IMF published its staff report under the 2018 Article IV consultation with Honduras. Directors welcomed the stability of the banking system and commended the progress made toward adopting Basel III standards. They recommended sustained implementation of the recommendations of the Financial Sector Stability Review (FSSR). Directors called for careful monitoring of household debt, the concentration of consumer loans in public pensions fund portfolios, and the expansion of development banks toward first-tier operations. They also underscored the need for a further strengthening of the anti-money laundering and combating the financing of terrorism (AML/CFT) framework.
The report noted that the banking system remains sound and the credit gap is closed. Against the backdrop of improved financial conditions and lower risks, balance sheet buffers appear adequate. Non-performing loans (NPLs) to total loans remain historically low, profitability is high, and the leverage ratio, at 11%, is well below the crisis threshold rating. Meanwhile, balance sheet risks remain moderate. The report suggests that authorities should continue to implement the recommendations of the recent FSSR. Several FSSR recommendations have been completed, including production of a new supervisory manual with methodologies for risk-based supervision, improved training programs for inspectors, new AML/CFT rules, and additional information-sharing agreements with other regional supervisors to enhance monitoring of financial conglomerates. The mission emphasized the need to enhance the monitoring of household debt and mitigate risks associated with the large concentration of personal loans in the public pension fund portfolio.
Stress tests on the banking sector, conducted by staff, show that the sector is broadly resilient to most standardized shocks. The tests show the banking sector resistance in managing interest rate, foreign exchange, and liquidity shocks individually, with capital adequacy falling below the regulatory minimum only in the combined shock scenario. The mission indicated that an abrupt increase in NPLs could put capital adequacy ratios close to the statutory minimum and recommended close monitoring of developments in NPLs, which have been at historic lows. Increasing credit from commercial companies is a potential risk that needs to be assessed.
Related Link: Staff Report
Keywords: Americas, Honduras, Banking, AML/CFT, Basel III, NPLs, Capital Adequacy, FSSR, IMF
Previous ArticleEIOPA Submits to EC Standards for Professional Indemnity Insurance
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).
As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).