The Bahamas: Financial System Stability Assessment
IMF Staff Country Reports, July 1, 2019
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- The Bahamas: Financial System Stability Assessment
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Bibliographic details
- Published: July 1, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498323277.002
Executive summary and systemic assessment
- The Bahamas appears to be resilient to current threats to its financial stability, but action is needed to safeguard against potential weaknesses.
- There is a large stock of problem assets that needs to be dealt with from a variety of perspectives: systemic risk monitoring, banking supervision, and crisis management.
- Vulnerabilities to natural disasters and external economic contagion heighten the need to address problem assets and systemic weaknesses.
- The banking sector dominates the financial system and has focused on residential mortgages and consumer loans during a long period of economic stagnation.
- Despite poor growth the sector has remained profitable.
- The small domestic residential property market backing most secured lending is prone to shocks and illiquidity.
- High and persistent levels of nonperforming loans (NPLs) have historically occurred, significantly increasing uncertainty and fragility in the banking system.
Key findings and risks
- Large stock of problem assets requiring coordinated responses across:
- Systemic risk monitoring
- Banking supervision
- Crisis management
- Concentration risks:
- Banking sector concentrated in residential mortgages and consumer loans
- Domestic residential property market is small, prone to shocks, and illiquid
- External and environmental vulnerabilities:
- Exposure to natural disasters
- Exposure to external economic contagion
- Asset quality and stability:
- Historically high and persistent NPLs create significant uncertainty and fragility
- Profitability vs. fragility:
- Banks have remained profitable despite prolonged poor economic growth, masking underlying asset-quality risks
Policy implications and recommended focus areas
- Strengthen systemic risk monitoring to identify and track the large stock of problem assets.
- Reinforce banking supervision to address concentrated exposures to residential mortgages and consumer loans.
- Enhance crisis management frameworks to handle shocks amplified by an illiquid domestic property market.
- Incorporate natural disaster and external contagion scenarios into stress testing and contingency planning.
- Develop strategies to resolve or mitigate high and persistent nonperforming loans to reduce uncertainty and fragility in the banking system.
Content in this bundle
- The Bahamas: Financial System Stability Assessment; IMF Country Report No. 19/199; May 16, 2019