new financial sector developments in the caribbean · 2019. 5. 6. · credit–to-gdp gaps current...
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FinancialSectorDevelopmentsintheCaribbean
JohnA.RolleGovernor
CentralBankofTheBahamas
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OVERVIEWOFPRESENTATION
I. MacroEnvironment&Macro-PrudentialIndicators
II. MicroPrudentialIndicators
III. SystemicRisks
IV. CorrespondentBankingChallenges
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StateoftheFinancialSectorintheCaribbean
• The sectors still face elevated vulnerabilities, correlated with realeconomic trends but with manageable risks
– Commodity based economies face weaker conditions thanservice based economies
• No recent institutional failures
• Stress tests at country level generally point to manageable risks
• Mixed results for systemic risk indicators
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MacroeconomicEnvironment
• Macroimbalances&challenges:
– Low average growth– Highunemployment– Highfiscaldeficits– Balanceofpaymentdeficits– High sovereignindebtedness
• Adverse credit ratings &rising USinterestratesareplacingupwardpressuresondebtcosts
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MacroeconomicEnvironment
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MacroeconomicEnvironment
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Macro-prudentialIndicators
• The regional banking system is stable as measured by:
– Capital adequacy ratios, which remain in excess of statutory
norms, in part because banks shifted from private sector lending
to holding more cash
– Liquidity ratios which have continued to improve
– Moderate decline in non-performing loans
– Recovery of profitability
• The insurance sector is adequately capitalised
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AssetQuality— Non-PerformingLoans(NPLs)
• Assetquality,asmeasuredbytheratioofNPLstototalloans,continuedtoimproveduring2017.
• Reflectseffortstoaddressproblemloans,includingthroughassetsales,debtrestructuringassetsandmoreaggressiveresolutions.
• But…NPLratiosarestillabove2008levels.
Non-PerformingLoansRatio(%)
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%
RegionalWeightedAverageCommodity-BasedWeightedAverageService-BasedWeightedAverage
Source:CaribbeanEconomicResearchTeam(CERT)8
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CapitalAdequacy
• Banksarewellcapitalized,principallywithTier1capital.
• Averagecapitaladequacyratioremainedhighat21.5%in2017.
• Inlowreturnenvironment,somecapitalreductionisnowconsideredprudentforauthoritieslikeBahamas.
CapitalAdequacyRatios(%)
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%
Regional Weighted AverageCommodity-Based Weighted AverageService-Based Weighted Average
Source:CaribbeanEconomicResearchTeam(CERT)9
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ReturnonAssets(ROA)
• Profitabilityisrecovering• TheaverageROAwas
recentlylowestin2014whenlargeloanwrite-offsoccurredinTheBahamasandBelize.
• TheROArecoveryhasbeenslowerintheEasternCaribbeancurrencyareaandSurinameremainingbelow1%.
ReturnonAssets(%)
-2
-1
0
1
2
3
4
5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Regional WeightedAverageCommodity-BasedWeightedAverageService-BasedWeightedAverage
Source:CaribbeanEconomicResearchTeam(CERT)10
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Liquidity• Giventhemodestgrowthof
credittotheprivatesector,regionalbankingsystemsremainedveryliquid,withlessdispersion.
• Theaverageliquidassetsratiostayedataround26%,withBelize,TrinidadandTobagoandBarbadosexperiencingdeclines,contrastingwiththeincreasesofGuyana,TheBahamasandtheECCU.
LiquidAssetsRatios(%)
0
10
20
30
40
50
60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%
Regional AverageCommodity-Based Economies AverageService-Based Economies Average
Source:CaribbeanEconomicResearchTeam(CERT)11
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SystemicRisks
• SystemicRiskisbeingassessedusingavarietyofmeasures,including:– Credit- to- GDPgaps– Aggregatefinancialstabilityindex– Bankingstabilityindex– Signals-basedindex– Compositeindicatorofsystemicstress– Cross-bordercontagionchannels
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Credit–to-GDPGaps
Currentlevelofcredit-to-GDPrelativetolong-termtrend
• Economiesareatvariousstagesinthecreditcycle.
– ECCU,Belize,Barbados&Surinameareestimatedtobeinthedownturnphase.
– Trinidad&Tobago(highestgap),Guyana,Bahamas,HaitiandJamaicareflectexcesscreditbuild-up.
8.6
2.8 1.2 0.4
-5.0-7.6
-12.9
-25.7-30
-25
-20
-15
-10
-5
0
5
10
Trinidad&Tobago
Guyana
Jamaica
Haiti
Belize
Barbados
Surin
ame
ECCU
2016
Source:CaribbeanEconomicResearchTeam(CERT)13
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AggregateFinancialStabilityIndices• TheAggregateFinancialStabilityIndex(AFSI):acomposite
measurereflectingthedifferentaspectsofthemacro-financialenvironment.
• Aweightedaverageofnormalizedbankbalancesheetandmacroeconomicpartialindicators(includinginternationalfactors).
• Sub-indices:– financialdevelopmentindex(10%weight)– financialvulnerabilityindex(40%weight)– financialsoundnessindex(40%weight)– theworldeconomicclimateindex(10%weight)
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AggregateFinancialStabilityIndices• Aggregateindexcontinuedtobe
abovepre-crisislevelsin2016:
– Softeningforcommoditiesbasedeconomies(TrinidadGuyanaandSuriname);butimprovingforserviceseconomies.
– Drivers:deteriorationfromincreasinginflation,higherNPLsanddecliningcapital(Suriname),loanqualityandliquidity;andreductionofliquidassets,inthecontextofgrowingcreditrelativetoGDP(Trinidad)
0.00
0.05
0.10
0.15
0.20
2008 2009 2010 2011 2012 2013 2014 2015 2016
Trinidad&Tobago Guyana Suriname
0.00
0.05
0.10
0.15
0.20
2008 2009 2010 2011 2012 2013 2014 2015 2016Jamaica Belize Bahamas
Source:CaribbeanEconomicResearchTeam(CERT)
Services-basedeconomies
Commodities-basedeconomies
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BankingStabilityIndex• Index(BSI)isweightedaverageofnormalized indicators:
– AssetqualityorNPLs(50%)
– Profitability(20%)
– Lquidity (20%)
– Foreignexchangeraterisk(5%)
– Capitaladequacy(5%)
• Improvementisskewedtoserviceeconomiesversussomedeclineforcommodities-basedeconomies.
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BankingStabilityIndexBahamas Barbados
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
Source:CaribbeanEconomicResearchTeam
Services-basedeconomies
17
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BankingStabilityIndexBelize
-2.0-1.5
-1.0
-0.5
0.00.5
1.0
1.5
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
Source:CaribbeanEconomicResearchTeam
-1.5
-1.0
-0.5
0.0
0.5
1.0
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
CurrencyUnion— ECCUServices-basedeconomies
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BankingStabilityIndex
Jamaica Suriname
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
Source:CaribbeanEconomicResearchTeam
Commodities-basedServices-based
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BankingStabilityIndex
Trinidad&Tobago
-1.0-0.8-0.6-0.4-0.20.00.20.40.6
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
Source:CaribbeanEconomicResearchTeam
-1.5-1.0-0.50.00.51.01.52.0
Mar-200
8Sep-2008
Mar-200
9Sep-2009
Mar-201
0Sep-2010
Mar-201
1Sep-2011
Mar-201
2Sep-2012
Mar-201
3Sep-2013
Mar-201
4Sep-2014
Mar-201
5Sep-2015
Mar-201
6Sep-2016
GuyanaCommodities-basedeconomies
20
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CorrespondentBankingThreatsEither fully withdrawn or “de-risked” relationships in other constrainingways, responding to a combination of concerns related to elevated anti-money laundering (AML)/counter financing of terrorism (CFT) riskassessments and economic considerations related to correspondentbanking business models.
• The Caribbean is one of the regions most affected by decliningcorresponding banking relationships (World Bank, 2015).
Trends :• Fewer institutions available to facilitate international transactions• Increased of vulnerability of the domestic financial sectors• Financial exclusion risks for some population segments and industries
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Source: Caribbean Association of Banks, 2016
AreasofImpactLines
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Source: Caribbean Association of Banks, 2016
AreasofImpact
• Money transmission/remittance services firms• Indigenous owned banks• Stand-alone international banks• Inward and outward cash shipment services
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StrategicResponses
Collect data to quantify
impacts on inclusion and
cost transactions.
Use technical assistance and national risk assessments to improve AML/CFT systems.
Use uniform international benchmarks to improve AML/CFT standards.
Engage international stakeholders to address
perceptions &other
obstacles.
Use data to inform international engagement, but also areas for reform and strengtheningof AML/CFT systems.
A coordinated regional approach …
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StrategicResponses
Accelerate financial inclusion initiatives.
Reduce dependence
on cash through
payments system reform.
Embrace consolidation
of smaller banks.
Make it easier for
small banks to
share technology
costs.
Reduce longterm vulnerabilities
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Source: Caribbean Association of Banks, 2016
Conclusion
• Average financial sector conditions are improving, but shaped by thevarying strength of macro conditions across service versuscommodity export dependent economies.
– Low growth and high debt impose constraints on the environment
• Elevated NPLs represent the area for most significant requiredimprovement.
• Access to correspondent banking services remains a concern forwhich both near-term and longer-term risk reduction reductionstrategies are being deployed.
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