May 14, 2018

IMF published its staff report and selected issues report in the context of the 2018 Article IV consultation with Bahamas. The report highlights that commercial banks in Bahamas remain liquid and well-capitalized. Staff commended the authorities for tabling legislation to create the country’s first credit bureau, in line with past IMF advice. Parliament passed the bill in early 2018. Staff recommended the authorities to move swiftly with the implementation of the credit bureau, as it will take time to populate its database.

The staff report reveals that seven commercial banks, four of which are subsidiaries of foreign banks, dominate the domestic financial sector and their balance sheets appear sound. As of the end of 2017, the average capital adequacy ratio stood at 33.3%, well above the regulatory requirement of 17%. Liquid assets represented 29.0% of total assets and more than double the statutory minimum. The stock of nonperforming loans (NPLs) declined to 9.2% of total loans, from 11.4% at the end of 2016. Despite ample capital and liquidity in the system, banks remain cautious in making new loans, which has kept credit to private sector, excluding NPLs, broadly flat. A more proactive approach to accelerate the resolution of NPLs should support the economic recovery. The central bank’s intensified monitoring of NPLs is welcome, as it will encourage a faster resolution of these loans, particularly as economic conditions improve. The authorities are confident that their increased monitoring of NPLs will lead to a faster resolution of these loans. The central bank has mandated banks to report on a quarterly basis the status of the top 20 NPLs. The authorities expect that this approach will encourage banks to resolve NPLs faster, with visible results expected by the end of 2018.

Staff welcomed progress in implementing FSAP recommendations. The Central Bank of The Bahamas (CBOB) has continued strengthening its regulatory and supervisory framework and making progress in implementing the Basel II and III frameworks. Stress tests of CBOB continue to show resilience of the banking system to large shocks. CBOB has completed implementation of Basel II and the capital component of Basel III. Commercial banks have been subject to Basel III capital reporting since 2013. CBOB is now focused on completing the remaining elements of Basel III, the countercyclical capital buffer, and liquidity coverage ratios. CBOB is also simplifying its Basel II (minimum disclosure requirements) and Basel III regulatory framework, consistent with the proportionality principle set out by BCBS. With respect to the Insurance sector, the report mentions that the Insurance Commission (IC) has strengthened onsite inspections and introduced a risk-based capital regime for long-term insurance companies. IC plans to conduct a three-year pilot program to also include general insurance companies in their risk-based capital regime.

The selected issues report offers an overview of the labor market and makes the case for a rules-based fiscal framework for the Bahamas and discusses its design, calibration, and implementation.

 

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Keywords: Americas, Bahamas, Banking, Insurance, Article IV, FSAP, Basel III, Proportionality, IMF

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