Banking sector continued to strengthen in 2021, study finds – Caribbean Business
Financial Stability Index for Banks, Prepared by Estudios Técnicos, Inc., Rises to 0.60 as Bank Liquidity Strengthens
The Puerto Rican banking sector has continued to strengthen over the past year, supported by increased liquidity and stronger asset quality. The Commercial Banks Financial Stability Index in Puerto Rico, prepared by Estudios Técnicos, Inc., rose to 0.60 in the third quarter of 2021, from 0.47 in the same period in 2020.
“The bank financial stability index continued to improve from 0.46 in the third quarter of 2020 to 0.57 in the second quarter of 2021, and more recently to 0.60 in the third quarter. The strengthening liquidity of the sector and the decline in the NPL ratio have continued to influence the positive performance of the index so far in 2021, ”said economist Leslie Adames, director of analysis and research. economic policy at Estudios Técnicos.
Estudios Técnicos, Inc. has developed this index to measure the financial health of banks, based on four indicators: liquidity (total loans / total deposits), solvency (share capital in relation to total assets), quality of assets (non-performing loans / total loans) and profitability (return on assets or ROA). The index fluctuates between 0 and 1, with values close to zero (0) indicating financial fragility and values close to one (1) indicating strength.
Adames said banking sector liquidity continued to improve, supported by total deposits which increased from $ 1,293 million quarter over quarter to $ 85,855 million in the third quarter of 2021. , while loans decreased from $ 198.8 million to $ 37,551 million. The quality of local banks‘ assets also improved, with the NPL ratio falling from 6.57% in the third quarter of 2020 to 4.83% in the second quarter of 2021, then to 4.32% in the third quarter of 2021. Adames noted that the asset quality figures released by the Federal Deposit Insurance Corporation (FDIC) do not yet reflect the significant deterioration in asset quality at the level of the individual loan portfolio across the industry.
In terms of profitability, the industry reflected a sequential increase of $ 318 million in net income for a total of $ 923 million in the third quarter. The release of provisions for losses on loans and leases and the increase in interest income and other non-interest income, for example, charges on deposit accounts and trust activities, have helped to maintain profitability industry during the quarter, Adames said.
Finally, although equity to total assets increased from 9.05% in the third quarter of 2020 to 7.77% in the third quarter of 2021, it remained stable compared to 7.70% in the previous quarter. The Common Equity Tier 1 ratio fell from 15.65% in the second quarter of 2021 to 16.22% in the third quarter of 2021, remaining well above the minimum regulatory requirement of 6.5% to be considered well capitalized.
ETI’s advisory team provides free access to this data and its implications for the benefit of the business community. The Financial Stability Index for Commercial Banks and Puerto Rico Economic Indicator Viewer, which includes the most relevant data for each sector of the economy, are available at www.estudiostecnicos.com.