The Bank of Jamaica’s Financial System Stability Committee, FSSC, says the country’s financial systems remain stable but may have significant challenges ahead associated with the COVID-19 pandemic.
The FSSC met on March 24 to review the central bank’s Financial Stability report for 2019.
It warns that there maybe weakening of financial institutions’ balance sheets in the future as the crisis deepens.
The FSSC says data and analysis presented in the report showed that Jamaica’s financial system remained sound and stable.
Both deposit-taking institutions and non-deposit taking financial institutions were well capitalized and profitable.
The FSSC notes that the financial system remains highly interconnected and concentrated.
The report identifies a significant degree of counterpart funding between related entities operating in different financial sectors.
Bank of Jamaica also continues to assess the notable movements in stock and real estate prices.
It’s concluding that the movement during the assessment period largely reflected a reversion to levels observed prior to the 2008 global financial crisis.
This was influenced by Jamaica’s fiscal consolidation and accommodative monetary policy.
However, the FSSC says the COVID19 pandemic may create new challenges for managing financial system stability.
It says global economic activity is projected to slow or even decline due to the virus.
The BOJ’s scenarios shows potentially significant adverse impact on Jamaica’s GDP growth.
The FSSC says due to macro-financial linkages in the Jamaican economy, there’s the potential for the weakening of balance sheets and profitability.
It says a significant fall-off in economic activity could result in reduced demand for credit, higher non-performing loans and the withdrawal of bank deposits.
The Committee says non-deposit taking financial institutions may experience challenges associated with a sell-off in financial markets, material declines in asset prices and subsequent market illiquidity.
It’s therefore endorsing the initiatives being undertaken by the BOJ to ensure adequate foreign currency and Jamaican dollar liquidity.
The committee also say that these initiatives will support the normal functioning of the financial system.
