A banking stability index for Curaçao and Sint Maarten
WILLEMSTAD, PHILIPSBURG - The Financial Stability Division of the Centrale Bank van Curaçao en Sint Maarten (CBCS) has developed a Banking Stability Index (BSI) to monitor the performance of the commercial banking sector. The BSI complements other early-warning monitoring tools of the CBCS. These tools provide timely signals about the build-up of risks and help mitigate financial crises within our jurisdiction. The CBCS presents an informative box on the BSI in its 2023 Financial Stability Report (FSR), published May 15th, 2023.
The BSI shows that banking stability within the monetary union peaked in December 2022, despite growing global macro-financial risks. This signals that local banks showed resilience in 2022. The BSI is part of the CBCS’ early-warning monitoring system (EWMS). The index covers asset quality, capital adequacy, earnings & profitability, and liquidity indicators. The lowest level of the BSI over the past six years was observed in 2017 due to the adverse effects of hurricanes Irma and Maria in Sint Maarten. Also, during the Coronavirus pandemic, the BSI deteriorated because of weak earnings & profitability, and asset quality. The financial soundness indicators (FSIs) – validated by the International Monetary Fund – are another essential part of the EWMS. These indicators are also published in the FSR.
The BSI assesses the stability of local banks on an aggregate level. Aside from presenting this index, the CBCS Financial Stability Division will provide local financial institutions with insights into their performance against the sector and benchmarks set by the CBCS. These benchmark reports will enable institutions to reflect on their performance and improve their resilience accordingly. As of June 2023, the CBCS will start with the local banking sector.
In the pursuit of safeguarding financial stability, the CBCS responded to the global banking sector turmoil by requesting data from banks, pension funds, and insurers on their direct and indirect exposures to specific foreign financial institutions. Furthermore, the CBCS will conduct a full review on the institutions’ foreign exposures, to prepare for possible further global market turmoil. Compared to the 2022 Financial Stability Report, the CBCS’ outlook for the local banks was upgraded from slightly negative to stable. This upgrade resulted from banks’ strengthened capital positions while profitability improved to pre-pandemic levels. Lending also increased by NAf. 210.5 million in 2022 compared to the previous year. A slowdown in economic activity and continued inflation may impede banks’ performance. Other threats facing local banks are remaining uncertainties around asset quality, high operational costs, cybercrime, and de-risking.
