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$440 million increase in deposits

The local financial system remains stable with commercial banks continuing to hold the majority, or 60 per cent, of the financial sector’s assets, according to the latest Financial Stability Report 2015.

“Commercial banks remain the heart of the financial system, not only due to asset size, but also in terms of their role in facilitating savings and transaction services to other financial entities,” said the report that was released today by the Central Bank of Barbados.

Insurance companies account for 14 per cent with assets valued at $3.02 billion or 34 per cent of GDP at the end of September 2015, and trust and finance companies, credit unions and mutual funds each holding less than 10 per cent.

The report noted that of the five banks operating in Barbados, the three that are based in Canada accounted for 75 per cent of total bank assets. The other two are based in Trinidad and Tobago.

“Similarly, the credit union sector is heavily skewed, as just four of the 35 credit unions account for more than 83 per cent of total assets, membership, loans and deposits. Life insurance companies account for 77 per cent of total industry assets,” the report.

“However, most of the assets in the life insurance industry are held by one entity, while the non–life market is more competitive. The largest insurance group has both life and non-life operations however, and accounts for 60 per cent of the total industry. Moreover, its operations span several territories, including the US, and include companies providing mutual funds, asset management and financing.

The report, which was produced in collaboration with the Financial Services Commission, said “loans continue to be the mainstay of the banking business, accounting for 60 per cent of assets of deposit taking institutions (DTIs), with mortgage debt being almost half of all credit extended”.

“Collectively, the total liabilities of the financial system grew three per cent over the last year to reach $21 billion at September 2015, equivalent to 239 per cent of GDP,” the report said.

“The majority of this growth was driven by a $440 million increase in commercial bank deposits during the past 12 months. Of this sum, $367 million were deposited with the Central Bank and $33 million placed in other investments. Trust and finance companies contributed to this increase with a $36 million increase in deposits, which were placed with other financial institutions,” it added.

The report further stated that credit unions saw an increase of $120 million in members’ shares and deposits, and expanded their loan portfolio by $93 million, while increasing their investments by $15 million.

“On the assets side, while banks’ growth stemmed from their holdings of short term Government securities and cash, the credit unions’ resulted from increased lending to members,” the report said.

While the fifth issue of the Financial Stability Report noted that commercial banks dominated the financial space, it said there was “a slight erosion of their share of total assets over the last decade”.

“While maintaining lending to individuals, banks have recorded a contraction in lending to business over the previous three years. In contrast, the credit unions’ focus on personal/consumer credit allowed their share of total assets to rise to nine per cent, compared to six per cent in 2005,” it said.

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