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Holding firm

centralbankbuildingBarbados’ financial system is holding firm in the face of “dampened” economic activity here and protracted problems globally.

Concern remains, however, about the growing deterioration of loan portfolios on the books of commercial banks and credit unions, and some “major challenges” facing insurance companies, including current “sluggish growth”.

But officials, including Central Bank of Barbados Governor Dr. DeLisle Worrell and Financial Services Commission Acting CEO, Warrick Ward, were happy that stress tests had found that all categories of the local financial sector were likely to “remain solvent even in the face of sizeable shocks”.

These were among the major findings of the 2012 Financial Stability Report, which was launched this morning at the Central Bank of Barbados.

“The fallout of the weak global and domestic macro economic environment was a worsening of credit quality in the Barbadian banking system. In spite of this, the financial system remained robust by all prudential measures evaluated in this report,” Deputy Director of the Central Bank’s Research & Economic Analysis Department, Anton Belgrave said as he presented the findings of the report jointly release by the Bank and FSC.

“We found that there was a lower demand for loans from banks, a decline in asset quality throughout the system and higher credit risks, but banks have been resilient over the period of the crisis and capital adequacy levels were well in excess of statutory requirements. The profitability of the banking system also improved.

“The credit unions experienced a slow down in traditional growth rates and higher non-performing loans. Capitalisation, however, remained in excess of international regulatory requirements. The insurance companies in the sample were also well capitalised and stable.

“In terms of the equity markets, the Trinidadian and international equity indices recovered, while there was only a modest shift in the domestic yield curve, despite a significant increase in issuance,” he added.

The major area of worry officials acknowledged was non performing loans, with those allocated to the hotel sector still a bother for commercial banks, while credit unions were also having to deal with increasingly difficult loan portfolios.

“The quality of the loan portfolio of the credit unions has deteriorated gradually as the classified debt ratio increased eight and a half per cent at September 2012. This was up from 6.9 per cent at December 2011,” Belgrave noted.

As for insurance companies, the report found that the industry has shown resilience despite the still unresolved CLICO debacle, but Belgrave pointed to “sluggish growth, generally high debt levels among Caribbean governments, and low or declining interest rates”, as among the major difficulties for insurers.

Worrell urged everyone to keep in mind that the difficulties facing Barbados’ financial system were not self inflicted, but “a result of the economic circumstances and that is precisely what you expect”.

He was also not unduly worried about the increase in non-performing loans, pointing out that they had not “resulted in any significant actual losses at financial institutions”.

This was a view shared by Director of the Central Bank’s Research & Economic Analysis Department, Michelle Doyle-Lowe, who said “the reality is that we still have sufficient capital to cover the event of any unexpected shock, and that is the one comfort that I think should be conveyed to everyone in reading the report”, something which related to banks and non banks.

Ward cautioned, however, that despite the financial system’s visible resilience, there was still a need to remain vigilant.

“We still need to make sure that we have done our homework to make sure that we are not surprised by any entity, who has befallen hard times,” the FSC official said.

“And so this is an area where the FSC we are constantly looking to update and we are constantly looking … at our measures in-house to make sure that the industries understand primarily that we are here to protect the policyholders, we are here to protect the constituents.” (SC)

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