Capital and liquidity levels remain stable

Durrant Pate/Contributor

The Bank of Jamaica (BOJ), in its latest assessment of Jamaica’s banking system, pronounced that banks have remained profitable, as measured by their return on assets.

In appearing before the Public Administration and Appropriations Committee (PAAC) of Parliament this week, BOJ officials highlighted that while the COVID-19 pandemic negatively affected the sector, it has managed the crisis well. Notably, the deposit-taking institutions (DTIs) remained well capitalised and retained adequate liquidity to allow them to withstand shocks, the Central Bank has assessed.

When it comes to capital and liquidity levels, the BOJ advised the PAAC that they remain adequate for the financial sector.

The capital adequacy ratio (CAR) for the DTI sector was 14.2 per cent at the end of July and remained well above the statutory requirement of 10.0 per cent.

According to the BOJ: “At end the July, DTIs reported an overall Liquidity Coverage Ratio (LCR) of 212.8 per cent which exceeded the 100.0 per cent minimum recommended under the Basel III framework for both domestic currency and foreign currency balances. The quality of DTIs’ loan portfolio remained fairly stable.”

Non-performing loans lowered

The ratio of non-performing loans to gross loans was 2.7 per cent at the end of July 2022 was lower than the ratio of 2.8 per cent at end of July 2021. The ratio of past due loans to gross loans was 2.8 per cent as at July 2022, compared to 5.0 per cent as at July 2021.

This outturn, the BOJ told the PAAC, points to the impact of the economic recovery following the fallout due to the pandemic, supported by payment accommodations and facilities offered by banks. Consistent with the recovery in the economy, DTI loan growth at July 2022 has begun to accelerate, although it remains below the 16.5 per cent recorded at February 2020, just prior to the onset of the COVID-19 pandemic.

Preliminary data indicate that the year-on-year growth in private sector loans and advances provided by DTIs at July 2022 was 9.0 per cent, above the low of 6.2 per cent recorded at January 2022 but below the growth rate of 9.1 per cent as at July 2021. Business lending by DTIs at July 2022 grew by 4.7 per cent, down from 8.4 per cent for July 2021.

Personal loans grew by 12.3 per cent at July 2022, an acceleration compared to the 9.5 per cent recorded at January 2022 and the 9.6 per cent at June 2021. 7.5. The Jamaican parliamentary committee was told that the stock of total private sector loans and advances by DTIs as a percentage of Gross Domestic Product at July 2022 fell to 43.8 per cent from 45.5 per cent a year earlier.

Survey of inflation expectations

The BOJ also told the PAAC of its latest survey of inflation expectations. In that survey businesses indicated that their outlook for inflation 12 months ahead (ending August 2023) moderated to 12.6 per cent, relative to the 13.1 per cent in the previous survey.

This was the first reduction since March 2021 and, given the relative stability in the exchange rate and the fall in international commodity prices, expectations could continue to fall going forward.