Much is being said about the financial difficulties facing Government and the measures it is taking to overcome them.
But apart from some hiccups, including the still unresolved CLICO financial collapse, Barbados’ overall financial system is largely considered sound and stable.
That goes for banks, the insurance sector, credit unions and the securities market, sectors which local and external assessments have deemed safe.
The two main state agencies responsible for the large financial sector is the Central Bank of Barbados (banks) and the Financial Services Commission (FSC) (non-banks).
In recent years the two have collaborated on producing a financial stability report for Barbados.
There have also been international assessments conducted by the International Monetary Fund (IMF) and World Bank.
Speaking at a Caribbean Development Bank governors’ meeting in May, Minister of Finance Chris Sinckler told regional ministers and other participants, including economists, that Barbados’ financial sector was in good condition.
Liquidity
“On the financial sector side, banks remained stable and well capitalized. Interest rates remained stagnant throughout 2012 and as a result of depressed loan demand, the financial system has remained liquid since the latter half of 2008. At the end of 2012, while the interest rate on treasury bills remained flat, both domestic deposits and cash levels in commercial banks improved during the period when compared with the previous year,” he said.
The following month, the Central Bank announced that the IMF and World Bank were conducting their latest examination of the island’s financial sector and the local regulator’s officials were confident that what the two agencies found would be positive. Previous assessments were done in 2002 and 2008.
The bank’s director of bank supervision, Marlene Bayne, said preparatory work within the financial sector assessment programme included a self-assessment of Barbados’ compliance with international standards for banking, insurance and credit unions.
“This self-assessment sought to identify any weaknesses in the existing system of supervision and regulation, and to allow for the appropriate remedial measures by the supervisory authorities. Following the self-assessment, enhancements to the supervisory framework by way of amendments to the legislation or practices were completed,” she said.
One official confident that there was not much to worry about where the health of Barbados’ financial sector was concerned was FSC chairman Sir Frank Alleyne. Speaking in August at the signing of a memorandum of understanding between his organization and the Central Bank, the respected economist said regulators were well equipped to manage any challenge to the system and that the increased cooperation between the two agencies would improve this.
“Our country has one financial system where operations within it are very much intertwined, and clearly as regulators we need to collaborate to ensure the system’s integrity is maintained,” he said.
“In order to achieve our goal we need to ensure that a number of areas are properly addressed, most notably surveillance and development of early-warning indicators of financial stress; that there is a thorough assessment of households’ and corporates’ balance sheets, indebtedness, and vulnerabilities; development of contingency plans and resolution mechanisms; ensuring that there is no fragmentation within the regulatory and supervisory framework (where the focus is on banks and non-bank financial institutions); and mapping of financial sector inter-linkages. In all cases, the enhanced work agenda demands high-frequency and timely data for analysis and policy decisions – another area of key collaboration,” Sir Frank added.
The MOU had several objectives. These included providing “detailed parameters for the cooperation between the two entities in relation to the exchange of information, the monitoring of financial soundness indicators for banks, insurance companies and credit unions within Barbados, and for the development of early warning systems and conducting of stress tests”.
Oversight committee
“Quite notably the memorandum of understanding establishes an oversight committee comprising principal functionaries of both the Financial Services Commission and the Central Bank of Barbados, including the chief executive officer of the Financial Services Commission and the Governor of the Central Bank of Barbados, the objective of which is to meet regularly to discuss and formulate the financial stability report and to closely monitor and respond to developments within the financial system,” the Central Bank’s legal counsel Sadie Dixon explained.
Central Bank Governor Dr DeLisle Worrell, who has written extensively on the financial sector of Barbados and the region, said regulators here and in the region were increasing their joint efforts to ensure the sector here and in the Caribbean remained sound and resilient to external shocks in 2014 and beyond.
“We now have increasingly sophisticated Financial Stability Reports being published by Jamaica, Barbados and Trinidad and Tobago. They all have a regional dimension, because the intra-Caribbean linkages are so pervasive that a meaningful assessment of financial stability must take account of risk exposures from around the region, as well as those arising locally,” he said at the opening of a regional financial sector conference in Barbados last month.
“The regional financial architecture is built on this foundation of analysis, as well as the network of cooperation which financial supervisors have established within the Caribbean region. We now have regional associations for the supervision of banking, insurance, securities trading and pensions, as well as a regional group on anti-money laundering,” he added.