2018 Financial Stability Report

Figure 18: Commercial Banks Capital Adequacy Ratios (in per cent)

equal. The same can be achieved through an expansion of performing loans at a similar magnitude. As at December 2018, the overall coverage of NPLs by provisions stood at 44.0 per cent, down 1.2 percentage points from levels at the end of 2017 (Figure 19). The ratio seems sufficient for the current NPL loss rate. The NPL coverage ratio is expected to remain elevated in 2019 as banks adjust to the new reporting standard IFRS 9. Figure 19: Commercial Banks NPL and NPL Coverage Ratio

10.0 15.0 20.0 25.0

0.0 5.0

Jun-11

Jun-14

Jun-17

Sep-10

Sep-13

Sep-16

Dec-12

Dec-15

Dec-18

Mar-12

Mar-15

Mar-18

CAR

Minimum CAR

Tier One Capital

Source: Eastern Caribbean Central Bank (ECCB)

Credit risk, which is the principal source of potential losses in the domestic banking sector, has trended further downwards. The structure of NPLs has improved. The provisions created by banks at the aggregate level seem to be sufficient to cover the current expected loss given a default. The ratio of non-performing loans to total loans (NPLs) decreased by 0.7 percentage points to 11.4 per cent from December 2017 (Figure 19). The decrease in the ratio was achieved as total loans and total NPLs continued along diverging paths. The NPL ratio was 6.4 percentage points above the regulatory minimum of 5.0 per cent. Convergence to the regulatory minimum would require a further decline of NPLs to the tune of $803.0m, all things being

25.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0

20.0

15.0

10.0

5.0

0.0

Jun-11

Jun-14

Jun-17 NPL Ratio (RHS) Mar-18

Sep-10

Mar-12 NPL Coverage Ratio Dec-12 Sep-13

Sep-16

Dec-15

Dec-18

Mar-15

Source: Eastern Caribbean Central Bank (ECCB)

Turning to the sectoral breakdown, NPLs in the personal sector continued to account for the bulk - a little over 40.0 per cent - of total NPLs (Figure 20). While the overall trend has been downward, NPLs from the tourism and construction sectors have been increasing.

Financial Stability Report 2018

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