Bermuda's banking sector had a strong balance sheet during the first quarter of 2026, although lending declined, while banks continued to hold more deposits than loans, according to the Bermuda Monetary Authority's latest Quarterly Banking Digest.

The sector’s total assets fell 2.3 per cent over the quarter to $25.5 billion, thanks to declines in both lending and investment holdings. Net loans and advances dropped 3.6 per cent to $8 billion, while investments decreased 3 per cent to $12.9 billion.

Despite the quarterly decline, total assets remained 4.5 per cent higher than a year earlier.

Customer deposits fell 3.4 per cent during the quarter to $22.8 billion, although they were still up 4.6 per cent from the same period last year. The BMA noted: “Deposit funding continues to exceed lending by a significant margin, as evidenced by the low loan-to-deposit ratio and the continued negative funding gap.”

The banking sector's loan-to-deposit ratio remained virtually unchanged at 35.1 per cent.

The decline continues a longer-term pattern of subdued lending despite strong deposit growth. The banking sector's loan-to-deposit ratio stood at 35.1 per cent at the end of March, little changed from previous quarters. Last year, Bermuda Bankers Association chairman Neville Grant said the comparatively low ratio speaks to Bermuda's role as a small international financial centre, where large institutional deposits outweigh local lending opportunities, rather than a lack of appetite to lend.

The sector's Common Equity Tier 1 capital ratio held steady at 26.1 per cent, well above the minimum requirement of 7 per cent, while the leverage ratio improved slightly to 7.5 per cent, compared with the BMA's minimum of 5 per cent.

“The banking sector remained well capitalised, with all capital ratios comfortably above regulatory requirements,” the BMA said in the digest.

Asset quality remained stable during the quarter. The ratio of non-performing loans to net loans edged up slightly to 5.2 per cent from 5 per cent at the end of 2025, while the BMA said loan impairment metrics stayed broadly unchanged.

Banks generated combined after-tax profits of $125.9 million during the quarter, down modestly from the previous three months as both interest and non-interest income declined. The sector's efficiency ratio improved to 50.9 per cent thanks to a larger reduction in expenses than income.

The digest also showed Bermuda's money supply increased 0.8 per cent during the quarter to $4.3 billion, driven primarily by growth in domestic customer deposits.