The 2025 Financial Stability Report

Barbados’ financial system remained stable in 2025, supported by improving asset quality, positive earnings among deposit-taking institutions, and capital and liquidity buffers that remained adequate at the aggregate level. The direction of risk, however, became less favourable. Deposit growth slowed while credit continued to expand, commercial banks’ capital adequacy and leverage declined, real estate and large-borrower concentrations remained material, credit union profitability weakened, and stress tests exposed capital, liquidity, interest-rate, and concentration vulnerabilities at a small number of institutions. These developments do not indicate system-wide distress, but they have narrowed the margin for error and require stronger institution-specific supervision, preservation of capital and liquidity buffers, and closer monitoring of interconnectedness, climate, cyber, and market risks.

The financial system continued to grow, with non-bank institutions expanding faster than banks. Total financial system assets rose by 3.9 percent to an estimated 180.2 percent of GDP. Deposit-taking institution assets grew by 3.7 percent, moderating from 6.5 percent in 2024, as commercial bank and finance company balance sheets expanded by 3.3 percent and 6.8 percent, respectively, and credit unions grew by 4.9 percent. Mutual funds recorded the strongest growth at 8.0 percent. The continued expansion of non-bank financial institutions reinforces the importance of monitoring their interconnections with banks, which is examined in a thematic article accompanying this report.

Credit growth strengthened while deposit growth slowed. Commercial bank credit expanded by 6.3 percent, the strongest pace in over a decade, driven mainly by lending to the real estate and hotels and restaurants sectors. System-wide deposits grew by 2.9 percent, against 8.4 percent in the previous year. The loan-to-deposit ratio for deposit-taking institutions rose to 61.7 percent while the liquid assets ratio held at 27.5 percent. Aggregate liquidity remained adequate, although these developments coincided with reduced prudential headroom in several indicators.

Asset quality improved across every major borrower segment. The commercial bank non-performing loan ratio declined to 3.6 percent, its lowest level in over a decade. Corporate non-performing loans fell to 3.4 percent, an eleven-year low, with the modest increase in the stock of non-performing loans concentrated in a single manufacturing borrower rather than reflecting sectoral weakness. Household non-performing loans declined across all major categories, with the non-performing share of credit card balances falling from 3.5 percent to 2.9 percent. Provisioning coverage nonetheless eased over the year, and commercial banks’ provisions as a share of non-performing loans declined to 45.0 percent from 46.5 percent.

Borrower exposures remained concentrated in households and in real estate. Corporate credit balances rose by 8.4 percent, with corporate debt service remaining modest relative to GDP. Household lending remained the largest single source of credit exposure, accounting for 54 percent of deposit-taking institution loans. Mortgages accounted for close to half of deposit-taking institution loan portfolios: new mortgage issuance to households increased by 14.7 percent, and outstanding residential and commercial mortgage balances rose by 2.1 percent and 5.1 percent, respectively. Within the credit union sector, rapid mortgage expansion since 2021 has produced the highest concentration of mortgage exposure among domestic financial institutions, held against comparatively thinner capital buffers. Lending standards remained stable, with loan-to-value ratios between 80 and 100 percent and debt service ratios between 40 and 45 percent.

Capital buffers remained above regulatory minimums but declined for commercial banks. The commercial bank capital adequacy ratio fell from 21.2 percent to 19.0 percent, reflecting a $606.2 million increase in risk-weighted assets, with two institutions accounting for two-thirds of that growth, alongside an $88.4 million decline in regulatory capital. The leverage ratio declined from 12.0 percent to 10.9 percent. Finance companies moved in the opposite direction, with the capital adequacy ratio rising from 19.5 percent to 20.0 percent. Credit unions’ capital-to-assets ratio eased from 11.2 percent to 10.9 percent as balance sheet growth outpaced capital accumulation.

Profitability was positive but uneven across sectors. Commercial banks recorded a 6.4 percent increase in pre-tax profit, although higher tax expense reduced after-tax profit and return on average assets eased to 1.1 percent. Finance company returns improved. Credit union profitability weakened materially, with return on average assets falling from 0.6 percent to 0.4 percent as both non-interest and net interest income declined. Sustained weakness in credit union earnings would constrain the sector’s capacity to generate capital internally, which is significant given its mortgage concentration.

Stress testing confirmed aggregate resilience while identifying vulnerabilities at a small number of institutions. Under the baseline scenario, the aggregate capital adequacy ratio for commercial banks and finance companies rises from 19.1 percent at end-2025 to 21.5 percent by end-2028. Under the moderate and severe scenarios, it declines to 18.7 percent and 15.3 percent, respectively, remaining above the regulatory minimum throughout. Institution-level results are less uniform. One small institution is projected to reach the 8 percent minimum by the end of the baseline horizon, absent management action. Two institutions fall below the minimum under the moderate scenario, and three, together representing less than 10 percent of sector assets, fall below it under the severe scenario, requiring recapitalisation equivalent to 0.6 percent of GDP. This compares with four institutions and 1.2 percent of GDP in the previous exercise. In the credit union sector, no institution falls below the 4 percent hurdle under the moderate scenario, while two do so under the severe scenario, with cumulative capital needs of approximately 0.24 percent of GDP by 2028.

Liquidity and interest-rate resilience weakened relative to the previous year. Under a 5 percent daily deposit run, one bank required liquidity support by the fifth day, where none did in 2024, and nine credit unions required support under prolonged 10 percent and 15 percent scenarios, against eight previously. Finance companies remained the most immediately exposed. On interest-rate sensitivity, the most vulnerable bank would breach the 8 percent capital adequacy threshold at a shock of approximately 1,100 basis points, compared with 1,400 basis points a year earlier.

Investment portfolios exposed institutions to sovereign concentration and international market risk. Net credit to government declined to 20.7 percent of commercial bank assets but remained above pre-pandemic levels, with debt swaps guaranteed by multilateral agencies reducing direct exposure to Government by 5.2 percentage points to 16.6 percent of assets. Mutual fund net assets under management increased by 8.1 percent, with valuations sensitive to international equity and fixed-income markets. The three largest domestic funds accounted for approximately 52 percent of sector assets, creating a transmission channel to occupational pension portfolios. Domestic securities market activity remained constrained by structural illiquidity, with regular market trading volume falling by 76 percent and the number of bond trades declining from 42 to seven.

Insurance and pension sector risks remained shaped by climate exposure, structural pressures, and concentration. General insurers maintained relatively liquid balance sheets while remaining dependent on external reinsurance to absorb catastrophe losses, with elevated reinsurance costs contributing to underinsurance among households and businesses. In the life sector, assets relative to GDP declined to 20.5 percent, continuing a multi-year fall, and related-party exposures remained material. In the occupational pension sector, plan numbers and membership declined further, with defined contribution arrangements now accounting for 58.3 percent of plans. The transition to IFRS 17 delayed statutory insurance filings, and the assessment of the sector in this report is accordingly based on provisional data.

Payment system modernisation advanced significantly. Electronic payment activity continued to expand and cheque usage declined further. BiMPay, the Barbados Instant Payments System, was launched on 12 June 2026, supporting continuous retail payments and extending access to individuals without traditional bank accounts. Currency held outside deposit-taking institutions remained stable at 2.4 percent of GDP, indicating that cash and digital payments continue to coexist. These developments increase the importance of operational resilience, cyber controls, fraud monitoring, and oversight of payment service providers.

Regulatory reform continued across both authorities. Measures advanced during the period covered by this report span insurance capital and solvency requirements, reporting standards, credit union supervision, the licensing and oversight of payment service providers, technology and cyber risk management, and the regulation of virtual assets. Chapter 2 sets out each measure and its current status. Their effectiveness will depend on timely implementation, adequate supervisory capacity, and proportionate engagement with regulated institutions.

The outlook remains shaped by external shocks, concentration, climate risk, and cyber risk. A downturn in tourism, higher global funding costs, commodity price shocks, or disruption to trade and travel could affect borrowers and institutions through income, credit, liquidity, and profitability channels. Climate risk remains a structural vulnerability given Barbados’ exposure to severe weather and the consequences for households, firms, insurers, collateral values, and financial institutions. The immediate priority is to preserve capital and liquidity buffers, maintain prudent lending standards, strengthen risk management, and improve data collection across credit unions, pensions, insurance, real estate, and interconnected exposures.