KPMG report: Banks remain profitable despite struggling economy
Clarien remained the most heavily invested of Bermuda's banks in loans to customers at 77 percent of assets, according to the 2014 KPMG in Bermuda Banking Survey, which is out today.
The report contains the results of KPMG's annual survey and analysis of the performance of Bermuda's banks noting they all remained profitable even faced with Bermuda-specific hardships.
The report stated: “Profitability of banks globally is under pressure due to the low interest rate environment, as well as a trend towards more liquid, lower risk, lower yield investments in the wake of the financial crisis, and in order to react to regulatory capital pressures.
“The severe impact of the low interest rates is clearly evident, looking back to the sharp decline since the start of the financial crisis.
“Bermuda's banks have been under additional pressure due to Bermuda's economic recession and the related impact on impaired loans and impairment charges.
“This is evidenced in the sharp increase in the percentage of impaired loans of those banks actively engaged in lending.
“Despite this, all four of Bermuda's banks have managed to maintain profitability over the last three years. With no real indication that interest rates are on the increase or that the economic tides in Bermuda are changing, profitability will likely remain under pressure in the foreseeable future.
“The additional compliance costs associated with regulatory changes such as Fatca, Anti-Money Laundering, enhanced Know-Your-Customer regulations and Basel III, will also have an impact on profitability going forward.
“To combat the lower net interest margin being earned, many of the banks have sought other sources of revenue, primarily fee income.”
Meanwhile, despite difficult times capital ratios of the banks remain strong, exceeding international industry standards.
The BMA does require Bermuda based banks to maintain a premium above the international standards in order to compensate for the concentration risk associated with lending in the Bermuda market and the absence of a central bank.
Banks are required to disclose information about their capital, risk exposures, risk assessment processes, and capital adequacy. These disclosures, known as the Capital and Risk Management Pillar III disclosures, allow informed market participants to gauge the capital adequacy of the banks, and are available on the websites of each of the four banks in Bermuda.
Capital adequacy and risk management will continue to be closely monitored by regulators worldwide in the lead up to the implementation of Basel III, which is expected to increase bank capital requirements.