Hurricane Melissa to adversely affect domestic GDP growth, but Jamaica’s financial sector resilient, says BOJ

The Bank of Jamaica (BOJ) says Jamaica’s financial sector is in a position to absorb the negative impact of Hurricane Melissa, which it says is expected to adversely affect domestic GDP growth over the coming quarters.

The BOJ, in a media release today, pointed out that tourism and agriculture are among the key sectors directly impacted by the hurricane.

It added that households in the affected sections of the country are expected to experience weakened debt servicing capacity, potentially leading to an uptick in non-performing loans.

The BOJ said, in assessing financial system resilience, it conducted stress tests and systemic risk evaluations to gauge the financial sector’s ability to withstand credit, liquidity, and market risk shocks.

According to the central bank, the preliminary results indicated that the respective financial system sub-sectors possess sufficient capital and liquidity to absorb the negative impact of Hurricane Melissa and to support the uptick in cash demand as the recovery efforts commence.

It stated that while institution-specific factors, including internal policies and risk appetite, may result in varied approaches to the provision of customer relief, financial institutions are well-positioned to support the recovery effort

“This includes currency supply, processing of verified insurance-related payments and, where appropriate, offering temporary deferral of credit-related facilities.”

The BOJ said it stands ready to provide the necessary liquidity support to deposit-taking institutions should the need arise and to maintain orderly conditions in the foreign exchange market.

“Notwithstanding the negative impact on credit quality, the deposit-taking sector remains well positioned to absorb this deterioration owing to historically low non-performing loans, high levels of provisioning and robust capital positions. While insurance claims are likely to increase, this should not significantly impair insurer solvency due to strong reinsurance coverage coupled with low property insurance penetration in some affected parishes.”

The BOJ stated that the overall impact on the economy is anticipated to be mitigated by financial transfers and gifts in kind from several jurisdictions and agencies to aid the recovery and rehabilitation process as well as the activation of the Government’s disaster risk financing framework, which could provide significant budgetary support.

Meanwhile, the central bank noted that climate-related shocks will remain a significant risk to Jamaica.

It said to address this risk, the authorities have committed to measures aimed at strengthening the financial sector’s climate resilience in the long term.

“Financial system supervisors will remain vigilant, actively monitoring the risks and evaluating appropriate policy responses to preserve financial stability in the context of the increasing frequency and intensity of natural disasters. Additionally, financial system supervisors will ensure that climate risk mitigation and resilience are effectively integrated into the business models of the financial sector. These efforts form part of a broader agenda to enhance systemic resilience and to protect vulnerable sectors.”

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