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Seychelles: Seychelles Finance Profile

2015/01/26

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In the few years since the 2008 deficit crisis, Seychelles has made remarkable development, quickly restoring macroeconomic stability and creating room for private-sector activity. However, in 2012, the Seychelles economy, as measured by real increase in gross domestic product (GDP), grew at 2.8 %, as large investment projects were completed, declining from 5.0 % in 2011. Projections for 2013 and 2014 are 3.2 and 3.9 respectively.

The financial sector remains adequately capitalized despite the recent economic downturn and world economic crisis. Recent liberalization implemented as part of the reform program has made space to foster private credit increase, but as well created a need for additional prudential regulation. As of 2009, supervision of non-bank financial institutions has been transferred to the Central Bank, by presently supervising bank activities, to build a additional effective and unified oversight mechanism. The Central Bank has recently started implementing an 18-month action plan to strengthen risk-based supervision and increase minimum capital requirements in the banking sector. Furthermore amendments to the Financial Institutions Act, approved by cabinet in June 2011, have established the legal basis for new financial products and boosted competition.

As of 2011, six commercial banks, with 25 branches in the islands, operated in the country. Four of these (Barclays Bank, Mauritius Commercial Bank, Habib Bank and Bank of Baroda) are foreign owned, and the other two are the before national-owned banks that are being restructured: Nouvobanq (ownership currently 78% government and 22% by Standard Chartered Bank) and SSB. Banks remain in general in good financial health and adequately capitalized despite the economic downturn, reporting solid earnings and high net interest margins, though these have declined since 2009 due to lower interest rates on government securities. Private sector credit remains low at about 25 % of GDP and is growing slowly despite ample liquidity. The country's banking sector continues to be dominated by national and foreign institutions. Plans have been made to privatize national-owned financial institutions but have so far been delayed.

A large part of the people still lacks access to finance. Number of depositors with commercial banks per 1,000 adults has increased to 562 in 2011 from 394 in 2006 while number of borrowers increased from 70 to 106 in the same years.. While no stock market exists in the country, in 2007 the authorities introduced a Securities Act, thereby laying the groundwork for its next establishment.

The Seychelles' fixed gain market is largely confined to government securities. While treasury bills are issued on a weekly basis, government bond auctions have been put on hold. As of April 2013, Fitch gave the country long-term sovereign credit ratings of B for local currency and B for foreign currency.

While various financial institutions such as pension funds and insurance companies actively invest in the country's deficit market and retail investors can access the primary market by due submitting bids at the Central Bank, commercial banks still largely dominate the market, holding almost 83 % of outstanding government securities. Activity on the secondary market remains very limited; as of 2009 the Central Bank has started playing an intermediary role matching bondholders looking to exit their positions before maturity with buyers.

Two pension funds and four licensed domestic insurance companies currently operate in the country, but the later rely heavily on re-insurance from overseas companies. The Seychellois insurance business is governed by the Insurance Act of 2008, and is supervised by the Ministry of Finance.

Housing finance is dominated by semi-public institutions. The Seychelles Housing Development Corporation (SHDC) contributes approximately one-third of credit to the private sector in the form of subsidized lending for housing. Due to the large subsidies, the government has been making efforts to transfer a portion of the SHDC's housing loan portfolios to commercial banks.