Turks & Caicos Islands: Technical Assistance Report-Financial Stability Report Review, Credit Risk Modelling, and Stress Testing
Technical Assistance Reports, April 4, 2025
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- Turks & Caicos Islands: Technical Assistance Report-Financial Stability Report Review, Credit Risk Modelling, and Stress Testing
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Bibliographic details
- Published: April 4, 2025
- Series: Technical Assistance Reports
- DOI: https://doi.org/10.5089/9798229007450.019
Mission overview
- Two technical assistance (TA) missions by the IMF Caribbean Regional Technical Assistance Centre (CARTAC) in the Turks and Caicos Islands (TCI) between January and March 2024.
- First mission: January 29 to February 2, 2024 — focused on reviewing the Financial Stability Report (FSR), developing sectoral credit risk models, and training TCIFSC staff on advanced credit risk modeling techniques.
- Second mission: March 11 to 15, 2024 — focused on building a multi-factor, multi-period bank solvency stress testing tool tailored to TCI, reviewing macroeconomic and regulatory data, refining stress test assumptions, and training TCIFSC staff on the new framework.
- An illustrative stress test was performed using December 2023 data and incorporated baseline and adverse macroeconomic scenarios.
Analytical work and tools developed
- Review and enhancement of the latest Financial Stability Report to improve analytical depth and clarity.
- Development of sectoral credit risk models to assess the impact of macroeconomic scenarios on bank non-performing loans (NPLs).
- Construction of a multi-factor, multi-period bank solvency stress testing tool tailored to TCI’s financial sector.
- Calibration of macroeconomic models with emphasis on risks related to tourism-dependent credit exposures and external economic shocks.
- Training sessions for TCIFSC staff on credit risk modeling techniques and on implementing the stress testing framework.
Illustrative stress testing and scenarios
- Stress test inputs: December 2023 data.
- Scenarios used: baseline and adverse macroeconomic scenarios.
- Key risk considerations in scenario design:
- Tourism-dependent credit exposures.
- External economic shocks.
- Multi-period solvency framework designed to evaluate bank resilience under the specified macroeconomic scenarios.
Key findings and conclusions
- Enhancing the FSR can improve risk communication and analytical clarity for stakeholders.
- Sectoral credit risk models and the new stress testing tool allow quantification of macroeconomic scenario impacts on bank NPLs and solvency.
- Calibrated macroeconomic models highlight the materiality of tourism exposure and external shocks for financial stability in TCI.
- Training and capacity building conducted to enable TCIFSC staff to apply and maintain the new analytical tools.
Policy recommendations
- Further develop the Financial Stability Report to improve risk communication and streamline content.
- Institutionalize regular stress testing exercises to improve monitoring of financial resilience.
- Expand financial data collection and management by developing a centralized financial stability database to support ongoing macroprudential analysis.
- Increase coordination between the Turks and Caicos Islands Financial Services Commission (TCIFSC) and the Ministry of Finance for scenario development in stress testing.
Content in this bundle
- Executive Summary