Monday 10 December, 2018

J’ca given thumbs up after financial system assessment by IMF

Jamaica’s economic performance was given the thumbs up following the latest Financial System Stability Assessment (FSSA), which was conducted by the International Monetary Fund (IMF) and the World Bank.

The findings of the assessment were released on Friday by Finance Minister Dr Nigel Clarke.

The FSSA is the outcome of the Financial Sector Assessment Programme (FSAP) review conducted for Jamaica earlier in the year. An FSAP is a comprehensive and in-depth analysis of a country’s financial sector that is conducted jointly by the IMF and the World Bank for all countries. 

The FSSA reported on the stress tests carried out on large financial institutions as a standard part of FSAP assessments. The stress tests confirmed that, based primarily on the strength of their balance sheets, banks, securities dealers and insurance companies are broadly resilient to large price changes in financial markets and disruptions that could arise from negative shocks (such as hurricanes) to real sector activities. 

 The FSSA also identified significant vulnerabilities to the Jamaican financial system that require on-going attention from the respective authorities in the drive to maintain financial system stability.  These vulnerabilities include: exposure to risks arising from natural disasters and tightening global financial conditions; and highly conglomerated and connected financial groups which create the potential for risks to spread from one financial institution to another.

 “In this regard, the report underscored the importance of the work currently in progress that will further strengthen the regulatory framework and enhance the resiliency of the financial system.  Amongst other things, this includes the on-going roll-out of risk-based supervision by the Bank of Jamaica and the Financial Services Commission, the strengthening of the macroprudential framework and the development of a special resolution regime for financial institutions,” the report said.

The report also noted that there is scope for gradual diversification of the investment portfolios of pension funds to mitigate the risks of low returns being borne by persons who are members of defined contribution schemes.  Also highlighted was the opportunity to deepen financial markets to provide a wider range of intermediation services to the public, especially with respect to corporate debt and equity products, as the government continues to pay down its debt at a rapid pace. 

Commenting on the release of the report, Minister Clarke affirmed that “Jamaica remains committed to the adoption of international standards and best practices, tailored to domestic needs and economic conditions.” 

According to Minister Clarke, “the FSSA acknowledges Jamaica’s improved macroeconomic environment and the broad resilience of the financial sector and validates Government initiatives currently underway that are aimed at deepening financial markets and enhancing the framework for financial sector regulation and supervision.”

Meanwhile, Chair of the Financial Regulatory Committee (FRC), BOJ Governor Brian Wynter remarked that “the members of the FRC (the Financial Services Commission, the Jamaica Deposit Insurance Corporation, the Ministry of Finance and the Public Service and Bank of Jamaica) welcome the positive results of the assessment of Jamaica’s financial system as well as the constructive comments, feedback and recommendations, all of which are geared at further bolstering financial system soundness and resilience”.

 The FSSA report also highlighted the good progress by Jamaica in implementing recommendations from Jamaica’s previous FSAP in 2006, in particular with respect to: (i) security dealers’ activities via implementation of a regulatory framework for issuers, collective investment schemes and intermediaries; (ii) granting enhanced supervisory powers to Bank of Jamaica for the oversight of financial groups; and (iii) the introduction of the real-time gross settlements payments system and the central securities depository, which modernized Jamaica’s payments system infrastructure.

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