This country’s financial sector has remained resilient in 2020 in the face of the unprecedented shocks to economic activity caused the COVID-19 pandemic according to the Central Bank’s Financial Stability report.
The report stated “soundness indicators (FSIs) for the banking and insurance industries suggest that risks related to the pandemic were largely contained. The Bank says Institutions maintained healthy capital and liquidity buffers, while contending with deterioration in asset quality and profitability ratios. “
According to the Central Bank initially the pandemic adversely affected the pension sector investment portfolios, but it noted that asset valuations improved by the end of the year on account of some recovery in foreign equity markets.
The Financial Stability report explained that the financial system had sufficient loss-absorbing capacity and added that while there was “a slight upturn in system-wide stability after June 2020t at the micro level there may be growing pockets of vulnerability within the banking sector triggered by high levels of household indebtedness and sovereign exposure.
The report said that last year’s “public health restrictions and the reluctance of persons to incur additional debt due to the exogenous shock of the pandemic, coupled with a negative outlook and uncertain external environment, restrained any recovery in already sluggish private sector credit.”
The Bank noted as a result business sector loans contracted by 0.1 per cent, and loans to consumers increased marginally by 0.4 per cent “owing to expansion in residential mortgages, refinancing and debt consolidation. “
The Insurance sector also remained stable.
The report said, “ Assets in the long-term insurance sector expanded by just over 2 per cent in 2020 – compared to average annual growth of 7.0 per cent over the last five years – on account of the economic slowdown and volatility in global financial markets. For the said reasons, profitability and investment yields weakened, though these indicators remained favourable. “
Work from home initiatives proved to be a gift and a curse for the industry as “efficiency levels improved with the decline in expenses as a result of reduced administrative costs in light of COVID-19 restrictions and the implementation of work-from-home arrangements. Curtailed economic activity also augured well as insurance claims receded in the motor sub-sector of the general insurance sector, contributing to an uptick in underwriting profits at the end of the year.”
However it also mean there was “ a reduction in the demand for the number of vehicles insured per household, alongside strategies to increase reinsurance protection in the property sub-sector, led to a contraction of 6.5 per cent in net premium growth. In both the long-term and general insurance market segments, liquidity levels increased in anticipation of a new government bond issue at the end of the year.”