Capital adequacy and NPL well over statutory requirements

Durrant Pate/Contributor

Jamaica’s financial system has been able to overcome the current global uncertainty with no immediate threat ahead with the Bank of Jamaica (BOJ) giving a stable outlook. 

The BOJ’s positive assessment of the financial system is due to the positive returns on its risk matrices. Deposit-taking institutions’ (DTIs’) risk-weighted Capital Adequacy Ratio (CAR) at end-March 2026 was 14.5 per cent, compared to 14.8 per cent at end-December 2025, remaining well above the statutory requirement of 10.0 per cent. 

Banks also remained liquid with all licensees reporting Liquidity Coverage Ratios (LCRs) in excess of 100 per cent at end-March 2026. 

In its May 2026 Quarterly Monetary Policy Report, which was tabled in the Senate today, the BOJ reports that the quality of the DTIs’ loan portfolio improved during the quarter, as the ratio of non-performing loans (NPLs) to gross loans declined to 2.4 per cent at March 2026, relative to 2.8 per cent at December 2025.

Assessment of liquidity conditions 

Liquidity increased during the quarter, relative to the December 2025 quarter. DTIs and primary dealers maintained average current account balances of $78.6 billion at BOJ for the March 2026 quarter, relative to the average balances of $64.2 billion held for the preceding quarter. 

The higher liquidity level largely reflected net injection from BOJ operations of $47.8 billion reflecting net foreign currency purchases of $41.0 billion and net open market operations of $20.5 billion. This was partly offset by net absorption of $33.5 billion from GOJ operations.

The BOJ conducted 13-auctions of 30-day Certificate of Deposits (CDs) during the review period. The average offer size was $32.4 billion, slightly below the average for the December 2025 quarter of $33.3 billion. However, the average yield on the 30-day CDs went down by 13 bases points (bps) to 5.82 per cent, reflective of looser liquidity conditions, on average. 

The BOJ conducted eleven 14-day repo auctions during the quarter for the provision of Jamaican Dollar liquidity to DTIs. the average allocated size for those 11 auctions was $1.5 billion. The average yield declined by 47 bps to 5.78 per cent during the quarter. 

FX market performance

In the context of intermittent instability in the foreign exchange (FX) market during the March quarter, the BOJ sold US$210.0 million to the market via its B-FXITT facility. The intervention sales occurred in all three months of the quarter. 

Notwithstanding the gross sales, the BOJ net purchased US$330.7 million during the March 2026 quarter. As for money market rates, these generally declined in the review period, compared to the rates at end- December 2025.

All rates declined except the 90- day T-Bill rate. The over-night (O/N) rate, 30-Day money market, 14- day repo, O/N Interbank rate, 180-Day T-Bill, 270-Day T-Bill, and 30-day CD rate declined by 45 bps, 31 bps, 31 bps, 11 bps, 5 bps, 3 bps, and 1 bp, respectively. 

The 90-day T-Bill rate increased by 44 bps. The overall decline in market rates was influenced by increased average liquidity conditions as well as the BOJ’s accommodative policy stance. The increase in the 90-day T-Bill rate largely reflected heighten economic uncertainty, leading to an increase in cost of funds in that market segment.