2018 Financial Stability Report

O VERVIEW OF THE

F INANCIAL

S TABILITY IN THE

E CCU

1.

The financial sector in the ECCU remained broadly stable throughout 2018. The growth rate of global economic activity slowed during the period, under the influence of trade tensions between advanced economies. As a result, financial conditions in these countries were somewhat tighter, in comparison with emerging economies, where financial conditions showed greater volatility. Global inflationary pressures remained subdued, reflecting the weaker economic expectations and the decrease in oil prices in international markets. Amid higher uncertainty surrounding economic growth, central banks in advanced economies lowered expectations for the monetary policy normalization. Across the financial sector, developments were largely favourable and positive. A favourable macroeconomic environment and strengthened supervision and regulations has contributed to this stability. Overall, companies and households’ lending as a percentage of GDP increased moderately but remained below pre 2008/2009 levels.

In addition, their debt-servicing capacity improved on account of higher profits and incomes. The low interest rate also has a positive effect on debt servicing capacity and member countries currently benefit from low interest payments, but borrowers were also exposed to substantial interest rate risk. Banks and credit unions maintained their positive performance. In the banking sector, profitability, capitalisation, liquidity and credit risk all recorded improvements. Notwithstanding, operational efficiency remains a feature of the structure of the banking system where overhead costs are high. Likewise, credit unions maintained their performance but were impacted by slightly higher levels of non-performing loans. Both banks and credit unions increased their lending during 2018. The insurance sector is faced with sustained low yields attributable to the low interest rate environment, which is a particular challenge in the life insurance business. Nevertheless, the sector’s aggregate profitability improved in 2018. Additionally,

Financial Stability Report 2018

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