Grim view of investment
DESPITE their size and strength, even commercial banks are challenged to convince Barbadians that their investments are safe.
This was revealed in the latest PricewaterhouseCoopers (PwC) Barbados Banking Industry Performance Highlights for 2009.
Against the backdrop of failed financial institutions in the region and industrialised countries, PwC said the aura of invincibility around the world’s banking industry had been shattered by the financial meltdown.
“While there has been no bank failure in Barbados, [its] banks have not escaped the additional scrutiny from regulators, customers and the Government.
A major challenge for banks in Barbados during 2009, and currently, is convincing customers that their investments are safe,” the accounting firm noted.
In its assessment of credit risk, it said this remained among the most serious challenges for banks.
“In times of high profitability, the quality of the loan portfolio can sometimes take a back seat. . . . In recessionary periods, the risk of credit losses continues to be a concern,” the report explained.
The accounting firm said there was a grim forecast, that “the worst is yet to come” where credit risk was concerned, and “the prevailing effect on banks may currently be underestimated”.
In fact, the document pointed out that local banks’ provision for credit loss expenses increased by 76 per cent, though the total provision for credit losses was less than one per cent last year.
The country’s commercial banks too have been affected by the lacklustre investment market at home and abroad.
PwC added: “The lack of investment alternatives put pressure on banks to increase their lending as they sought to put deposits to work and earn income. The increasing risk of credit loss, however, reduces the value of this initiative. Current local investments also provide little attraction, as current interest rates are at their lowest in recent history.” (GE)