2018 Financial Stability Report Presentation

This presentation provides an overview of the Financial Stability Report for the year 2018

Roadmap

1. Key Messages 2. Overview of Financial Stability in the ECCU 3. The Banking and Credit Union Sectors 4. The Insurance Sector 5. Policy Initiatives for Enhancing Financial Stability 6. Outlook

Key Messages

i. The ECCU financial sector remained stable despite some areas of

weaknesses

ii. Global developments are transitioning into a state of uncertainty

iii. ECCU economic performance remains sound

iv. Developments in the ECCU banking, credit union, and insurance

sector were largely positive

Overview of Financial Stability in the ECCU

a) Key Risks to Financial Stability in the ECCU

1. Global economic and financial markets performance

2. Accumulation of credit risk burden to non-bank financial institutions

3. Natural disasters

4. Concentration, loan portfolio concentrated in the household sector

5. Impact on financial institutions’ balance sheets from sovereign debt

restructuring in Barbados

6. Cyber security risks

Overview of Financial Stability in the ECCU

b) Global developments are transitioning into a state of uncertainty

1. Rising trade tensions between the USA and China

2. Geopolitical tensions

3. Moderate economic growth, 3.3 per cent (2019)

Overview of Financial Stability in the ECCU

c) ECCU economic performance remains sound

1. Firming economic growth and fiscal performance

2. ECCU real growth in 2018 was 3.8% and projected at 3.3% for 2019

d) Credit to GDP Gap Overview of Financial Stability in the ECCU

e) Credit growth by loan segment Overview of Financial Stability in the ECCU

f) Credit Growth (Country) Overview of Financial Stability in the ECCU

Overview of Financial Stability in the ECCU

The Banking and Credit Union Sectors a) Banking Sector

1. Developments in the ECCU banking sector were largely positive

2. The banking stability index continued on a path of improvement

3. The pace of credit contraction moderated over the period under review

4. Asset quality (NPLs), capital, liquidity and profitability all improved

5. Areas of concern; profitability, cyber security risks and natural disasters

b) Banking Stability Index The Banking and Credit Union Sectors

The Banking and Credit Union Sectors

Commercial Banks Capital Adequacy Ratio

Credit Growth ECCU

The Banking and Credit Union Sectors

NPLs by Sectoral Breakdown (Dec 2018)

NPL Coverage and NPL Ratios

The Banking and Credit Union Sectors

Commercial Banks Return on Assets (ROA) and Return on Equity (ROE)

Commercial Banks Liquidity

The Banking and Credit Union Sectors

Credit Unions : Total Assets

Credit Unions : Total Membership

Credit Unions: Change in Volume of Loans Credit Unions: Total Deposits The Banking and Credit Union Sectors

The Insurance Sector

a) Developments

1. The insurance sector remained broadly stable as at December 2018, notwithstanding difficulties in Dominica 2. Total assets in the sector as at December 2018 was estimated at $2.2b, up from $2.0b, in December 2017 3. Gross Premiums which reflect how much risk the insurance sector is covering was estimated at $1.27b 4. Net premiums written which reflect the risk that insurance companies retain was estimated at $456.6m

5. This gives rise to a risk retention ratio of 35.9 per cent

6. The loss ratio and the combined ratio for the insurance sector remained stable which signal improved profitability

The Insurance Sector

b) Risks

1. The risks insurance companies face can be broadly classified into three categories: (i) technical risks; (ii) investment (asset) risks; and (iii) other risks 2. Technical risk that confront the insurance sector in the ECCU are the large and frequent Hurricanes, this raises two potential issues for insurance companies to effectively price premiums and ability to cover these losses

Policy Initiatives for Enhancing Financial Stability in the ECCU 1. The development and implementation of a macroprudential policy framework for the ECCU

2. Enhancements to the regulatory and supervisory arrangements

3. Move towards complete enactment of the Harmonised Credit Reporting Bill to establish the Credit Bureau 4. Advancing the work on the creation of an ECCU Deposit Insurance scheme

Outlook

1. Economic performance is predicted to improve in 2019

2. The ECCU Financial sector performance is expected to improve and

support stability in 2019

3. Financial sector risks are expected to remain low

End of Presentation

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