Financial institutions, especially commercial banks, are lending Barbadians more money to build homes and other properties, but regulators do not currently see this increased credit linked to mortgages as a threat to financial stability.
However, Deputy Governor of the Central Bank of Barbados Alwyn Jordan says that “while the sector is not likely to pose a systemic risk, its size and dynamics warrant close monitoring to ensure that risks remain well contained as the credit and real estate cycles evolve”.
He was speaking on Thursday at the Courtney Blackman Grande Salle as the Central Bank and Financial Services Commission officially launched the 2024 Financial Stability Report (FSR) during a roundtable discussion featuring financial sector representatives.
The FSR said that mortgages make up nearly half of total deposit-taking institutions’ loan portfolios, with banks having the highest exposure.
“In 2024, banks expanded lending to mortgages and the broader real estate sector, yet the share of real estate loans held steady at around 46 per cent, as lending in other categories also grew,” the publication stated.
“Real estate exposure increased but is not an immediate threat to financial stability. Banks extended 35 per cent more new mortgages than in 2023, reflecting robust lending in both
commercial real estate and residential real estate markets.”
Jordan noted that the mortgages accounting for about 46 per cent of total bank lending “represents a structural feature” for the banking sector’s loan portfolios.
“In 2024, mortgage lending rose sharply, particularly in the commercial real estate area, supported by favourable lending terms and credit campaigns. At the same time construction costs rose, which continues to weigh on affordability and also to limit new real estate supply,” the Deputy Governor said.
“Perhaps one near-term risk stems from the rise in banks’ mortgage capital ratios, which increases their sensitivity to any potential correction in property prices.”
Shimon McIntosh, managing director, RBC Royal Bank, and current president of the Barbados Bankers’ Association, told the discussion the high concentration of mortgages on commercial bank loan portfolios was partly historical.
“And it would not concern me at this point, given that the [nonperforming loans] are also trending downwards, so we are seeing quality loans being put on the banks’ portfolio,” he noted.
McIntosh confirmed there was a lot of appetite for mortgages, “whether it be outright property purchases, construction mortgages, and that is also reflective of the buoyancy of the economy”. (SC)
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