The 2017 Financial Stability Report

The Barbadian financial system remained stable during 2017, despite a challenging domestic macroeconomic environment. The structure of the financial system was mostly unchanged with commercial banks dominating the financial space. There was modest balance sheet growth across the system but credit unions increased their penetration of the domestic deposit market as a result of the low interest rates being offered by banks. However, the deposits of households in the financial system remained steady during the year. Liquidity in the system remained high, and there was improved asset quality mainly driven by the commercial banks. Institutions continued to be profitable over the period, particularly credit unions whose profits surpassed that of the previous year. Capital levels were adequate for the system, but there was one credit union which did not meet the 10 percent benchmark at December 2017.

The performance of the life and general insurance industries continued to diverge during 2017. Asset growth in the life industry was robust but flat for general insurers whose premium income has contracted over the past three years because of price competition in the sector. In addition, general insurers offering cross-border services across the region suffered from declining income related to hurricane claims.

An assessment of key risks, including credit, liquidity, interest rate and sovereign risk indicated that the system was generally stable and able to withstand a range of adverse shocks. Among the DTIs, stress tests revealed that commercial banks continued to be very resilient, while finance and trust companies and credit unions were also modestly robust, though vulnerabilities were more evident in some institutions when compared to banks. Stress tests for the insurance sector covering recessionary, pandemic and natural disaster shocks indicated overall resilience for the industry, but suggested significant capital losses for some companies under specific (severe) stress scenarios.

The challenging economic conditions are likely to extend into 2018 with the continued efforts to strengthen macroeconomic imbalances. While these efforts may negatively impact the performance of the financial system, it is expected that the sector will continue to remain resilient, given its high capital buffers, particularly in the banking system. However, the implementation of the International Financial Reporting Standard (IFRS) 9 , which is applicable to the entire financial sector, is expected to raise the required level of provisioning and result in a slower accumulation of capital. Additionally, the adoption of a debt restructuring programme by Government is likely to have adverse consequences for the sector.