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

    PRA Guides Further on Treatment of Payment Deferrals in CRR and IFRS 9

    PRA published a "Dear CEO" letter from Sam Woods, its Deputy Governor and CEO, to update the March guidance on treatment of COVID-19-related payment deferrals under IFRS 9 and the Capital Requirements Regulation (CRR).

    June 04, 2020 WebPage Regulatory News
    News

    MAS Announces Additional Relief Measures Amid COVID Crisis

    MAS, along with the Ministry of Finance (MOF), the Inland Revenue Authority of Singapore (IRAS), and the Enterprise Singapore (ESG), announced a package of measures to support those that may face cash-flow constraints.

    June 03, 2020 WebPage Regulatory News
    News

    ESMA Consults on Guidelines for Cloud Outsourcing

    ESMA published a consultation paper on guidelines on outsourcing to cloud service providers.

    June 03, 2020 WebPage Regulatory News
    News

    EBA to Release Data for 2020 Spring Transparency Exercise Next Week

    EBA announced that it will release the bank-by-bank data of the Spring 2020 EU-wide transparency exercise on Monday, June 8.

    June 02, 2020 WebPage Regulatory News
    News

    PRA Issues Statement on Use of E-Signatures to Submit Regulatory Forms

    PRA issued a statement confirming that firms may use electronic signatures for submission of forms and other regulatory documents, although in specific instances PRA may request a "wet signature" where it is appropriate to do so.

    June 02, 2020 WebPage Regulatory News
    News

    EBA to Require Additional Reporting and Disclosures for COVID Measures

    EBA published the guidelines and templates for reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.

    June 02, 2020 WebPage Regulatory News
    News

    FCA Guidance Confirms Support for Mortgage Customers Amid Crisis

    FCA updated its guidance confirming the support firms should give to mortgage customers that are either coming to the end of a payment holiday or are yet to request one.

    June 02, 2020 WebPage Regulatory News
    News

    US Agencies Temporarily Amend Supplementary Leverage Ratio Calculation

    US Agencies (FDIC, FED, and OCC) published an interim final rule that temporarily revises the supplementary leverage ratio calculation for depository institutions.

    June 01, 2020 WebPage Regulatory News
    News

    APRA FAQ for Standard on Margins for Non-Centrally Cleared Derivatives

    APRA published a frequently asked question (FAQ) providing guidance to all APRA-regulated entities in determining their requirements under the prudential standard CPS 226 on margins and risk mitigation for non-centrally cleared derivatives.

    June 01, 2020 WebPage Regulatory News
    News

    EBA Proposes Revised Standards for Own Funds and Eligible Liabilities

    EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.

    May 29, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5253