Financial institutions in Trinidad and Tobago continue to face challenges in the slower economic environment, the Central Bank has said.
The Bank released its Financial Stability Report for June 2012 yesterday and noted that while the domestic financial system was stable, the economic environment in which financial institutions had to operate in late 2011 into 2012 continued to be fairly sluggish.
Much of the country's GDP decline resulted from lower energy sector output, but the Bank noted the 90-day strike at Trinidad Cement Ltd (TCL) negatively impacted non-energy sector activity, particularly in the construction and manufacturing sectors.
Deputy Governor for Research and Policy Dr Shelton Nicholls, at a media conference to announce the report's findings yesterday at the Central Bank tower in Port of Spain, said the full impact of the TCL strike, which began on February 27 and ended May 26, could not yet be measured because there was not enough data.
Also on hand was Inspector of Financial Institutions Carl Hiralal, who gave an overview of the financial sector.
Hiralal said financial institutions were not doing as well with regard to profitability, but notwithstanding this, the domestic financial system remained stable and fairly well-capitalised.
Despite the sharp fall in interest rates, deposits in the banking system have been increasing at a faster rate than loans. This contributed to significant levels of excess liquidity in the system.
Liquidity rose to $5.6 billion in March 2012, up from $1.7 billion in 2011, the Bank said in its report.
Falling interest rates also mean deposit-taking institutions have been earning less income on their investments and other assets.
Insurance companies experienced greater challenges with respect to asset-liability matching.
Commercial banks' performance remained strong in relation to financial stability indicators of capital adequacy; earnings and profitability; and liquidity, he said.
Credit quality fell slightly as the ratio of non-performing loans to total loans increased slightly from 6.3 per cent in December 2011 to 6.8 per cent in March 2012.
Non-bank financial institutions (NFIs) reported a steeper decline in profitability than commercial banks.
These institutions experienced a reduction in activity due to limited investment opportunity and increased competition from commercial banks.
The asset quality of NFIs was particularly affected by weaker tourism activity in the Caribbean, with some NFIs reporting increased delinquency in loans to the tourism and hospitality sector in the region.
In the insurance industry, both traditional and non-traditional life companies recorded increases in net business despite higher levels of policy surrenders in wealth management products.
In the non-life sector, higher premiums from property business contributed to a 4.6 per cent increase in gross premium income from 2011. Premium income from motor vehicle business—the second largest category in the sector—stagnated in 2011.
The Financial Stability Report is issued by the Bank twice a year. The next report is in November.