Home' Trinidad and Tobago Guardian : June 22nd 2017 Contents JUNE 22 • 2017 guardian.co.tt BUSINESS GUARDIAN
NEWS | BG7
T&T's financial system "ap-
peared broadly stable in 2016
amidst evolving vulnerabil-
ities," according to the draft
Financial Stability Report
The annually published report was released
last Tuesday at a news conference hosted by
the Central Bank who produce the report.
Focusing exclusively on the financial sec-
tor, the 64-page FSR explores the climate and
activities of the banking (commercial banks
and non-banks) and insurance sectors, while
offering insights into the vulnerabilities and
risks to the stability of the domestic financial
The report also takes a special look at one of
the more thorny issues in the local financial
sector : corporate governance.
The effects of the precipitous decline in en-
ergy commodity prices that started in 2014,
along with the chronic gas shortage and sup-
ply issues confronting the local energy sector,
continued to make their way through the T&T
economy in 2016.
Having somewhat stabilised, energy prices
still remain relatively low.
Reduced earnings from the local energy sec-
tor effectively translate into lower levels of
foreign exchange flows into the country since
the energy sector, for better or for worse, re-
mains the primary earner of foreign exchange
Commenting on the declining foreign ex-
change flows, the FSR stated: "Purchases of
foreign currency from the public by authorised
dealers (mostly commercial banks) declined by
13.2 per cent in 2016. While foreign exchange
sales have also fallen by 21.8 per cent from
2015, demand remains robust."
The report added: "Sales of foreign ex-
change by the Central Bank to the authorised
dealers amounted to US$1.8 billion in 2016,
and net official foreign reserves declined from
US$9.9 billion at the end of 2015 to US$9.5
billion at the end of 2016."
With reduced inflows to its coffers, the gov-
ernment was required to borrow aggressively
in 2016 to meet its fiscal obligations.
Most of this borrowing was done through
local financial institutions which, in effect,
acted as a counterbalancing measure in offset-
ting the decline in demand for domestic credit.
The report said: "Heavy borrowing in the
domestic markets by the government has
been accompanied by a reduction in lending
to businesses and slowdown in growth in other
private sector credit"
Commenting on the local interest rate en-
vironment, the FSR noted that it remained
"benign" with the Central Bank leaving its
policy rate, the repo rate, at 4.75 per cent,
and commercial banks maintaining the prime
lending rate at 9 per cent."
The financial sector
The T&T financial sector accounts for about
13 per cent of the country's gross domestic
According to the report, there are: eight
commercial banks, 16 non-bank financial in-
stitutions, 34 operating insurance companies,
129 credit unions and 188 private occupational
The report classifies the Unit Trust Corpo-
ration and the National Insurance Board, as
the other "large players" in the local financial
Measuring the performance of the banking
sector against specific "financial soundness
indicators" (FSI's), the FSR draws the follow-
"Selected FSIs...indicate a banking sector
that continues to be liquid, has maintained its
capital buffers and, to date, has not seen any
material deterioration in the overall quality of
loan portfolios. Profitability as measured by
return on equity (ROE) has been in the double
digits over the past five years, peaking at 19.9
per cent in 2016."
Turning its attention to the insurance in-
dustry, the report points out that FSI's up to
December 2016 point to the stability of the
Both the life and non-life segments of the
insurance sector experienced growth in their
asset bases in 2016.
In spite of a slowdown in credit demand,
(total loan growth slowed to 1.8 per cent in
2016 from 8.4 per cent the previous year), the
banking sector remains extremely profitable.
Collectively, the sector generated $4.2 bil-
lion in profit before tax in 2016, up from $4.1
billion in 2015.
In aggregate the sector's total assets also
stood at $149.4 billion.
The report also makes mention of the mu-
tual fund industry, highlighting that the in-
dustry's total assets stood at $48.1 billion as
at the end of 2016.
It added that mutual fund growth remained
"subdued", increasing by only 3.7 per cent over
Vulnerabilities and risks
The FSR 2016 identifies three main risks to
the domestic financial sector, all conditioned
on the lacklustre performance and persistent
slowdown of the T&T economy. They are: in-
crease in consumer non-performing loans,
sovereign debt impairment and investment
To mitigate the possibility of these vulner-
abilities manifesting themselves, the Central
Bank has established certain strategic ob-
jectives towards the promotion of financial
These strategic objectives include: advanc-
ing the legislation for supervision, co-ordina-
tion with other agencies, improving risk-based
supervision and governance, strengthening
technical and analytical capability in supervi-
sion and resolution and taking stock of recent
developments in payment systems.
The FSR introduces the chapter on corporate
governance by stating: "Sound corporate gov-
ernance is a cornerstone of financial stability"
Certainly, given the CL Financial fiasco, and
other past financial crises, the importance
of effective corporate governance cannot be
The report explicitly states that the primary
role of sound corporate governance should be
"safeguarding stakeholders' interest."
In its capacity as regulator, the Central Bank
notes that one of its key mandates is to ensure
that persons appointed to serve on boards and
management of financial institutions are "fit
The Bank goes on to add that it is also re-
quired to "provide guidance to its supervised
entities on what constitutes sound corporate
governance practices, as well as, assess the
effectiveness of corporate governance struc-
tures in place at those institutions."
The 2016 FSR states that the domestic
financial industry remains robust and well
While vulnerabilities continue to exist, the
report paints a picture of an industry capable
of weathering the current economic down-
Financial sector stable
says Central Bank report
Links Archive June 21st 2017 June 23rd 2017 Navigation Previous Page Next Page