 percent at end June 2017.

Overall, economic activities slowed down as expected, albeit much fast- er. Real GDP growth in FY2017/2018 turing plant in August 2017 as well industries, indicates a broad-based was recorded at 0.7 percent at end as the significant drop in the ‘Fishing’ positive performance for the Samoan June 2018, well below the 2.7 per- industry on the back of a decline in economy. (See Graph 3.) cent growth rate in FY2016/2017. fish exports during the year. Never- This faster than projected slowdown theless, the gains recorded from the reflected the larger impact on the ‘Commerce’, ‘Construction’, ‘Busi- ‘other manufacturing’ sector from ness Services’ ‘Accommodation and the closure of the Yazaki manufac- Restaurants’ and ‘Communication’

5 III. Monetary policy implementation and exchange control

ince January 1998, the Central Bank has been implementing monetary policy by issuing its own Ssecurities using market based techniques – commonly known as open market operations, com- plemented by its currency issue and exchange rate functions, Statutory Reserve Deposit pruden- tial requirement (Section VI (1.4)), foreign exchange control and moral suasion.

1. Open Market Operation (OMO) Table 3. Central Bank Securi�es The level of liquidity in the bank- 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 ing system improved significantly Number of Floats 42 50 49 50 48 32 41 throughout the financial year, with Amount Floated $190.75 $190.25 $161.00 $201.00 $178.00 $64.50 $182.00 SAT$218.9 million recorded at end Amount Tendered $221.25 $81.25 $102.00 $220.00 $156.50 $52.00 $285.50 June 2018 compared to SAT$145.8 Amount Allo�ed $145.75 $71.75 $77.50 $154.00 $152.50 $51.50 $199.00 million in the previous year. Reflect- Amount Matured $156.75 $74.75 $72.50 $152.00 $150.50 $51.90 $175.50 ing this marked improvement and Amount $9.00 $5.00 $10.00 $12.00 $0.50 $0.00 $23.50 given the demand from the banking Outstanding sector, the volume of open market Source: Central Bank of Samoa operations during FY2017/2018- re covered strongly as follows: securities; and actions, the inter-bank borrowing • SAT$182.0 million worth of CBS • 4 percent were held in 91-days rate edged down from 5.55 percent Securities were floated compared securities. in FY2016/17 to 3.60 percent in to SAT$64.5 million in the previ- FY2017/18. ous year. As reported in Section IV (2.2), the • These floated amounts were overall weighted average interest rate 2. Exchange rates4 oversubscribed by 56.9 percent on Central Bank of Samoa Securities compared to an undersubscrip- remained at near-zero levels in the The Samoan Tala currency basket still tion of 19.4 percent in 2016/17. year 2017/18, with 0.15 percent by comprises of the currencies of the • Given the high demand and am- end June 2018, slightly up from 0.13 United States of America, the Euro- ple liquidity over the period, CBS percent at end June 2017. Reflect- pean Union, Australia and New Zea- allotted $199.0 million worth of ing the higher number of allotments land, following the annual review of Securities during the year. during the year, the interest cost of the basket. The outcome of the re- • Total CBS Securities worth the Central Bank’s open market oper- view was presented and endorsed by SAT$175.5 million matured ations increased from SAT$4,754.15 the Board of Directors in its January during the year, with $23.5 mil- in the previous year to SAT$28,942.22 2018 Meeting, with the new weights lion worth of CBS Securities were in FY2017/2018. allocated to these currencies effec- outstanding at the end of the tive on 1st February 2018. The review year. (See Table 3.) Given the healthy levels in total bank- was based on Samoa’s distribution of ing liquidity, the commercial banks merchandise trade and tourism earn- Of the SAT$23.5.0 million face val- did not require the use of our Re- ings for the 2017 calendar year. ue of Securities outstanding at end purchase and Rediscount facilities in FY2017/18: 2017/18. In the fiscal year 2017/18, the Tala • 17 percent were held in 14-days depreciated 0.15 percent in nominal securities; Despite the significantly high total terms against the currencies in the • 40 percent were held in 28-days banking system liquidity compared basket, reflecting the weakening of securities; to previous years, the inter-bank the Tala against the USD, AUD, NZD • 38 percent were held in 56-days loans market was utilised during the and EURO over the year. On the oth- reviewed period. From these trans- er hand, reflecting Samoa’s higher

4 The main objective of the Central Bank’s exchange rate policy is to ensure that exports remain competitive in overseas markets while at the same time minimizing imported inflation. The exchange rate of the Tala is determined on the basis of a trade-weighted basket of currencies. The basket is based on Samoa’s distribution of merchandise trade and tourism earnings. This currency basket is reviewed annually to reflect changes in trade and payment patterns between Samoa and its major trading partners.

6 inflation rate compared to those of its main trading partners, the real ef- fective exchange rate up to June 2018 appreciated by 1.64 percent over the year. (See Graph 4.)

3. Credit Lines to Selected Financial Institutions5

With the downturn in the Samo- an economy during the first half of FY2017/2018 and Tropical Cyclone Gita’s impact in February 2018, the Central Bank assessed and approved the injection of new funds to provide economic stability for the country. As a result, a new credit line facility (CLF) valued at $10.0 million was made available through the Development Bank of Samoa (DBS). This new CLF are for eligible clients within the small and medium enterprises category only in the agricultural, manufactur- ing and ‘other business’ services sec- tors. By the end of this financial year, only $5.0 million of the new CLF has been disbursed.

Overall, the total approved cred- Memorandum of Understanding year. This reflected a notable expan- it line facility by CBS over the years (MOU) for the various CLFs. sion of 37.5 percent in the Central (including this new CLF) amounts Bank’s foreign exchange holdings7 to to SAT$135.0 million. As at end 4. Foreign Reserves Management6 SAT$398.9 million, from SAT$290.17 FY2017/2018, however, the out- million. Furthermore, foreign ex- standing CLF balance at the Central The CBS Act (2015) provides the Cen- change holdings by the Ministry of Fi- Bank was recorded at SAT$95.2 mil- tral Bank of Samoa with the custody nance rose 4.0 percent to SAT$22.59 lion. and authority to manage the coun- million, from SAT$23.05 million in try’s foreign reserves. FY2016/2017. (See Graph 5.) Both Samoa Housing Corporation (SHC) and Development Bank of Sa- Gross official international reserves The Central Bank’s foreign exchange moa (DBS) have made regular and at end June 2018 grew 35.1 percent holdings were continually invested in timely repayments to the Central to $422.46 million from SAT$312.79 line with reserve management objec- Bank, consistent with the agreed re- million in the previous financial tives of liquidity, security and profit- payment schedules set out in the

5The Central Bank of Samoa has extended five separate Credit Line Facilities (CLF) since 2009. These credit lines were extended for specific purposes, mainly with the intent to boost growth in the economy. The first one is known as the Tsunami CLF, which was introduced to assist tsunami affected businesses. The second CLF was a long term CLF that was introduced as part of the Bank’s monetary policy transmission mechanism to stimulate growth in selected priority sectors of the economy. The third was the Cyclone Evan CLF mainly extended to assist those households and businesses particularly hotel accommodations that were significantly affected by the cyclone. The fourth CLF was extended to stimulate the economy and assist with the hosting of the SIDS and Commonwealth Youth Games. The fifth CLF was to inject further stimulus to selected priority sector in the economy. 6 With the adoption of the Fifth Edition of the International Monetary Fund’s Balance of Payments Manual, Foreign Reserves have been- re named to Official International Reserves, which includes only the holdings of the Ministry of Finance and the Central Bank of Samoa. 7Since 2014/2015, CBS foreign exchange holdings now includes the holdings of the Special Drawing Rights (SDR) and IMF accounts that were previously held by the Ministry of Finance. 7 ability. As such, the Bank’s preferred investment instruments were liquid short- to medium-term financial in- struments consisting of term depos- its, bank bills, certificates of deposit, repurchase agreements and interest bearing call accounts in Reserve Banks and financial institutions with a mini- mum of A-28 credit ratings.

Reflecting the country’s projected overseas payments obligations in var- ious foreign currencies as well as the prevailing and expected global yield environment, the composition of pared to the previous year. Holdings come from these foreign investments the Central Bank’s foreign exchange of USD-denominated investments in- in 2017/2018 increased by 27 percent holdings was reviewed and adjusted creased to 41.4 percent, followed by to SAT$6.75 million from SAT$5.31 accordingly. This was incorporated in a 25.9 percent share in NZD-holdings. million in the previous financial year. the CBS Foreign Exchange Investment RMB investments accounted for 23.2 Policy and Guideline for the manage- percent of total foreign exchange 5. Foreign Exchange Control9 ment of foreign reserves that was reserves while AUD holdings fell to endorsed by the CBS Board in March 9.0 percent. Investments in the GBP In 2017/18, Exchange Control poli- 2018. Consistent with the country’s were minimal. (See Graph 6.) cies were reviewed to reflect chang- expected foreign exchange inflows es necessitated by the Bank’s role and outflow patterns, the composi- The management of foreign reserves to strengthen the monitoring of the tion of CBS foreign exchange reserves remain challenging given the current country’s foreign exchange reserves continues to include holdings of Chi- low yield environment in most major to ensure its preservation and -ade nese dollar-denominated foreign re- economies in the year under review. quacy. Based on prevailing econom- serves. The inclusion of the Chinese As shown in Section IV, Part (1), the ic conditions and positive economic dollar (or Renminbi, RMB) in Samoa’s US Federal Reserve Bank was the only outlook in the medium term, the foreign exchange reserves also re- central bank that raised its policy in- Central Bank decided to further re- flects the internationalization efforts terest rate three times by a total 75 lax the exchange controls on certain of the RMB and its reserve currency basis points over the year, aside from payments. This included new and status from its inclusion in the IMF’s a one 25 basis point hike by the Bank increased delegation of authorities Special Drawing Right (SDR) currency of England in November 2017. The granted to the authorized commer- basket in October 2016. While the Reserve Bank of Australia, the Re- cial banks and money transfer oper- Euro currency remains an eligible and serve Bank of New Zealand and the ators. acceptable foreign reserve currency People’s Bank of China, on the other to have as part of Samoa’s foreign ex- hand, maintained their policy interest The 2017/18 review of the Exchange change reserves holding, the Central rates from FY2016/2017 levels. Over- Control policies and procedures were Bank has not maintained any hold- all, the increase in holdings of US dol- compiled in the Exchange Control ings given its current negative inter- lar reserves coupled with the increas- Manual 2018, which takes effect on est rates. es in the US interest rates, as well as 1st August 2018. These include: continued higher RMB yields, helped At end June 2018, there were no ma- offset the lower returns from the Aus- jor changes to the composition of tralian and New Zealand dollar invest- CBS foreign exchange reserves com- ments. As a result, total interest in-

8 Short term credit rating using Standard and Poor’s Credit Rating Index. The new minimum credit rating was endorsed by the CBS Board of Directors at its April 2017 meeting, the result of a change from the previous minimum credit rating of A-1. 9Foreign Exchange Control plays a complementary role to monetary policy and financial system supervision, ensuring that the country’s foreign exchange reserves are used for legitimate purposes and maintained at a sustainable level.

8 Type of Foreign Exchange Payment Current Star�ng 1st August 2018 1. Remi�ance of funds abroad from No delega�on Delega�on for amounts up to the closure of a foreign currency SAT$50,000.00 deposit account and/or Samoa Tala Any amount in excess of SAT$50,000.00 is deposit account in any of the local referred to CBS banks. 2. Transfer abroad of any investment No delega�on Delega�on for amounts up to funds withdrawn by individuals SAT$30,000.00 from local non-banking financial Any amount in excess of SAT$30,000.00 is ins�tu�ons (namely, investments referred to CBS with the Unit Trust of Samoa and/or contribu�on funds with the Samoa Na�onal Provident Fund; as part of migra�on overseas etc..) 3. Regular repayment of overseas No delega�on Wholly delegated to authorized commercial debts by resident individuals banks and money transfer operators (with (namely, overseas student loans the excep�on of other types of loan and other pre-exis�ng debts while repayments as listed). resident in other countries). Excluding the following which requires prior CBS approval: - a) payment for the full se�lement of an overseas loan; b) any refinancing of an overseas debt or mortgage; c) repayment of foreign currency loans with local banks and/or; d) new external loans while resident of Sāmoa.

4. Family Maintenance/Support Delega�on for Delega�on for amounts up to (payments that relate to support amounts up to SAT$50,000.00 per person, per year. for daily living expenses of family SAT$20,000.00 overseas) per person, per year

Bank and are required to remit Accounts (FCDAs) were approved Foreign capital payments and a few their export receipts into the compared to thirty-six (36) in selected current account payments country within a specified time- 2016/17. Seven (7) of the ap- continue to be referred to the CBS frame. provals were for individuals who for prior approval, while all other • Foreign Currency Deposit Ac- work abroad in international -or foreign payments remain delegated counts10 - To encourage the re- ganizations or agencies, while to the commercial banks and mon- patriation of foreign exchange thirty (30) were for businesses, ey transfer operators, subject to the earnings to Samoa, resident in- which includes hotels, construc- submission of relevant supporting dividuals or firms who are signifi- tion companies, money transfer documents. cant earners of foreign exchange operators and other business have been allowed, since 1994, sectors. In addition to the assessment of cap- to open foreign currency depos- ital payment applications, the Central it accounts. In the financial year Bank also monitors: under review, thirty-four (34) • Export procedures whereby all new Foreign Currency Deposit exporters must register with the

10 Apart from residents, non-residents such as the diplomatic missions and official international organizations are also able to hold FCDAs.

9 IV. Financial System Supervision

ne of the key objectives and responsibilities of the Central Bank under its mandate is promot- O ing and maintaining financial stability by: • registering banks and supervising their activities with broadly accepted prudential standards and examination techniques; • developing prudential supervision of insurance business and other non-bank financial institu- tions to further strengthen stability of the financial sector and limit financial distress and; • providing liquidity to the system as required to minimize short run disturbances; • registering and licensing of foreign exchange service provider; money transfer operators and money changers.

The overriding purposes of these activities are to encourage financial system soundness and- effi ciency, and to reduce the damage that could arise from a bank failure or any other financial system stress.

1. Commercial Banks frequency, scope and techniques that provisions against unexpected losses is used in on-site examinations varies and the adequacy of systems to mon- The stability of the banking system is depending on the overall condition itor and control risks. recognized as a very important mat- and the level of sophistication of the ter of public interest. Therefore, in bank. Notwithstanding the above, the ulti- the interest of promoting their finan- mate responsibility for the affairs and cial soundness, banks are subject to During the review period, the Su- performance of supervised financial the Central Bank’s prudential supervi- pervision Department of the Central institutions operating in Samoa rests sion which concentrates primarily on Bank carried out two full scope on- mainly with their boards of directors detecting early signs of weaknesses site examinations for the two locally and management. or vulnerabilities. incorporated commercial banks. The first visit was to a locally owned bank The Central Bank can neither guaran- Through regular reviews and analysis and was held in September 2017. In tee the soundness of a financial in- of financial information and periodic June 2018, the Central Bank in col- stitution nor can it provide complete reports provided by the banks, their laboration with the Australian Pru- protection for its depositors, credi- current financial performance and dential Regulation Authority (‘APRA’) tors and other claims on it. However, conditions are compared against the conducted a second visit to a foreign by ensuring that supervised financial prevailing prudential standards and owned bank. Each inspection was institutions follow prudent manage- legal requirements (including past lasted for two weeks. The focus is ment practices, the Central Bank is periods performance) to determine to ascertain or confirm each bank’s able to promote public confidence for the degree of risks and vulnerabilities compliance with their own policies these institutions and to help main- inherent by the individual banks and and procedures as well as relevant tain a sound financial system. the banking system as a whole. standards, laws and regulations. 1.1. Financial Position of the Bank- In addition to offsite surveillance, Continuing consultations and discus- ing System for the twelve months the Central Bank also conducts on- sions were held with the banks on ending June 2018 site examination. Supervision that key areas of their operations which embraces both off-site surveillance include, among others, the mainte- For the twelve months under review, and on-site examination has been nance of the required capital ade- the banking system experienced found to be more effective than off- quacy ratio, undue concentration of strong growth in the overall level of site surveillance only. Onsite exam- credit to single borrowers, liquidity assets. Capital adequacy ratio re- ination provides a useful view of the management, profitability perfor- mained relatively steady and sup- true financial position of a bank. The mance, the maintenance of realistic ported by banks’ sound profitability

10 performance over the past twelve Tier one capital combined amounted adequate controls on credit to reduce months. However, the quality of to $201.2 million, increased by 12.5 the risk of possible losses. And, in the banks assets unfortunately indicated percent ($22.4 million) from $178.9 event of default or identified losses as an upward trend in non-performing million a year earlier due mainly to a result of non-performing loans and loans whilst provisions for bad and the increases in prior year’s audited other types of impaired assets, the doubtful debts were sustained at retained profits and paid-up capital bank must ensure that there is ade- more or less adequate level at the respectively. Tier two capital of $40.4 quate provision. end of the period. million showed a drop by 0.2 percent ($0.1 million) caused mainly by the In the twelve months to end June In June 2018, the banking system re- decrease in the unaudited retained 2018, total loans and advances corded an increase in total assets of profits, bringing total capital (Tier one dropped by 1.9 percent ($20.4 mil- 5.2 percent ($78.9 million) to $1.586 plus Tier two) to $241.6 million at the lion) to $1.068 billion. At this level, billion against total liabilities of end of the period. total non-performing loans grew by $1.321 billion which went up by 4.1 2.8 percent ($1.2 million) to $46.0 percent ($52.5 million) respectively. Hence, the banking system remained million representing 4.3 percent of strongly capitalized with an aggregate total loans and advances. Much of the growth in assets was ratio of 27.3 percent, rose by 2.2 per- attributed mainly to the remarkable cent from the previous year. Mean- In the meantime, provision for bad increases in currency and deposits while, Tier one capital was recorded and doubtful loans amounted to held with the CBS and commercial at 22.7 percent. The banking system $63.7 million (6.0 percent of total banks of 17.6 percent ($53.8 million), recorded a surplus capital of $108.9 loans and advances) which provides debt securities by ($30.3 million) and million at the end of June 2018. an adequate cover for total non-per- nonfinancial assets by 12.3 percent forming loans. (See Graph 8). ($12.9 million). This was partly off- These ratios are comfortably above set by the drop in the level of lending the Central Bank’s minimum capital 1.3.1. Credit concentration risk: by 1.9 percent ($20.4 million). Total requirements of 15.0 percent and Sector and Industry distribution of loans and advances to deposits ratio 7.5 percent and indicated potential credit exposure stood at 87.8 percent at the end of capacity for the banking system in the period (100.4 percent a year ear- meeting the demand on financial ser- Diversification of risks is one of the lier). vices and future business prospects. fundamentals of prudent banking. (See Graph 7) Excessive concentration of risk expo- 1.2. Capital Adequacy Ratio sure to one customer, industry, eco- 1.3. Asset Quality nomic sector or activity jeopardizes A risk-based capital adequacy ratio is the soundness of the banks’ assets required for all the banks to be main- The Central Bank places greater em- and has been one of the major causes tained at all times in relation to the phasis on a bank’s internal manage- of bank losses. size and nature of their businesses. ment system to monitor and provide

The Central Bank adopts a Two Tier system whereby all the banks are required to maintain at all times a minimum capital adequacy ratio of 15.0 percent in relation to the level of their risk weighted exposure. As such, Tier one capital or “core capi- tal” shall be no less than 7.5 percent of total risk weighted exposure, while Tier two capital or Supplemental cap- ital shall not exceed 100.0 percent of core capital.

11 liquidity management and to engen- dering public confidence in banks. As such, banks are expected to have in place effective systems for managing their liquidity positions.

At the end of June 2018, total liquid assets amounted to $218.9 million, equivalent to 18.9 percent of total domestic deposit liabilities. At this level, it showed a favorable improve- ment of 50.1 percent ($73.0 million) when compared to the same time a year earlier. In addition, investments The composition of loans by indus- ingly. Credit exposure to the Govern- in CBS Securities recorded at end tries revealed minor changes over the ment sector, including non-financial June 2018 stood at $23.5 million. past twelve months with buildings, public enterprises and non-monetary constructions and purchasing of land financial institutions increased by In the matching of loans and deposits be the largest industry exposure at 56.3 percent ($23.2 million). by residual maturity, total short term 35.8 percent ($382.6 million), which loans (up to 3 months maturity) plus increased by 30.5 percent ($89.4 mil- 1.4. Liquidity Management liquid reserve funds amounted to lion). Other industries such as pro- $635.0 million as compared to short fessional services accounted for 17.0 The prime responsibility for the pru- term deposit liabilities of $723.5 mil- percent ($181.3 million), transporta- dent management of a bank’s liquid- lion. In the 3 months and over cate- tion at 11.7 percent ($124.6 million), ity and for determining the appropri- gory, long term loans stood at $869.6 manufacturing at 2.8 percent ($30.3 ate level of liquid assets rests with the million against long term deposits of million) and other activities at 24.3 bank itself. Hence, the onus has been $434.7 million, revealing a significant percent ($260.7 million) in that order. imposed on the commercial banks mismatch in the residual maturity of (Refer Table 7) to manage their day to day liquidity, funds. This trend is however closely monitored in consultation with the banks given the volatile nature of de- Table 7 Distribu�on of credit exposures by industry posit funds in the market in order to (as a percentage of total credit exposure) ensure banks are able to meet their 2017 2018 liquidity obligations at all times. Agriculture 0.6 0.7 Fisheries 0.3 0.0 Manufacturing 2.8 2.8 1.5. Profitability Building, Construc�on & Land 26.9 35.3 Electricity, Gas & Water 1.0 1.0 Based on the banks different account- Trade 11.5 11.7 ing periods, the banking system com- Transporta�on 7.2 6.5 Professional Services 19.7 17.0 bined profit figure (before extraordi- Others 25.7 24.3 nary items and taxation) amounted Foreign 4.3 0.2 to $24.9 million, indicating a drop TOTAL 100.0 100.0 of 19.0 percent ($5.8 million) over a year earlier. Following the deduction In terms of loans by sectors, the busi- as well as handling any unexpected of tax, the net profit for the commer- ness sector which contributes 52.7 strain on their cash flows. cial banks in 2017/18 stood at $18.1 percent went down by 7.5 percent million compared to $22.4 million ($45.9 million) while household loans In essence, the holding of an ade- registered in the previous year. (See which made up 41.2 percent of total quate stock of highly liquid assets for Graph 9) loan portfolio registered a growth of meeting day to day liquidity needs is 12.1 percent ($47.4 million) accord- fundamental to sound and prudent

12 The combined foreign assets of the commercial banks at the end of June 2018 stood at $163.2 million, de- creased by 41.7 percent ($116.6 mil- lion) while total foreign liabilities of $135.1 million decreased by 46.1 per- cent ($115.6 million) over the same time a year earlier. At these levels, it reflected a net long open position of $60.6 million, equivalent to 25.1 percent of the banking system’s total capital (28.4 percent a year earlier).

2. Domestic Insurance Industry Total operating income went down by 1.6. Foreign exchange net open po- 8.9 percent ($7.7 million) while total sition 2.1. Regulation and Supervision operating expenses and provisions decreased by 3.3 percent ($1.8 mil- The Central Bank closely monitors 2.1.1. Administration of the Insur- lion) on an annual basis respectively. the banks’ foreign exchange activities ance Act 2007 As such, the efficiency ratio of the throughout the year to ensure that banking system was reflected at 66.0 banks are not exposed to any major The Governor of the Central Bank of percent as compared to 64.7 percent foreign exchange risks detrimental to Samoa (the “Bank”) is the Insurance a year earlier. their financial viability. Among others, Commissioner (the “Commissioner”) this refers mainly to banks foreign ex- appointed under section 4 of the In- On the income side, the major con- change open overnight position by a surance Act 2007 (the “Act”), to carry tributing factor highlighted the de- single currency, as well as the combi- out the functions and powers as stip- crease in banks’ interest income of nation of different currencies. ulated under sections 5 and 6 of the 16.9 percent ($10.5 million) to $51.8 Act. million despite the increases in other The emphasis is on the Board of Di- income factors. rectors and Management of each There is broad acceptance interna- bank to have a clear understanding tionally that insurance supervision The overall drop in total operating ex- and knowledge of their bank’s capac- should be exercised over insurance penses by 7.1 percent ($4.0 million) ity in undertaking foreign activities companies to protect policyholder in- revealed the noticeable decreases in relation to its financial capacity terests and foster a competitive and at interest expense by 38.5 percent which, among others, must have re- innovative market place. More spe- ($9.6 million) and some of the non-in- gard to the volume and size of foreign cifically, the aim is to ensure that in- terest expenses such as management transaction deals of customers on a surance companies meet contractual fees by 3.3 percent ($0.2 million) and daily basis, the size of its capital and commitments made to the insured depreciation/amortization by 4.9 the ability of customers (both local and are at all times in a sound finan- percent ($0.2 million), despite the in- and abroad) to settle their foreign cial position by maintaining sound creases in other expense factors. transactions as they fall due. solvency standards.

Return on average net worth re- Using their own internal manage- The Bank has responsibilities under vealed a drop over the year to 18.9 ment limits as previously assessed the Financial Institutions Act 1996 percent, while the return on average and recognized by the Central Bank and the Insurance Act 2007 to su- total assets of 3.1 percent showed a as acceptable in accordance with pervise insurance companies in con- drop as compared to the level record- minimum international standards, junction with the Bank’s broader re- ed at end June 2017. banks have operated more or less sponsibilities aimed at promoting the within their set approved limits from health and stability of the financial time to time. system in general.

13 2.2. Licensing and Insurance Market compared to the same period a year Such increase was due to claims paid Structure earlier. This reflected a growth in as- by general insurers to claimants as sets by both the life (by 5.2 percent a result of cyclone Gita. The general Section 9 of the Act requires all in- or $2.3 million) and general insurance insurance sector dominated 56.8 per- surers and intermediaries conducting sectors (by 47.9 percent or $29.0 mil- cent ($7.3 million) of claims paid. insurance business in Samoa to be lion) respectively. The general insur- licensed by the Commissioner. The ance sector continued to dominate at 2.4.4. Profitability Performance Commissioner continued to receive 65.3 percent ($89.7 million). and assess applications for renewal of The insurance industry registered a licences by insurers, insurance agents 2.4.1.2. Liabilities growth in profitability of combined and insurance brokers. Licences are profit of $6.5 million at end of June renewed upon the payment of their Similarly, the consolidated total liabil- 2018 as compared to a $2.0 million licence renewal fees by the end of ities grew by 98.6 percent ($30.4 mil- profit recorded in the same time a December of each year. lion) to $61.1 million over the preced- year ago. The general insurance sec- ing year. This was due to the increase tor represents 58.5 percent ($3.8 mil- 2.2.1. Licensed Insurance Companies in general insurers’ liabilities by $30.0 lion) of total profit. and Subsidiaries million to $58.2 million, accounting for 95.3 percent of total liabilities. 3. Other Major Non-Bank financial At the end of January 2018, a total of institutions twenty seven (27) insurers and inter- 2.4.1.3. Shareholders’ Funds and Re- mediaries were licensed under the serves 3.1. Prudential Supervision to Non- Act and are listed as follows: Bank Financial Institutions i. Six (6) insurance businesses (2 The combined shareholders’ fund for life and 4 general); the domestic insurance industry rose Part 4A of the Financial Institutions ii. Four (4) insurance brokers; and by 1.4 percent ($1.0 million) to $76.3 Act 1996 allows the Central Bank of iii. Seventeen (17) insurance agents. million over the same quarter last Samoa (the ‘Bank’) to extend its pru- year. The life insurance sector domi- dential supervision to non-bank fi- 2.3. Supervision nates 58.8 percent ($44.9 million). nancial institutions (‘non-banks’).

As of June 2018, the Bank continued 2.4.2. Gross Premiums The major non-banks include the Sa- to undertake its supervision activi- moa National Provident Fund (SNPF), ties through offsite monitoring. To As of June 2018, the life and gener- the Development Bank of Samoa ensure that licensed insurers comply al insurance sectors’ combined gross (DBS), the Samoa Housing Corpora- with the Act, offsite monitoring is premium income stood at $34.1 mil- tion (SHC) and the Unit Trust ofSa- conducted which includes the assess- lion, up by 7.0 percent ($2.2 million) moa (UTOS). These non-banks were ment of periodic prudential returns as compared to June 2017. Of total, established under their own legisla- submitted to the Commissioner. the general insurance sector covered tion. 76.0 percent ($26.0 million) while the 2.4. Overview of the Insurance remaining 24.0 percent ($8.2 million) The ultimate responsibility for the Industry Performance was represented by the life insurance affairs of each non-bank rests solely sector. with Board and senior management. 2.4.1. Balance Sheet The Central Bank focus is towards 2.4.3. Claims satisfying itself that non-banks follow 2.4.1.1. Assets sound management practices and in- The combined life and general insur- ternal controls consistent with devel- As of June 2018, the combined life ance sectors’ net policy and claims opmental financial institutions and and general insurance sector record- payments aggregated at $12.9 mil- that prudent standards are kept un- ed total assets of $137.4 million, up lion grew by 50.2 percent ($4.3 mil- der review to take account of chang- by 29.6 percent ($31.4 million) as lion) over the past twelve months. ing circumstances.

14 The Bank continuously assesses the performance of each non-bank through its off-site surveillance activi- ties as well as onsite examination.

Regular financial returns from non- banks are furnished on a monthly and quarterly basis for ongoing review and analysis in determining the quali- ty of key areas of their operations for financial soundness.

3.2. Overview of the Non-Bank Financial Institutions Financial - Per formance

3.2.1. Balance Sheet

3.2.1.1. Total Assets

At end of June 2018, total assets of the four (4) non-banks stood at $1.06 billion, up by 6.4 percent ($63.6 mil- lion) as compared to June 2017. The major assets components include loans and advances (net) aggregated at $675.4 million (63.4 percent), fixed assets (net) totaled $140.6 million (13.2 percent), investments of $112.7 stood at $857.2 million, up by 9.6 million), Building, Construction and million (10.6 percent), bank depos- percent ($75.3 million) as compared Installation by 13.6 percent ($96.0 its amounted to $127.6 million (12.0 to the preceding year. Such total is million), Agriculture, Fisheries, Man- percent) and other assets of $8.5 mil- made up of contributions, pension ufacturing, Trade and Transport ac- lion (0.8 percent) respectively. pool and other accounts of $725.2 counted for 5.3 percent ($37.3 mil- million (84.6 percent), general re- lion) and other activities represent 3.2.1.2. Total Liabilities serves and assets revaluation of $68.8 53.2 percent ($375.9 million) corre- million (8.0 percent), and cumulative spondingly. Total liabilities on the other hand profits and paid-up capital aggregat- dropped by 5.7 percent ($12.4 mil- ed at $63.2 million (7.4 percent) re- 3.2.3. Assets Quality and Provi- lion) to $206.8 million over June spectively. (Refer Graph 10) sions 2017. Of total, borrowings represent 66.3 percent ($137.2 million), con- 3.2.2. Total Loans and Advances At end of June 2018, the three (3) vertible notes accounted for 22.5 non-banks (i.e. SNPF, UTOS and DBS) percent ($46.5 million) and other li- The total loan portfolio (gross) of registered a combined non-perform- abilities covered the remaining 11.2 the non-banks by the end of June ing loans (NPLs) balance of $69.6 mil- percent ($23.1 million) in that order. 2018 dropped to $706.3 million by lion, equivalent to 9.8 percent of to- 0.5 percent ($3.4 million) over the tal loans and advances (gross). Total 3.2.1.3. Total Funds, Reserves and same time a year earlier. Distribution provisions against the current level of Capital of loans by industry groups revealed NPLs stood at $30.9 million respec- that Professional and Business Ser- tively. (Refer Graph 11) Total Funds, Reserves and Capital of vices represent 27.9 percent ($197.1 the four non-banks as of June 2018

15 3.2.4. Profitability 3.2.5. Onsite Examinations 3.3. Money Transfer Operators (MTOs) and Money Changer As of June 2018, the non-banks re- In April 2018, a full scope onsite ex- corded a combined unaudited profit amination was conducted for the Also governed under the regulatory after tax of $49.4 million compared to Development Bank of Samoa (‘DBS’). framework of the Bank are the Mon- a $43.3 million profit reported in June Similar to banks, the main focus was ey Transfer Operators (MTO) and 2017. Such result derived from total to confirm DBS compliance with their Money Changer (MC). operating income and other income own policies and procedures as well aggregated at $68.8 million against as relevant standards, laws and regu- As required, MTOs and MC must re- total operating expenses of $21.9 lations already put in place to govern new their licenses at the beginning of million respectively. (Refer Graph 12) DBS performance. every year. In January 2018, the Bank issued renewal licenses to the follow- ing institutions and intermediaries:

i. Twelve (12) MTO licenses; ii. One (1) MC license; iii. Twenty seven (27) MTO branches licenses; and iv. Twenty one (21) MTO agents’ li- censes.

16 V. Financial System Development

he department is responsible for the development of the financial system through various ini- Ttiatives with the objectives of: • achieving greater shared economic prosperity through financial inclusion • assisting to develop deep and dynamic financial markets • assisting to safeguard the integrity, stability and soundness of the financial system.

In the pursuit of these objectives, the work of the department is in the three areas of: • Financial Infrastructure Development • Financial Consumer Affairs and Market Conduct • Stakeholder coordination and liaison with international partners

1. Financial Infrastructure Devel- improve the access indicator. Howev- with these parameters. By the end of opment er there were no significant changes the financial year, a firm assistance when looking at access points by lo- package had not been finalised. 1.1. Financial service (banks) land- cation or region, with the Apia Urban scape Area dominating all other regions in 1.1.6 Inclusive Insurance number of access points per 10,000 Financial service access points servic- adults. The Central Bank of Samoa hosted ing Samoa as at 30th June 2018 con- the Inclusive Insurance Information sisted of 24 commercial bank branch- 1.1.4 National Payment System Session in September 2017, to pres- es, 65 Automatic Teller Machines ent the analysed results of the 2015 (ATMs), 548 Electronic Funds Transfer The procurement of the Automated Inclusive Insurance survey for Samoa, at Point of Sale (EFTPOS) outlets and Transfer System (ATS+) and Central to achieve a better understanding of 81 cash-in & cash-out bank agents Securities Depository (CSD) software the inclusive insurance landscape in (merchant stores). For the period un- package was conducted through the Samoa. The session also introduced der review, there was an increase in processes of the World Bank/IFC. This the work stream of the National Fi- all access points except for the num- began in October 2017, however was nancial Inclusion Strategy 2017-2020, ber of bank branches. not completed within the period un- provided a platform for insurance in- der review. dustry interaction with the CBS and 1.1.2 Non-Bank financial service pro- PFIP, and raised awareness about viders On the regulatory side, stakeholder PFIP work in the insurance space in- consultations for the NPS Oversight cluding ways to access their technical Only one non-bank financial service Regulation were conducted and the assistance facility provider continued to offer a mobile review continued for the NPS Guide- money wallet for the period under lines for Agents, NPS Guidelines for 1.1.7 Government to People/Peo- review. Although the agent net- Retail Payment instruments, Direc- ple to Government (G2P/P2G) Pay- work was reduced to five, but when tives for Electronic Funds Transfer. ments. compared to the previous year, the number of mobile money wallets reg- 1.1.5 Credit Data Bureau The Central Bank of Sāmoa (CBS) and istered and e-money balances contin- the PFIP conducted the ‘Government ued to grow. With lessons learnt from the previ- to People/Persons to Government ous attempts to establish a credit (G2P/P2G) payments workshop’ in 1.1.3 Financial Inclusion Measure- data bureau, the CBS reached out to October 2017. The workshop aimed ment the Asian Development Bank (ADB) to introduce the concept of digitaliz- for assistance in setting up a Credit ing government payments within At end June 2018, the noticeable Data Bureau, housed, owned and op- Government departments and line change in the financial inclusion mea- erated in Samoa. Two missions were ministries that handle (receive and surement stemmed from the increase conducted within the financial year make) payments. The outcome of in EFTPOS terminals which helped to in review, to ascertain a way forward the workshop was a series of recom-

17 mended action plans as discussed by force (NFIT), the driver of the Nation- 1.3.4 Alliance for Financial Inclusion the participants. al Financial Inclusion Strategy (NFIS) (AFI) 2017-2020 continued its quarterly 1.2 Financial Consumer Affairs and meeting throughout the year sharing The CBS continued to be an active Market Conduct initiatives and progresses in promot- member of the AFI network, with ing financial inclusion and financial its participation in the four thematic 1.2.1 Global Money Week literacy in the country. working groups. At the regional level Events it continued to work closely with oth- 1.3.2 Small Business Enterprise Cen- er central banks in the pacific in the The Global Money Week celebration tre (SBEC) Roadshow for Upolu Pacific Island Regional Initiative (PIRI). is an annual event coordinated by Child & Youth Finance International The aim of the SBEC roadshow was 1.3.4.1 4th Pacific Islands Regional that targets children and youth, to to promote the roles of SBEC and its Initiative (PIRI) Meeting 2018 learn about how money works, to partners in the development of Mi- raise financial awareness, to gain so- cro, Small and Medium Enterprises The Central Bank of Samoa and AFI cial and livelihood skills, and develop (MSME) sector in Samoa. Only two co-hosted the 4th PIRI Meeting at entrepreneur skills. districts were the focus for Upolu. the Taumeasina Island Resort on 5th The roadshow was attended by 137 – 8th June 2018. The event brought The Central Bank of Samoa (CBS) par- entrepreneurs and business owners together regulators, financial service ticipated again this year with the Be from the Samatau & Falelatai and providers, government agencies, and Money Wi$e (BMW) Poster Competi- Falealili districts financial technology providers from tion, Piggy Bank/Money Box Compe- the pacific region to discuss the is- tition, Visits to Financial Institutions For the roadshow, the CBS presented sues, solutions and opportunities of and daily publications of the GMW on its function of promoting financial leveraging digital financial services 2017 Speech Competitions in the inclusion and financial literacy and and financial technology for financial newspaper. A total of 294 students how these are important for entre- inclusion goals. The overall theme of from 15 schools participated in the preneurs and the overall develop- the event was “Fintech for Financial Global Money Week events. ment of the financial system. Other Inclusion”. partners that were present included; 1.2.2 Financial Literacy collaboration the Development Bank of Sāmoa, Sā- 1.3.5 Pacific Financial Inclusion Pro- with other stakeholders. moa Commercial Bank, the Ministry gram (PFIP) of Commerce, Industry and Labour, The CBS assisted the Development the Ministry of Women, Community The Pacific Financial Inclusion Pro- Bank of Samoa’s (DBS) Inclusive De- and Social Development and the Min- gramme (PFIP) is a joint program of velopment Credit Facility Programme istry for Revenue. the United Nations Capital Devel- which focussed on Savaii by conduct- opment Fund (UNCDF) and United ing the financial literacy training com- 1.3.3 Community Economic Empow- Nations Development Programme ponent, for the 406 successful appli- erment Development Sub-Sector (UNDP). Its aim is to increase access cants (319 females, 87 males). The Committee to sustainable, appropriate and af- goal of the facility is to enable access fordable financial services by low-in- to financing for women and youth The CBS is also a member of the come and rural people in the Pacific who are unemployed nor have any Community Economic Development Island Countries. steady source of income, to develop Sub-Sector Committee which was es- With the assistance of Mr Amit Ku- economic and sustainable means of tablished to pursue the Outcome 3 mar, PFIP’s Financial Inclusion Spe- livelihood. of the Community Sector Plan 2016 cialist in Samoa, the CBS continued – 2021, targeting the economic - em its strong collaboration with PFIP to 1.3 Stakeholder coordination and powerment of vulnerable individuals, progress financial inclusion and finan- liaison with international partners. families and villages. The committee cial literacy in Samoa. 1.3.1 National Financial Inclusion meets quarterly and also provides a Taskforce (NFIT) platform for CBS to update the com- mittee on financial inclusion andfi- The National Financial Inclusion Task- nancial literacy initiatives.

18 VI. Money Laundering Prevention and Countering of Terrorist Financing Activities

1. Summary of Activities of the 1.2. APG High Level Mission and Vis- General under section 82 of POCA. As MLP Authority its the Administrator of the Confiscated Assets Fund (“CAF”), the Authority The MLP Authority (“the Authori- In February 2018, MLPA hosted a continues to liaise closely and work ty”) works to comply with the inter- scoping visit from the APG Secretar- together with the Police, Customs nationally recognized standards as iat who visited Samoa for two days and the Attorney General’s Office in promoted by the Financial Action to meet with relevant stakeholders transferring, storage and safe keeping Task Force (FATF) and the Asia Pacific (such as government officials, law of these assets. Group (APG) on Money Laundering, enforcement agencies, supervisors, of which Samoa is a member. The private sector, etc.) to assess where During this period, $40,000.00 was Authority also sets the strategic tone Samoa’s needs are in terms of an- reinvested as a term deposit for for anti-money laundering measures ti-money laundering and how they twelve months. in Samoa, and this is implemented could provide funding for technical by its Financial Intelligence Unit. The assistance. 1.5 Amendment of the MLP Act FATF is an international organization that sets the global standards for The AML/CFT technical assistance & The MLP Amendment Bill took two anti-money laundering. They divide training is one of APG’s functions to years in the making as there were their groups into regions, and Samoa provide practical support and training a lot of groundworks undertaken. is a member of the APG. on AML/CFT matters. Such training There were trainings conducted for will assist with the appropriate imple- the law enforcement agencies in Sa- 1.1. APG Plenary Meeting (July mentation of AML/CFT controls and moa, thorough consultations with 2017) measures in our own ministries and all the relevant stakeholders, both agencies. during the policy development stage Samoa has made progress on techni- and the draft Bill stage. The Act was cal compliance with national co-op- 1.3. Follow-up Report passed by Parliament and assented to eration and co-ordination, having de- by the Head of State on Friday 22 June veloped and implemented an AML/ Samoa submitted its third Follow up 2018. The purpose of these amend- CFT National Strategy 2016-2020, Report to the APG on 31 January 2018 ments is to strengthen Samoa’s anti- a National Policy on AML/CFT and in accordance with the APG Third money laundering frameworks based AML/CFT Policy Paper for 2016-2020. Round Mutual Evaluation Procedures on international standards that have These two papers provide a strategic 2016. Samoa is committed to address been set by the Financial Action Task plan and direction for Samoa in terms some of the shortcomings identified Force (FATF), and implemented by its of anti-money laundering and com- in its Mutual Evaluation Report11 of regional branches such as the Asia Pa- batting terrorist financing from 2016 2015 by 2020. Samoa has to report to cific Group (APG), of which Samoa is – 2020. In essence, a review team the APG its Follow up Reports every a member. was set up by APG to review Samoa’s 12 months to ensure that it has made progress in this area, and concluded significant progress in implementing The amendment was also submit- that Samoa should progress to largely the anti-money laundering standards. ted to the APG which also provided compliant, a very high rating for this comments on the amendment. The particular standard. At the APG Ple- 1.4. Confiscated Assets Fund (“CAF”) new amendments also means Sa- nary in July 2017, it was agreed for moa can now apply to the APG for Samoa to remain on enhanced fol- The Governor is currently the Ad- an improved rating of its framework. low-up (expedited), and to provide its ministrator of property forfeited or An improved rating framework will next follow up report (or update re- restrained under the Proceeds of further enhance Samoa’s reputation port to the APG) by 31 January 2018. Crime Act 2007 (“POCA”). Her ap- and ensure we are not blacklisted for pointment was made by the Attorney money laundering.

11 A full assessment of Samoa’s anti-money laundering system by a team of specialist assessors.

19 1.6 Standard Operating Procedures GRAPH 13: SFIU PERFORMANCE OUTPUTS & ACTIVITIES 100 SFIU developed a standard operating 90 procedures (SOP) for border currency 80 reporting (BCR) and seizure, -deten 70

r 60 e tion, retention and release of unde- b

m 50 u clared excess/declared suspicious N 40 cash or negotiable bearer instrument 30 (NBI).The draft SOP was distributed 20 10 to the Samoa Airport Authority (SAA) 0 and Customs for comments before 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Years the document is final. Anti-money laundering training was also conduct- STRs Received Dissemina�ons Requests BCRs No�ces ed for the Samoa Airport Authority personnel at the Faleolo Internation- manner. These are not binding, but in terms of regulating the financial al Border (Arrival and Departure). provide a platform for communica- institutions, embedded effective AML tion between different jurisdictions program to combat ML/TF activities, 1.7 Quarterly Meetings in terms of money laundering. and the provision of ongoing training on detection and prevention of ML/ The SFIU continued to host Quarter- 2.2 Onsite Inspections TF. ly meetings with the AML Task Force members and Financial Institutions SFIU carried out onsite inspections 2.4 Financial Information (FIs) compliance officers to discuss for Commercial Banks in June to De- AML/CFT matters (issues, challenges cember 2017 and Money Transfer One of the key functions of the SFIU and way forward). Operators in April to May 2018. The is to analyse reports. These reports purpose of the visit is to measure the consisted of Suspicious Transaction As part of its supervisory roles, the Financial Institutions (‘FIs”) level of Reports (“STRs”), Border Currency SFIU will conduct trainings for fi- compliance with its statutory obliga- Reports (“BCRs”), Requests received nancial institutions and Task Force tions as stipulated under the MLPA and made, and dissemination of members regarding their AML/CFT 2007 and Money Laundering Preven- reports to other Law Enforcement statutory functions and responsibili- tion Regulation 2009 (‘MLPR’) as well Agencies. We also send and receive ties in order to strengthen awareness as in accordance with the interna- foreign requests for information and remain vigilant in detecting, de- tional standards. on investigations on money laun- terring, disrupting and preventing dering. We also have notices circu- ML/TF activities. 2.3 CAMS Examination lated through media and financial institutions on issues pertaining to 2. Summary of Activities of the- Sa Four (4) SFIU staff passed the CAMs anti-money laundering. moa Financial Intelligence Unit examination in 2017 and became (SFIU) Certified AML Specialists. The- Cer It is also important to note that as a tified Anti-Money Laundering Spe- result of the recent Money Launder- 2.1 Memorandum of Understanding cialist (CAMS) credential is the gold ing prevention amendments a new (MOU) standard in AML certification, and form of reporting will also be includ- recognised worldwide by financial ed called Cash transaction reports In July 2018, a memorandum of un- institutions, government and -regu where any transaction made in afi- derstanding is expected to be signed lators as a serious commitment to nancial institution over 20,000 SAT between the SFIU and the Financial protecting financial system against must be reported to the SFIU. This is Analysis and Supervision Unit of PNG. money laundering. The knowledge part of the FATF standards. These are normal bilateral agree- and experience from CAMS would be ments between two FIUs in order to an asset to the development of the exchange information in an efficient SFIU in promoting AML compliance

20 2.5 Due Diligence company/individual has in relation to (LEAs) and competent authorities to criminal or illegal activities such as raise awareness on AML/CFT require- Another function of the SFIU is to money laundering/terrorist financing ments and obligations. The main pur- conduct due diligence checks for re- or any other criminal matters. pose of the awareness trainings is quests from financial institutions, for all FIs, Law Enforcement Agents competent authorities and internal 2.6 Ongoing Awareness and Train- (LEAs) and competent authorities departments of the CBS. The purpose ings to remain vigilant in detecting, de- of the due diligence/background terring, disrupting and preventing checks is to screen the legitimacy of a The SFIU completed trainings for its ML/TF activities. company/individual and also to see if stakeholders such as the financial in- there’s a match/hits that a particular stitutions, Law Enforcement Agents

21 VII. Corporate Services and Administration

1. Currency Operations TABLE 6: NOTES PROCESSED 2013/14 2014/15 2015/16 2016/17 2017/18 1.1 Currency handling arrangements Value Pieces Value Pieces Value Pieces Value Pieces Value Pieces The Central Bank is the sole issuer of (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) (Millions) local currency banknotes and coins as stipulated under the Central Bank of Notes saved for reissue 248.8 7.4 169.1 4.7 211.8 6 175.8 5.2 253 7.16 Samoa Act 2015. Notes Destroyed 29.4 1.59 30 1 39 1.8 44 1.4 60.3 2.6 Total Processed 278.2 8.99 199.1 5.7 250.8 7.8 219.8 6.6 313.3 9.76 The quality of banknotes was main- tained in an acceptable level during 1,760,828. While the $2 coin in- and actively promoted public aware- 2017/18. To keep currency in circu- creased by 12.0 percent to 1,182,855 ness of counterfeit banknotes in lation at a high standard, the Central pieces in 2017/18. Overall, the num- 2017/18, launching another year long Bank would withdraw and destroy ber of pieces for all the denomina- media campaign, including media re- soiled and damaged banknotes, re- tions rose by 1,560,912 in the year leases in the TV, radio and print me- placing them with new banknotes. under review. dia to combat the increase in coun- terfeit notes received. (Refer Table 7). The commercial banks continued to 1.3 Replacement of Damaged follow the established cash opera- Banknotes The total number of counterfeit notes tional procedures specified in the discovered and presented to the Cen- Central Bank’s Internal Control of the The Central Bank provides services tral Bank by the commercial banks, Cash and Vault Operations during the to replace banknotes which have retailers and members of the gener- year. been accidently damaged or are unfit al public increased significantly with for circulation. In 2017/18 replaced forty seven (47) presented in compar- During 2017/18 a total of 9.76 million notes increased to $101,870 from ison to seven (7) in the previous year. pieces of banknotes were processed, $88,800 in 2016/17. The most com- with 7.16 million banknotes reissued mon types of damage to banknotes and 2.6 million unfit banknotes worth are limpness, tearing or accidental The Central Bank continues to work $60.3 million withdrawn from circula- burning. closely with the Police Department to tion and destroyed during 2017/18.

1.2 Currency Issue

The demand for currency (banknotes and coins) in 2017/18 grew by 13 percent to $101.6 million from $89.6 million the year before. The growth was mainly due to an increase of re- issued notes during the period while new notes issued dropped slightly. As a result the total cost of currency issued decreased from $2 million in 1.4 Counterfeit Currency Notes assist police in counterfeit detection 2016/17 to $1.7 million in the finan- techniques and support with coun- cial year ending 30 June 2018. Counterfeit money is not reimbursed terfeit analysis. nor compensated by the Central Leaving aside small denomination Bank. Therefore, the onus is on the 1.5 Numismatics coins, the $1 coin remained the banks and members of the public most widely circulated currency unit to be vigilant and alert in detecting Apart from being used to make pay- in the country with the number of counterfeit money. ments, currency banknotes and coins pieces circulating by the end of June are themselves valuable works of art 2018 increasing by 13.0 percent to The Central Bank remained cautious and are well sought after by currency

22 collectors all over the world. As with and commercial banks (participants) sinking lid approach was implement- paintings and other works of art, the in an efficient and reliable manner. ed to control staff costs. The sinking more unique and older a banknote or The new system will replace the cur- lid was lifted in early FY 2017/2018 to coin becomes, the more valuable it rent inter-bank settlement. recruit technical capacity that could tends to be. not be sourced internally. At the end To promote cooperation and assist lo- of June 2018, the Central Bank em- Income from Numismatic or collec- cal banks using the SWIFT system for ployed a total of ninety eight (98) tor sales for the financial year ending payments, the Central Bank chairs the staff, compared to the eighty nine 2017/18 was $0.58 million. The Bank Samoa SWIFT user group. This group (89) in June 2017. signed a number of agreements with provides a forum for local banks to partner mints for a variety of new discuss and review matters related to In terms of gender composition, male coin programs during this financial SWIFT and payments. The user group make up the majority of permanent year ending 30 June 2018. also provides a single point of contact staff (non-contract) in FY 2017/2018. between Samoa and SWIFT ensuring This trend is similar to the previ- 2. Banking Operations timely dissemination of locally sensi- ous financial years (FY 15/16 and FY tive issues to and from SWIFT. 16/17). However, the trend differs 2.1 Interbank Settlement in management positions (contract) 3. Internal Audit where female make up the majority As the overseer of the financial sys- in FY 2017/2018. This trend is simi- tem, one of the Central Bank’s key The Internal Audit Department is pri- lar to the previous financial years (FY function in so far as the inter-bank marily charged with the task of pro- 15/16 and FY 16/17). This indicates settlement system is concerned, is viding an independent and objective gender equity in Central Bank policies to facilitate the efficient and effec- advice to the Central Bank’s Audit specifically in recruitment and reten- tive exchange of payments amongst Committee, Governor and Manage- tion of staff. the commercial banks. It does this by ment on risk management, internal providing office facilities where the controls and governance. This is un- Twenty (20) appointments were ap- commercial banks meet to settle the dertaken by measuring and evaluat- proved in FY 2017/2018. Among exchanges through their Exchange ing the effectiveness of the internal these were four (4) contract appoint- Settlement Accounts (ESAs) at the controls and systems that are in place ments and sixteen (16) permanent Central Bank. In addition to settling to achieve the Bank’s objectives. appointments. Of the four (4) con- domestic inter-bank payments, the tract appointments: ESAs are also used to settle foreign 4. Human Resources • Two (2) contract officers were exchange deals, currency operations re-appointed for another three with the Central Bank and transac- 4.1 Policy developments, reviews year term; tions in CBS securities. The commer- and monitoring • One (1) contract officer was cial banks are required to keep their transferred on merit to fill a new ESAs in credit at all times. The Bank reviewed and developed contract position; and several staff policies during the FY • One (1) contract officer was ap- 2.2 National Payment and Settle- 2017/2018 to improve human re- pointed (from outside) to fill an- ment System. source management and monitoring other contract vacancy. of staff training. The Human Resource In its duty to promote and oversee Department is part of several policy Of the sixteen (16) permanent ap- the safety and efficiency of the- Na review Committees within the Bank. pointments, four (4) were inter- tional Payment System, the Central nal movements or promotions and Bank is at its last stage of establishing 4.2 Composition of staff twelve (12) were recruitments from an Automated Transfer System with outside the Bank. the assistance of the World Bank. This The Central Bank experienced an system will provide an irrevocable increase in staff numbers in the FY 4.2.2 Staff Cessation of service clearing and settlement of financial 2017/2018. This was contrary to staff transactions between Central Banks numbers in FY 2016/2017 in which a Staff turnover was reportedly low in

23 FY 2017/2018 compared to the two previous financial years. A total of four (4) staff resigned of which two (2) migrated overseas, one (1) took up a promotion with another - Gov ernment agency and one (1) was for family reasons.

There is no recorded termination or death during the FY 2017/2018. In terms of retirement, one (1) employ- ee extended retirement for another 12 month (annual) period.

4.2.3 Service Recognition

A few staff were recognized for long service during the FY 2017/2018. One (1) achieved 10 years of service; an- other achieved 15 years of service and another 20 years of service.

The Bank acknowledges with grati- tude the dedication and commend- able service of these long serving members to the Central Bank of Sa- moa.

4.2.4 Staff Social activities GRAPH 16 Many activities involved staff - out STAFF TURNOVER FOR 3 FINANCIAL YEARS side the professional realm of work. These activities associate with staff 10 welfare and build morale. One of the 8 9 a ff t

S 7

6

prominent activities during the FY f

o 6

#

2017/2018 is the fitness transforma- . 4 o

N 4 tion programme that continued for 2 2 a consecutive period of 10 months. 0 1 1 Other sporting activities were office FY15/16 FY16/17 FY 17/18 tournaments in which staff repre- Financial Year - end of June sented the Bank in touch rugby, net- Resigna�on Re�rement Termina�on ball, soccer and volleyball.

4.3 Staff Trainings and Developments Staff are encouraged to pursue high- 4.3.1 Local Training and Meetings er education especially in core areas The Bank places value on staff devel- of the Bank. In addition to this -for The Bank facilitated internal train- opment and training and provides an mal program, the Bank continuous- ings on Communications, Effective enabling environment to strength- ly trains staff locally and overseas Teamwork, Time Management, In- en, build staff capacity and caliber through specific training workshops, tellect and Judgment and Research through its staff education program. meetings and work attachments. and Analytical Skills. A training on Microsoft Office programs and tools

24 for data analysis was conducted and addressed training needs identified GRAPH 17 by staff in FY 2017/2018. The Bank NUMBER OF TRAININGS AND TRAVEL OPPORTUNITIES FOR 3 FINANCIAL YEARS

continues bi-annual induction pro- l e 50

gramme for new recruits and regular a v r 45 T

awareness of revised policies. d 40

a n 35 45 42 s

g 30 40 n i 25

Bank staff attend local meetings and n

a i 20 r

T 15 trainings offered by the Samoa Public f

o 10 15 # 13

Commission (PSC), Ministry of For- . 5 10 o eign Affairs & Trade, Ministry of Rev- N 0 FY 15/16 FY 16/17 FY 17/18 enue, Ministry of Prime Minister and Financial Year - end of June Cabinet, Ministry of Education Sports and Culture (MESC), Small Business Local Trainings and Travel Overseas Trainings and Travel Enterprise Centre (SBEC), Samoa Bu- reau of Statistics, Samoa Stationery The Bank hosted two (2) internation- with tertiary qualifications: and Books, World Bank, Pacific Finan- al meetings and workshops in this 1. One (1) in Master of Financial cial Technical Assistance Center, Asia financial year. In November 2017, it Analysis from the University of Development Bank, Samoa Institute co-hosted with De La Rue the De La New South Wales; of Accountants and non-bank finan- Rue Pacific Workshop in Apia. In June 2. Two (2) in Bachelor of Commerce cial institutions such as the Develop- 2018, the Bank co-hosted with the Al- and Science from the National ment Bank of Samoa and the Samoa liance on Financial Inclusion the 4th University of Samoa; National Provident Fund. Pacific Island Regional Initiative in 3. One (1) in a Diploma Office Man- Apia. agement from the National Uni- 4.3.2 Overseas Meetings and Train- versity of Samoa and; ings 4.3.3 Donor Support 4. Two (2) in Certificate IV in Lead- ership and Management from The Bank’s representation to inter- Donor support has facilitated atten- the Australian Pacific Technical national meetings and conferences dance to most international meetings Centre. continued in the report period. Bank and trainings namely the Alliance for management staff attended sever- Financial Inclusion; Asia Pacific Group Five (5) staff continue part time -ter al annual meetings particular to the on Money Laundering; Asian Infra- tiary studies in: Bank’s nature of work. These are structure Investment Bank; Austra- mostly self-funded. The Bank contin- lian Prudential Regulatory Authority; 1. Bachelor of Law at the University ues to represent Samoa in numerous Australian Transaction Reports and of the South Pacific; conferences, seminars, trainings and Analysis Centre; Bank Negara Malay- 2. Professional Diploma in Legal donors have been generous in fund- sia; De La Rue; Financial Action Task Drafting at the University of the ing (either fully or partially) partici- Force (FATF) Training and Research South Pacific. pation of the Bank’s technical / policy Institute (TREIN); International Crim- 3. Bachelor of Commerce at the Na- staff. inal Police Organization; International tional University of Samoa. Monetary Fund Singapore Regional The Bank continues to train its Training Institute; Pacific Financial 4.5 Work Experience programme, support/operation staff and in FY Technical Assistance Center; Royal volunteers and study visits. 2017/2018, it funded five (5) staff Australian Mint; Society for World- for a work attachment at the Reserve wide Interbank of Financial Telecom- The Bank continued to accommo- Bank of Fiji for a week, understudy- munication and World Bank. date students for work experience ing areas of human resource, banking and observation from local tertiary and payments, occupational safety 4.4 Formal Education and vocational institutions. The Bank and health and security procedures hosted two students in FY 2017/2018 and policies. In FY 2017/2018, six staff graduated from the Laumua o Punaoa College

25 and the National University of Samoa assets housed within the premises. Institute of Technology. The students Renovations and maintenance of the observed in areas of office adminis- Building is consistently carried out tration under the Human Resource and monitored to ensure safety and Department and data entry under the security. Economics Department. 5.4 Information Technology (IT) 5. Property and Information Tech- nology During the year, the Bank commenced work on improving and providing ser- 5.1 Occupancy vices that are accessible and secured. The SWIFT and Accounting systems Sixty five percent (65%) of the Build- were upgraded to gain greater con- ing’s office space is rented out to trol over financials, inventory, oper- Government Ministries, International ations and Security. An upgrade links and Private Organizations. The other to the Bank’s Disaster and Recovery thirty five percent (35%) is occupied Site from wireless to Fibre for a faster by the Central Bank of Samoa. and secure backup channel. In addi- tion, the IT staff attended and under- 5.2 Offsite Development took online cyber security courses to further enhance knowledge on pre- Development of the site at Ululo- venting cyber-attacks. loa started with clearing of the land, erecting the rock-wall fence and constructing a temporary back-up facility for Security and IT resources. Construction of the main building is projected to occur within the next fi- nancial year.

5.3 Security & Maintenance

CCTV security surveillance system assists Security Officers on a 24 hour basis to ensure safety and security of

26 VIII. Central Bank Financial Performance

FINANCIAL PERFORMANCE AND AU- On the other hand, the Bank record- Total net profit achieved by the Bank DITED ACCOUNTS ed total liabilities of $610.9 million at year end was $3.0 million, as com- consisted of foreign liabilities totaling pared to a profit of $6.0 million- re The final section of this Annual- Re at $199.0 million and $411.8 million corded a year earlier. port consists of the audited accounts in local currency. of the Bank for (FY2017/18) ending The Board has decided to transfer the 30 June 2018. The Bank’s net assets amounted to profit of $3.0 million achieved at year $19.5 million, a marked increase from end 30 June 2018 to Reserves. At year end June 2018, the Bank had $16.3 million recorded a year earlier. total assets of $630.3 million made Total reserves increased mainly due up of $451.4 million in foreign assets, to unrealized gains from the revalua- and $178.9 million in local assets. tion of foreign currency assets during the year.

27 IX. Chronology of Important Monetary, Prudential and Related events

July 2017 January 2018 trol reporting framework, which i. Central Bank macro-economic i. Update of Central Bank mac- previously required the manual forecasts and monetary policy ro-economic forecasts and mon- submission of completed BOP2 stance for 2017/2018 were con- etary policy stance for 2017/2018 forms (or pink forms) to the Cen- sidered by the Board of Directors. based on the first six months’ tral Bank every month. The Board approved for monetary review. The Board approved the ii. On the 9th, the CBS Board of policy to remain accommodative continuation of the accommoda- Directors approved the recom- to stimulate further growth in the tive monetary policy to stimulate mendations on the Review of the domestic economy. economic growth for the remain- Foreign Investment Policy and i. On the 24th to 27th the World ing six month of the year. Guidelines for 2018. Bank Group conducted a Case- iii. On the 26th to 6th April, CBS con- Study Mission on De-risking to February 2018 ducted a full scope onsite exam- Samoa. i. On the 1st, the Tala exchange ination of the Development Bank ii. On the 31st July to 8th August, rate basket, which was reviewed of Samoa. CBS conducted an AML onsite in- and approved by the Board of spection of the Samoa Commer- Directors on the 31st January, be- June 2018 cial Bank, as part of its annual came effective. The Tala basket i. On the 4th to 15th, CBS in col- work plan. still comprise of the currencies laboration with the Australian of New Zealand, United States of Prudential Regulatory Authority August 2017 America, Australia and European (APRA) carried out a full scope i. On the 1st, the revised Exchange Euro. onsite examination of ANZ Bank Control Manual for 2017 took ii. On the 13th and 14th, the APG (Samoa) Limited. effect. There were only minor undertook a scoping mission to changes to procedures as well identify priority needs for Sa- as the delegation of authority to moa’s AML/CFT regime for subse- the commercial banks and mon- quent technical assistance by the ey transfer operators to process organization. foreign exchange payments for iii. On the 21st to 5th March, the overseas insurance/re-insurance IMF conducted its Article IV Mis- premiums for all economic sec- sion assessment of the Samoan tors (excluding licensed insur- economy. This was the first Mis- ance companies and commercial sion undertaken in the new cycle, banks). which will require annual assess- ments of Samoa’s economy by October 2017 the Fund. i. On the 16th to 27th, the Cen- tral Bank (through the Financial March 2018 Supervisory and Regulatory Ser- i. On the 1st, the commercial banks vices Department) conducted a and MTOs were no longer re- Prudential Onsite Inspection of quired to use the CBS balance the Samoa Commercial Bank Lim- of payment (BOP) 2 form (pink ited. form) to report any foreign ex- ii. On the 23rd and 24th, the Re- change payment transaction. In- serve Bank of Australia offered a stead, these financial institutions Technical Assistance (TA) Mission now use their own respective to assist the Central Bank with telegraphic transfer (TT) forms the review of its monetary policy which should have a CBS decla- operations. ration statement. This followed a CBS review of the exchange con-

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