Featured Product

    Central Bank of The Bahamas Publishes 2018 Financial Stability Report

    July 26, 2019

    The Central Bank of The Bahamas published the financial stability report for 2018. The report provides an overview of key developments in the financial sector and assesses the underlying risks to financial stability. Overall, the domestic banking sector remains in a sound financial state, based on the capital and liquidity levels. However, there is room to accelerate the improvement in credit quality. Banks hold significant excess capital relative to their regulatory requirement, which the central bank advises should be gradually reduced over the medium-term. The credit union sector, meanwhile, would stand to benefit over the medium-term from improved balance sheet ratios and strengthened governance arrangements, both of which the Central Bank of The Bahamas is actively promoting.

    The report highlights that the results of the stress tests—which comprised credit, liquidity, and interest rate risks—showed sustained resilience to sudden shocks, as the capital ratios of banks continued to exceed both the international and the more rigorous domestic benchmarks. Indications are that developments in non-bank financial institutions were largely positive in 2018. Credit risk stress tests remained the main tool used to assess resilience of the banking sector. During 2018, the stress scenarios used to assess whether there were any capital shortfalls for credit risk shocks remained unchanged. The forecast non-performing loans (NPLs) have been subject to shocks of 100%, 150%, and 200%, for 2018 through 2020. Capital levels remained well above the target and trigger ratios of 17% and 14%, respectively, at an average capital to risk-weighted assets ratio of 31.3% to 35.6%, thus negating any financial stability concerns.

    Interest and Liquidity Shocks Stress test results continued to show that commercial banks are less susceptible to interest rate risk in their banking books, given the infrequent movement in the Bahamian dollar Prime lending rate and the continued robust levels of eligible capital, among other factors. With regard to liquidity risk, stress test results continued to indicate that banks’ risk to near-term depletion of liquidity is negligible, due to the high level of liquidity across the banking system, supported by banks’ continued cautious stance to lending. The report notes that credit unions remained the second largest group of deposit-taking and loan-granting institutions. During the year, the prudential buffers of credit unions remained below those of the banks, with scope for further strengthening. Accordingly, the Central Bank of The Bahamas decided to increase its target for the financial performance of credit unions, with heightened risk-based oversight. An important safety net for the sector is the proposed near to medium-term enrollment of credit unions in the deposit insurance fund.

    The domestic financial system remains sound, both in its current assessment and the outlook. For its part, the Central Bank of The Bahamas will continue to pursue policies and reforms aimed at mitigating the potential risks to supervised institutions and strengthening the regulatory environment. Focus will be maintained on the roll-out of the Basel II and III frameworks for banks and trust companies, while strengthening the risk and governance systems of credit unions. Progress has been noted on the capital component of the Basel II regime, with importance being placed on the internal capital adequacy assessment process (ICAAP) of licensees and revisions to the guide on the "Ladder of Supervisory Intervention." These measures entail an emphasis on increased buffers, among other risks, over the course of the business cycle for domestically systemically important banks (D-SIBs) and maturity mismatches. The overall goal of the central bank is to maintain a sound and compliant financial sector, ensuring that prudent risk management practices are in place and economic growth is sustained.

     

    Keywords: Americas, Bahamas, Banking, Stress Testing, Credit Risk, Liquidity Risk, Interest Rate Risk, NPLs, Financial Stability, Regulatory Capital, ICAAP, Basel II, Basel III, D-SIBs, Central Bank of Bahamas

    Featured Experts
    Related Articles
    News

    EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR

    The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).

    January 20, 2022 WebPage Regulatory News
    News

    OSFI Issues Results of Pilot on Climate Risk Scenario Analysis

    The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.

    January 20, 2022 WebPage Regulatory News
    News

    ECB Issues Opinions on Green Bonds Standard and CRR Proposals

    The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.

    January 19, 2022 WebPage Regulatory News
    News

    ESRB Explores Policy Response to Risks Arising from Digitalization

    The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.

    January 18, 2022 WebPage Regulatory News
    News

    EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues

    The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.

    January 17, 2022 WebPage Regulatory News
    News

    FI Publishes Multiple Regulatory and Reporting Updates

    The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.

    January 17, 2022 WebPage Regulatory News
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7875