The Solomon Islands financial sector remained vulnerable to the impact of pre and post COVID-19.
The Central Bank of Solomon Islands (CBSI) Financial Stability Report (SFR) June 2020 says the effects of the pandemic have been felt and it is likely that the financial system could witness compounding effects towards the end of 2020.
The CBSI’s SF report says vulnerabilities arising from compounding non-performing assets or investments and losses due to impacts of COVID-19 remained a concern for domestic licensed financial institutions.
“It is yet to be known but with the presence of the pandemic regionally and internationally, earning assets of banks, credit institutions, superannuation funds, and credit unions might not increase substantially, causing further threats to the level of returns and capital of the sectors”, CBSI says.
The report says the pandemic could further increase the level of nonperforming loans (NPLs) and losses for the banking sector due to travel restrictions and business disruptions.
“Additionally, overall profitability of the banking sector could fall further through non repayments of interests by borrowers and delays in asset recovery processes on problem loans”.
From February 2020 to the end of June 2020 a total of $448.1 million loans has been suspended by banks and credit institutions. The loan categories that had been significantly affected were personal, tourism, distribution, and transportation sectors.
The report says moreover, the pandemic also exerted pressure on the superannuation sector’s earnings and liquidity.
“The market value of shares and equities and expected returns from investment portfolios could worsen further if the pandemic persists. These effects would directly affect the sector’s commitment to reward its members and absorb excessive losses”.
The deterioration in premium receipts also remains a concern for the insurance sector. The impacts of the pandemic have already led to a contraction in net premiums due to cancellations and non-renewals of insurance policies.
CBSI says it is possible the sector could see further reduction in premium receipts owing to continued reduction in the number of policies.
This is due to closure of businesses or redundancy of employees.