~Banks, insurance companies, and pension funds show resilience as domestic macro-financial prospects improve.~
Willemstad/Philipsburg:--- The Centrale Bank van Curaçao en Sint Maarten (CBCS) released its 2024 Financial Stability Report (FSR) on May 15. As reported in the FSR, rising geopolitical conflict, cybercrime, and climate change are among the most pronounced risks faced by the financial sector of the monetary union during 2023. Even though the financial sector showed remarkable resilience during 2023, the CBCS remains cautiously optimistic.
The FSR covers forty-eight local financial institutions within the monetary union: eight banks, nine life insurance companies, nineteen non-life insurance companies, and twelve pension funds. Total assets were estimated at NAf. 26.8 billion for 2023, which is more than three times the Gross Domestic Product of the monetary union.
Following a tumultuous 2022, market sentiment improved in the first half of 2023 with solid returns on international capital markets. Domestic macro-financial prospects improved as the domestic economies grew, and tourism and construction activities thrived. However, developments outside the monetary union, such as increased policy interest rates and volatility on international markets, warrant close monitoring.
Domestic banks reported improved capital positions and declining non-performing loans. The profitability of banks deteriorated slightly due to higher operational expenses. Nonetheless, the banking sector was able to generate more income from higher lending volumes, rising interest rates, and other sources. An improved credit risk resulted from fewer non-performing loans, due to improved repayment behavior and enhanced monitoring by the banks.
Institutional investors recorded a substantial recovery in funding- and solvency ratios after experiencing setbacks in the previous year. The high dependency of institutional investors on volatile financial markets greatly affects their investment income and is a reason for vigilance. Non-life insurers saw an increase in claims as tourism-related economic activities picked up. However, insurers also face stagnating premium growth in some product categories. Reinsurance premiums, which continue to rise due to climate change, remain a risk.
The CBCS assesses interconnectedness to determine whether there is a strong connection between domestic financial institutions. A high degree of connectedness may become a risk to financial stability. During 2023, interconnectedness in the monetary union continued to decrease.
With the FSR, the CBCS aims to inform stakeholders and the public about the state of the financial system in the monetary union of Curaçao and Sint Maarten. The report analyzes the risks and vulnerabilities affecting the financial sector. Findings in this FSR have been corroborated with input from the relevant stakeholders in the financial sector of Curaçao and Sint Maarten.
The complete text of the 2024 Financial Stability Report is available on the CBCS website at: https://www.centralbank.cw/publications/financial-stability-reports/2024.
Willemstad, May 15, 2024
CENTRALE BANK VAN CURAÇAO EN SINT MAARTEN
