Central Bank: Domestic financial sector remained resilient in 2022

Central Bank in its financial stability report – published on Thursday – said the domestic financial sector remained resilient throughout 2022 since institutions' capital and liquidity buffers were broadly stable.

In that year, though the sector remained resilient, its stability risks moderately increased with the key risks being international interest rates, larger liquidity requirements in financial institutions and cyberattacks. Other risks the bank listed are high inflation, deteriorating economic growth and climate-related risks.

The report said the banking stress in the US and Europe earlier this year highlighted challenges posed by the interaction between tighter monetary and financial conditions and financial stability which were financial leverage, liquidity mismatches and financial interconnectedness.

Real estate and other categories of consumer debt, it said, are becoming more susceptible to risks.

"In the near term, the bank plans to implement the basel III liquidity coverage ratio requirement to ensure banking institutions can better withstand liquidity outflows during stress periods," Patrick Solomon, inspector of financial institutions at the Central Bank said.

According to the report, the domestic economy showed signs of recovery last year after two years of economic contraction as unemployment rates have declined creating room for increased gross domestic product levels. Though risks related to sovereign concentrations do not post near-term risks to financial stability, it remains relevant.

Central Bank said, during this time, it continued to promote financial stability through legislative reform, regulatory amendments and improved supervisory capacity based on an ongoing assessment of sectoral risks.