The Buffer and the Dividend

The Central Bank of Barbados and the Financial Services Commission published the fifteenth Financial Stability Report on 10 August, covering 2025. On asset quality it was the best year Barbadian banks have had in over a decade. The commercial bank non-performing loan ratio fell to 3.6 per cent, its lowest in more than ten years. Corporate non-performing loans fell to 3.4 per cent, an eleven-year low. Credit expanded by 6.3 per cent, the strongest pace in over a decade. Even credit cards improved, with the non-performing share of balances down from 3.5 per cent to 2.9 per cent. The buffer lines run the other way over the same twelve months. The commercial bank capital adequacy ratio fell from 21.2 per cent to 19.0 per cent. Measured against unweighted assets rather than risk-weighted ones, bank capital fell from 12.0 per cent to 10.9 per cent. Provisions covered 45.0 per cent of non-performing loans at the end of the year against 46.5 per cent a year before, so there is less set aside for the next deterioration than there was for the last. The report’s own verdict is that these developments do not indicate system-wide distress, but they have narrowed the margin for error.

Two things moved the capital ratio and only one of them is about risk. Risk-weighted assets rose by BDS$606.2 million, with two institutions accounting for two-thirds of that growth. Regulatory capital fell by BDS$88.4 million. The second number comes with an explanation attached. The decline sat in two banks and came from dividend distributions, a reduction in stated capital, and movements in fixed asset revaluation and loss reserves. It represented, in the report’s phrase, a distribution of capital rather than a deterioration in underlying earnings. Pre-tax profit rose 6.4 per cent over the year. So the buffer did not erode. It was paid out, and it was paid out in the year the loan book looked best. The backward-looking measures of risk were flattering, and the capital came down to meet them. Credit unions got to a similar place by another route. Their capital rose 2 per cent to BDS$373.5 million while assets grew 4.9 per cent to BDS$3.4 billion, which left the capital-to-assets ratio easing from 11.2 per cent to 10.9 per cent. Return on average assets in that sector fell from 0.6 per cent to 0.4 per cent, and it carries the highest concentration of mortgage exposure among domestic financial institutions.

The stress tests improve the picture at the aggregate and worsen it at the edges. Start with the aggregate. Under the severe scenario, three institutions holding less than 10 per cent of sector assets fall below the 8 per cent capital minimum and would need recapitalisation equivalent to 0.6 per cent of GDP. The previous exercise put four institutions and 1.2 per cent of GDP in that position, so the bill for a severe shock has halved. The weakest institutions moved the opposite way. Under a 5 per cent daily deposit run, one bank required liquidity support by the fifth day, where none did in 2024. The weakest bank would fall below the 8 per cent capital minimum at a funding cost shock of about 1,100 basis points, against 1,400 basis points a year earlier. For the banking sector as a whole that breach point moved from 4,000 basis points to 2,800. None of this changes what sits behind the buffers. Households take 54 per cent of deposit-taking institution loans, mortgages are close to half the book, loan-to-value ratios run between 80 and 100 per cent and debt service ratios between 40 and 45 per cent.

The dates matter here. Balance sheet data in the report stops at 31 December 2025. The assessment of risks runs to 20 July 2026. Publication was 10 August. Seven days after that, the Central Bank seized the management and control of Zeemoney (Barbados) Limited under section 59 of the Financial Institutions Act, on the grounds that it is unlikely to meet its financial obligations and has not maintained high standards of financial probity, and said it intends to apply to the High Court to wind the company up. Zeemoney is a money or value transmission provider, not a deposit-taker. Its licence had been suspended from 5 May to 4 June, and at the end of that suspension it decided to wind up its Barbados operations. Both of those dates fall inside the window the report covers, and the company appears nowhere in it. There is no fault in that. A stability report is built to measure a system, and a small transmission licensee is not one. But the ratios describe how much room the system has, and they say nothing about the licensee that ran out of room in August.