Seychelles, a small island nation in the Indian Ocean, has seen its banks balance sheet decrease for the second consecutive month in July 2023, according to the latest data from the Central Bank of Seychelles (CBS). The total assets and liabilities of the banking sector stood at 35,567.38 million Seychellois rupees (SCR) in July, down from 35,780.63 million SCR in June and 35,820.68 million SCR in May.
Factors behind the decline
The decline in the banks balance sheet was mainly driven by a decrease in deposits and loans, as well as a reduction in foreign assets and liabilities. The deposits of the banking sector fell by 1.1 percent to 28,876.13 million SCR in July, while the loans and advances declined by 0.8 percent to 17,133.82 million SCR. The foreign assets of the banking sector dropped by 2.8 percent to 6,975.76 million SCR, while the foreign liabilities decreased by 3.9 percent to 1,775.76 million SCR.
The CBS attributed the decline in deposits and loans to seasonal factors, such as lower tourism activity and reduced government spending in the second quarter of the year. The reduction in foreign assets and liabilities was mainly due to exchange rate fluctuations and valuation adjustments.
Implications for the economy
The decrease in the banks balance sheet could have negative implications for the economic growth and stability of Seychelles, which relies heavily on tourism and foreign exchange earnings. The lower deposits and loans could indicate a lack of confidence and liquidity in the banking sector, which could hamper the credit growth and investment activity in the country. The lower foreign assets and liabilities could also expose the country to external shocks and currency risks.
The CBS has been maintaining a tight monetary policy stance to preserve the stability of the Seychellois rupee and contain inflationary pressures. The CBS has kept its key policy rate at 2 percent since April 2023, while requiring banks to maintain a cash reserve ratio of 13 percent on both domestic and foreign currency deposits. The CBS has also been intervening in the foreign exchange market to smooth out volatility and support the rupee.
Outlook for the future
The CBS expects the banks balance sheet to recover in the coming months, as the tourism sector picks up pace and the government implements its fiscal stimulus measures. The CBS projects that the tourism arrivals will increase by 10 percent in 2023, compared to 2022, while the government plans to spend 8.7 billion SCR on public infrastructure projects and social programs in 2023.
The CBS also anticipates that the foreign exchange reserves will remain adequate to cover more than four months of imports, while the inflation rate will remain within its target range of 2.5 to 4.5 percent. The CBS will continue to monitor the developments in the domestic and international markets and adjust its monetary policy accordingly.
