Central Bank of Barbados: Financial Stability Report 2013

Even before the global financial crisis of 2008, the financial system in Barbados had grown in size and complexity resulting in a number of regulatory innovations as regulators attempted to keep pace with the changing environment. This ongoing monitoring and legislative fine-tuning have been key pillars in supporting the financial architecture and the overall stability […]

By Central Bank of Barbados

March 4, 2014

Central Bank of Barbados Photo: Andrew Hulsmeier

Even before the global financial crisis of 2008, the financial system in Barbados had grown in size and complexity resulting in a number of regulatory innovations as regulators attempted to keep pace with the changing environment. This ongoing monitoring and legislative fine-tuning have been key pillars in supporting the financial architecture and the overall stability of the system in an adverse post-crisis economic environment. Since 2008, there have been several upgrades to the legislative framework and updated guidelines have been issued by both the Central Bank of Barbados and Financial Services Commission to ensure that the industry is operating in line with international best practices. In addition, continued exchanges between the regional and international supervisors have also contributed to the effective consolidated and cross-border monitoring of institutions. Moreover, significant progress has been made towards the development of a regional financial stability assessment report and work on a regional crisis management and resolution plan has already begun.

Notwithstanding these developments, some of the key financial stability indicators have worsened since the onset of the global financial crisis with credit risk being particularly noteworthy. While resilient areas such as personal mortgages exist, the persistently weak economic environment has contributed to the general decline in profitability through the deterioration in credit quality and the contraction of viable investment projects. Fortunately, the major indicators of credit risk have stabilised since the last FSR update with the resolution of one of the major non-performing hotel loans. However, the cutback in public sector employment in 2014 is expected to adversely affect the credit portfolios of financial institutions in the short term until the resumption of economic growth occurs. In addition, while the bulk of non-performing loans are captured in the substandard category of loans, the reported decline in asset values has raised concerns as to the ability of financial institutions to realise on the value of collateralized loans. Linkages in the financial system also have the potential to be a major source of systemic vulnerability, particularly through intercompany exposures and contagion effects. In addition to contagion risk, interest rate and liquidity risks were also carefully examined in the report.

To assess the impact of the above vulnerabilities, a series of stress tests were conducted and the results suggest that the system as a whole remained resilient even in the case of significant shocks. Taking into account the simulation exercises and the latest data available, the financial system remained stable. This conclusion is supported by the sustained maintenance in the capital buffers well in excess of the prudential requirement, continued profitability and the reputation associated with strong parents.

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Central Bank of Barbados

The Central Bank of Barbados is responsible for promoting monetary stability, promoting a sound financial structure, fostering development of the money and capital markets, channeling commercial bank credit into productive activities and fostering credit and exchange conditions conducive to the orderly and sustained economic development of Barbados.

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