Central Bank: Trinidad and Tobago’s financial system stable in 2024

THE Central Bank’s Financial Stability Report 2024 has found Trinidad and Tobago’s financial system remained broadly stable last year.

The report, however, identified a cluster of domestic vulnerabilities – heavy bank and insurer exposure to sovereign debt, tighter system liquidity, rising household indebtedness and an increase in cyber incidents – that together raise the risk of materially worse outcomes if shocks occur.

Real GDP expanded by 2.5 per cent in 2024, up from 1.5 per cent in 2023. Unemployment rose to 5.0 per cent while headline inflation averaged 0.5 per cent. At the same time, the central government recorded an overall fiscal deficit of $9.1 billion (5.3 per cent of GDP) for FY2023/24 and adjusted general government debt rose to $140.6 billion or about 81.7 per cent of GDP. Fiscal pressures were partially met through withdrawals from the Heritage and Stabilisation Fund and increased domestic borrowing.

Private sector credit expanded by 7.7 per cent in 2024, supported by double-digit growth in both consumer and business lending.

Household debt increased materially: the household debt-to-GDP ratio rose to 40.6 per cent (an increase of 175 basis points). Non-performing loan (NPL) ratios remained low at the sector level, but the report highlighted an upward trend in household NPLs even as corporate NPLs improved.

The Central Bank flagged the combination of faster credit growth and higher household leverage as a source of concern for repayment capacity under adverse conditions.

Sustained concentration of financial-sector holdings in domestic government paper was a central finding.

Domestic financing accounted for the bulk of government borrowing in FY2024, leaving banks and insurers significantly exposed to sovereign credit and market risk. Stress tests that modelled adverse scenarios, including a sovereign credit event, showed that sector capital buffers would be severely strained.

In the sovereign default stress test, the sector’s post-shock capital adequacy ratio fell to roughly 7.5 per cent, below the ten per cent regulatory threshold.

The capital adequacy ratio measures the amount of capital banks hold compared to their risk-weighted assets; dropping below the minimum means banks could struggle to absorb losses if major shocks occur.

The report also noted vulnerability to shocks from large exposures to government-related entities.

Liquidity tightened in early 2024. To ease pressures, the Central Bank lowered the primary reserve requirement from 14.0 per cent to ten per cent on July 24, 2024, injecting roughly $4 billion of liquidity into the system.

The report also recorded that commercial banks’ excess reserves rose by about $3 billion after the change.

The measure eased near-term strain and supported credit growth, but funding costs remained elevated, and banks’ average liquidity “survival horizons” shortened from 27 days to 25 days.

The Central Bank has warned that an unexpected liquidity shock could trigger rapid repricing and upward pressure on lending rates.

Consumer loans in the banking sector rose 9.5 per cent in 2024.

About 16.4 per cent of the increase in consumer lending was attributable to debt restructuring activities such as refinancing and consolidation. The bank stressed that a deterioration in household repayment capacity (for example, from an employment shock or rising interest rates) could raise household NPLs and materially affect banks’ capital positions.

The report documented a notable rise in cyber incidents during 2024, including phishing and business-email-compromise attacks, and signals growing operational risk for financial firms. In response, the bank announced the development of a cybersecurity risk-based supervision framework and training examiners in cyber oversight. It also called for greater sector-level coordination on threat-sharing and resilience testing.

To address identified vulnerabilities, the bank has accelerated supervisory and regulatory initiatives.

These include consultations and a submission of draft financial institutions (liquidity) regulations, implementing a liquidity coverage ratio and liquidity monitoring tools; preparatory work on Pillar-3 disclosure requirements; issuance and industry consultation on an Own Risk and Solvency Assessment (ORSA) guideline for insurers; and implementation work related to IFRS 17 reporting for the insurance sector.

The bank is also piloting payments-system reforms – testing a fast payments system for instant retail transfers and participating in the Caricom Payment and Settlement System (CAPSS) for instant cross-border payments – while approving full or provisional registrations for new e-money providers.

The report concluded that Trinidad and Tobago’s financial system remained resilient during 2024 but faces elevated downside risks if domestic fiscal pressures persist or if external shocks intensify.

The bank’s assessment links those risks to the concentration of sovereign exposure in financial-sector balance sheets, tighter liquidity conditions, increasing household leverage and rising operational-cyber threats.

In response, the report sets out a package of supervisory, regulatory and operational measures, including liquidity standards, enhanced disclosures, insurer solvency guidance, cyber supervision and payments-system upgrades, intended to reduce systemic vulnerability.