Economic and Financial Review - June 2019

June 2019 Economic and Financial Review MONTSERRAT

Liquidity in the banking system remained relatively high and stable during the review period. As at June 2019, the ratio of liquid assets to total deposits and liquid liabilities was 84.2 per cent, well above the minimum prudential benchmark of 25.0 per cent. Further evidence of elevated liquidity conditions was apparent in the ratio of loans and advances to total deposits, which was 30.2 per cent at the end of the review period. That ratio was slightly above the December 2018 level and above the prudential range of 75.0 per cent to 85.0 per cent. The weighted average interest rate on deposits increased to 1.13 per cent, from 1.10 per cent at the end of December last year, while the weighted average lending rate fell marginally to 6.62 per cent from 6.68 per cent. Consequently, the weighted average interest rate spread narrowed by 9.0 basis points to 5.49 during the first half of the year. There was a slight improvement in the asset quality of commercial banks during the period under review. The non- performing loans to gross loans ratio was 5.92 per cent at the end of June 2019 compared with 5.94 at the end of December 2018. That ratio was also marginally above the ECCB’s recommended threshold of 5.0 per cent.

External Sector Developments There was a deterioration in the trade balance in the first six months of 2019 when compared with the corresponding period in 2018. The trade deficit widened by 22.8 per cent to $45.7m in the review period, as an increase in import payments more than offset an improvement in the performance of exports. Outflows for imports rose by 21.2 per cent to $55.3m, in comparison with growth of 5.5 per cent ($2.4m) recorded in the corresponding period of the previous year. This expansion was largely influenced by increases of 32.9 per cent ($4.0m) in the importation of machinery and transport equipment and 30.8 per cent ($2.8m) for mineral fuels and related materials. The value of total exports rose by 14.0 per cent to $9.6m in the first six months of the year, in contrast to a fall of 19.8 per cent in the comparable period one year earlier. This outturn was due primarily to growth of 39.2 per cent ($0.9m) in re-exports, associated with an increase of 51.4 per cent in the re-export of machinery and transport equipment. Additionally, the overall growth in exports was supported by an increase of 4.5 per cent ($0.3m) in the value of domestic exports.

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Eastern Caribbean Central Bank