Barbados may be bad off economically, but its financial system remains stable with “extremely high levels of liquidity” in the banking sector, according to the latest Financial Stability Report.
The 2016 report, which was released by the Central Bank of Barbados today, shows that total assets in the financial system grew by 4.5 per cent or $805 million to $24 billion as at September 2016, when compared to the same period last year.
Of that amount, 55 per cent of assets were held by commercial banks, 13 per cent by insurance companies, nine per cent in mutual funds, eight per cent in credit unions and the same amount in pension funds.
The remainder was held in finance and trust.
“Confidence in the financial system is buttressed by the existence of the Deposit Insurance Corporation, which guarantees each depositor at commercial banks up to $25,000 on domestic currency accounts.
“As at year-end 2016, over 90 per cent of qualified accounts in the Barbadian banking system were fully covered in the event of an institution’s collapse,” the report said, while pointing out that the deposit insurance fund had shown steady growth since its inception in 2007 and was last valued at $62 million.
The report comes against the backdrop of the Estimates debate in the House of Assembly, which has been focused on Barbados’ severe economic challenges.
After successive years of decline, the local economy grew by 1.6 per cent last year, but concerns persist about the island’s fiscal deficit and its level of debt which are still too high. These concerns have resulted in several recent downgrades by international ratings agencies and have negatively affected the appetite of financial institutions for domestic Government debt.
At the same time, the country’s foreign reserve levels fell below $700 million last year to around the equivalent of ten weeks of imports of goods and services, the report acknowledged.
However, it said, based on the results of several stress tests, the financial system was stable enough to “survive a range of adverse events”.
“In particular, stress tests for banks continued to emphasize their resilience to a variety of economic shocks.
“Deposit-taking finance and trust companies were also robust, although specific vulnerabilities emerged under less adverse conditions than for banks,” the report explained.
It also assured that credit unions were adequately capitalized to absorb potential losses due to credit risk shocks and that liquidity was sufficient to buffer potential deposit runs.
The insurance sector was also deemed to be “reasonably resilient”, though the report said some companies faced significant losses of capital.
As for the banking sector, the report pointed to “extremely high levels of liquidity”, as commercial banks reduced their holdings of Government securities and overall loan growth remained weak.
“Against this backdrop, banks still managed to increase profitability, due primarily to lower interest expenses. Though there was no increase in their credit portfolios due to the continued weakness in business-related lending, an overall improvement of credit risk was reported as the banks’ non-performing loan (NPL) portfolio continued to subside,” it said, adding that capital within the local banking system remained above international guidelines.