Numerous commentators on the global and regional economic outlook for 2012 are writing the same script: lower than expected growth, increased volatility in the financial markets particularly in the eurozone and, stifled global economic recovery. There are corresponding fears in certain circles of a double-dip recession and even the possibility of a eurozone fragmentation. Revised projections by the International Monetary Fund (IMF) anticipate that the market volatility associated with the European debt crisis will weaken the recovery of advanced economies.
The IMF Regional Economic Outlook: Western Hemisphere as at October 2011 also forecasts constrained economic expansion in the Caribbean due to higher energy prices, reduced tourism spending and tighter fiscal consolidation. In addition, slower than previously expected recovery of the advanced economies and overall deteriorating global conditions impact the Caribbean mainly through the region’s dependence on remittances from the Diaspora. Remittances and tourism receipts to the region remain well below pre-crisis levels.
The IMF forecast is supported by the September 2011 Central Bank of Barbados Economic Review which cites that prospects for a full recovery from the economic recession in Barbados have become more distant because of the weakened growth prospects for the US, the UK and other developed economies.
The Banking sector in Barbados continues to face significant challenges to profitability, higher non-performing loans, and growing liquidity. Ewart Williams, Governor of the Central Bank of Trinidad and Tobago, in an address at the Financial Institutions Conference on November 3rd 2011 warned Barbadian Banks that they may face sharp declines in profitability–as measured by return on equity–over the next few years.
In his address, he referenced an article from the Latin American Markets Monitor which predicted tough years ahead for the banking sector in Barbados, given the rising level of non-performing loans and the expected weak economic recovery. In Barbados, the loan delinquency rate has increased from 3.5%to 10.5% of total loans, and poses a real concern to regulators and banking officials. However, Governor Ewart Williams did not seem to subscribe to such an overly pessimistic outlook for the banking system in Barbados, though it would be challenging times ahead.
He also said the challenge facing the banking sector is to balance regulation, competition and financial education to achieve financial stability and consumer protection.
It is a fact that the evolution of the financial sector in the global and regional market will always outpace that of the regulatory systems. The gaps are widest in the areas of insurance, credit unions and securities regulations but there is also a lag in respect of bank supervision.
There is a likelihood that the banking sector will continue to face the same challenges it faced in 2011, along with additional banking regulations arising from the current upgrading of financial legislation in regional jurisdictions.
Overall, there is little the banking sector can do in the uncertain and challenging times of 2012 but focus on implementing firmer measures in preparation for future financial crises.
- Central Bank of Barbados Economic Review as at September 2011
- Ewart S Williams: Some reflections on the regional banking system – address at the Financial Institutions Conference on November 3rd 2011
- The IMF Regional Economic Outlook: Western Hemisphere as at October 2011