Outcome of the Third Financial Stability Committee discussions for 2023 |16 November 2023
Members note the improvement in domestic economic activity
The Financial Stability Committee (FSC) held its third meeting for the year on November 13, 2023, during which members discussed several matters that may have a bearing on the country’s financial stability.
Members noted the improvement in domestic economic activity, supported by the positive performance of the tourism industry. Despite still falling short of pre-pandemic levels tourist arrivals have been higher than in 2022 on a year-to-date basis. However, tourism receipts have been marginally lower compared to 2022 but have recorded double-digit growth compared to the pre-pandemic period.
The main risks to the domestic banking and non-banking sectors were also discussed. Members were briefed on actions being taken by the Central Bank of Seychelles (CBS) to address regulatory and supervisory concerns regarding the asset quality of the banking sector in light of the elevated levels of non-performing loans.
They were apprised of the outcome of a related study conducted by CBS and ongoing on-site examinations to assess the asset quality of the banking sector.
The FSC also discussed the country’s recent addition to the European Union’s list of non-cooperative jurisdictions for tax purposes, highlighting the reputational risks and potential adverse implications on foreign direct investments, correspondent banking relationships of domestic banks with their foreign counterparts and the potential increased scrutiny on transactions to and from Seychelles.
On the global front, the Committee was apprised of key international developments that may impact the country’s financial stability. Global economic activity has slowed and remains uneven due to disruptions in energy and food markets caused by the Russia-Ukraine war and the unprecedented tightening of global monetary policy conditions.
In terms of outlook, downside risk factors, such as renewed geopolitical tensions and disruptions linked to climate change continue to weigh on global economic growth and financial conditions.
Members were also provided with an update on the development of the country's Financial Stability Framework. The draft Financial Stability Bill was approved by the Cabinet of Ministers in October 2023, and is expected to be presented to the National Assembly in December 2023.
The domestic financial system remains stable despite the elevated downside risks to global financial stability. Nonetheless, the authorities will continue to closely monitor the situation and stand ready to take necessary actions to mitigate the impact of potential risks to financial stability.
Additionally, the FSC has re-emphasised the importance of collaborative efforts to identify and address persistent as well as emerging threats to domestic financial stability and pressed on the need for the local authorities to be more proactive in communicating the various policies and measures being implemented to mitigate financial stability risks.
Contributed