Barbados now has a $30.3 billion financial sector.
The 2024 Financial Stability Report (FSR) published by the Central Bank of Barbados and Financial Services Commission (FSC) says total assets of the financial system reached that total at the end of 2024, up from $29 billion in 2023.
The bulk of assets in 2024 – $15.6 billion – were at commercial banks, an increase over 2023’s $14.65 billion.
Banks were followed by insurance companies $4.54 billion ($4.46 billion in 2023), credit unions $3.26 billion ($3.15 billion in 2023), pension funds $3.16 billion ($2.82 billion in 2023), mutual funds $2.93 billion ($2.87 billion in 2023), and finance companies $1.13 billion ($1.03 billion in 2023).
“The structure of the financial system remains largely unchanged in 2024. Asset growth was concentrated in finance companies and commercial banks, while other segments remained stable,” the FSR says.
“Commercial banks continue to play a central role as the dominant holder of assets in the financial sector.”
The publication also said that in 2024, “overall financial stability was maintained”. “Favourable macroeconomic conditions supported stability despite lower profitability stemming from a combination of operational expenses and modest credit growth,” it stated.
“This stability is reflected in the Aggregate Financial Stability Index, with no significant deterioration in credit quality. The decline in the Banking Stability Index (BSI) was primarily due to weaker profitability and tighter liquidity conditions.”
Increased loans were a major reason why assets at commercial banks, insurance companies, credit unions, pension funds, mutual funds, and finance companies expanded last year.
“Credit expansion propelled asset growth in 2024. Consolidated assets rose by six per cent in 2024, accelerating from two percent in the prior year. This growth was driven by increased lending across all deposit taking institution segments,” the Central Bank and FSC reported.
“A key factor was the $592.7 million debt-for-climate resilience swap, in which three commercial banks participated. The transaction boosted net credit to the Government, expanded banks’ balance sheets, and absorbed some of the excess liquidity in the system.
Notable liquidity decline
“Commercial banks drew down liquidity to support credit expansion. Unlike finance companies and credit unions, banks experienced a notable liquidity decline as they used excess cash and reserves to meet rising demand from the Government, non-financial corporations, and households.
“This coincided with a dip in the BSI. Nevertheless, banks maintained liquid asset ratios near the five-year average and continued holding short-term government securities, supporting earnings and preserving buffers amid global uncertainty,” the report added.
It also noted that “global
economic uncertainty may drive a gradual rebalancing of DTI portfolios towards lower-risk assets and more resilient sectors”.
However, despite this potential shift, “loans remain the dominant component of deposit taking institutions assets, continuing to represent the primary source of risk exposure”.
The report said that “favourable credit conditions supported strong loan growth and improved credit-to-GDP dynamics”.
“Increased economic activity boosted credit demand and contributed to a decline in loan delinquency rates. While the overall weighted average loan rate edged down slightly, a gradual increase in consumer lending rates may temper future credit growth, particularly for more vulnerable households,” it pointed out.
In addition to more loans, investments were again a significant part of assets at deposit-taking institutions last year, including more investments in Government securities, the FSR detailed.
The greater exposure to Government debt was higher among commercial banks.
“The increase, amounting to $165.2 million or 7.1 per cent, reflected sustained appetite for domestic government instruments, primarily treasury bills,” said the report.
“Sovereign exposure in the banking sector increased in 2024, remaining broadly consistent with recent trends. Banks’ sovereign exposure, measured as net credit to government relative to assets, rose by 3.9 percentage points to 20.4 per cent, reflecting greater investment in domestic government securities and participation in the debt-for-climate resilience swap.
“Sovereign assets continue to play an important role in bank portfolios, and developments in public sector credit will remain an area of regular monitoring, as part of the sector’s overall credit dynamics.”
The report also stated that while commercial banks’ significant holdings of Government instruments could increase vulnerability under adverse fiscal or economic conditions, “current assessments indicate declining default risk over the short to medium term”.
“This outlook is supported by improved sovereign credit ratings for Barbados, which now carry stable and positive outlooks, and is further reinforced by the participation of highly rated multilateral institutions, such as the Inter-American Development Bank, as a guarantor in the debt-for-climate swap,” it noted. (SC)
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