Durrant Pate/Contributor

International credit ratings agency S&P Global has sounded the warning bell on Trinidad and Tobago’s (T&T’s) banking sector by revising the industry’s risk trend to negative, coming from stable.

Citing that liquidity in T&T’s banking sector is weakening, S&P Global says this shift could reduce the system’s resilience in stress scenarios, prompting its negative industry risk assessment. “The Trinidad and Tobago (T&T) banking industry’s liquidity strength is eroding, which could reduce the industry’s resilience in the face of hypothetical distress scenarios. As a result, S&P Global Ratings revised its banking industry risk trend for T&T (BBB-/Negative/A-3) to negative from stable,” S&P stated in a recently released bulletin, titled “Trinidad and Tobago’s banking industry risk trend turns negative on declining liquidity buffers.”

However, S&P pointed out that T&T remains in Banking Industry Country Risk Assessment (BICRA) group 6, a category that reflects elevated industry risk relative to global peers. Under the BICRA framework, economic and industry risks are scored on a scale of 1 (lowest risk) to 10 (highest risk).

“Our ratings on domestic banks Republic Bank Ltd (BBB-/Negative/A-3) and First Citizens Bank Ltd (BBB-/Negative/A-3), are not affected because our sovereign rating influences the ratings and outlooks on them. The banks’ stand-alone credit profiles—or their intrinsic creditworthiness before accounting for the sovereign influence—remain at ‘bbb’, one notch above the ratings,” S&P declared, attributing the weaker industry trend largely to unstable government savings, which have led to increased volatility in bank deposits.

Ongoing fiscal challenges 

The ratings agency stated that pressure stems from ongoing fiscal challenges and the country’s heavy reliance on energy revenues, which remain highly volatile. As a result, S&P contends that it may no longer view liquidity as a structural strength of the banking system unless recent trends reverse this year. “Our revision of the industry risk trend to negative reflects persistent volatility in banks’ deposits as a result of unstable savings from the government amid continued challenges to boost fiscal revenues, mainly due to its highly volatile energy income,” S&P emphasised.

According to S&P, “Consequently, we could regard the banking system’s liquidity as credit neutral, rather than a strength in our assessment, absent a reversal of recent trends during 2026,” warning that it could downgrade the industry risk score and lower the rating anchor for banks if the loans-to-core deposits ratio consistently exceeds 90% over 2026 and 2027.

However, despite the warning, S&P advocated that T&T’s banking system remains fundamentally sound saying, “still, we expect the T&T banking industry to have healthy liquidity metrics and capacity to fund its lending strategies, including annual loan growth of about 6%, supporting robust earnings in 2026. Although liquidity buffers have been declining in recent years, as the loans-to-core deposits ratio reached about 87% in 2025, compared with 71% in 2021, our forecast of about 90% in 2026-2027 still compares favourably with an average of 123% for regional peers (Peru, Colombia, Guatemala, Paraguay, and Uruguay).” 

The assessment noted, “The T&T banking industry’s conservative funding structure and liquidity continue to compare well against more developed financial systems in Asia and Europe,” lamenting that strong profitability and flexible dividend policies at the largest banks are expected to further support operations. “We expect the large deposits base from loyal private enterprises and individuals—thanks to customers’ confidence in the system—to continue to fund banks’ lending operations. In addition, we believe strong earnings and the largest banks’ flexible dividend practices will continue supporting their normal operations,” S&P posited.

The credit rating agency cited Republic Bank and First Citizens Bank, which it said will continue benefiting from sound market positions in the domestic banking system, solid income diversification, and good earnings prospects, arguing that “they will also continue to have sound capital, liquidity, and credit loss reserves, protecting their creditworthiness from hypothetical strains on asset quality. The banks have adequate funding and liquidity, in line with the domestic banking system average.” 

Liquidity fell by almost 50% May to October 2025

The Central Bank’s Monetary Policy Report released last month showed that excess liquidity in the banking system has been slipping over the past months. The Central Bank stated that commercial banks’ daily average excess liquidity decreased to TT$3.5 billion by October 2025 from TT$6.6 billion in May 2025. Commercial banks ended last week with excess reserves of US$3.80 billion, down from US$5.307 billion a year earlier.

Liquidity refers to the pool of readily available cash circulating within the banking system. Excess liquidity is the money in the banking system that is left over after commercial banks have met specific requirements to hold minimum levels of reserves.

“As liquidity declined between May and October 2025, interbank and repo activity were triggered and sustained. Daily average interbank borrowing increased to $205.1 million compared to an average of $115.5 million over the same period a year prior. Activity on the Repurchase Facility extended to banks for overnight liquidity reached a daily average of $74.5 million, with activity concentrated between August and October 2025, compared to $28.9 million a year prior,” the Central Bank reported.

The Central Bank said a combination of factors contributed to tighter liquidity conditions. Also, fiscal operations, usually the primary driver of excess liquidity, resulted in net injections of US$1,851.7 million over the period May to October 2025, compared to withdrawals of US$1,031.5 million in the same period a year prior.

“However, on a monthly basis during the aforementioned period, there was a mixture of fiscal withdrawals and fiscal injections. Open Market Operations resulted in net maturities of TT$1,245.0 million during the period, while OMO activity remained neutral in the corresponding period of 2024, the Central Bank explained, noting the sales of foreign currency to authorised dealers indirectly removed US$4,585.6 million from the system over the reference period, compared to US$4,519.4 million in the same period a year earlier. 

Because of these factors, daily average excess liquidity decreased to US$3,539.8 million by October 2025 compared to US$6,558.4 million in May 2025, while headline inflation remains subdued and the Central Bank has held its benchmark repo rate steady, underlying financial conditions have shifted noticeably over the second half of 2025. The Central Bank attributed the liquidity drawdown to a combination of factors. 

Although fiscal operations injected approximately $1.9 billion into the system between May and October, this was outweighed by other drains. Open market operations resulted in net maturities, while Central Bank foreign exchange sales to authorised dealers indirectly removed more than $4.5 billion from the system over the same period.