Cash in a crisis: foreign reserves soar

By Adel Fruean 05 January 2022, 5:40PM

National foreign currency reserves jumped by more than $138 million last financial year, as money on-hold at commercial banks also expanded, new figures show. 

The rise in foreign reserves made 2020-2021 the fourth consecutive year in which Samoa has registered a surplus in its balance of payments. 

The hike in foreign cash is mostly due to the heavy influx of grants and aid for COVID-19 assistance, an amount roughly equal to around $155.63 million. 

The new figures are revealed in the Central Bank of Samoa’s (C.B.S.) Monetary Policy Statement (M.P.S.) for the 2021-2022 Financial Year.

The statement also revealed the liquidity conditions in the banking system which improved further in 2020/2021 despite the economic slowdown.

“The average commercial banks’ holdings of excess reserves expanded by 17.8 per cent to $294.4 million from $249.9 million last year [2020.],” the bureau said. 

“In addition, the average commercial banks’ vault cash holding increased by 4.2 per cent to $33.6 million in 2020/2021.

“On interest rates, the C.B.S.’ official interest rate continued to remain stable at 0.15 per cent once open market operations ceased in April 2020. This was part of the CBS monetary policy response to ensure the Samoan financial system remains liquid and able to provide much needed finance to the private sector and households amidst the economic uncertainty created by the COVID-19 pandemic.”

(The M.P.S.’ goal is to effectively communicate the bank’s monetary policy stance in a transparent and accountable manner to improve public awareness.)


Samoan commercial banks’ weighted average deposit rates also fell sharply by more than 0.6 percentage points to reach 2.71 per cent. 

“The rationale for this large reduction is part of commercial banks’ efforts to bring down lending rates by first reducing high deposit rates (in excess of 3.0 per cent) that were largely enjoyed by wholesale [and or] corporate depositors,” the analysis finds. 

“Once the cost of deposits comes down, lending rates can then also be lowered for households and small medium enterprises that were affected disproportionately by the recession. 

“Similarly, the weighted average lending rates dropped by 6 basis points to 8.57 per cent at end June 2021.”

That led to weighted average interest rates’ margins expanding to 6.46 per cent from 5.9 per cent in June 2020, an outcome the C.B.S. sought to address through bilateral consultation.

“Despite the decline in the cost of borrowing, commercial banks’ credit to the private sector and public institutions rose slightly by 0.5 per cent to $1,175.9 million at end June 2021,” the central bank wrote. 

“Likewise, its annual average growth rate slowed to 0.84 per cent at end June 2021 from 4.75 per cent in June of last year [2020]. 

“This slowdown in credit reflects the risk averseness of banks to lend during these uncertain times coupled with weak economic activity. Similarly, total financial system credit, which includes non-banks financial institutions (NFIs) such as Samoa National Provident Fund (SNPF), Development Bank of Samoa (DBS) and Samoa Housing Corporation (SHC), increased by 1.5 per cent to $1,990.6 million with an annual growth rate of 2.0 per cent at end of June 2021 compared to 7.5 per cent last year [2020].”

At the same time, the country’s net foreign assets jumped by 29.9 per cent (or $29.6 million) to $653.49 million in light of large inflows of external grants and budget support funds from international development partners to assist Samoa in its efforts to prevent the spread of COVID-19 from reaching its shores.

“Despite a 7 percent drop in net domestic assets, total money supply grew by 8.1 per cent on a point to point basis to $1,325.3 million,” the bank found.

“ As a result, the annual average growth rate of [money supply] improved to 5.5 per cent at end June 2021 from 1.8 per cent in June 2020.

“The nominal effective exchange rate [...] of the Tala fell marginally by 0.08 per cent [last Financial Year] as a result of sharp depreciation against the New Zealand and Australian dollars as well the Euro.

“However, the real effective exchange rate fell by 4.91 per cent during the course of the year as a result of decline in inflation (or deflation) in the year under review.”

By Adel Fruean 05 January 2022, 5:40PM

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