Hotels, restaurants, construction firms, and households are feeling the brunt of financial pressures in Barbados.

They are the ones finding it most difficult to repay local commercial banks millions of dollars in loans, the Central Bank of Barbados revealed today in an updated Financial Stability Report.

And the analysis, released in partnership with the Financial Services Commission via the Central Bank’s Research and Economic Analysis Department, found that rather than stabilising or improving, bad loans had become more bothersome for commercial banks, including a $4 million increase in debt on two large loans to the tourism sector.

The report, which covered the period September 2011 to March 2012, said while commercial banks and other deposit-taking institutions “remained profitable and well capitalised”, there was some continued “deterioration in credit quality”.

It generally pointed out that “the principal impact of the weak economic environment on the Barbadian financial sector continues to be anaemic loan growth across the sector”. “The amount outstanding on two large impaired tourism loans increased by about $4 million since the third quarter of 2011. Apart from these loans, the ratio of non-performing loans to total loans of commercial banks moved from 6.8 per cent to 8.3 per cent between September 2011 and March 2012. Hotels, restaurants, construction firms and households together accounted for 86 per cent of the increase in non-performing loans,” it stated.

It was also pointed out that while most of the classified debt remained in the substandard category, an amount equivalent to 9.5 per cent of total loans, “there have been increases in the doubtful and loss categories, which account for 1.8 per cent and 0.8 per cent of total loans, respectively”.

“At the end of September 2011, the distribution of NPLs stood at 79 per cent, 15.5 per cent and 5.5 per cent for substandard, doubtful and loss debt respectively,” the Central Bank document stated.

“However, while the share of substandard debt has remained constant, doubtful and loss loans now account for 14.6 per cent and 6.9 per cent of all non-performing loans as at March 2012.

“Commercial banks made significant allocations to reserves held against delinquent loans. As a result, total capital adequacy ratio rose by 20 basis points to 19.5 percent.”

In spite of the loans challenge, the report noted that commercial banks here “continued to be liquid, with holdings equivalent to 26 per cent of domestic deposits, compared to the required minimum level of 15 per cent”, and the bulk of the excess liquidity was held in the form of liquid Government securities.

The sector also remained profitable over the first quarter of this year 2012. In what could be a resulting impact from the high number of non-performing loans to the tourism and construction sectors, the report also noted that loans to these areas fell by 2.4 per cent and 8.7 per cent, respectively.

As far as non-bank financial institutions were concerned, the Central Bank said the non-performing loan ratio for these entities “fell from 7.8 per cent at September last year to 6.8 per cent at March”, and that the ratio of provisions to gross classified debt declined from 28.1 per cent to 23.6 per cent. (SC)

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