This information is derived from the State Department's Office of Investment Affairs' 2015 Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov

As noted above, Bermuda’s currency, the Bermuda dollar (BMD), is pegged 1:1 to the USD.  Bermuda does not have a central bank, but the BMA issues and redeems notes and coins, supervises, regulates, and inspects financial institutions which operate in or from Bermuda, and generally promotes the financial stability and soundness of financial institutions.  The BMA does not, however, determine interest rates, which are set by the market, regulated by the Ministry of Finance, and usually follow the Federal Reserve System rates.

Bermuda does not have developed capital markets and does not control monetary policy.  Commercial credit lines are normally arranged through U.S. or other overseas institutions.  Credit is allocated on market terms, and foreign investors may get credit on the local and international markets.  The private sector has access to various credit instruments via local banks.  Many companies, particularly the larger ones, maintain external banking relationships.

Money and Banking System, Hostile Takeovers
Bermuda has four banks, all of which are exempt from the 60/40 Rule.

The Banks and Deposit Companies Act 1999 implemented the Basel Committee’s Core Principles for Effective Banking Supervision.  Bermuda banks are compliant with the Basel II Accord and have either implemented or are moving toward full implementation of Basel III.

Liquidity and solvency are important concerns for Bermuda’s banks as there is no monetary policy, no lender of last resort, and no implied guaranty.  In July 2011, the GOB passed the Deposit Insurance Act, which lays out proposals for implementing a Deposit Insurance Scheme (DIS) for the Bermuda market; it has yet to be implemented. The DIS would provide insurance coverage to small depositors in banks and credit unions. In February 2016, the House of Assembly passed the Banking (Special Resolutions Regime) Act 2016 to allow the government to temporarily take over a failing bank.

According to the BMA’s September 2015 Regulatory Update, the overall capital position of the banks remained unchanged with the Risk Asset Ratio (RAR) reported at 20.8% for both Q2 and Q3 2015, keeping the banks above the regulatory capital requirements under Basel II and Basel III.  Under Basel II reporting, the RAR was stable at 20.8% during the quarter, while the Basel III RAR stood at 17.3%. Both net capital and Risk-Weighted Assets (RWAs) fell at the same rate of 1.5%, whereas the regulatory capital measure of Tier 1 capital to RWAs was stable at 19.2% (Q2 2015: 19.3%).

Total assets within the banking sector declined by 4.9% (or $1.2 billion) in Q3 2015 but remained higher than levels reported in the same period in the previous year (up 5.9% or $1.3 billion). The fall in total assets was led by an expected 16.5% (or $972 million) drop in interbank deposits. There was a modest decline of 1.7% during the quarter in loans and advances which can be attributed to low demand for mortgages. Investments held by banks continued to fall, declining by 1.0% (or $91.6 million).

The banking sector continued to experience low demand in the real-estate market, with loans to this sector remaining at its lowest level in Q3 2015. Loans to “Other Financial Institutions” increased from 5.9% to 7.9%. The banking sector’s leverage position experienced a marginal improvement during the quarter as the regulatory leverage ratio (equity to total assets) increased from 8.4% to 8.8%. Under Basel III, the leverage ratio was unchanged at 7.7% which is above the newly implemented 5.0% minimum leverage ratio. 

Banking sector profitability continued to improve during Q3 2015, aided by a combination of higher earnings and a reduction of non-interest expenses. Quarterly earnings from other banking sources jumped 16.4% and non-banking sources were up 7.7%, while operating and non-operating expenses declined by 2.6%. The banking sector’s cost efficiency improved during the quarter as non-interest expenses as a percentage of total income declined from 76.0% to 70.0%. Lower operating and non-operating expenses proportional to the change in total income (up 5.4%) contributed to the improvement in the efficiency ratio. The profitability indicators reflect a quarterly improvement in the banking sector with annualized Return on Equity (ROE) and Return on Assets (ROA) increasing from 8.4% to 11.2% and from 0.8% to 1.0% respectively.

There was a modest declining trend in the ratio of non-performing loans (NPLs) to total loans Q4 2014 - Q3 2015, with Q3 reporting at 9.4%. Loan loss provisions set aside by banks to cover expected credit losses rose by 3.0% to $191.9 million during the quarter. Consequently, provisions as a percentage of NPLs rose by one percentage point to 20.7% from 19.7%.

Liquidity conditions within the banking sector remain relatively stable while loan demand recorded a modest decline over Q3 2015. The liquidity funding structure showed that the ratio of loans to deposits rose to 41.2% (Q2-2015: 39.3%). Overall lending fell at a slower pace (down 1.7%) compared to the decrease in customer deposits (down 6.3%), resulting in a narrowing of the sector’s funding gap. The quarterly decrease in deposit liabilities was largely driven by demand deposits (down 8.6%) followed by time deposits (down 4.8%) and savings deposits (down 2.6%). At the end of Q3-2015, all of the banks met the phased-in 60% Liquidity Coverage Ratio (LCR).

The overall money supply fell during Q3 2015 by 2.4% (or $83.0 million) due primarily to the decline in BD$-denominated deposit liabilities. Notes and coins in circulation grew in the third quarter, rising by 1.8% (or $2.2 million) and were up 10.7% (or $12 million) year-on-year.

In 1996, U.S. Securities and Exchange Commission recognized the Bermuda Stock Exchange (BSX) as a Designated Offshore Securities Market.  In 1999, the BSX became a full member of the International Federation of Stock Exchanges.  In 2005, the UK Financial Services Authority granted the BSX Designated Investment Exchange status. The BMA provides oversight of the BSX and its trading activity.  The BSX employs the Bermuda Securities Depository (BSD) - an electronic clearing, settlement and registration system – under BMA oversight.  The BSD was designed to facilitate more efficient trade settlement for BSX-listed securities by allowing book entry settlement rather than paper-based settlement.  Currently, over 600 companies are listed on the BSX.

Protection from hostile takeovers falls under the Insurance Amendment Act 2013 and the Companies Act 1981.  The Insurance Amendment Act is designed to improve insurance group supervision by requiring that certain material changes be reported to the BMA, such as amalgamation with another firm or acquisition of a controlling interest in a business.  The Companies Act requires notification of shareholders of amalgamation agreements.

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