Keep an eye on financial system, Barbados told

Barbados has been urged to keep a very close monitor on its financial system despite its current stability and the high level of liquidity in the system, as the COVID-19 pandemic drags on.

The caution has come from the Inter-American Development Bank (IDB) in its latest Quarterly Bulletin, which takes a look at the region’s ability to recover from the economic shocks occasioned by the COVID-19 pandemic.

According to the hemispheric multilateral financial institution: “The pandemic has put pressure on most countries around the globe, with tourism-dependent economies taking a major hit. In the case of Barbados, additional weather events such as the eruption of La Soufrière in St Vincent and the Grenadines and, more recently, Hurricane Elsa, are further delaying recovery.

“On the other hand, since the financial crisis that started at the end of 2007, the country’s banking systems have been stronger and better prepared to face adverse economic conditions. Despite high levels of liquidity and stability, however, timely surveillance is important to prevent a crisis in the event that the negative effects of the pandemic continue stretching over time.”

Barbados is yet to release the latest Financial Stability Report which is co-produced by the Central Bank of Barbados and the Financial Services Commission (FSC), and examines the status of the insurance, banking, credit unions and other deposit-taking institutions on the island.

The IDB publication highlighted a number of measures instituted by the Central Bank to mitigate the negative impact of the COVID-19 pandemic on financial institutions.

It said that during the first semester of 2021, credit to the non- financial private sector by deposit-taking institutions declined by 1.1 per cent. And this contraction was mainly driven by a reduction in loan balances of individuals.

Pointing to the six-months moratorium on loan repayments to individuals and business, the IDB said further repayment extensions were still being considered on an individual basis, given the prolonged nature of the pandemic shock.

“Given the impact of moratoria on banks, the Central Bank of Barbados is allowing commercial banks longer periods to rebuild capital and comply with regulatory requirements (subject to restrictions on dividend payments). The CBB continues to monitor the situation to identify early signs of stress on the system and remains ready to intervene if required,” the IDB publication stated.

On the issue of non-performing loans (NPLs) as a percentage of total loans to the private sector represented, the IDB disclosed that this was now about 8.0 per cent and the ratio of provisions to NPLs was 59. 3 per cent. (IMC1)