High liquidity

Loads of money in the bank - Financial Stability Report

Barbados may be bad off economically, but its financial system remains stable with “extremely high levels of liquidity” in the banking sector, according to the latest Financial Stability Report.

The 2016 report, which was released by the Central Bank of Barbados today, shows that total assets in the financial system grew by 4.5 per cent or $805 million to $24 billion as at September 2016, when compared to the same period last year.

Of that amount, 55 per cent of assets were held by commercial banks, 13 per cent by insurance companies, nine per cent in mutual funds, eight per cent in credit unions and the same amount in pension funds.

The remainder was held in finance and trust.

“Confidence in the financial system is buttressed by the existence of the Deposit Insurance Corporation, which guarantees each depositor at commercial banks up to $25,000 on domestic currency accounts.

“As at year-end 2016, over 90 per cent of qualified accounts in the Barbadian banking system were fully covered in the event of an institution’s collapse,” the report said, while pointing out that the deposit insurance fund had shown steady growth since its inception in 2007 and was last valued at $62 million.

The report comes against the backdrop of the Estimates debate in the House of Assembly, which has been focused on Barbados’ severe economic challenges.

After successive years of decline, the local economy grew by 1.6 per cent last year, but concerns persist about the island’s fiscal deficit and its level of debt which are still too high. These concerns have resulted in several recent downgrades by international ratings agencies and have negatively affected the appetite of financial institutions for domestic Government debt.

At the same time, the country’s foreign reserve levels fell below $700 million last year to around the equivalent of ten weeks of imports of goods and services, the report acknowledged.

However, it said, based on the results of several stress tests, the financial system was stable enough to “survive a range of adverse events”.

“In particular, stress tests for banks continued to emphasize their resilience to a variety of economic shocks.

“Deposit-taking finance and trust companies were also robust, although specific vulnerabilities emerged under less adverse conditions than for banks,” the report explained.

It also assured that credit unions were adequately capitalized to absorb potential losses due to credit risk shocks and that liquidity was sufficient to buffer potential deposit runs.

The insurance sector was also deemed to be “reasonably resilient”, though the report said some companies faced significant losses of capital.

As for the banking sector, the report pointed to “extremely high levels of liquidity”, as commercial banks reduced their holdings of Government securities and overall loan growth remained weak.

“Against this backdrop, banks still managed to increase profitability, due primarily to lower interest expenses. Though there was no increase in their credit portfolios due to the continued weakness in business-related lending, an overall improvement of credit risk was reported as the banks’ non-performing loan (NPL) portfolio continued to subside,” it said, adding that capital within the local banking system remained above international guidelines.

3 Responses to High liquidity

  1. Donild Trimp March 18, 2017 at 9:07 am

    Not impressed with the depositor guarantee of up to $25,000 on domestic currency accounts.

    That is a meaningless amount.

  2. Peter March 18, 2017 at 11:37 am

    Key word here is MAY. Madden the DEM plant reporting positively for DEM. Well dress up graph I Barbados’ colors dating back to 2000 Persons who are so easily bluffed cannot read this chart and will only see it as a nice piece of artwork or drawing as any child would put it.look at the black line. It shows most excess cash ratio occurred under under BLP ruled anministration. It is nmade out to be borderline since 2008 and more recently by the printing of BDS dollars to shore up money circulatinh. Except that most going to Guyana to use in purchasing US dollars. Don’t forget nuff Guyanese and Bajans live and intermix between these two countries. It caused President Granger to put a halt to Local trading in BDS dollars. All the BDS cash held up in Guyana and Trinidad will have to be returned but it can’t really buy anything except sex and drugs on the ground. All things WILL become more expensive. Richarf the English diplomat describes as inflation whis=ch in truth and in fact is devaluation. Check the Beitish Pound.

  3. Peter March 18, 2017 at 11:38 am

    That should be Richard, and which is in truth ……


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