2018 Financial Stability Report

significant impact on the financial system through higher delinquencies and or loan defaults. The current macroeconomic conditions coupled with low interest rate are helping to support debt servicing capacity, however, this can change with a shift in economic conditions. While complete data is not available, increasing loans to households especially for mortgages suggest that debt burdens (debt to disposable income) are rising for households. Elevated level of NPLs - Though the volume of non-performing loans has been declining (exceptions Dominica and St Kitts and Nevis); the NPL ratio remains very high. At 11.4 per cent, the ratio exceeds the regulatory minimum and may take some time to decrease to acceptable levels. In the interim, this means that institutions have to retain high levels of provisioning which affects their profitability and capital. Moreover, a deterioration in macroeconomic conditions can further exacerbate this vulnerability. Risk Shifting-Growing Share of Non-Bank Lending – Credit Unions and payday lenders continue to increase their share of lending to the domestic economy. Credit union lending

has remained buoyant throughout the last few year and its share of overall lending has increased. While the expansion of credit from these institutions has assisted credit- constrained households, credit growth has potential systemic risk implications. These institutions may have weaker credit underwriting standards when compared with commercial banks and as such, they pose a risk to financial stability through amplifying and propagating negative effects when there is a shock to the domestic economy. This is especially true for very large credit unions. Cyber threats remain a key structural vulnerability . As financial institutions shift their services online, this exposes them to the threat of a cyber-attack. A successful cyber-attack or other major cyber incident at a financial institution can spread across the interconnected financial system, interrupting the delivery of crucial financial services and damaging consumer and investor confidence. Risks - Risks are those triggering factors that can amplify and transmit vulnerabilities in the financial system leading to financial

Financial Stability Report 2018

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