Bermuda’s banking sector was strongly capitalised at the end of 2025, although key buffers edged lower during the fourth quarter, according to the latest Quarterly Banking Digest from the Bermuda Monetary Authority.

The report showed that banks operated well above minimum regulatory requirements, even as several ratios declined slightly over the period. The sector’s Common Equity Tier 1 ratio — a key measure of financial strength — fell to 26.3 per cent, while the risk asset ratio slipped to 28.1 per cent. The leverage ratio also declined slightly to 7.3 per cent, still comfortably above the 5 per cent minimum.

Despite the dip, the BMA said the sector remained “well capitalised” and resilient against any potential shocks.

Total banking sector assets rose to $26.1 billion, up 5.2 per cent over the quarter and 10.6 per cent year-on-year, driven largely by increases in deposit liabilities. Demand deposits in particular saw strong inflows.

However, lending activity remained quiet in comparison, with the sector’s loan-to-deposit ratio held at 35.2 per cent. “The negative funding gap indicates that deposits exceed loans,” explained the BMA in the report.

Last September, Neville Grant, chairman of the Bermuda Bankers Association, explained that in his view, the low ratio is not a sign of weak appetite to lend but reflects Bermuda’s role as a small financial centre. “Lower loan-to-deposit ratios are common in jurisdictions such as Luxembourg or Ireland, where large institutional deposit balances outweigh lending opportunities,” he said.

Asset quality indicators were stable, with the ratio of non-performing loans unchanged at 5 per cent. At the same time, provisions as a share of those loans declined during the quarter. This indicates slightly lower reserves held as a safeguard against potential losses.

Profitability improved slightly, with the sector recording net after-tax income of $129 million. But expenses rose faster than income, pushing the efficiency ratio higher and pointing to cost pressures.

The data also revealed the international nature of Bermuda’s banking system, with foreign currency assets making up nearly 90 per cent of the total.