Source Document: Financial Stability Report 2024, published jointly by the Central Bank of Barbados and the Financial Services Commission.
The Financial Stability Report is a collaborative product of three institutions: the Central Bank of Barbados, the Financial Services Commission, and the Barbados Deposit Insurance Corporation. These entities coordinate through the Financial Oversight Management Committee, which serves as the mechanism for shared oversight of the financial system.
The division of regulatory responsibility follows the structure of the financial system itself. The Central Bank regulates commercial banks, finance companies, trust and merchant banks, and money value transfer services. The Financial Services Commission supervises credit unions, insurance companies, mutual funds, and occupational pension plans. The Barbados Deposit Insurance Corporation provides a safety net for depositors at commercial banks and finance companies.
This is the fourteenth edition of the report. Its purpose is to assess the risk exposures of key financial institutions and to promote transparency and accountability in financial sector oversight. The legal foundation for this work includes the Central Bank Act of 2020, which explicitly recognises financial stability as a core mandate and grants the Bank macroprudential powers to manage perceived threats to the financial system.
The report's analytical framework rests on a specific definition of financial stability: the condition in which the financial system operates effectively, efficiently, and resiliently, characterised by solvent and well-capitalised institutions, efficient and transparent markets, and a robust financial infrastructure.
The financial system's structure remained largely unchanged in 2024. Commercial banks continue to be the dominant institutional category, holding approximately 50.9 percent of total financial system assets. The remaining assets are distributed across insurance companies (14.8 percent), credit unions (10.6 percent), pension funds (10.3 percent), mutual funds (9.6 percent), and finance companies (3.7 percent).
Total financial system assets stood at approximately BDS $30.3 billion at the end of 2024, up from BDS $29.0 billion in 2023. Asset growth was concentrated in commercial banks and finance companies.
The number of deposit-taking institutions continued to decline, falling from 37 in 2023 to 35 in 2024. The number of credit unions decreased from 27 to 25, continuing a consolidation trend observed over the past several years. The number of commercial banks increased from 5 to 6 between 2022 and 2023 and remained at 6 in 2024. Insurance companies, mutual funds, and pension plan numbers were unchanged.
Credit union membership continued to grow despite the declining number of institutions, reaching 248,000 in 2024, up from 240,000 in 2023. This suggests consolidation is occurring among institutions rather than a contraction in the sector's reach.
The overall financial system, measured as total assets relative to GDP, stood at approximately 139.6 percent for deposit-taking institutions alone, with the broader financial system considerably larger when insurance, pension, and securities sectors are included.
Consolidated assets of deposit-taking institutions rose by 6 percent in 2024, an acceleration from 2 percent growth in the prior year. This expansion was driven by increased lending across all segments of the deposit-taking sector.
A notable factor was the BDS $592.7 million debt-for-climate-resilience swap, in which three commercial banks participated. This transaction simultaneously increased banks' net credit to government, expanded their balance sheets, and absorbed some of the excess liquidity that had built up in the system.
The mechanism through which this occurred is significant. Commercial banks drew down their liquidity positions to fund credit expansion, including government borrowing. Unlike finance companies and credit unions, banks experienced a notable liquidity decline. However, they maintained liquid asset ratios near the five-year average and continued holding short-term government securities, which both support earnings and preserve buffers.
Loans remained the dominant component of deposit-taking institution assets. For commercial banks, loans represented 46.9 percent of assets, with currency and transferable deposits at 23.8 percent and investments at 18.0 percent. Finance companies were more heavily concentrated in loans at 71.2 percent, while credit unions held 62.7 percent in loans.
The report notes that global economic uncertainty may drive a gradual portfolio rebalancing towards lower-risk assets and more resilient sectors. However, as of the reporting period, loans continued to represent the primary source of risk exposure.
Credit to non-financial corporations grew by 8.2 percent in 2024, extending an upward trend since 2022. Lending growth was broad-based across the five largest sectoral exposures: real estate, renting and other business activities; manufacturing; distribution; utilities; and hotels and restaurants. The utilities and distribution sectors recorded higher repayments, partially offsetting growth in other areas.
Corporate debt rose marginally to 15.4 percent of total deposit-taking institution assets, though its share of total loans actually declined from 33.2 to 31.7 percent. This indicates that while corporate lending grew in absolute terms, household lending grew faster, diluting the corporate share of total loan portfolios.
The corporate debt-to-GDP ratio remained broadly stable, indicating that credit to non-financial corporations continued to expand in line with overall economic growth. The debt service burden, measured as interest payments relative to GDP, declined slightly by 0.2 percentage points to 2.6 percent. This represents an improvement relative to pre-pandemic levels and suggests sustained debt sustainability for the corporate sector.
Corporate credit quality improved. The stock of non-performing loans fell by over 5 percent, and the NPL ratio decreased by 0.6 percentage points to a 10-year record low of 3.6 percent. The revival of tourism activity and an improved domestic labour market benefitted non-financial corporations across various industries, supporting their capacity to service debt.
The report notes one exception: the hotel and restaurant sector recorded a higher NPL ratio due to a single loan turning non-performing, which does not reflect sector-wide credit distress. This detail illustrates how individual exposures can distort sectoral indicators in a small financial system.
Looking ahead, the report identifies supply chain disruptions and inflationary pressures as key risks to corporate profitability, noting the Barbados Chamber of Commerce and Industry's assessment of these factors. A 1-in-100-year storm surge is estimated to cause BDS $3.6 billion in commercial property damage, highlighting the physical climate risk exposure of the corporate sector.
Households represent the largest source of credit exposure for deposit-taking institutions, with household loans accounting for approximately 62 percent of total loan portfolios. Household credit grew modestly in 2024, driven mainly by demand for consumer loans and mortgages.
The composition of household debt remained broadly stable. Consumer loan growth accelerated, driven by higher demand for auto-financing. Mortgage debt, the largest share of household borrowing, grew marginally as repayments offset new lending. Credit card debt increased at a more moderate pace.
Key indicators of household financial health remained stable or improved. The debt-to-income ratio held steady at approximately 140 percent, consistent with pre-pandemic levels. The debt-to-GDP ratio declined as GDP growth outpaced household credit expansion. The debt service ratio fell to a five-year low, reflecting improved debt affordability. These indicators suggest that household borrowing remains sustainable relative to income and economic output.
Household credit quality continued to improve. The household NPL ratio declined across all major loan categories, reflecting both improved repayment capacity and loan write-offs by banks. Household NPLs returned to pre-pandemic levels.
Household savings provided an additional buffer. While household debt grew slightly faster than savings in 2024, leading to a marginal increase in the debt-to-deposits ratio, continued savings accumulation helped preserve buffers against potential income shocks.
The report identifies labour market conditions as a key determinant of household resilience. A macroeconomic slowdown in Barbados or its major tourism source markets could exert pressure on household balance sheets over the medium term. The gradual increase in consumer lending rates is also noted as a factor that may temper future credit growth, particularly for more vulnerable households.
Real estate represents a key credit concentration for deposit-taking institutions. Mortgages make up nearly half of total loan portfolios, with banks holding the highest exposure.
In 2024, banks extended 35 percent more new mortgages than in 2023, reflecting robust lending in both commercial and residential real estate markets. Outstanding residential mortgages rose slightly by 0.4 percent, while commercial mortgages more than doubled. The share of real estate loans held steady at around 46 percent, as lending in other categories also grew.
The report identifies several indicators of growing real estate sector importance. The mortgage depth ratio, measuring total mortgage debt outstanding relative to GDP, increased by 1.1 percentage points. The ratio of mortgages to Tier 1 capital for banks rose, signalling heightened sensitivity to a potential real estate market correction.
Easier lending terms supported mortgage growth. The weighted average mortgage lending rate for banks and finance companies declined. Seasonal credit campaigns during the Christmas period featured reduced rates, allowing borrowers to secure larger mortgages at lower debt servicing costs. Banks also reported that strong capital positions boosted their appetite for commercial mortgage lending.
Formal lending standards remained stable. Banks maintained loan-to-value ratios between 80 and 100 percent, debt service ratios between 40 and 45 percent, and debt service coverage ratios between 1.2 and 1.25 times. However, a small but growing share of borrowers are approaching these limits, which suggests greater sensitivity to potential economic downturns, particularly among lower-income mortgagors.
Elevated construction costs continue to constrain mortgage affordability and real estate supply. Although the building materials index declined modestly in 2024, costs remain high relative to pre-2021 levels, providing only partial relief. Supply chain disruptions and inflation under adverse scenarios could renew cost pressures.
Investments represent a significant asset exposure for deposit-taking institutions, with a concentration in government securities. Holdings of government securities rose by BDS $165.2 million, or 7.1 percent, during 2024, reflecting sustained appetite for domestic government instruments, primarily treasury bills.
The composition of investment portfolios varies by institution type. For commercial banks, government fixed-income securities represent 78.9 percent of investments. Finance companies hold a more diversified portfolio, with government securities at 45.8 percent and real estate at 20.1 percent. Credit unions have a more balanced allocation, with government securities at 40.1 percent, term deposits at 41.0 percent, and smaller exposures to equity and other investments.
Banks' sovereign exposure, measured as net credit to government relative to assets, rose by 3.9 percentage points to 20.4 percent. This increase reflected greater investment in domestic government securities and participation in the debt-for-climate-resilience swap.
The report assesses near-term fiscal risks as contained. This assessment is supported by improved sovereign credit ratings for Barbados, which now carry stable and positive outlooks, and by the participation of the Inter-American Development Bank as a guarantor in the debt-for-climate swap. However, the concentration of sovereign assets in bank portfolios means that adverse fiscal or economic conditions could increase vulnerability.
Cross-border exposures continue to play a role in portfolio diversification. The share of U.S. investments in deposit-taking institutions' portfolios has declined relative to previous years but remains material through foreign deposits and debt securities. Domestic investments represent 89 percent of the total, with U.S. investments at 10 percent and other international investments at 1 percent.
Liquidity conditions remained buoyant in 2024, supported by robust deposit growth. Deposits expanded by 8.3 percent across both domestic and foreign currency accounts. The loan-to-deposit ratio increased modestly to 60 percent, a conservative level by international standards.
Liquidity buffers remained ample despite a temporary decline at year-end linked to increased lending, including government borrowing under the debt-for-climate-resilience swap. The Deposit Insurance Fund continued to grow, further reinforcing liquidity resilience.
Foreign currency exposures increased modestly. Foreign currency assets as a share of total assets rose by 0.7 percentage points for banks and 1.8 percentage points for finance companies. Corresponding foreign currency liabilities also increased. Net open positions remain predominantly in U.S. dollars. Under the fixed exchange rate regime, exchange rate risk remains contained, though ongoing monitoring of foreign currency positions is warranted.
Commercial banks' profitability reverted to normal levels in 2024 following a one-off boost from provision write-backs in 2023. Retained profits after tax fell 31 percent to BDS $178 million. The return on average assets decreased from 1.8 percent to 1.2 percent, and the return on equity declined from 15.6 percent to 12.3 percent.
The decline in net earnings was driven by reduced provision reversals rather than a deterioration in core business. Total interest income grew by 7.5 percent to BDS $496.1 million, supported by broad-based gains from loans, deposits, and investments. Net interest income rose by 7.4 percent to BDS $488.4 million. Non-interest income increased by 8.8 percent to BDS $255.8 million. However, non-interest expenses increased by 30.6 percent to BDS $544.8 million, reflecting an BDS $80 million reduction in provision write-backs and a BDS $43.4 million increase in operating expenses.
Finance companies experienced a marginal profitability decline. ROAA fell from 1.1 percent to 1.0 percent, and ROE decreased from 7.4 percent to 6.3 percent. After-tax profits fell 9 percent to BDS $10.5 million.
Credit union profitability improved. Net income grew by almost 24 percent, driven mainly by significant growth in non-interest income, reductions in interest paid on deposits, and reduced expenses related to non-performing loans. ROAA improved from 0.5 percent to 0.6 percent.
Capital buffers remained robust across the deposit-taking sector. The capital adequacy ratio for commercial banks increased to 21.2 percent, well above the 8 percent regulatory minimum. Finance companies also maintained strong capital, though their CAR declined modestly to 19.5 percent as risk-weighted assets grew faster than regulatory capital. Credit unions maintained a capital-to-asset ratio above the 4 percent minimum requirement.
The strength of capital buffers is a central finding of the report. At 21.2 percent, the banking sector CAR provides substantial headroom above the regulatory minimum, enabling institutions to absorb credit and market shocks while continuing to support credit intermediation.
General insurers face headwinds from slowing growth and rising reinsurance costs. Sector assets grew marginally by 0.7 percent in 2024, down from 10.7 percent in 2023. Insurers significantly increased holdings of government securities and modestly expanded cash and deposits while reducing holdings of corporate debt and other less liquid instruments. This defensive repositioning reduces credit and market risks but may weigh on investment returns.
Gross premiums written grew by 5.9 percent, a marginal slowdown from 6.4 percent growth in 2023. Industry return on assets was 0.5 percent. Profitability was not evenly distributed, with smaller general insurers under particular pressure. Many smaller insurers are subsidiaries of regional financial institutions and can access additional financing or capital from their parent companies if needed.
The five-year average claims ratio stood at 62.5 percent, with the loss ratio falling from 62.4 percent in 2023 to 60.4 percent in 2024. Hurricane Beryl in 2024, while avoiding direct landfall, inflicted substantial damage on the fishing and maritime sectors, disrupting over 41 companies and damaging more than 200 vessels.
Insurers ceded an estimated 54.0 percent of general insurance business to reinsurers, employing both proportional and excess-of-loss treaties. Rising reinsurance premiums driven by escalating climate risk threaten to undermine access to affordable insurance coverage. The large insurance protection gap, where over a quarter of total property values remain uninsured, poses significant risks to the government's fiscal position in the event of a severe climatic event.
Life insurance sector assets grew by 2.2 percent in 2024. The sector shifted towards defensive asset allocation, increasing holdings of government securities and cash while reducing exposure to corporate bonds, debentures, and real estate.
Post-COVID insurance penetration has declined steadily, falling from 28.8 percent in 2020 to 23.8 percent in 2024, suggesting slowing demand for life insurance relative to other financial sub-sectors.
Gross premiums written rose by just 1.2 percent, marking the end of a three-year expansion phase. Net income rose by 5.6 percent, driven by improved underwriting results. ROA edged up to 4.3 percent.
A significant structural feature is the concentration of related-party exposures. Holdings in related parties now account for over half of domestic life insurers' assets. This concentration creates pathways for macroeconomic shocks in one market to transmit across borders via intercompany transactions and associated entities.
Net assets under management rose modestly by 2 percent in 2024. Significant cross-border equity and fixed-income holdings create exposure to global market volatility. Tariff disputes and trade-bloc negotiations threaten to inject fresh volatility into global markets.
The linkage between mutual funds and the pension sector is notable. Occupational pension plans invest heavily in the three largest domestic funds, which account for 53.9 percent of sector assets. By contrast, linkages to banks and insurers remain minimal, containing the transmission of market shocks to the broader financial system.
Adverse economic conditions may undermine plan solvency. Elevated inflation and subdued aggregate demand could erode company revenue and constrain the ability of companies to meet required pension plan contributions. Approximately 39 percent of total pension plan assets are invested in mutual funds, and among smaller plans, over 50 percent of investments are concentrated in three large domestic mutual funds.
Pension plans linked to tourism and services make up a sizeable share of plans and accounted for most wind-ups between 2020 and 2024. Defined-benefit plans, which hold roughly half of all pension assets and promise guaranteed payouts, face sustainability challenges from demographic shifts and potential sponsor underfunding. This explains the increase in the number of defined-contribution plans in recent years.
Transaction volumes rose across retail and large-value payment systems. RTGS transaction values increased by 31 percent, with volumes up by 3.1 percent. ACH payments increased 10.5 percent in value, driven by electronic fund transfers, which now represent 64.8 percent of all transactions, up from 54.7 percent in 2023. Cheque usage declined by 11.9 percent.
Credit card payment values increased by 13.3 percent. Household transactions accounted for 76.3 percent of credit card use. Currency in circulation fell by 6.4 percent, reducing its GDP share to 2.5 percent, signalling some displacement of cash by digital payments.
Payment modernisation initiatives advanced during the review period. In August, the Bank announced a cheque digitisation system to reduce clearance times to one business day. In January 2025, a request for proposal was issued for a national instant payments system by March 31, 2026.
The growing dependence on digital platforms increases cyber and operational risks, underscoring the importance of enhanced safeguards for critical systems such as RTGS and ACH.
The IMF projects global growth to slow to 2.8 percent in 2025 and 3.0 percent in 2026, below the pre-pandemic average. Risks to Barbados' financial stability are transmitted mainly through weaker tourism earnings, rising import costs, and credit quality pressures. Slower growth among major trading partners is expected to reduce tourism arrivals, foreign exchange inflows, and the demand for services.
Global trade tensions and protectionist measures are fuelling inflationary pressures. As a highly import-dependent economy, Barbados faces heightened exposure to imported food, fuel, and intermediate goods inflation, which may erode real household incomes and raise operating costs for businesses.
Elevated global interest rates continue to tighten external financial conditions. Persistent interest rate differentials relative to the U.S. continue to incentivise reallocating funds towards higher-yielding foreign assets. Although domestic liquidity remains ample, prolonged differentials could gradually place pressure on international reserves under external shocks, underscoring the importance of prudent reserve management under the fixed exchange rate regime.
Global market volatility affects the investment activities of non-bank financial institutions. Insurers, mutual funds, and occupational pension plans are exposed to international financial markets, making them vulnerable to external shocks. Recent fiscal uncertainty in the U.S., including the sovereign credit downgrade by Moody's in May 2025, has disrupted global bond markets.
As financial services digitalise, the sector faces heightened exposure to cyber incidents, including ransomware, malware, and social engineering attacks. Risks are transmitted through loss of confidence in critical financial infrastructure, disruption of services, and interconnected IT systems. This may trigger deposit outflows, restrict access to funding, or disrupt payment operations.
Cyberattacks targeting payment systems pose particular systemic risk for Barbados given the reliance on shared infrastructure like the RTGS and ACH. For smaller institutions, especially credit unions and finance companies, capacity constraints may exacerbate vulnerability.
The 2023 cyber-risk survey indicates that spam and phishing are the most common cyber threats. A local credit union reported a data breach in October 2024 involving unauthorised use of debit card information obtained via a third-party service provider.
Financial institutions and regulators have taken steps to strengthen cyber resilience. The Cybercrime Bill of 2024, which will replace the Computer Misuse Act once enacted, will provide an updated legal framework. The Bank and FSC have introduced cyber incident reporting templates and guidelines.
AI adoption is introducing new operational and systemic risks. Its use in underwriting, claims processing, and investment management raises concerns over algorithmic bias, opaque decision-making, and heightened cyber vulnerabilities.
Both physical and transition climate risks pose systemic challenges. Physical risks such as hurricanes and storm surges can damage economic assets, reduce collateral values, disrupt business continuity, and impair borrowers' repayment capacity. Transition risks from policy shifts or technological change may trigger abrupt repricing of carbon-intensive assets.
A simulated 1-in-100-year storm surge was estimated to reduce GDP by up to 7.1 percent and generate significant loan losses in coastal tourism, housing, and commercial real estate portfolios. This scenario would increase non-performing loans, reduce collateral values, and pressure capital adequacy.
An assessment of climate transition stress testing reveals that transition risks for the Barbadian banking sector, while present, are not currently systemic. The initial study shows moderate declines in capital adequacy ratios and modest increases in NPLs under the most adverse scenario. Physical climate risks pose a more immediate threat than transition risks.
Climate risks also affect insurance and pension sectors through higher claims, asset valuation losses, and funding pressures. For pension funds, market repricing may reduce asset values and widen defined-benefit funding gaps.
Natural disaster stress testing has revealed varying levels of resilience among insurance companies. The FSC issued the Natural Disaster Stress Testing Guideline in 2021, requiring Class 2 insurers to evaluate the potential impact of extreme weather events.
The Bank conducted forward-looking stress tests over the 2025–2027 horizon under baseline, moderate, and severe scenarios.
The baseline scenario anticipates continued economic expansion, with real GDP growth peaking in 2026, low unemployment, and modest inflation. A mild increase in NPLs is projected, reflecting labour market normalisation.
Under the severe scenario, real GDP contracts by 2.7 percent in 2025, 4.3 percent in 2026, and 0.5 percent in 2027. These represent drops of 5.1, 8.1, and 2.5 percentage points compared to the baseline. Unemployment peaks at 15.5 percent in 2026 under the severe scenario, compared to 8.5 percent in the baseline. Inflation peaks at 3.7 percent in early 2026.
For commercial banks and finance companies, the aggregate capital adequacy ratio declines in both moderate and severe scenarios but remains above the 8 percent regulatory minimum in aggregate. In the severe scenario, four institutions breach the 8 percent minimum, requiring capital support amounting to 1.2 percent of GDP. In the moderate scenario, three institutions with a combined share of less than 10 percent of sector assets fall below the threshold.
The credit union sector appears broadly resilient. No entities failed the moderate scenario, an improvement from the prior year when one credit union failed. Under the severe scenario, two large institutions fail to meet the minimum capital level, requiring a total capital injection of 0.03 percent of GDP in 2026 and 0.04 percent in 2027.
The sensitivity analysis examines the impact of escalating NPL write-off rates on capital adequacy. At a 50 percent write-off rate, the sector's CAR declines by only 1.8 percentage points and remains well above the regulatory minimum.
Shocks to the household sector have the greatest impact on capital adequacy, with CAR reducing by 0.14 percentage points on average for every 5 percentage point increase in the write-off rate. Write-off shocks in other key sectors have negligible impact, with CAR remaining virtually unchanged at 18.3 percent. This underscores the importance of the household sector for financial stability given its concentration in credit portfolios.
The 2024 large exposure stress test simulated sequential defaults of the five largest borrowers per institution under 10 percent, 50 percent, and 100 percent provisioning rates. Fewer banks breached prudential thresholds under moderate and severe loss assumptions compared to 2023.
At 50 percent provisioning, only one bank breached the CAR requirement in the first round, compared to three in 2023. At 100 percent provisioning, one bank and one finance company breached in the first round, an improvement from three banks in 2023.
Credit unions weakened in the more extreme rounds, with three credit unions breaching at rounds four and five with 100 percent provisioning, compared to only one in 2023.
Liquidity buffers weakened relative to 2023. The ratio of liquid assets to transferable deposits declined across all deposit-taking institution segments.
Under a 5 percent daily deposit run, banks maintained positive net cash flows. Under 10 percent runs, three banks required liquidity support by day three, compared to two banks by day four in 2023. Under 15 percent runs, five banks required support by day five, compared to four in 2023.
Finance companies remained more vulnerable, requiring liquidity support from day one under both 10 percent and 15 percent runs. Credit unions exhibited reduced liquidity resilience, requiring earlier liquidity support under all scenarios.
The sector remained broadly resilient to interest rate shocks. Banks could withstand deposit interest rate increases of up to 35 percent (3,500 basis points) before breaching the 8 percent CAR threshold. Finance companies could withstand increases of up to 28 percent (2,800 basis points). The most vulnerable bank would breach at a deposit rate increase of 14 percent (1,400 basis points), while the most vulnerable finance company would breach at 17 percent (1,700 basis points).
For life insurance, the first case of insolvency occurred around the 200 percent claims increase level, compared to 100 percent in 2023. At a 500 percent claims increase, only two smaller insurers fell below the required capital margin, with an average solvency margin of 192 percent.
For general insurance, results weakened relative to 2023. A second general insurer became insolvent at a 25 percent increase in claims, compared to 50 percent in 2023. At a 200 percent increase in claims, seven insurers fell below the required solvency margin.
Under the multi-shock scenario, four general insurance companies required a total capital injection of 0.2 percent of GDP to restore solvency, compared to five companies requiring 0.3 percent of GDP in 2023. For life insurance, one medium-sized company required 0.03 percent of GDP, compared to two companies requiring 0.1 percent of GDP in the prior year.
The Banking Stability Index deteriorated in 2024, primarily due to an increase in the liquidity risk indicator and a decline in profitability. The decline in profitability was largely driven by smaller releases of provisions relative to 2023. A lower interest rate spread also contributed.
The Aggregate Financial Stability Index continued to signal a stable and resilient commercial banking system. The upward trend was driven by increases in the Financial Vulnerability and Financial Soundness sub-indices, reflecting favourable macroeconomic conditions and a stronger external position. The Financial Development and World Economic Climate sub-indices declined, reflecting sluggish credit growth and weak global economic performance.
These two indicators provide different but complementary perspectives. The BSI captures short-term movements in banking sector conditions, while the AFSI provides a broader composite measure. The BSI's deterioration alongside the AFSI's continued upward trend reflects a system that remains structurally sound despite near-term pressures on profitability and liquidity.
The report identifies several regulatory actions and priorities for the period ahead.
The Central Bank's priorities include enhanced climate risk mapping, promotion of national instant payments, and improvements to the data collection and analysis framework. The Financial Services Commission's priorities include further development of climate risk analysis and discussions to improve resilience in the general insurance sector.
Specific regulatory developments during the review period include the FSC's issuance of a Technology and Cyber Risk Management Guideline in 2024, the introduction of cyber incident reporting templates by both regulators, the advancement of the Cybercrime Bill of 2024, the launch of the Barbados Payments System Modernisation Project, the introduction of the quarterly Survey of Bank Lending Conditions, and ongoing efforts to expand deposit insurance coverage.
The report's inclusion of first-time estimates of potential cyber risk losses under a Bank Identification Number attack scenario, and the development of a climate risk assessment framework for the non-bank financial sector with CARTAC technical assistance, represent extensions of the analytical toolkit available to regulators.
The 2024 Financial Stability Report describes a financial system that is well-capitalised, liquid, and broadly resilient under baseline conditions, but one that faces a confluence of external and emerging risks that could test that resilience under adverse scenarios.
The core strengths are substantial capital buffers above regulatory minimums, improving credit quality with NPL ratios at multi-year lows, robust deposit growth supporting liquidity, and a stable household and corporate debt service burden.
The principal vulnerabilities include growing real estate concentration in deposit-taking institution loan portfolios, weaker liquidity positions relative to 2023, the insurance protection gap that exposes government finances to catastrophic climate events, concentration of related-party exposures in life insurance, dependence of pension plans on a small number of mutual funds, and the system's exposure to global economic slowdown through the tourism channel.
The stress testing framework reveals that while the system can absorb moderate shocks, severe scenarios involving GDP contractions, high unemployment, and elevated inflation would push a small number of institutions below regulatory minimums, requiring capital injections in the range of 1 to 1.2 percent of GDP for banks and finance companies, and smaller amounts for credit unions and insurers.
The emerging risk landscape, encompassing cyber threats, AI-related operational risks, and physical and transition climate risks, adds layers of complexity to financial sector oversight. The regulators' response, including new guidelines, enhanced reporting requirements, and expanded stress testing methodologies, reflects an effort to incorporate these evolving risks into the supervisory framework.