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Island’s banking sector hit by decline in deposits, assets in 2012

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Bermuda bank deposits tumbled by $1.5 billion in 2012, according to Bermuda Monetary Authority figures.

And consolidated assets of the Island’s banking sector fell by more than five percent to $24.2 billion, after growing 9.3 percent in 2011 (see graph).

But overall the BMA said the Bermuda banking sector maintained high levels of capital during the year, relative to international minimum standards.

A spokesperson for the BMA said yesterday: “As you would expect because of the prolonged economic downturn there has been some negative impact to Bermuda’s banking sector. In common with other markets, we have seen some asset impairments and lending conditions have become a lot more stringent across the Bermuda market; this is reflected in the numbers shown in the Annual Report.”

The BMA in its newly released annual report stated: “The recessionary economic climate has continued to have a depressed impact on the financial position of the banking sector.

“Credit portfolios have seen a significant slowdown in growth and increasing non-performing loans has resulted in higher loan provisioning and write-offs.

“Overall, however, banking sector capital remains above international regulatory requirements.”

The BMA said the overall decline in banking sector assets mainly reflected a decrease in investments of nearly 12 percent, plus a 4.1 percent decline in loans and advances and 1.2 percent fall in other assets.

The BMA noted a seven percent fall in deposit liabilities in 2012 to $20.5 billion from $22 billion.

“This related to decreases in all components over the year, with time deposits falling by 14 percent, demand deposits by 5.4 percent and savings deposits by 1.2 percent

Total income for all banks declined slightly during 2012, mainly reflecting a “notable decline in non-banking income of 35.2 percent”.

This was partially offset by an increase of banking income of 3.3 percent which constitutes 75.6 percent of total income.

The most notable part of banking income is net interest income and that rose two percent over the year.

“The rise in net income reflected the significant decline in interest expenses paid to deposit liabilities as a result of the decrease in time deposits and demand deposits.

In fact, as a portion of total income, net interest income increases from 59.7 percent in 2011 to 64.7 percent in 2012. Operating costs also declined by -7.1 percent reflecting savings generated from increased cost management.

The risk asset ration (RAR) was 21.7 percent in 2012 compared to 23.2 percent at the end of 2011

The BMA noted it conducted stress tests on all banks to assist in setting of minimum capital requirements as well as to ensure the banks were able to maintain regulatory capital ratios above international benchmarks and Tier 1 ratios in excess of six percent post scenarios.

During 2012 the BMA sought to take steps to enhance the reporting and monitoring of credit risk exposures in the banking sector as a precautionary measure given the Island’s prolonged economic downturn.

“The upward movement of the ratio of non-performing loans to total loans by banks’ credit portfolios, along with the potential impact on international markets of the Eurozone debt crisis, warranted enhanced monitoring of the sector,” the BMA said.

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Published June 28, 2013 at 9:00 am (Updated June 27, 2013 at 8:28 pm)

Island’s banking sector hit by decline in deposits, assets in 2012

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