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Good news from Central Bank boss: Financial sector strong, resilient

Published: 
Thursday, June 9, 2016

Despite the sharp decline in the T&T economy in the last 18 months, the country’s financial sector is in a strong and resilient position, Central Bank Governor Alvin Hilaire said yesterday. Speaking at the presentation of the Central Bank’s Financial Stability Report 2015, he said: 

“By most metrics, financial institutions remain well-capitalised, liquid and profitable with relatively low incidence of non-performing loans.”

The report states that the precipitous decline in energy commodity prices, coupled with lower production levels, has had an adverse impact on the central government’s fiscal operations, while the trade balance and the terms of trade have also worsened.  

According to the report: “Labour market conditions have deteriorated but job losses to date have mostly been concentrated in energy and energy-related industries.”

However, the report added: “Thus far, challenges within the domestic macroeconomic environment stemming from the fall in energy prices have not translated into a material decline in any of the key Financial Soundness Indicators (FSIs) of the banking and insurance sectors.”

Based on the banking sector’s FSIs, credit, market and liquidity risks appear contained with banks continuing to be well capitalised with regulatory capital-to-risk weighted assets ratio of 20 per cent, significantly above the eight per cent minimum.

The report also found that the banking sector’s profitability was healthy in 2015, with return on assets of 2.9 per cent and return on equity of 18.1 per cent, up from 2.1 and 13.5 per cent in 2014.

“Asset quality as measured by non-performing loans to gross loans steadily improved, having fallen from 6.2 per cent at the end of 2011 to 3.7 per cent at the end of 2015,” according to the report.  

The Central Bank found that even though the country’s banks were stress tested for adverse interest rates, foreign exchange, credit, property prices and liquidity shocks, capital adequacy ratios continued to be above the eight per cent statutory benchmark.

In his presentation to an audience that consisted mostly of major financial sector executives, Hilaire focused on insurance legislation reform and upgrading of the national payments system. 

On the issue of insurance legislation reform, he said the current Insurance Act (IA) of 1980 remained essentially unchanged and had not kept pace with changes in the modern financial arena.

“The IA 1980 is fundamentally unchanged from the 1966 Act and does not require insurance companies to hold capital commensurate with their risk profile, reflect minimum, international corporate governance requirements, treat with consolidated supervision and address the oversight of financial groups,” he said, adding that since insurance reforms began in 2001, three insurance bills were laid in Parliament between 2011 and 2015. 

Commenting on the Insurance Bill 2015, the governor said it was on the short-term legislative agenda of the Government and he hoped the process could be fast tracked. 

Turning his attention to overhauls of the national payments system, Hilaire said that the rapid pace of innovation in technology globally made keeping pace as a country mandatory. 

“Concerted and co-ordinated efforts should be made to bolster the security and efficiency of the payments system, including completing steps for government electronic transactions.” 

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