IMF Report Examines Status of Financial Sector in Aruba, Netherlands
IMF published its staff report under the 2019 Article IV consultation with the Kingdom of the Netherlands—Aruba. IMF Directors highlighted that banks in the area remain sound and liquid under a solid supervisory and regulatory framework. Financial sector oversight has been progressing. Over the years, the Central Bank of Aruba (CBA) has shifted to a risk-based approach to supervision, from a compliance-oriented one, thus allocating supervisory resources to institutions with the highest risk profiles.
The staff report highlights that banks enjoy healthy profits and interest rate margins remain sizable, which reflect, in part, weak competition among banks. The capital adequacy ratio (CAR) of 32% is double the regulatory minimum and stress tests by CBA reveal high capital resilience to severe shocks. Banks have liquidity buffers that largely surpass the regulatory requirements, continued to see declining non-performing loans (NPLs), and set loan-to-value ratios on mortgages at safe levels. While a high CAR mitigates financial-sector risks, it could indicate anemic demand or lack of viable business project; this is reinforced by the fact that banks are flushed with excess liquidity and credit growth is relatively modest. Discussions with the authorities and stakeholders suggest that high CAR partly a result of a lack of bankable projects outside the tourism sector and also relates to the CBA's large exposures rule, which requires banks to maintain high capital buffers in case of large exposures to a single debtor or connected group of debtors. The upcoming results from the financial inclusion survey could shed more light on possible issues and policy solutions.
Related Link: Staff Report
Keywords: Europe, Netherlands, Aruba, Banking, NPLs, CAR, Financial Stability, Stress Testing, Capital Buffers, Article IV, IMF
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous ArticleEBA Assesses Application of Regulatory Standards on Identified Staff
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,