||Central Bank Of Barbados
Most of Barbadians’ Debt is in Mortgages
The majority of Barbadians’ debt with financial institutions is tied up in mortgages. This is one of the findings of the 2015 Financial Stability Report published by the Central Bank of Barbados and the Financial Services Commission.
According to the report, mortgages account for 43 percent of commercial banks’ total credit, 48 percent in the case of credit unions and 85 percent for trust and finance houses. Moreover, 66 percent of household debt is attributed to mortgages, especially those for locally based private residential dwellings.
On the performance of mortgages, the report notes that the increase in the proportion of banks’ mortgages in Non-performing loans (NPLs) outpaced the growth of mortgages as a proportion of total loans. “Bank’s mortgages in non-performing loans rose substantially from 17 percent to 42 percent between 2008 and 2015, while the growth of mortgages as a proportion of total loans rose from 27 percent to 43 percent,” the report stated.
At end-September 2015, banks’ NPL ratio stood at 10.8 percent, of which just under half (4.5 percent) related to mortgages. More Barbadians have defaulted on their mortgage payments in recent years: the default rate in the mortgage portfolio moved from 0.5 percent in 2008 to around 4.5 percent at September 2014. The report noted, however, that many of the NPLs included in this figure are older loans that banks have already written off. Their retention in the NPL ratio reflects the slow pace at a legal resolution to these defaults.
However, while the impact of non-performing mortgages remains higher than desired, the elevated levels do not directly threaten the financial stability of the commercial banks. This assertion is supported by stress tests which affirmed that banks are adequately capitalized.
February 29, 2016
Financial Stability Report Podcast 5 - Mortgages.mp3