The Bank of Jamaica, BOJ, says the risk of financial instability in the country in the near term has been contained due to prudent fiscal policy despite the significant economic impact of COVID-19.
That forms part of its 2020 report stemming from the annual review by the Central Bank’s Financial System Stability Committee released this morning.
However, the report suggests Jamaica’s risk in the medium to long term remain heightened compared to previous years.
Chevon Campbell tells us more.
The BOJ says the events of the period were profoundly affected by the COVID-19 pandemic and the measures that were put in place to contain it.
However, despite the gloomy economic outlook the bank says near-term risks to financial stability are contained.
It says while the significant fall-off in economic activity resulted in reduced demand for credit extended by deposit taking institutions, loan quality has so far not deteriorated dramatically.
In addition, the balance sheets of non-deposit taking financial institutions have not reflected significant adverse pressures.
The BOJ says the containment of the risks to the financial system represented the outcome of prudent fiscal, monetary and regulatory policies.
However, the Central Bank says significant risk still looms over the medium to long term and is elevated relative to previous years.
It says the broad economic recovery depends on the course of the COVID-19 virus.
Risks over the medium term are associated with the exposures of financial entities to household, corporate and public sector debt.
The Bank says a decline in real economic activity, the fall in employment and the resultant fall in incomes, are slowly but steadily deteriorating debt profiles.
It says this risk remains elevated until there is a notable improvement in the debt repayment capacity of private borrowers and the public sector.
In this vein, the stability committee says it endorses the coordination of the Financial Services Commission and Bank of Jamaica in enhancing system surveillance of the most significant risk exposures and the implementation of the various initiatives for ensuring the maintenance of sound financial conditions.