Central Bank Financial Stability Report 2021 | Local company
THE Central Bank of T&T continues to be concerned about the debt held by the local private sector and the impact that higher interest rates could have on individuals and businesses.
The Central Bank expressed concern in the Financial Stability Report (FSR) for 2021, which was released yesterday.
The report identifies three main risks facing the T&T financial sector: rising international interest rates; the increase in cyber attacks and sovereign concentrations in the banking and insurance sectors. The FSR report noted that two of the risks from the 2020 report – increased cyberattacks and sovereign concentrations among banks and insurance companies – remained relevant in the 2021 report.
The 2021 report indicates that risks to financial stability in Trinidad and Tobago have been tempered, with the effects of the pandemic appearing to abate in 2021 and early 2022.
On the issue of private sector debt, the Central Bank said: “While credit risk stabilized in 2021 largely due to regulatory forbearance and government assistance, private sector debt private sector remains a major source of concern given the unwinding of policy support measures and looming inflationary pressures.
The report states that the private sector refers to consumers (households) and businesses (businesses) and that credit includes loans and short-term financing.
The report says that raising domestic interest rates to counter rising inflation “could pose a near-term threat to financial stability and could be triggered by a new risk – rising international interest rates. “.
The 2021 Financial Stability Report highlights that rising global interest rates could have a negative impact on the financial sector via the investment portfolios of financial institutions due to asset revaluations, although the impact on returns pension sector assets may be net positive.
“Additionally, the possibility of higher domestic interest rates to curb inflation could improve bank profitability due to higher lending rates,” the central bank report said.
“However, the negative implications for households and businesses include higher borrowing costs, reduced disposable income and a delayed recovery in credit growth,” the report said.
The report notes that the recovery in economic activity in the second half of 2021 caused the estimated household debt-to-GDP ratio to fall to 35.1% in 2021 from 40.8% in 2020. businesses fell to 46.5% percent in 2021 from 54.1% in 2020.
“Nevertheless, credit risks appear contained as non-performing loan (NPL) ratios to consumers and commercial banking businesses have remained low and stable.
“However, debt service issues may have been eased by loan repayment moratoriums, loan restructuring and government support measures,” the report said.
Addressing the issue of increasing cyberattacks, the Central Bank’s report says that continued digitalization to improve access to financial services has also widened the attack surface for short-term cyberthreats.
“An increase in cyber incidents at the national and regional level has been noted in 2021. In addition, recent cyber attacks against regional conglomerates draw attention to the potential for systemic liquidity risk resulting from interconnections within mixed conglomerates and between institutions. national financial institutions”, according to the Financial Stability Report.
The report indicates that national sovereign concentrations in major financial industries have intensified in 2021 due to lower tax revenues, fiscal financing needs and debt repayment.
It indicates that while the need for direct fiscal support for the Covid-19 pandemic has eased as the economy reopens and the outlook improves
for domestic activity, “significant sovereign exposures on the balance sheets of financial institutions remain a source of vulnerability”.