Bank not collecting loans, Committee tells Parliament

Over the next few days, the Samoa Observer will be publishing the 39 reports tabled and approved by Parliament without debate two weeks ago. Today, we look at the Report on the Annual Report of the Development Bank of Samoa for the Financial Year Ending June 30 2012 by the Primary Production, Commerce, Industry and Labour Committee:

The Development Bank of Samoa (D.B.S) kept debt collection to a minimum during the 2011-2012 financial year, a Parliamentry Select Committee has found.

In its Report on the Annual Report of the Development Bank of Samoa for the Financial Year Ending June 30 2012, the Primary Production, Commerce, Industry and Labour Committee (P.P.C.I.L.C.) noted that this activity was kept to a minimum due to the spillover effects of the global financial crisis on Samoa.

The Chairman of the P.P.C.I.L.C. is Leaupepe Toleafoa Apulu Faafisi.

“The period where it was most difficult to collect debts was after the Tsunami disaster,” the Committee reports.”There have been a vast number of non-accrual loans for Sole trader and Retailers, Transport businesses, the Fisheries industry, including tourism businesses.

“It was confirmed that there are loans past their payment from flea market stalls, engineer enterprises and a number of tourism businesses.”

According to investopedia.com a non-acrual or nonperforming loan that is not generating the stated interest rate because of nonpayment from the borrower, typically due to financial difficulties.

“Nonaccrual loans are more likely to default, meaning that the investor will not recoup his or her principal,” the financial website states.

“Standard banking regulation requires that nonperforming loans be classified as nonaccrual if principal and interest have not been paid for at least 90 days, except in cases where the lender has adequate collateral to cover the loan.”

The P.P.C.I.L.C. says it is a common problem which is a not standard that the Bank is aware of during its review of Application loans in financing a range of Developments until it has been approved. ”The usual process is that the Bank holds consultation with clients who hold non-accrual loans,” the committee reports. ”This consultation serves to offer viable options that would assist the client with their loan, where the sum of debt owed can be renegotiated.

“Other concerns that the Bank considers, is to extend the loan payment term and adjust the interest to a suitable rate.”

The Committee reports the Bank believes that if it were to strictly follow procedure, Development sectors will suffer and fail, and it would further affect our economy.

“In addition, more funds are needed in order to pay non-accrual loans and to finance the earnings of our employees,” the report reads.

“Our principal initiative is to limit the number of Write off Loans.”

Other members of the P.P.C.I.L.C. are the Deputy Chairman Maualaivao Pat Ah Him and Members Tuiloa Anetelea, Afualo Wood Uti Salele, Tialavea Fea T Seigafolava, Aeau Peniamina Leavaiseeta and Aveau Nikotemo Palamo. The P.P.C.I.L.C. report reads in full below:

1. RECOMMENDATION:- The Primary Production and Labour Committee recommends that the Assembly takes note of its Report.

2. PREAMBLE:- The Primary Production and Labour Committee is constituted pursuant to the provisions Orders 174.

3. STANDING ORDERS 174:- It shall be the duty of the Committee: (a) To consider any bill, petition or other matter referred by the Assembly pursuant to these Standing Orders; and such Estimates or review of ministerial performance as maybe referred by the Finance & Expenditure Committee; (b) To examine the policy, administration and expenditure of ministries and associated government organizations related to primary production, commerce, industry, labour and tourism.

4. PAPER CONSIDERED:- (Presented 30/5/2013) (Referred 30/5/2013) P.P.2013/Z014 No.5, Annual Report of the Development Bank of Samoa for Financial Year ended 30th June 2012. 5. WITNESSES:- During the course of its investigations, the Committee was able to hear oral evidence submitted by: The Development Bank of Samoa: Susana Laulu - Chief Executive Officer Afemaleta Alesana Lafi - Deputy Chief Executive Officer Muaautau Raie Silipa - Manager, Finance Division

6. FINDINGS:- The range of operations undertaken by the Bank within the financial year is under review, it was noted that the Bank has strongly promoted various sectors and has supported differing businesses in order to develop Samoa’s economy. These developments include: - Tourism Industry: This sector is a priority of the Government as it has brought in high revenue on a yearly basis in abetting Samoa’s economy. - Agriculture:

The Bank continues to attentively approve loans to Farmers. - Small Businesses: This program is brought together by the Bank in collaboration with Small Enterprise Business Centre (SBEC) and many members of the public have benefitted from this partnership. - Micro-finance: This program is brought together through the partnership between the Bank and Women in Business which includes Handicrafts, Shops, Restaurants et cetera. The decreased rate of approved loans of 65% was noted under the reviewed year in comparison to 68% in 2011.

The Bank confirmed that this standard was due to the major sum of funds available in 2011 compared to 2012. These loans were approved for developments including; Shops and Transport businesses, Businesses, enterprises and the Small Businesses program.

MONETARY SOURCE: The Bank maintains its membership with National Provident Fund (NPF), Central Bank of Samoa (CBS), and European Investment Bank.

DEBT/LOAN COLLECTION: It was noted that this activity was kept to a minimum due to the spillover effects of the global financial crisis on Samoa. The period where it was most difficult to collect debts was after the Tsunami disaster.

There have been a vast number of nonaccrual loans for Sole trader and Retailers, Transport businesses, the Fisheries industry, including tourism businesses.

It was confirmed that there are loans past their payment from flea market stalls, engineer enterprises and a number of tourism businesses. - It is a common problem which is a not standard that the Bank is aware of during its review of Application loans in financing a range of Developments until it has been approved.

The usual process is that the Bank holds consultation with clients who hold nonaccrual loans.

This consultation serves to offer viable options that would assist the client with their loan, where the sum of debt owed can be renegotiated.

Other concerns that the Bank considers, is to extend the loan payment term a|1d adjust the interest to a suitable rate.

The Bank believes that if it were to strictly follow procedure, Development sectors will suffer and fail, and it would further affect our economy.

In addition, more funds are needed in order to pay non-accrual loans and to finance the earnings of our employees. Our principal initiative is to limit the number of Write off Loans.

- The Bank has proceeded with its priority in collaborating with the Samoa Tourism Authority (STA), the Ministry of Natural Resources and Environment, the Scientific Research Organization of Samoa and Electric Power Corporation.

This partnership can assist the Bank in reviewing major loan Applications; so that it is approved with set conditions and at an affordable rate that ensure its repayment. For example: Any potential major development project in the Tourism Industry would need to research the standard of this sector in the country.

This is a very important step, so that development owners know the cons and requirements in building their project. In the period of 2009/2010 — 20l 0/201 l, it was recorded that the tourism sector could not meet their loan payment deadline due to the low number of tourist patrons.

The reason behind this low number is that many hotels do not offer services that appeal to visitors like a swimming pool, beaches and the most important is the quality of guest rooms.

Businesses that were vulnerable to these issues would require approval as to why their project should be funded. This is an important aspect that the Bank believes that it can support through its review of loans for tourism developments.

This also includes aforementioned ministries and corporation who require advice on developments. - There are no issues with loans for agriculture (taro), as most of these clients hold jobs.

According to Bank documents, Farmers hold the lowest number of approved loans with the advantage of having their agricultural products sold overseas. The Bank attributes this trend to their partnership with Commercial Farmers. The Bank is currently planning to hold negotiations with the Ministry of Agriculture in giving financial assistance to farmers who need it.

FINANCE: The Bank received low Revenue from its interests, due to the following: - This term has seen a number of affected Developments; - There were many Developments that were not able to grow due to not attaining the set conditions agreed upon and established in acquiring loans; - Ministries that previously rented spaces of the Bank’s Building have shifted to the new Tui Atua Tupua Tamasese Efi (TATTE) building in Sogi.

There is currently 76% usage of the Building’s rental spaces. The rental costs have also dropped with the purpose of encouraging individuals and Offices to rent the available spaces.

EXPENDITURE: It was documented that SAT1 million in expenses were spent in the financial year currently under review, in comparison to the 1/2 million (SAT500, 000) spent in the year 2011.

The bulk of expenses are spent on loans with interests, especially on: - A 40% long term loan from the European Investment Bank with an added foreign exchange fee. - Monetary reserves for bad debts.

The Bank stresses its aim to continually regulate and effectively control in order to move forward.

ASSETS: The Bank confirmed that its assets for the time being are sufficient in financing its borrowings.

7. APPRECIATION:- The Committee wishes to convey its appreciation to the Board and Management for their work carried out during this Financial Year, including the complete preparation of its Annual Report.

The Committee also wishes to thank the Lady Chief Executive Officer and Representatives in providing evidence as Witnesses while under review, and in assistance with explaining the importance of its services. If was not for this support, the Report would not have been complete.

8. RECOMMENDATIONS:- Based on its Findings the Committee recommends to the Government: 1. To execute advertisements in publicizing to the public various development sectors and their importance where the Development Bank of Samoa can assist through the provision of loans. 2.

To continue its collaboration with Samoa Tourism Authority, Ministries and State Owned Enterprises in providing suitable advice during its review of Application for Loans. 3.

For the Bank to provide its support in promoting the Agriculture Sector through the provision of loans especially to clients who have successfully sold their products overseas.

This is an important initiative that would serve the Bank’s priority in developing the country’s economy, especially in preventing the issue of non-accrual loans from occurring.

9. RESOLUTION:- At the conclusion of its consideration, the Committee resolved to recommend the Assembly: That the P.P.2013/2014 No. 5, Annual Report of the Development Bank of Samoa for Financial Year ended 30th June 2012 be approved.

Hon LEAUPEPE Toleafoa Apulu Faafisi CHAIRMAN