Commercial banks here are reporting a fall in savings from Barbadian households for the second year in a row.
According to the latest 2017 Financial Stability Report, household deposits at banks continued to fall, contracting by 2.3 per cent last year, after sliding in 2016.
It was not immediately clear if there was a corresponding rise in deposits at credit unions, or to what extent the economy played a part.
However, the report suggested that the near zero levels of interest rates also influenced people’s decision.
“While the system continued to register a drawdown on time and savings deposits in response to low interest rates, growth in demand deposits also slowed to 3.5 per cent, compared to 17.6 per cent in 2016,” the report said.
Overall, the commercial banking system last year experienced a slowdown in overall asset growth to 1.3 per cent, down from 3.7 per cent a year earlier.
“Balances held on reserve at the Central Bank fell, following the increases in the securities reserve requirement, but the system remained very liquid, recording an excess cash ratio of 14 per cent and an excess securities ration of 5.2 per cent. Additionally, liquid assets represented 26.7 per cent of total assets,” the report said.
Still, the commercial banks continued to hold the bulk of the assets in the financial system, representing 53 per cent or $13.6 billion.
An examination of the report revealed that the banking sector remained profitable “albeit generating 10.6 per cent lower after tax profit than that earned in 2016”.
It said the sector continued to be “highly solvent, with strong capital buffers well over prescribed levels”.
“At the end of December 2017, the systems’ overall capital adequacy ration was calculated at 17 per cent. Additionally, banks’ leverage ration was estimated at 9.1 per cent, confirming the high level of high quality capital to cushion the system,” the report said.
The stability report make it clear that the banking insurance system was in good health, with the Deposit Insurance Corporation guarantee fund that guarantees each depositor at commercial banks and finance and trust companies up to $25,000 on domestic currency accounts standing at an estimated $72 million dollars.
Altogether, the guarantee fund protects billions of dollars belonging to ordinary Barbadians sitting in commercial banks.
The number of qualified, insurable accounts as at December 2017, stood at an estimated value of $9.7 billion.
“With no claims on the deposit insurance fund, it continued to grow and was valued at $72 million at year end 2017, which is almost $10 million higher than in 2016,” the report said.
Credit activity within the commercial bank expanded by two per cent last year to $6 billion or 64 per cent of gross domestic product, “representing the first underlying growth in credit since 2012”.
“This recovery in loans was driven by a 3.1 per cent growth in consumer credit, the result of credit for vehicular purchases and debt consolidation,” the report said.
“Personal mortgages also registered a modest uptick of 1.1 per cent for the period. Loans to the distribution sector and the real estate and other professional services category had noticeable increases of 20 per cent and 6.5 per cent respectively,” it added.
Despite a slight increase in the first quarter of last year, commercial banks’ non-performing loans ratio continued its downward trend falling to 7.9 per cent.
This decline, the report said, was driven by all categories except the real estate segment, which accounted for 2.3 per cent of the non-performing loans at the end of 2017, as compared to 1.3 per cent the previous year.
In relation to non-performing loans by category, those considered substandard continued to represent the largest share of gross classified debt, accounting for 79.2 per cent, while those in the “doubtful” and “loss” categories represented 9.9 per cent and 10.9 per cent respectively.
The report did not give a figure, but said write-offs at commercial banks continued to “represent a small percentage of total loans outstanding”.