Savings and personal debt soar

Household debt in Barbados has increased by more than 220 per cent in just over two decades to reach a whopping $6.1 billion by the end of March this year, up from 1.9 billion in December 2000.

Barbadians are also net savers, with deposits at financial institutions exceeding $7.2 billion at the end of March 2020, an increase of more than $1 billion from the same period in 2012.

The bulk of this money is held in savings accounts that holders can withdraw from at any time, and despite Barbadians collectively having more money in financial institutions than they owe to them, it is not likely that the people who are saving are the same ones who are borrowing.

This was among the findings in the recently released 2019 Financial Stability Report, according to one of its articles.

The article, which focused solely on the debt Barbadians have at deposit taking financial institutions – commercial banks, trust and finance companies, and credit unions – did not include money owed to retailers that offer hire purchase or to other types of lenders.

It pointed out that at its current level, household debt, also referred to as personal sector debt, accounts for about 55 per cent of the debt owed to those financial institutions. It is also the equivalent of 58 per cent of Barbados’ gross domestic product (GDP).

The article noted, however, that this percentage was slightly lower than the average household debt-to-GDP ratio for the sample of medium- to high-income countries analysed in the study.

It made it clear that not everyone who took out loans did so because they were unable to afford to purchase items without it. In fact, the article said people also took out loans because they did not want to cut back on their current spending to cover new expenses or they preferred to take out a loan rather than dipping into their savings.

The authors divided household debt into three categories – mortgages, consumer loans and credit card debt.

The largest percentage of household debt during the research period was from mortgages, which on average account for 58 per cent of the total value of all loans to individuals in recent years.

The trend of mortgages taking up the lion’s share of debt goes back to 2007, which the article said corresponded with an increase in the cost of property.

The second category is consumer loans – loans Barbadians take out to purchase vehicles, do repairs, and for other general uses – accounted for more than a third of household debt.
Meanwhile, credit card debt as of March 2020 totalled about $295 million, according to the report.

It stressed that there was no cause for alarm and the financial system remained stable, but there was still need for continued vigilance.