Cayman’s offshore banking sector continued to slide in 2017, but domestic banks posted a strong year as the territory’s economy continued to grow.
According to the Cayman Islands Monetary Authority’s 2017 banking digest, domestic banks booked a $13 million increase in income before taxes and dividends, and a $24 million increase in operating income from 2016 to 2017.
Local banks also reported $174 million in net income retained last year, a $3 million increase over 2016.
The banks’ return-on-equity fell slightly, from 13.3 percent in 2016 to 13.1 percent in 2017, but CIMA attributed that to banks’ equity outpacing their increase in net income.
Loans made in Cayman contracted by $126 million in 2017, due in part to less public sector borrowing.
“Noteworthy was the reduction of $117.0 million in resident loans to Central Government and Public Sector entities,” CIMA stated in its report.
Domestic banks also reduced the number of bad loans on their books. According to the CIMA report, non-performing loans – generally defined as loans that have not received payments in 90 days – fell from 2.1 percent of total loans in 2016 to 1.8 percent last year.
Foreclosures also fell last year from a peak of 2.4 percent in 2016 to 2.1 percent last year. The fewer non-performing loans and foreclosures are “reflecting improvements in asset quality due to continued improvements in macroeconomic conditions including increased employment and an overall improvement in economic activity,” CIMA stated.
While the domestic banking sector performed well, offshore banks contributed to a slide that has been ongoing for years.
CIMA stated that Class B banks – those restricted to doing business in other jurisdictions – continued to the overall banking sector posting losses of $1 billion last year. This was an improvement of the $2 billion of net losses in 2016.
“While the sector reported reductions in Operating Expenses of $0.9 billion, Net Interest Income and Net Non-interest Income reported significant declines of $2.6 billion and $0.7 billion, respectively,” CIMA explained.
The total positions booked by Cayman-based banks in 2017 declined to $934 billion and $934.1 billion in assets and liabilities, respectively, CIMA stated.
These movements followed the negative trend from 2016 and represented 10.3 percent ($107.6 billion) and 10.4 percent ($107.9 billion) declines in assets and liabilities year on year to 2017, respectively, according to CIMA.
“This contraction resulted in the decline in ranking of the Cayman Islands international banking position to 10th and 9th for both cross-border assets and liabilities respectively,” CIMA stated. Cayman ranked 8th and 7th in those respective categories in 2016.
The number of Class B banks also declined from 148 in 2016 to 139 last year.
The decline in the number of banks has been attributed to “de-risking,” a trend where Cayman-registered banks have had increasing difficulty in finding correspondent banking services in other jurisdictions.