The 2024 Financial Stability Report

BRIDGETOWN, Barbados – Barbados' financial system remains resilient, underpinned by strong capital and liquidity buffers, despite heightened global and domestic risks.

The economic expansion continued in 2024, supported by robust credit growth and stable household and corporate balance sheets. Looking ahead, global economic uncertainty, rising protectionism, and elevated interest rates may pose increased financial stability risks, particularly if they lead to weaker external demand, inflationary pressures, and tighter financing conditions.

Stress testing confirms that the financial system remains sound under baseline conditions, but highlight material vulnerabilities in scenarios involving severe external shocks, including tariff escalations and heightened geopolitical instability.

Under an adverse scenario, the non-performing loan (NPL) ratio peaks at 6.2 percent, with four institutions falling below the 8 percent capital adequacy threshold, requiring recapitalisation equivalent to 1.2 percent of GDP. Liquidity stress tests show moderately lower resilience compared to 2023, with more banks and credit unions needing liquidity support under higher deposit withdrawal scenarios. Large exposure stress testing indicates a modest improvement in capital resilience under moderate provisioning assumptions, but vulnerabilities persist under extreme loss scenarios.

Physical climate risks remain a systemic concern for the financial sector, particularly in banking, insurance, and pensions, while transition risks are currently assessed as moderate and non-systemic.

A simulated 1-in-100-year storm surge could reduce GDP by 7.1 percent and significantly increase loan defaults in coastal tourism and real estate portfolios. Transition stress testing identifies moderate credit risks in Agriculture, Accommodation & Food Services, and Government-linked sectors under delayed decarbonisation pathways. A dedicated thematic article accompanying this FSR provides further analysis of sector-specific climate transition risks and insurance sector stress tests.

While cyber risk is increasing with greater financial digitalisation, scenario-based assessments suggest limited capital impact, and commercial banks remain resilient .

This FSR includes a first-time estimate of the potential cyber-related losses under a simulated payment system attack scenario, which is presented in a thematic article. Increased electronic transactions and interlinked payment systems have heightened exposure to cyberattacks, raising the risks of service disruptions, liquidity stress, and reputational damage. The Central Bank of Barbados (Bank) and the Financial Services Commission (FSC) continue to engage licensees on compliance with requirements of the Technology and Cyber Risk Management Guidelines that were issued by the regulators in 2023 and 2024, respectively.

Although profitability declined among deposit-taking institutions, credit quality strengthened and capital buffers remained comfortably above regulatory minimums.

Declining profitability reflected lower provision write-backs and rising operating costs. Notwithstanding, the sector's profitability remained solid as core lending and investment income supported earnings. Credit quality improved modestly, with NPL ratios declining across household and corporate portfolios. Capital adequacy ratios remained well above regulatory minimums at 21.2 percent for banks and 19.5 percent for finance companies, providing buffers against credit and market shocks. However, rising mortgage exposures and real estate loan concentrations signal the growing importance of the sector for financial stability and warrants continued monitoring.

Looking ahead, preserving financial stability will require sustained proactive risk management and enhanced macro- and micro-prudential oversight.

The evolving risk landscape, shaped by global economic trends, sectoral credit concentrations, and emerging cyber and climate risks, calls for strengthened credit risk monitoring, deeper integration of climate and cyber risk into supervisory frameworks, and contingency planning. The bank and Financial Services Commission (FSC) will continue to prioritise measures to address sectoral vulnerabilities, support sound lending practices, and reinforce systemic resilience under its macroprudential mandate.

• 2024 Financial Stability Report, Thematic Articles, and Chart Pack
• 2024 Financial Stability Repor

• Tailoring Climate Transition Risk Assessment

• Quantifying Cyber Ris

• Climate Risk Assessment for Insurance Companie

• Chart Pack – 2024 Financial Stability Repor

The post The 2024 financial stability report appeared first on Caribbean News Global .

MENAFN07072025000232011072ID1109766695