Saturday 15 August, 2020

BOJ to study borrowers, add new capital buffers

The Bank of Jamaica (BOJ) says it plans to study the ability of Jamaican borrowers to repay loans.

It will also examine the implementation of new capital buffers for banks.

The central bank has rolled out a new consultation paper called “Macro-prudential Policy Tools for Jamaica,” which indicates that it is considering adding to tools already in use for financial stability.

The BOJ also said it will seek to complete a consultative processes on the implementation of a countercyclical capital buffer (CCyB).

The counter cyclical buffer, CCyB, aims to curtail systemic risks associated with the financial cycle.

The consultation paper indicates that it will require the building up of additional capital during periods of excessive asset and credit expansion, while releasing these buffers during normal periods or during a financial and economic downturn.

The BOJ said it will, accordingly, consult on the identification and provisions for additional capital requirements when deemed necessary for domestic systemically important banks (D-SIBs).

Section 34A of the Bank of Jamaica Act provides the legislative mandate for the BOJ to conduct prudential supervision of deposit-taking institutions (DTIs) in Jamaica.

The bank has in statute several prudential supervisory tools and many of these requirements can serve macro prudential purposes.

The BOJ is seeking to strengthen its ability to respond to threats to system stability due to excessive pro-cyclicality between financial markets and the macro-economy and those threats due to the influence of systemically important banks.

To further complement these measures, the bank will seek to enhance its ability to assess the repayment capacity of borrowers in the economy.

“These measures will help determine the resilience of borrowers to fluctuations in economic conditions, and consequently the overall profile of credit risk,” the consultation paper said.

It outlined, “The susceptibility of the financial system to sudden and prolonged reversals in economic activity that impact a wide segment of borrowers, will be reduced from the proper application of borrower-based macro prudential instruments such as loan-to-value, loan-to-income and debt servicing ratios.”

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