NASSAU, Bahamas, CMC – The Central Bank of the Bahamas (CBB) says during 2022, risks within the financial sector remained well contained, with the financial institution retaining its risk-based approach to financial supervision as it monitored the recovery of Supervised Financial Institutions (SFIs) from the global pandemic.
In its Financial Stability Report released here, the CBB said that in this environment, it heightened its efforts concerning implementing international risk-based supervisory standards for financial institutions and developing crisis management frameworks for Bahamian banks and credit unions.
“Due to the increase in the domestic economy’s absorption capacity and the satisfactory outlook for external reserves, the Bank relaxed some prudential controls on credit policies. However, regulatory attention remained focused on SFIs’ strategies to reduce the level of non-performing loans (NPLs),” it said.
The report noted that no new concerns about financial stability arose within the banking system, given the commercial banks’ robust capital buffers and satisfactory provisioning levels.
It said the consolidated stress tests, which comprised credit, liquidity, and interest rate risks, showed that Domestic Systemically Important Banks (DSIBs) remained resilient to sudden shocks, as banks’ capital ratios continued to exceed the regulatory minimum of 17 percent.
“Specifically, the banking sector’s average capital-to-risk-weighted assets ratio fluctuated between 29.1 percent and 32.8 percent. In addition, the Bank Stability Index (BSI) indicated that financial sector stability improved relative to 2021. Furthermore, the Aggregate Financial Stability Index (AFSI) suggested that overall financial stability returned to trend, reflecting the moderation in the pace of economic recovery, with indicators reverting to pre-pandemic levels.”
The report said that the supervision of credit unions continued to focus on multiple risk-based outcomes around Anti-Money Laundering/Know Your Customer (AML/KYC), corporate governance and credit risk management frameworks, and remediation efforts against on-site examination findings.
The CBB said that, in particular, it closely monitored the credit unions’ management of delinquencies, given the sector’s weakened capital and liquidity buffers and the expiration of loan payment deferral programs.
“In 2022, profitability indicators for credit unions improved as asset quality and liquidity levels strengthened. Correspondingly, capital adequacy levels continued to surpass international benchmarks.
“Performance indicators for the insurance sector remained buoyant for the life and non-life portfolios and aligned with international targets. Specifically, profitability within the sector was sustained, albeit by a smaller margin, compared to 2021. Further, the sector maintained adequate financial stability ratios, reflecting its sound positioning.”
But the CBB noted that the securities industry needs to be covered in this report due to limited data. “However, from a financial stability perspective, the domestic sector is not a material source of risk, given the absence of sophisticated products and relatively narrow liquidity in the securities market.
“Anecdotally, non-bank money lenders, supervised by the Securities Commission, are an increasing source of private credit, but there is no evidence that this segment is even as significant as the credit union sector relative to the systemic, aggregate volume of lending within the economy.”
The CBB said it made progress concerning its key payments modernization objective to reduce heavy reliance on cash in the domestic market.
It said that in April last year, it established two working groups, namely the Public Education and Outreach and Legal and Regulatory (PEOLR), to aid in advancing the Bahamas Cheque Reduction and Elimination Strategy.
The PEOLR is tasked with formulating the coordinated education and communications strategy and its execution to transform the payments space away from cheques. Meanwhile, the Legal and Regulatory Working Group would work closely with the Bank’s
The CBB said that throughout the medium term, it will continue to undertake active and effective supervision of financial institutions to safeguard the financial sector’s stability.
“In this vein, the Bank will continue to prioritize its focus on risk mitigation efforts regarding Anti-Money Laundering (AML) and Counter-Financing of Terrorists (CFT). In addition, the Bank will continue its work toward liquidity management, amid the ongoing recovery within the domestic economy and improved labor market conditions, to alleviate the impact of a higher demand for credit on external reserves.”
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