CBCS publishes its 2023 Financial Stability Report
WILLEMSTAD, PHILIPSBURG - The financial sector in the monetary union weathered the past year’s shocks and remained stable. However, the Centrale Bank van Curaçao en Sint Maarten (CBCS) urges caution, as risks continue to be tilted to the downside. This is according to the Bank’s 2023 Financial Stability Report (FSR). With the FSR, the CBCS aims to inform society on the state of the financial system in the monetary union of Curaçao and Sint Maarten.
Financial institutions face ongoing turbulence in international financial markets, persistent inflation, and tightening global financial conditions. Other risks include banks’ asset quality, correspondent bank de-risking, cybersecurity, and rising reinsurance costs due to climate risk. In the face of quite challenging global and local developments, the financial sector has shown continued resilience and increasing adaptability.
The FSR covers forty-nine local financial institutions within the monetary union - eight banks, ten life insurance companies, nineteen non-life insurance companies, and twelve pension funds. Total assets are estimated at NAf. 26.7 billion, which is more than three times the Gross Domestic Product (GDP) in 2022 for the monetary union. The financial sector is described as fragmented, with a few large institutions holding the largest market share.
Interconnectedness within the monetary union decreased and became more decentralized over 2022, as financial institutions held fewer deposits at local banks.
In 2022, the assets of the commercial banking sector amounted to 156 percent of the monetary union's GDP. Banks’ capital position remained solid, and profitability improved, while uncertainties remain around asset quality due to relatively high non-performing loans and declining loan-loss provisions. For life and non-life insurers, solvency increased during 2021. However, preliminary information suggests that life insurers’ returns have been affected by the performance of international financial markets during 2022. Non-life insurers have seen an increase in claims as economic activity picked up, while increasing reinsurance premiums pose a challenge. The pension sector performed well, compared to the three-year average. The pension funds’ asset quality and earnings and profitability improved in 2021. However, as of 2022, preliminary analyses show that institutional investors face increasing market risk. The market volatility is expected to continue throughout 2023, affecting the solvency of insurance companies as well as the coverage ratio of pension funds.
The FSR analyzes the risks and vulnerabilities affecting the financial sector of the monetary union. Based on these analyses and taking into consideration recent events such as the global banking sector turmoil in 2023, the FSR gives an informed outlook for each financial sector. The CBCS’ macroprudential framework is highlighted, with special attention to tools in our crisis mitigation framework. Findings in this FSR have been attuned with input from stakeholders in the financial sector of Curaçao and Sint Maarten.