Committee sheds more light on Financial Stability Report for 2018 |17 August 2019

The committee giving more details of the Financial Stability Report 2018

The Financial Stability Committee (FSC) officially published the Financial Stability Report for the year 2018 on July 31 and provided more information on the findings of the report in a press conference held at the Central Bank Seychelles (CBS) yesterday afternoon.

Present to provide the press with more details on the matter were secretary of state for Finance, Trade, Investment and Economic Planning Patrick Payet, First Deputy Governor of CBS Christophe Edmond, Director of the Financial Intelligence Unit (FIU) Richard Rompal and chief executive of the Financial Services Authority (FSA) Steve Fanny.

The annual publication, released for the first time in 2018 for the year 2017, assesses the stability of the Seychelles financial system and its overall ability to withstand economic shocks with minimal disruptions. The report also identifies potential risks to financial stability, emanating from both domestic and global sources through six tests.

The 2018 report has made some progress in extending the analyses beyond the banking sector to include the insurance and pension sectors. It is envisaged that there will be more coverage of non-financial institutions in future editions.

Following an explanation as to the structure of the report, it was explained that the major risks to global financial stability and which have the most negative impacts on the domestic financial system, are the normalisation of monetary policy in advanced economies, escalating geopolitical events and the continuing global de-risking trend.

It was remarked that the Central Bank of the United States has tightened its monetary policy in a bid to control inflation, which has increased the value of the dollar against other currencies and increased the interest rates for loans disbursed in dollars. Furthermore, the uncertainty of the Brexit deal remains a concern for Seychelles as well as the trade sanction between the US and China. In terms of re-risking it was stated that the global trend had persisted throughout 2018 and remains an issue for concern for the local financial sector.

On the domestic front, the de-risking phenomenon and the impact on correspondent banking relationships, cybersecurity, the increasing financial burden of state-owned enterprises on government budget, and potential threats emanating from the implementation of a new accounting standard, the International Financial Reporting Standard (IFRS) 9, have been identified as key risks to financial stability. Several measures were put in place to mitigate the potential negative impacts of these threats.

In a bid to prevent cyberattacks, the Department of Information, Communication and Technology (DICT) is working on a bill to cover risks stemming from new and digital technologies and which will apply to all sectors.

From a financial stability perspective, the domestic financial system is said to be generally sound and resilient. Nonetheless, in view that the financial landscape is continually evolving and new risks are constantly emerging, the FSC has highlighted the need for the country to continue identifying, monitoring and taking necessary action to remove or mitigate systematic risks, with the aim of maintaining financial stability and ensuring the resilience of the financial system.

In terms of the insurance sector, supervised by FSA, the sector is increasingly growing and performing well. However, the sector is experiencing some difficulties in its investments, most of which are in real estate and there is therefore a need to diversify to reduce the financial risks.

During 2018, FSA also introduced 5 codes to reinforce the supervisory framework for the sector towards international standards.

As for the pension sector, it was noted that Seychelles Pension Fund (SPF), the largest institutional investor in the country, has invested around 50 percent of its investments in real estate, similarly to the insurance sector. In order to reduce the risks associated with real estate investments, SPF is in the process of diversifying its investments into other fields such as securities abroad but which is also exposing the entity to foreign currency risks.

The FSC was established in March 2016 to maintain financial stability within the domestic economy.

The report is available through the CBS website.