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The Bank of Jamaica's Financial Policy Committee (FPC) says Jamaica's financial system remains stable and well capitalised, even as the economy braces for the fallout from Hurricane Melissa.
 
In a statement issued following its November 17 meeting, the committee said the domestic financial system was sound up to the end of September quarter, supported by strong potential oversight and favourable economic conditions.
 
It pointed to real GDP growth, low inflation and generally easier global monetary policy as factors that helped keep financial markets functioning smoothly. 
 
In that environment, banks, insurance companies and other core financial institutions continue to show healthy levels of capital, solvency, asset quality, liquidity and profitability. 
 
However, the FPC warned that the recent passage of Hurricane Melissa is expected to weigh on economic growth over the coming quarters. 
 
Key sectors such as tourism and agriculture have been directly hit, while many households in the worst affected areas are likely to see their ability to repay loans weakened. That could lead to an increase in non-performing loans. 
 
The committee says the banking sector is in a strong position to absorb any deterioration in credit quality given historically low non-performing loans, high provisions for bad debt and robust capital buffers. 
 
On the insurance side, claims are expected to rise, but the FPC does not anticipate a significant threat to insurers' solvency. 
 
It notes that strong reinsurance arrangements and relatively low property insurance coverage in some of the hardest hit parishes should limit the strain on local balance sheets.
 
The overall economic impact, the committee says, should also be cushioned by inflows of aid, including financial transfers and in-kind support from overseas partners and agencies, as well as the activation of the government of Jamaica's disaster risk financing framework to provide budgetary support.
 
As part of its assessment, the Bank of Jamaica conducted stress tests and systematic risk evaluations to see how the financial system would cope with shocks to credit, liquidity and market conditions after the hurricane. 
 
The preliminary results show that financial institutions across the major sub-sectors have enough capital and liquidity to withstand the shock and to meet increased cash demand as rebuilding gathers pace.