JAMAICA’S financial system has weathered the shock of Hurricane Melissa better than feared, with non-performing loans rising only modestly and remaining well below levels that would threaten stability, the Bank of Jamaica (BOJ) said on Tuesday.

New data presented by Governor Richard Byles show non-performing loans increased to 2.8 per cent of total loans, up slightly from 2.5 per cent a year ago, but still far below the 10 per cent level considered a threat to financial stability.

“2.8 per cent is well within the contours of the horizon of our concerns,” Byles said, noting that even with some deterioration, loan quality remains strong.

The update marks a shift from earlier assessments by the central bank, which had warned that the hurricane shock could trigger a sharp rise across the banking system.

One reason the feared spike did not materialise is the relatively limited exposure of banks to the hardest-hit western parishes.

“A lot of the loans of deposit-taking institutions are concentrated in Kingston, St Andrew and St Catherine, not in western Jamaica,” Byles said, adding that the bulk of the loan portfolio was therefore shielded from the worst economic disruption.

Deputy governor of the central bank Dr Jide Lewis told journalists that the sectors most affected were tourism and parts of the distributive trade, including pharmacies and supermarkets, while the mortgage portfolio remained largely stable.

He also pointed to swift policy intervention in the immediate aftermath of the hurricane, including guidance that allowed banks to grant temporary loan moratoria to affected borrowers.

So far, roughly $50 million in moratoria covering more than 2,000 individuals and businesses has been extended for six months, giving borrowers time to recover before resuming normal repayment schedules.

The strategy mirrors, though on a smaller scale, the broader interventions used during the COVID-19 crisis, when widespread moratoria and liquidity support were deployed across the financial system to stabilise credit conditions and protect borrowers. The BOJ’s 2020 annual report noted that the stock of loans granted moratoria stood at $183.6 billion, representing less than one-fifth or 20 per cent of total loans at the time.

Under normal circumstances, loans that fall 90 days or more behind on payments are classified as non-performing. However, when banks grant moratoria — temporary payment suspensions — those loans are not immediately treated as delinquent.

Risks may emerge as relief expires

But Dr Lewis cautioned that the full impact on credit quality will take time to emerge. Loan delinquencies could still edge higher as reconstruction pressures build and borrowers adjust to slower income recovery following the economic contraction this fiscal year.

“It will take time for us to really understand what the impact would be on credit. But even in the worst of scenarios, we are not seeing non-performing loans doubling or approaching the 10 per cent benchmark,” he said.

The BOJ’s recent decision to cut its policy rate to 5.50 per cent was partly intended to support credit conditions and reduce financial strain on borrowers, though the central bank cautioned that lending rates may not decline immediately.

“Twenty-five basis points may not mean you will see loan rates falling tomorrow, but it is a signal… that we are going with rates generally in the economy,” Byles said.

Policymakers say the easing move is part of a cautious strategy to support recovery while monitoring both inflation and financial stability risks.

DR LEWIS…It will take time for us to really understand what the impact would be on credit. But even in the worst of scenarios, we are not seeing non-performing loans doubling or approaching the 10 per cent benchmark. (Photo: Joseph Wellington)