Barbados’ financial system is stable but local regulators are warning that global risks have intensified, increasing the likelihood of adverse spillovers into the domestic economy.
This is detailed in the 2025 Financial Stability Report (FSR) published by the Central Bank and the Financial Services Commission (FSC).
Geopolitical uncertainty, climate risk, and cyber and artificial intelligence risks were identified as the key threats to financial system stability.
In the report, which covers all of 2025 and this year as of July 20, Central Bank Governor Dr The Most Honourable Kevin Greenidge, and FSC chief executive officer Warrick Ward, said the analysis shows a financial system “that remains sound in aggregate, but one in which the margin for error narrowed over the year”.
“That combination argues for preserving aggregate buffers and rebuilding institution – specific headroom where it weakened, while concentrating supervisory attention on the institutions identified by our testing,” they added.
Information on the total assets of pension funds were not available, but when those of commercial banks, insurance companies, finance companies, credit unions and mutual funds were combined, total assets in the system were $28.6 billion at the end of last year.
This was up from $27.5 billion in 2024, excluding pension funds’ total assets. Commercial banks continue to dominate the asset base, holding $16.2 billion in 2025, up from $15.6 billion in 2024.
The report said financial system stability was supported by improving asset quality, positive earnings among deposit-taking institutions, and capital and liquidity buffers that remained adequate at the aggregate level.
It added, however, that “the direction of risk . . . became less favourable”.
“Deposit growth slowed while credit continued to expand, commercial banks’ capital adequacy and leverage declined, real estate and large-borrower concentrations remained material, credit union profitability weakened, and stress tests exposed capital, liquidity, interest rate and concentration vulnerabilities at a small number of institutions,” the publication elaborated.
“These developments do not indicate system-wide distress, but they have narrowed the margin for error and require stronger institution-specific supervision, preservation of capital and liquidity buffers, and closer monitoring of interconnectedness, climate, cyber and market risks.”
Regulators noted in the FSR that Barbados’ economic structure “amplifies the transmission of external shocks into financial sector vulnerabilities”.
‘Strong reliance’
“The principle features are a strong reliance on tourism and external demand, high import dependence for essential goods, and the concentration of economic activity and credit exposure in coastal areas,” the report explained.
“Increasing digitalisation and the growing interconnectedness of financial infrastructure, including payment and settlement systems, heighten exposure to operational risk.”
It added that during 2025 financial institutions’ balance sheets “reduced the headroom available to absorb such shocks in parts of the system.
“Credit expanded at its fastest pace in over a decade while deposit growth slowed to 2.9 per cent, commercial banks’ capital adequacy ratio declined from 21.2 per cent to 19 per cent, and the leverage ratio from 12 per cent to 10.9 per cent, and provisioning coverage of non-performing loans eased.
“Concentration risk remained material, with mortgages accounting for close to half of deposittaking institution loan portfolios and large-borrower exposures continuing to test capital under stress.”
It continued: “Credit union profitability weakened. Other indicators moved in the opposite direction: credit quality strengthened across every major borrower segment, aggregate liquidity remained adequate, finance company capital improved, and the recapitalisation need identified under the severe stress scenario fell relative to the previous exercise.
“Taken together, these developments left aggregate resilience adequate but reduced headroom in parts of the system, particularly among commercial banks and selected credit unions.”
Using balance sheet data up to the end of last year, the Central Bank and the FSC conducted what the report called “forward-looking stress tests over the 2026 to 2028 horizon”, covering commercial banks, finance companies and credit unions.
“Aggregate capital remained above the applicable thresholds under the baseline and adverse scenarios, although vulnerabilities emerged at a small number of institutions, including under the baseline,” the report outlined.
“The exercises assessed the effects of macroeconomic, large exposure, liquidity and interest rate shocks on deposit-taking institutions, examining credit quality, profitability and capital adequacy.”
(SC)
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