ECCB 2014-2015 Annual Report and Statement of Accounts

EASTERN CARIBBEAN CENTRAL BANK

FOREWORD

Banking and Development in the Eastern Caribbean Currency Union

The commercial banking sector is the dominant sector in the financial system and its sheer size, in relation to the output of the economies and amount of government revenues and expenditures, makes it a critical factor in our economic system banks as at that same date. The banking sector also operates the payments system in which approximately $2.8 billion is processed in cheques every month, with the average number of cheques being 736,000. The current status of the banking sector is that it can be considered as stable but fragile. The number of non-performing loans is now significantly above the ECCB benchmark of 5.0 per cent of the loan portfolio, and the capital of many banks has been considerably reduced. On the other hand, there has been a significant increase in excess reserves, as well as the net foreign assets of the banks. This has been due to a combination of factors, including the number of non-performing loans, the tightening of underwriting standards and the weak performance of the economies. The conclusion that one can draw from both the basic structural characteristics and the current situation in the banking sector, as outlined above, is that there is a fundamental misalignment of these factors which does not make the situation conducive to rapid growth and sustainable development. This can be explained by the historical conditions under which commercial banking developed in the region and our seeming inability to

Governor of the ECCB The Honourable Sir K Dwight Venner

T he global crisis and its impact on the commercial banking sector in the Eastern Caribbean Currency Union (ECCU) have raised fundamental issues for the member countries which could affect their development for years to come. The structural characteristics of these economies, namely, their extremely small size, openness and vulnerability to external shocks and natural disasters, the seasonality of the main productive sector, tourism, and the direct link between the business cycles of their main trading partners and their own economic performance, have been exposed and exacerbated by this crisis. The commercial banking sector is the dominant sector in the financial system and its sheer size, in relation to the output of the economies and amount of government revenues and expenditures, makes it a critical factor in our economic system. The banking sector is the major mobilizer of savings, with savings deposits totalling $8.5 billion at 31 March 2015. Loans and advances of $13.4 billion were extended by commercial

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ECCB ANNUAL REPORT 2014/2015