Western Samoa
p. 14 · Read in the full issue
Lending crisis hits
By Alan Ah Mu
A LENDING crisis has gripped Western Samoa’s two commercial banks, forcing one to limit credit to $5OOO per customer and the other to stop lending altogether.
Dropping deposit levels struck the banks a little over a month ago. The Pacific Commercial Bank (PCB), a joint venture
between the Bank of Hawaii and Westpac with a small number of local shareholders, watched it’s “main insti tutional depositors” lend their money to fheir customers or allocate them to other investments.
The National Provident Fund (NPF),
to which all wage-earners contribute t( under a compulsory government saving: scheme, lent $5 million to Polynesiai Airlines recently and has approved i $4.75 million loan to a new company The Accident Compensation Boarc (ACB) has allocated a six-figure sun towards development of a piece of lane for space to be leased out to small scab
business people. Remittances dropped
per cent during the first seven months o the year to million, compared wit! $68.7 million in the same period in 1992 according to the Central Bank. These an some of the factors PCB’s genera manager, Simon Millett said has contrib uted to the crisis. Millett is optimistic caling it a “short term anomaly* becaus< for one thing, it isn’t “unreasonable” t( expect NPF to collect $700,000 to million a week, some of which could spil over to the banks.
The bigger bank, the Bank of Westen Samoa, earlier this year lent Polynesiai Airlines $2.5 million for expansion perhaps a significant sum in the circum stances that nave come to prevail. In am case, BWS has limited credit to $5OOO pe' customer. Millett also explained tna commercial banks possess only 50 pe: cent of the market. And some of thei: main customers, like the NPF, are als< their competitors, along with othe; institutions Accident Compensatior Board, Housing Corporation, Post Ofilc( Savings Bank, the Western Samoa De velopment Bank, the Western Samo< Life Assurance Corporation.
Those “non-bank financia intermediaries are a major source o credit for production and investment” the Central Bank’s general manager Papalii Tommy Scanlan, has said. Thii can create difficulties for the Centra
Bank in implementing monetary policy
since while it tightly controls tne com mercial banks, it has limited say legalh in the operations of the non-bam financial institutions.
Fearing that unrestrained borrowing might lead to funds buying imports anc the consequent drain on international reserves, or an outbreak of inflation, the Central Bank reigned in the banks lasi year only to see the non-banks move in to fill in the gap. Legislation to right what Papalii describea as a “less than equitable” situation from the banks’ viewpoint is presently in draft form and oeing discussed with the banks.
If the impression so far is that the banks are facing bankruptcy, that’s not true. They have money, only the Central Bank rules means they can’t lend a significant part of their funds. The Central Bank’s “Deposit-linked Credit Expansion Formula’ allows bank lend ing to expand only when deposits do or when more long term deposits have been secured. Thus, since two years ago, banks may only lend 10 per cent of Savings Deposits, 30 per cent of 1-2 months term deposits ... the lendable percentage increasing the longer the term 80 per cent of 12-month term deposits may be lent out. Using the deposit-linked mech anism and a control of interest rates, the Central Bank aims to encourage long term savings so that money goes invest ment rather than consumption.