Local financial industry experts say the power of Barbadians to repay their loans could possibly be impacted by rising inflation as a result of the continuing war in Ukraine.
Despite that increased risk of non-performing loans, nevertheless, regulators said stress test results suggest that “the financial sector is able to absorb large but plausible shocks to non-performing loans, profits and liquidity without the occurrence of systemic instability”.
“This improved large-exposure non-performing stress tests result in comparison with the previous 12 months is again as a result of a discount in among the balances of the biggest exposures and stronger capital positions,” said the recently released Financial Stability Report 2021.
It noted that individuals continued to account for the best level of credit exposure among the many financial systems’ principal lenders.
“The credit exposure of banks and finance and trust corporations is heavily concentrated in the non-public sector which accounts for 62 per cent of their loan portfolios and 68.2 per cent of total non-performing loans,” said the report.
It noted that with the COVID-19 pandemic seeming to wind down in its detrimental effect on the worldwide and native economies, projections were for a rebound within the country’s principal economic sectors.
Nonetheless, the financial regulators said the specter of the impact of the conflict within the Ukraine on international and native commodity supplies and inflation has already began to affect Barbados and will impact the extent of non-performing loans.
“Looking forward, this huge proportion of non-public borrowers can be affected by inflation arising from fuel and food prices. This might impact the extent of non-performing loans over the approaching months or years, depending on the war’s duration and intensity. Due to this fact, the stress testing of credit risk stays a critical tool in assessing potential risk in Barbados’ economic system,” said the document.
The entire new lending for 2021 rose by 3.7 per cent, representing a recovery from the decline registered in 2020.
“With regained confidence within the economy, households and businesses, particularly the tourism and distribution sectors, increased their demand for bank credit,” the report said, adding that “throughout the business sector, new credit demanded in 2021 was primarily put towards working capital and refinancing”.
Whilst loan balances were reduced, loans remained the biggest component of business banks’ assets in the course of the review period.
In response to the 94-page document, the Central Bank of Barbados and the Financial Services Commission (FSC) will proceed to strengthen the regulatory framework and improve the assessments of systemic risks.
“Amongst planned initiatives are for an improved focus and development of capability on climate risk evaluation, cyber risk security, anti-money laundering, and the monitoring of the non-regulated financial sector,” it stated. (MM)