BRIDGETOWN, Barbados, CMC—The Central Financial institution of Barbados (CBB) and its sister regulator, the Monetary Companies Fee (FSC), launched the 2023 Monetary Stability Report on Wednesday. The report notes {that a} main concern for the home monetary stability outlook emanates from the potential slowdown within the international financial system and its cascading results on the tourism sector and the broader macroeconomy.
The report’s launch coincided with a panel dialogue that included CBB Deputy Governor Alwyn Jordan, FSC Chief Govt Officer Warrick Ward, and officers from the island’s industrial banks, credit score unions, and insurance coverage firms.
In line with the report, the strong well being of the home monetary sector was mirrored within the home financial enlargement noticed final 12 months, and excellent credit score balances skilled average progress. In distinction, credit score high quality improved because of better enterprise exercise. It stated that the elevated profitability within the banking sector led to an enhancement within the sector’s capital adequacy ratios, whereas the income of finance firms and capital adequacy have been on par with the earlier 12 months.
Credit score to the non-financial non-public sector (NFPS) elevated in 2023, constructing on the post-COVID enlargement in 2022. In line with the report, credit score demand primarily originated from the non-public sector by way of challenge financing within the manufacturing, actual property, transport, storage, and communication sectors.
Nonetheless, it famous {that a} main concern for the home monetary stability outlook is the potential slowdown within the international financial system and its cascading results on the tourism sector and the broader macroeconomy.
“Firstly, there may be the danger of a lower in vacationer arrivals and capital inflows from key markets, which might dampen home financial exercise. Such a decline in vacationer arrivals would possibly adversely have an effect on companies’ income in essential financial sectors, doubtlessly worsening their debt burden and impairing their skill to repay money owed.”
The report said that if financial exercise wanes and companies weaken, households’ monetary positions are more likely to undergo because of employment losses, resulting in a rise within the unemployment price.
“This concern encompasses two features: direct dangers, with the potential for people defaulting on loans, particularly within the face of rising rates of interest or declining incomes, whereas oblique dangers come up from cuts in family spending dampening total financial exercise and, in flip, amplifying credit score danger.”
The report stated that regardless of Barbados’ family debt to deposit-taking establishments (DTIs) as a proportion of gross home product (GDP) being 48.2 p.c in 2023, greater than different Caribbean and rising economies, the downward development on this variable post-pandemic abates family credit score danger issues.
“The macroeconomic slowdown is more likely to problem the occupational pension sector. As many occupational pension plans exhibit vital publicity to overseas markets by way of mutual fund investments, the potential slowdown will probably current a lot volatility to funding portfolios.
“Many defined-benefit pension plans face vital funding shortfalls, which heightened fairness dangers can exacerbate, thus threatening the steadiness of many pension plans within the sector.”
The report stated {that a} additional escalation in geopolitical tensions might have adversarial penalties for the availability of power and meals commodities.
“Will increase in power and meals costs ensuing from geopolitical shocks might contribute to greater imported inflation and widened home present account deficits, which might negatively impression probably the most susceptible segments of the inhabitants.”
It warned that persistent inflation might current a problem for the insurance coverage sector, noting that if inflation stays elevated in lots of international economies, the insurance coverage sector, significantly the non-life trade, will face greater restore and alternative prices when settling claims. “Insurers might encounter better strain to handle dangers and modify pricing methods successfully. Consequently, policyholders might see an additional rise in premium charges for insurance coverage protection.”
The 2023 Monetary Stability Report stated adjustments in international rates of interest and borrowing situations might have an effect on the price of servicing Barbados’ exterior debt, impacting the federal government’s fiscal place and doubtlessly straining monetary stability.
It stated regardless of a lower in inflation charges throughout many jurisdictions in 2023, the important thing coverage charges proceed to exceed the targets established by most international central banks. “Market gamers anticipate a leisure of financial coverage within the latter half of 2024 because the cumulative rate of interest hikes of the final two years created restrictive financial situations to steer inflation again in the direction of central banks’ targets.
“Nonetheless, the persistence of world inflation ranges above these targets might disrupt this expectation. Consequently, financing prices within the area might stay elevated,” the report stated, noting that fluctuations in international rates of interest are unlikely to have an effect on home monetary establishments considerably.
It stated the anticipated financial coverage easing in lots of international economies is projected to have a restricted impact on the stability sheets of economic establishments because of their vital native funding holdings.
“That is significantly related for insurance coverage firms, the place many investments are retained domestically. Because of this, adjustments in international rates of interest are much less more likely to impression low cost price assumptions used for actuarial valuations of insurance coverage liabilities.”
The report famous that the home monetary system stays susceptible to local weather change. Bodily local weather dangers, resembling rising sea ranges, excessive climate occasions like hurricanes, droughts, flooding, and altering precipitation patterns, threaten the island’s capital inventory and macroeconomy.
It stated the potential adversarial impression on tourism and different sectors of the Barbadian financial system might strain the monetary trade, particularly within the case of a extreme climatic occasion. “Whereas the insurance coverage sector performs a essential position in minimizing a lot of the monetary impression of catastrophic losses, the nation’s safety hole stays a priority because of uninsurance and underinsurance, which wants additional investigation.”
Deposit-taking establishments proceed to combine local weather danger assessments inside their frameworks.
Based mostly on a 2024 survey, industrial banks, and finance firms have prioritized Environmental, Social, and Governance (ESG) concerns of their company methods. These establishments have been together with local weather danger assessments inside their credit score granting and borrower default frameworks. Additionally, these establishments have minimized their carbon footprint by going paperless and utilizing extra energy-efficient tools throughout their every day operations.
The report stated creating methods to mitigate and adapt to local weather danger is crucial for safeguarding the nation’s financial and long-term monetary stability.
It stated that as the specter of cyber-attacks continues to evolve worldwide, it poses a possible danger to the steadiness of Barbados’ monetary sector.
“Cyber-attacks can goal monetary establishments, disrupting their operations, compromising delicate information, and undermining the general belief within the financial system. In Barbados, like in lots of different international locations, monetary establishments more and more depend on expertise for numerous operations, together with on-line banking, digital transactions, and information storage.
“Whereas these technological developments convey effectivity, additionally they create vulnerabilities that malicious individuals and establishments might exploit. Cyber-attacks, resembling phishing, ransomware, and information breaches, can severely have an effect on the integrity and resilience of the home monetary system.”
This 12 months, the CBB carried out a cyber danger survey involving monetary establishments, together with industrial banks and finance firms. The outcomes indicated that these establishments contemplate cyber danger a high precedence.
The report discovered that the actual property market displayed stability in reported costs, posing no rapid menace to the soundness of the monetary sector.
“Whereas the general market exercise barely lagged behind the earlier 12 months primarily based on the variety of new mortgages, DTIs point out that property costs have both grown or remained on par.”
Outcomes from an actual property survey issued by the CBB reveal that DTIs have eased borrower-based lending requirements on mortgages, such because the loan-to-value (LTV), debt-to-income, and debt service ratios (DSR), to spur purchaser demand.
Respondents additionally indicated a downward trending house-price-to-income ratio, suggesting enhancements in mortgage affordability. Nonetheless, constrained provide within the tourism residential market is one space of concern.
The report discovered that the rise in competitors inside the DTI sector has led to a redistribution of deposits amongst its subsectors.
“The utmost rate of interest provided on time deposits has elevated. Consequently, finance firms, whose funding is primarily composed of non-transferable deposits, have encountered elevated funding pressures regardless of the general system sustaining a excessive stage of liquidity. Business banks confronted much less strain as transferable deposits signify most of their deposit liabilities.”
Barbados’ fee system and infrastructure stay strong and resilient. The report notes that the nation’s fee methods play an important position in sustaining monetary stability by facilitating the sleek and environment friendly functioning of the general financial infrastructure.
It stated the funds system contributes to liquidity administration, danger mitigation, constructing client and investor confidence, and facilitates the sleek functioning of economic markets and establishments.
“The actual-time gross settlement (RTGS) system witnessed elevated exercise as home financial exercise expanded, and there was extra vital participation within the securities market. The launch of the real-time processing (RTP) system by the Barbados Automated Clearing Home Companies (BACHSI) in February 2023 caused a noticeable transition from conventional direct digital funds to the real-time processing of funds.
The report famous that regulatory oversight and ongoing innovation are crucial to adapting fee methods to the dynamic and altering nature of the monetary atmosphere, thereby safeguarding their continuous position in bolstering monetary stability.
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