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Central Bank watching loans


Natasha Beckles

Central Bank watching loans

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Barbados’ regulatory authorities will be keeping a closer eye on financial institutions in light of rising non-performing loans, many of which are linked to the vital tourism industry.
But officials at the Central Bank of Barbados and the Financial Services Commission (FSC) are not overly concerned about the ability of banks, credit unions and non-bank entities’ to bounce back in the event of exogenous shocks.
The 2012 Financial Stability Report, produced by the two bodies and released last Friday, showed that non-performing loans (NPLs) in the banking sector rose from 11.1 per cent at the end of 2011 to 12.7 per cent at the end of September 2012.
Hotels and restaurants accounted for 43 per cent of these NPLs followed by the real estate and personal sectors which each represent approximately 23 per cent.
Meanwhile, the quality of the loan portfolio of credit unions deteriorated gradually as the classified debt ratio increased to 8.5 per cent at September 2012, up from 6.9 per cent at December 2011.
Officials noted that all the entities had more capital than required under local and international prudential standards.
Speaking during a media event at the Central Bank to launch the report, Central Bank Governor Dr DeLisle Worrell stressed that the difficulties with credit quality did not result from any deficiency in the system itself but from overall economic circumstances.
“That is precisely why financial institutions hold capital, so that if economic circumstances over which they have no direct control impact on them and . . . their customers in a way that forces some adjustment in their portfolio, the capital is there for insurance that they can do that in a measured way,” he explained.
Worrell said the soundness of the financial services sector had held up even under the most extreme stress tests where only “one or two banks” fell below the eight per cent capital adequacy ratio.
Still, FSC acting chief executive officer Warrick Ward said the commission would remain vigilant.
“We still need to make sure that . . . we are not surprised by any entity that has [fallen on] hard times,” he said.
Ward noted that the FSC had increased its surveillance of credit unions, issued new guidelines for the sector and was working closely with the Barbados Co-operative and Credit Union League.
“So far we have not yet seen a level of delinquency to suggest that the credit unions are on the brink of failure,” he said, adding that any oversight in terms of the knock-on impact of the credit unions on the wider system could largely be focused on only one or two credit unions.

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