The CBTT launching its Financial Stability Report 2016, noted this has translated into a reduction in foreign exchange inflows and an erosion of fiscal buffers.
It said the current account of the balance of payments moved into deficit in 2016 from a surplus position the previous year as a result of lower receipts from the country’s main exports.
“The contraction in economic activity has negatively affected private credit demand. At the same time, the Government has increased domestic financing,” the CBTT noted.
It said against the backdrop of significant macroeconomic challenges, the financial sector remained stable in 2016.
The profitability of the banking sector, as measured by Return on Assets and Return on Equity, was favourable -2.9 per cent and 19.9 per cent respectively – while liquidity conditions were relatively comfortable.
The CBTT said that consumer loan growth slowed in the real estate and motor vehicle segments which saw double digit growth in the past few years.
“Notwithstanding the slowdown, the largest growth in absolute terms remains or continues to be controlled by these segments. There was a marked increase in credit card usage and the pace of debt consolidation has doubled.
“On the other hand, business lending continued to be flat. Credit quality remained relatively high, with the overall ratio of nonperforming loans to total loans (NPL) of banks at 3.2 per cent at the end of 2016,” the CBTT said, adding this reflected a slight improvement over the ratio – 50 basis points- a year earlier due primarily to final settlement of a few large non-performing loans.
At the same time there was some increase in past due loans in a few categories of business, notably construction and consumer loans, prompting banks to strengthen their debt collection efforts.
The Central Bank said while there was a decline in the ratio of specific provisions to impaired loans, levels remained conservative and a marked increase in general provisions was recorded.
“This resulted in an overall increase in the ratio of total provisions to impaired loans, which should mitigate the negative impact on the banking sector if credit risk arising from challenges within the domestic macroeconomic environment materializes.
“Stress tests of the commercial banks indicated that capital buffers were generally able to withstand extreme but plausible shocks without breaching minimum regulatory capital requirements.”
The CBTT noted that the insurance sector also remained resilient.
“Asset growth in the life insurance sector, at 10 per cent, was largely on account of the acquisition of the assets and liabilities of a large annuity portfolio by life insurers following the wind up of a Pension Plan. “Reported profits for the period under review increased, largely due to the impact of foreign exchange fluctuations and actuarial adjustments. In the non-life sector profits increased as foreign exchange gains were obtained, similar to the life sector,’ the CBTT said, noting however net retained premiums declined in 2016.
“Competition has intensified and the market continued to be soft. The private occupational pension sector has not been immune to the challenging macroeconomic environment. In such an environment, sponsor companies of pension plans face the risk of not being able to meet both operational costs in addition to the costs of providing pension benefits.”
The CBTT said that although the domestic financial system is stable at this time, there are a number of vulnerabilities inherent in the financial system.
It said these vulnerabilities have been assessed as: the potential for deterioration in loan portfolios underwritten during the recent high growth years, especially in light of heavy concentration in the motor vehicle and real estate sectors, sovereign exposure concentrations, increased linkages with the United States financial markets and off balance guarantees such as for fixed net asset value funds.
- Countries: Trinidad_Tobago