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20420-9781484380765.Pdf © 2013 International Monetary Fund April 2013 IMF Country Report No. 13/101 January 2013 January 29, 2001 January 29, 2001 January 29, 2001 January 29, 2001 The Bahamas: Financial Sector Stability Assessment This Financial Sector Stability Assessment on The Bahamas was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on January 18, 2013. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of The Bahamas or the Executive Board of the IMF. The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information. Copies of this report are available to the public from International Monetary Fund Publication Services 700 19th Street, N.W. Washington, D.C. 20431 Telephone: (202) 623-7430 Telefax: (202) 623-7201 E-mail: [email protected] Internet: http://www.imf.org International Monetary Fund Washington, D.C. ©International Monetary Fund. Not for Redistribution INTERNATIONAL MONETARY FUND THE BAHAMAS Financial System Stability Assessment Prepared by the Monetary and Capital Markets and Western Hemisphere Department Departments Approved by José Viñals and Saul Lizondo January 18, 2013 This report is based on the work of an IMF Financial Sector Assessment Program (FSAP) mission to The Bahamas during July 17–31, 2012. The team comprised Elie Canetti (mission chief), Elena Loukoianova (deputy mission chief), Ivailo Arsov, Gamal El-Masry, Kalin Tintchev, Laura Valderrama, and Rodolfo Wehrhahn (all IMF), and consultants Richard Britton, Michael Deasy, Vern McKinley, José Tuya, and Christina Urias. Mr. Canetti also participated in the Article IV discussions during October 28-November 2, 2012, including the concluding meeting. The Bahamian financial system faces no obvious near-term threats to financial stability. The onshore banking system is well capitalized, liquid, and profitable. Credit risk, particularly for mortgages, will need to be monitored closely in view of existing high non-performing loan (NPL) rates and ongoing economic uncertainties. Stress tests show that the onshore banks can withstand severe shocks to solvency and liquidity. The offshore financial sector is very large, with total offshore bank assets equivalent to 75 times GDP at end-2011, although this mainly reflects large treasury operations of global banks intermediated through the system. Interconnections are predominantly between offshore banks and their foreign parents, and strict firewalls protect the domestic economy and financial system from the offshore sector. A lack of detailed data prevented a more complete assessment of this sector, including stress testing or the calculation of financial soundness indicators. Financial system oversight has improved greatly over the last decade and the authorities continue to act with resolve on a wide variety of fronts to institute further improvements. However, further strengthening is needed to ensure the financial system remains robust well into the future, particularly in insurance and securities where relatively new legislation is in place, and in pensions, where governing legislation is pending. The offshore sector is supervised on the same principles as the onshore sector, but the vast majority of assets are held in branches and therefore not subject to local capital requirements. The crisis management and financial safety net framework has not been tested and is in need of modernization. The main author of this report is Elie Canetti, with contributions from the members of the team. FSAP assessments are designed to assess the stability of the financial system as a whole and not that of individual institutions. They have been developed to help countries identify and remedy weaknesses in their financial sector structure, thereby enhancing their resilience to macroeconomic shocks and cross-border contagion. FSAP assessments do not cover risks that are specific to individual institutions such as asset quality, operational or legal risks, or fraud. ©International Monetary Fund. Not for Redistribution 2 Contents Page Glossary .....................................................................................................................................4 Executive Summary ...................................................................................................................6 I. Macro-Financial Performance and Structure of the Financial System .................................10 A. Macro-Financial Context ........................................................................................10 B. Financial System Structure......................................................................................11 C. Liquidity Management ............................................................................................20 II. The Onshore Financial Sector - Risks and Resilience ........................................................21 A. Banking Sector ........................................................................................................21 B. Insurance Sector ......................................................................................................32 C. Capital Markets .......................................................................................................32 III. Financial Sector Oversight and Infrastructure ...................................................................32 A. Banking ...................................................................................................................33 B. Insurance .................................................................................................................34 C. Capital Markets .......................................................................................................35 D. Pension Funds .........................................................................................................36 E. Payments and Securities Settlement Systems ..........................................................36 IV. Crisis Management and Financial Safety Net ...................................................................36 A. Crisis Management .................................................................................................37 B. Systemic Risk Management ....................................................................................38 C. Deposit Insurance ....................................................................................................38 D. Receivership, Resolution, and Liquidation .............................................................39 Tables 1. FSAP Key Recommendations...............................................................................................8 2. Status of Implementation of 2004 OFC Key Recommendations..........................................9 3. Financial System Structure .................................................................................................12 4. Economic Contribution of Banks and Trust Companies ....................................................13 5. Largest Offshore Entities ....................................................................................................19 6. Summary Stress Test Results: Sensitivity Tests .................................................................30 7 Liquidity Stress Test Results ..............................................................................................31 Figures 1. Onshore Banking System Annual Credit Growth ...............................................................11 2. Assets and Liabilities of the Onshore Commercial Banks ..................................................15 3. Government securities Investor Base and Maturity Profile ................................................17 4. Investment Funds Licensed or Registered and Assets Under Management .......................18 5. Liabilities of the Offshore Banks ........................................................................................20 ©International Monetary Fund. Not for Redistribution 3 6. Performance of Onshore Commercial Banks .....................................................................22 7. Performance and Soundness Indicators of Commercial Banks ..........................................23 8. Selected Peer Countries: Capital and Return ......................................................................24 9. Selected Peers: NPLs and Provisions .................................................................................26 10. Macro Stress Test Outcomes ............................................................................................28 Boxes 1. CLICO Bahamas Liquidation Update and Recommendations ............................................18 2. Stress Test Scenarios and Methodologies ............................................................................27 3. Deposit Insurance Corporation (DIC) Operational Recommendations ...............................40 Appendices I. Risk Assessment Matrix ......................................................................................................41 II. Stress Testing Matrix (STeM) ............................................................................................43 Appendix Tables 8. Selected Economic Indicators .............................................................................................46
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