The Central Bank of Barbados today announced a series of measures to support the domestic banking sector in light of the projected impact of COVID-19 on the economy and the financial system.
In outlining the changes, the Bank said that, while the financial system is very liquid, liquidity at individual institutions may fluctuate from time to time, particularly in strained conditions. The Bank noted that financial institutions have access to the interbank market and/or negotiated credit line facilities.
These actions, therefore, are intended to further help Barbados’ commercial banks and other deposit taking companies that it regulates navigate these trying circumstances.
Effective April 1, 2020,
- The Bank’s discount rate at which it provides overnight lending to banks and deposit-taking non-banks licensed under the Financial Institutions Act will be reduced from 7 percent to 2 percent.
- The Bank will reduce the securities ratio for banks from 17.5 percent to 5 percent.
- The Bank will eliminate the 1.5 percent securities ratio for non-bank deposit taking licensees.
The Bank also stands ready to make collateralised loans for up to six months as liquidity support for licensees, if necessary.
These actions will make it easier for financial institutions to assist their personal and business clients during the pandemic.
The island’s commercial banks previously announced measures to help affected borrowers on a case by case basis. Those initiatives include:
- A moratorium on loan payments for firms and individuals directly impacted by the pandemic and resulting economic downturn, for up to six months.
- Adjusted loan terms to reduce monthly payments and improve cash flows.
- Additional credit to existing customers to address short-term liquidity challenges.
“COVID-19 has had a crippling effect on the global economy. Its impact on global tourism has already led to the suspension of incoming flights to Barbados and the closure of hotels, attractions and restaurants, which in turn has impacted other ancillary sectors,” said Central Bank Governor, Cleviston Haynes. “We expect economic activity to contract, bringing with it the potential for significant job losses.”
Governor Haynes said that because of the potential fallout, the Central Bank supports commercial banks’ efforts to work with their customers to ease the cash flow difficulties that are likely to emerge.
He acknowledged, however, that these actions by commercial banks could adversely affect these institutions’ profitability and liquidity. “Given these circumstances, the Central Bank will enhance its monitoring and review its supervisory policies to enable institutions to address Covid-19 related problems.”
The Government earlier this month outlined countercyclical measures intended to stimulate domestic activity and to cushion the adverse effects on businesses and individuals.
The Bank says that its measures coupled with those of the Government and the commercial banks represent a multi-pronged response to dampen the effects of COVID-19, and should help to preserve financial stability and enable a faster turn-around in the economy once the crisis is over.
The Bank also noted that the impact of the crisis will be felt on foreign exchange earnings but that the country had a foreign reserve buffer that will be buttressed in the coming months by inflows from the international financial institutions.
It noted further, that the extent of the disruption hinges on several factors, including the duration and the depth of the impact of the pandemic and the speed at which the global recovery occurs.