Barbados’ financial system reached a record size in 2024, with total assets rising to $30.3 billion, according to the latest Financial Stability Report (FSR) released by the Central Bank of Barbados and the Financial Services Commission (FSC). This represents a notable increase from $29 billion in 2023, with credit expansion across multiple financial institutions fueling the growth.
Commercial Banks Dominate Asset Holdings
Leading the sector were commercial banks, holding $15.6 billion in assets — up from $14.65 billion in 2023 — reinforcing their role as the financial system’s cornerstone. Other segments also recorded modest gains:
- Insurance companies: $4.54 billion (up from $4.46B)
- Credit unions: $3.26 billion (up from $3.15B)
- Pension funds: $3.16 billion (up from $2.82B)
- Mutual funds: $2.93 billion (up from $2.87B)
- Finance companies: $1.13 billion (up from $1.03B)
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The FSR notes that while the overall structure of the financial system remains stable, the asset growth was concentrated primarily in commercial banks and finance companies.
Credit Drives Growth and Liquidity Tightens
The report attributes the sector’s 6% asset growth to increased lending activity, up from just 2% the previous year. A significant contributor was the $592.7 million debt-for-climate resilience swap, in which three commercial banks participated. The deal expanded bank balance sheets, boosted net credit to the Government, and absorbed excess liquidity.
However, this lending surge led to tightened liquidity for banks, even as they maintained healthy short-term reserves and continued to invest in government securities, particularly treasury bills.
“Commercial banks drew down liquidity to support credit expansion… This coincided with a dip in the Banking Stability Index (BSI),” the report stated, though it noted no significant decline in credit quality.
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Strong Loan Demand, Lower Delinquencies
Improved economic activity spurred greater loan demand, with loan delinquency rates falling. Despite a slight decline in the weighted average loan rate, the FSR cautioned that rising consumer loan rates could slow future lending, particularly among more vulnerable households.
Investments, including those in government debt instruments, continued to make up a substantial portion of assets at deposit-taking institutions, especially among commercial banks. Net credit to government relative to total assets rose by 3.9 percentage points to 20.4%, reflecting banks’ continued appetite for sovereign assets.
Outlook Remains Stable Despite Risks
While greater exposure to government instruments could pose risks under adverse conditions, the report finds those risks diminishing, thanks to:
- Improved sovereign credit ratings for Barbados
- Participation of multilateral guarantors like the Inter-American Development Bank in financial instruments such as the climate swap
“Current assessments indicate declining default risk over the short to medium term,” the FSR concluded.
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In summary, Barbados’ financial sector is expanding, driven by strong loan demand, government-backed financing deals, and continued macroeconomic stability — positioning it as a resilient engine of national economic growth heading into 2025.
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