Central Bank: Domestic financial system remains strong
Although the fragile global economy and low domestic interest rate environment pose some challenges to the profitability of Trinidad and Tobago’s financial institutions, the nation’s domestic banking system remains strong, according to the Central Bank’s 2012 Financial Stability Report (FSR).
At a January 14 presentation of the report, Central Bank Governor Jwala Rambarran said he and his colleagues are projecting growth of 2.5 percent in 2013, noting that the economy has shown “tremendous resilience in the face of the global fallout.”
"Banks remain very well-capitalised, highly liquid, profitable and resilient to significant shocks,” Rambarran said. “Non-banks continue to experience a contraction in their balance sheets, although they appear to be sufficiently capitalised to deal with financial strains."
Notable regulatory developments included improvements to the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework and preparations for the US’s Foreign Account Tax Compliance Act (FATCA).
“When you add those positives there are enough to suggest our prospectives are pretty favourable,” Rambarran said.
Dr. Alvin Hilaire, chief economist at the Central Bank, said Trinidad’s economy showed signs of a turnaround as early as the third quarter of 2012. Said Hilaire, “The preliminary numbers show that we do have some growth of close to 1.5 per cent which is encouraging as it comes after several quarters of contraction of the energy sector.” He also said growth in the non-energy sector “augurs well for the future and will be spread out among the economy.”
Potential investors may find the following highlights from the 2012 FSR useful:
- The commercial banking sector “performed creditably despite prevailing economic conditions; although the system remained well-capitalised and highly liquid, overall profitability has been affected by the low interest-rate environment.” The ratio of non-performing loans to gross loans declined from 7.5 percent in September 2011 to 5.4 percent in September 2012.
- Life insurance companies “remained relatively stable, even though low interest rates impacted their asset performance and profitability.”
- The Repo rate “was reduced to an all-time low of 2.75 per cent in September 2012,” a reduction that encouraged commercial banks to further reduce loan rates.
- Limited investment opportunities, sluggish credit growth and substantial domestic fiscal injections led the Central Bank to implement liquidity absorption measures, “thereby requesting commercial banks to hold an additional amount, $1,490 million, in interest bearing deposits at the Central Bank.”
For more information on the Central Bank’s bi-annual Financial Stability Report, visit their website.