Barbados: Technical Assistance Report-Stress Testing

The IMF Caribbean Regional Technical Assistance Centre (CARTAC) conducted a technical assistance mission to Barbados from July 31 to August 11, 2023. The mission aimed to strengthen the stress testing framework of the Central Bank of Barbados (CBB) and the Barbados Financial Services Commission (FSC) by enhancing their solvency stress testing (ST) capabilities for banks and credit unions. During the mission, the team worked closely with authorities to develop two customized stress testing tools, allowing for multi-factor and multi-period solvency assessments under various macroeconomic scenarios. These tools integrate explicit macroeconomic projections and newly developed credit risk satellite models, enabling a more sophisticated approach to evaluating key financial stability indicators, such as non-performing loans (NPLs), capital adequacy ratios, and profitability metrics. An illustrative stress test was conducted using recent financial data to demonstrate the tool’s application. The mission also focused on capacity building, providing hands-on training to technical staff at CBB and FSC to ensure the effective use and long-term sustainability of the stress testing framework. Discussions emphasized the importance of regular stress testing exercises to monitor systemic risks and enhance financial sector resilience. The mission recommended that CBB and FSC conduct semi-annual stress testing exercises, with results incorporated into the Financial Stability Report (FSR).