BOJ foresees headwinds for banks and fincos
Published:Wednesday | July 17, 2024 | 12:06 AM
Bank of Jamaica, BOJ, has diagnosed the health of the financial system as normal, but it has concerns related to inflation, interest rates and loans.
The central bank’s Financial Stability Committee in its assessment of the system over the march quarter, determined that it was “fairly stable”. And stress tests conducted by BOJ, inclusive of banks and investment companies or securities dealers, indicated that they were “largely resilient”.
However, the central bank noted that performance of inflation and its attendant impact on interest rates pose a risk to investment and credit portfolios.
In the past three months to May, consumer or headline inflation contracted and has stayed within the bank’s 4-6 per cent target range. But BOJ expects inflation to start rising again in the short term.
May’s inflation was 5.2 per cent. The outturn for June is due to be released by today, Wednesday, by the Statistical Institute of Jamaica. Last week, Statin reported that the Jamaican economy grew 1.4 per cent in the March quarter.
Additionally, within the banking system, while past due loans, or PDLs, were on the rise in the March quarter, the pool of non-performing loans, or NPLs, remain below the 10 per cent threshold that BOJ deems as risky. NPLs are defined as loans that have been unserviced for three months or more. Non-performing loans were estimated at $33.8 billion across the banking system in March 2024, up from $31.94 billion a year ago.
“Financial institutions have continued to record fair value losses on their balance sheets due to the adverse effect of relatively high interest rates on their assets (bonds and equities),” said the central bank.
“In addition, while the system is adequately provisioned, there is some evidence of a marginal increase in past due loans. However, the non-performing loans ratio for deposit-taking institutions (DTIs) remains below the 10.0 per cent threshold and therefore does not warrant heightened supervisory concerns,” BOJ said.
The class of DTIs is inclusive of eight commercial banks, one merchant bank and two building societies or mortgage banks, with combined assets of $2.68 trillion.