BRIDGETOWN, Barbados, CMC – The Barbados’ monetary system remained secure final yr. It remained so till the top of the third quarter of 2023, regardless of world financial and political turmoil, in line with the 2022 Monetary Stability Report launched right here on Wednesday.
The report, a joint publication by the Central Financial institution of Barbados (CBB) and the Monetary Providers Fee (FSC), famous that the home monetary sector retained its functionality to function a conduit between savers and buyers whereas additionally offering shoppers with a variety of credit score, funding and fee choices.
“This stability was supported by regular and broad-based financial development, improved labor market situations, and a strong funds system through which digital fee strategies play an ever-greater function. ”
The report famous that monetary stability was sustained primarily by improved home financial situations. It mentioned many of the sector’s monetary stability metrics improved, together with asset development, credit score high quality, liquidity, and capital adequacy. Profitability picked up for banks and finance firms in 2022 however was just about unchanged for credit score unions over 2022, however dipped for the yr ended March 2023.
“Particularly, the credit score high quality of deposit-taking establishments (DTIs) improved over the evaluate interval, albeit at various charges. Non-performing loans as a p.c of complete loans declined for every of the three DTI segments,” the report acknowledged, noting, nevertheless, that unhealthy debt provisioning as of March 2023 was decrease for banks however elevated for credit score unions and finance firms, as every DTI adjusted its provisioning to replicate its perceived credit score danger.
It mentioned stress take a look at outcomes have been much like the 2021 Monetary Stability Report.
The credit score danger stress assessments confirmed that the DTIs’ resilience to delinquency and provisioning shocks was basically on par with the outcomes produced one yr in the past, with the DTIs usually well-positioned to soak up vital shocks.
Equally, the stress assessments proved that the capital ranges have been sufficient and, within the case of economic banks, extraordinarily sturdy as much as the top of March 2023.
“Nevertheless, primarily based on stress take a look at outcomes, the resilience of the final insurance coverage trade was barely decrease, as larger underwriting bills and better claims provisioning resulted in a loss and decreased capital in 2022.”
The report notes that the life insurance coverage trade’s stability indicators improved, and resilience to shocks remained much like that of 2021.
“Different metrics of economic well being remained primarily constructive. Change charge danger seems to be minimal given the forex composition of the combination banking and finance firms’ web overseas forex open positions and the extent of those positions as a p.c of their respective regulatory capital bases.
“There was a basic enchancment within the liquidity positions of DTIs, as liquidity remained in abundance for the monetary system as an entire. For each banks and finance firms, profitability as measured by the annual return on common property elevated in 2022 and held regular into the primary quarter of 2023.”
The report notes that credit score unions’ annual return on common property in 2022 was just about unchanged relative to the prior interval however declined barely in the course of the yr ended March 2023. The capital adequacy ratios of every section of DTIs grew.
The 96-page report notes that the home monetary system, whereas insulated primarily from worldwide rates of interest, was not immune from the impression of rising world rates of interest.
By the top of March 2023, the Federal Reserve’s coverage charge reached ranges final seen in 2007, triggering corresponding sharp rises in rising and growing nation rates of interest. With vital publicity to worldwide markets, the worth of Barbadian-based mutual and pension fund property weakened modestly in 2022 resulting from these policy-driven hikes in world rates of interest. Even with these reductions, nevertheless, portfolio losses remained fairly nicely contained.
The nation’s gross monetary sector property expanded on the power of asset development at deposit-taking establishments (DTIs). The report acknowledged that the industrial banking sector dominated the financial panorama and elevated its share of the sector by roughly one p.c in 2022.
“Different DTIs additionally skilled asset development. Conversely, mutual funds, occupational pension plans, and the insurance coverage sector had a smaller share of property. Whereas there have been slight adjustments within the relative share of property within the home monetary sector, system-wide stability was maintained.”
The report mentioned the structural shift to digital funds accelerated in 2022 and the primary quarter of 2023 because of the surging demand for handy fee strategies. The worth of home bank card funds jumped by round a 3rd as households’ demand for eating and companies improved.
It mentioned that on the similar time, digital transfers exceeded cheque clearances for the primary time on the Barbados Automated Clearing Home (BACHI), a stark reversal of the 2015 place when almost 90 p.c of the worth of transactions being cleared have been cheque-based.
The difficult worldwide macro-financial setting may have been extra impaired by the native monetary system. The failures of three mid-sized US banks and one sizeable Swiss-based financial institution in early 2023 didn’t have a detectable impression on Barbados’ monetary system.
US and Swiss regulators moved rapidly to include any additional fallout, limiting the impression of this episode and addressing contagion fears. Moreover, in the course of the evaluate interval, the native deposit-taking monetary sector didn’t expertise a extreme shock from the rising worldwide rates of interest attributable to financial tightening in superior economies.
Enhanced danger identification is featured prominently on this report. The Monetary Oversight Administration Committee (FOMC) recognized a number of important monetary stability dangers to Barbados.
It named them as cyber-attacks, the widening US-Barbados rate of interest unfold, the absence of deposit insurance coverage for credit score unions, elevated non-performing mortgage (NPL) ratios of deposit-taking establishments, the introduction of the 15 p.c world company minimal tax charge in 2024; and local weather change and its transitional and bodily dangers to the monetary system.
Nevertheless, the report mentioned the dangers differ in immediacy, depth, and persistence and require differing coverage responses.
“Some, reminiscent of climate-shocks of a extra medium to long-term nature; Others, reminiscent of cyber-risk, are troublesome to quantify however are each current in any related trendy monetary system. Primarily based on quantitative simulations, world experiences, worldwide tips, and data of exposures within the areas, the FOMC will work in direction of deepening our understanding of those recognized danger areas.
“Moreover, the FOMC might be in search of to counter these dangers the place attainable or put safeguards in place to resist the materialization of dangers that can’t be averted,” the report added.
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