$4 million injection for Development Bank loans

A new $4 million capital injection into the Development Bank of Samoa (D.BS.) will stimulate the private sector’s recovery from the COVID-19 crisis, the Ministry of Finance hopes.

Chief Executive Officer, Leasiosiofaasisina Oscar Malielegaoi, said the capital fund, announced as part of the second stimulus package released in June, is specifically so the bank can support small clients in the agriculture and fisheries sector.

He also hopes to extend the scope to include small and medium sized businesses. 

“It will become an evolving fund so that it will regenerate profits and then lend whatever funds they have to expand that portfolio,” Leasiosio said. “As we speak we have already begun the transition. Myself, my team, the Development Bank have been working since day one.”

Earlier this month, Senior Financial Sector Expert, Dr. Peter Dirou, said with state-owned development banks being so prevalent in the region, they must be leveraged to do what commercial banks avoid doing, and step into the risky post-COVID-19 marketplace.

Dr. Dirou is a researcher in the Asian Development Bank’s Pacific Private Sector Development Initiative, which released this month a review into the region’s state owned banks.

In an interview with the Samoa Observer, he said COVID-19 has magnified the longstanding problem in the region where small and medium business struggle to get the finance they need.

“If we are going to talk sensibly about recovery from COVID we have to be able to talk about the trajectory of recovery for private businesses,” Dr. Dirou said.

The Development Bank has been in the spotlight over its non-performing loan portfolio, largely a result of the national drive to develop the tourism sector in the last decade.

Leasiosio said that now that Samoa has grown its tourism capacity, the bank will no longer need to make such large investments and can instead focus on smaller companies.

Meanwhile D.B.S. still needs to pursue the balance of their outstanding loans, possibly even through legal action if required.

“That does not stop the bank from pursuing legal action if they continue to default on their loan repayments, failing to adhere to the obligations they signed up to,” Leasiosio said.

“Ten years ago, the drive was for Samoa to build enough rooms to sustain tourism. We have achieved that objective so it’s timely the bank should move to other sectors.”

Eligible businesses will be able to seek loans from D.B.S. from November, Leasiosio hopes.
 Acting Head of the School of Economics at the University of the South Pacific in Fiji Dr. Rup Singh said a development bank should always be focusing on smaller enterprises, who typically don’t get financed by commercial banks.

Commercial banks are unlikely to relax their risk profiles to take on smaller clients, or even make new loans at all under the current economic crisis, and agreed that development banks can fill that gap, he said. 

“That is what they are supposed to be doing in the first place,” he said, adding that the development bank could also help commercial bank clients who are not getting enough support from their own bank, though he urged commercial banks to do more.

“Immediately I think the development bank could start subsidising payments of loans or undertake those loans as support to small and micro enterprises.

“If they are to provide any support it has to be now."

“We can’t wait for two to three years because by then many of these enterprises will be gone.”

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