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The 2021 Financial Stability Report

During 2021, Barbados experienced a surge in COVID-19 infections and notable climatic events. In spite of these unfavourable circumstances, increased economic activity and a recovering labour market over the second half of the year kept the financial system stable and resilient. Deposit taking institutions (DTIs) remained well capitalised and registered improved credit quality as the loan moratoria programmes that were introduced in 2020 were winding down.  The general and life insurance industry also met regulatory solvency criteria over the course of 2021, while pension plans and mutual funds which have exposure to foreign-issued instruments were boosted by gains in equity markets internationally.

Outstanding loans from DTIs contracted marginally and liquidity continued to grow, sustaining historically low interest rates. Despite the weak credit market, profitability strengthened, partly because of a reduction in provisions, particularly by commercial banks, as the economic recovery began to gather momentum. 

The ongoing conflict between Russia and Ukraine, global climatic shocks, supply chain disruptions, the sharp rise in global inflation and the increased probability of recessions in the United States and the United Kingdom pose significant downside risks to financial stability. These factors, together with the rising interest rate environment internationally, are likely to generate some losses for equity and fixed income investors, especially for pension funds and life insurance entities.

The impact on DTIs is uncertain, but a deterioration in the domestic labour market and the general business environment could cause Barbados’ financial system to grapple with a deterioration of loan quality, profitability and capital adequacy. However, the stress test results of Section 5 suggest that the financial sector is in a position to absorb large but plausible shocks to NPLs, profits and liquidity without the occurrence of systemic instability.

The Central Bank of Barbados (Bank) and the Financial Services Commission (FSC) will continue to strengthen the regulatory framework and improve the assessments of systemic risks. Among planned initiatives are for an improved focus and development of capability on climate risk evaluation, cyber risk security, anti-money laundering, and the monitoring of the non-regulated financial sector. 

Click below to download the full document.

FSR 2021