Despite ongoing challenging economic conditions, the local financial system grew by approximately 2.8 per cent to reach $25.6 billion last year.
However, despite a moderate expansion in asset base – largely attributed to commercial banks, credit unions and insurance companies – assets as a percentage of gross domestic product fell to 271 per cent from 275 per cent.
The just released Financial Stability Report 2017 showed that commercial banks continued to hold the bulk of the assets in the system, representing 53 per cent ($13.6 billion), followed by the insurance industry’s 15 per cent ($3.9 billion).
Credit unions ($2.2 billion); finance and trust companies ($1.5 billion); mutual funds ($2.2 billion); and private pension schemes ($2.2 billion) each account for under ten per cent of the total assets in the financial system.
Although the stability index showed a slight decline in profitability and liquidity last year, the commercial banking system remained stable.
The report said a significant improvement in the non-performing loan ratio was responsible for the better asset quality, which is at its lowest level since December 2009.
Similarly, the consolidated risk index for credit unions suggested that the sector remained stable, despite a nine per cent increase in non-performing loans last year.
The report said several sectors of the financial system continued to show “significant gross exposure to commercial banks and finance and trust companies relative to their assets”.
As at the end of December, credit unions, finance and trust companies and insurance companies held assets of 45.8 per cent, 27.6 per cent and 17 per cent of their capital respectively at commercial banks.
Credit unions also held an additional 17 per cent of their capital at finance, trust and mortgage houses.
“There is also significant exposure among the non-deposit taking institutions. Most notably, pension plans continue to be heavily invested in mutual funds with an estimated 59 per cent of pension fund investments held in mutual funds at the end of 2016,” the report said, adding that concentration, interconnectedness and cross-border linkages continued to be key structural characteristics of the financial system.
With all five commercial banks being foreign-owned, the distribution of assets remained unchanged from the previous year with the three Canadian banks holding 75 per cent of total bank assets, while the two Trinidadian banks accounted for the remaining 25 per cent.
Similarly, the largest seven of the 33 credit unions accounted for 92 per cent of that segment’s asset base.
In the insurance industry, the life insurance segment accounted for 71 per cent of total assets, with the top three life insurance companies accounting for 96 per cent of the total assets.
The top three general insurance companies represented 65 per cent of the general insurance industry.
Presenting the report at the ninth annual Domestic Financial Institutions Conference at the Lloyd Erskine Sandiford Centre on Thursday, Acting Director of Research at the Central Bank of Barbados Anton Belgrave said commercial banks liquidity was impacted somewhat by the Central Bank’s monetary policy adjustments last year.
“Our banks remain well capitalized and liquid although they were impacted by the CBB’s reserve requirements. We see . . . where the excess liquidity has gone down,” he said.
He also reported that non-performing loans in the commercial banking sector continued to trend downwards with declines in all segments except real estate.
On the other hand credit unions witnessed an increase of about nine per cent in non-performing loans last year, which was led by mortgages and the real estate sector.
Belgrave said the capital adequacy of commercial banks and credit unions remains well above global regulatory norms.