GEISHA KOW­LESSAR-ALON­ZO

geisha.kow­lessar@guardian.co.tt

The Cen­tral Bank’s 2019 Fi­nan­cial Sta­bil­i­ty Re­port has warned that the COVID-19 pan­dem­ic has the po­ten­tial to im­pact the fi­nan­cial sec­tor through chan­nels and at trans­mis­sion speeds not pre­vi­ous­ly con­tem­plat­ed.

It point­ed to grow­ing house­hold in­debt­ed­ness which it said has per­sist­ed since the 2017 re­port and is re­flec­tive of house­hold debt that con­tin­ues to rise at a steady pace along­side a pro­cliv­i­ty by the bank­ing sec­tor for con­sumer-ori­ent­ed lend­ing.

“The sit­u­a­tion has be­come more ev­i­dent as the COVID-19 pan­dem­ic un­folds. Fac­tors in­clude de­pressed eco­nom­ic ac­tiv­i­ty and re­sul­tant strains on house­hold in­come which could neg­a­tive­ly af­fect the qual­i­ty of com­mer­cial banks’ loan port­fo­lios,” the re­port said.

It not­ed that over time, this could spill over in­to an even­tu­al cred­it crunch as banks be­come wary of ex­tend­ing loans to cus­tomers due to con­cerns about cred­it­wor­thi­ness.

The re­port added that the do­mes­tic sov­er­eign re­mains the largest ex­po­sure for the fi­nan­cial sec­tor, rep­re­sent­ing just un­der a quar­ter of banks’, in­sur­ers’ and pen­sion plans’ com­bined as­sets.

A weak­en­ing of the fis­cal po­si­tion rep­re­sents a risk in this area, the re­port said.

The re­silience of the reg­u­lat­ed fi­nan­cial sec­tor con­tin­ued to strength­en in 2019, the re­port said.

The re­port not­ed how­ev­er, that con­ven­tion­al in­di­ca­tors of fi­nan­cial sound­ness for the bank­ing sec­tor and in­sur­ance com­pa­nies gen­er­al­ly point­ed to a healthy fi­nan­cial sec­tor from the stand­point of cap­i­tal ad­e­qua­cy, as­set qual­i­ty, liq­uid­i­ty lev­els and prof­itabil­i­ty.

Ac­cord­ing to the re­port the Caribbean faces a per­fect storm with tourism de­pen­dent and com­mod­i­ty-ex­port­ing economies both se­vere­ly af­fect­ed by the fall­out from COVID-19.

In 2019, Caribbean economies were al­ready fac­ing chal­lenges on the eco­nom­ic and fi­nan­cial fronts.

For ex­am­ple, a few Caribbean ter­ri­to­ries con­tin­ued to be black­list­ed by the Eu­ro­pean Union as non-co-op­er­a­tive ju­ris­dic­tions for tax pur­pos­es and for an­ti-mon­ey laun­der­ing/com­bat­ing the fi­nanc­ing of ter­ror­ism (AML/CFT) de­fi­cien­cies, the re­port said.

It not­ed the Caribbean’s sus­cep­ti­bil­i­ty to weath­er-re­lat­ed dis­as­ters from cli­mate change was on full dis­play as Hur­ri­cane Do­ri­an rav­aged the Ba­hamas, re­sult­ing in eco­nom­ic and in­sur­ance loss­es which were on­ly par­tial­ly mit­i­gat­ed by rein­sur­ance in­flows.

Amidst these dif­fi­cul­ties, a num­ber of bright spots ap­peared to in­di­cate the ear­ly phas­es of a turn­around, which is now be­ing threat­ened by COVID-19, the re­port said.

It said the do­mes­tic fi­nan­cial sys­tem as a whole is healthy, but un­cer­tain­ties re­lat­ed to the pan­dem­ic have height­ened risks.

Pay­ment sys­tems in­di­ca­tors al­so point­ed to the in­creas­ing adop­tion of elec­tron­ic pay­ments, but the use of cheques re­mained sub­stan­tial, the re­port said. De­spite ten­ta­tive signs of a pick-up in the fourth quar­ter, do­mes­tic eco­nom­ic ac­tiv­i­ty was sub­dued in 2019.

Ac­cord­ing to the Cen­tral Bank’s Quar­ter­ly In­dex of Eco­nom­ic Ac­tiv­i­ty, es­ti­mat­ed eco­nom­ic ac­tiv­i­ty de­clined in 2019 dri­ven main­ly by low­er crude oil pro­duc­tion which weighed on the en­er­gy sec­tor.

The re­port said in­fla­tion lev­els con­tin­ued to be low at 0.4 per cent on a year-on-year ba­sis to De­cem­ber 2019 com­pared to 1.0 per cent one year ear­li­er.

Fur­ther­more, with no of­fi­cial labour mar­ket sta­tis­tics avail­able for 2019, sup­ple­men­tal da­ta from the Min­istry of Labour and Small En­ter­prise De­vel­op­ment re­vealed a 17 per cent de­crease in re­trench­ments in 2019 com­pared to the pre­vi­ous year, the re­port added.

Nev­er­the­less, it said labour mar­ket con­di­tions re­mained gen­er­al­ly weak as the de­mand for labour (prox­ied by the num­ber of job ad­ver­tise­ments in the dai­ly news­pa­pers) con­tin­ued to fall dur­ing the pe­ri­od.