Turks & Caicos Islands: Technical Assistance Report-Financial Stability Report Review, Credit Risk Modelling, and Stress Testing

Summary

The IMF Caribbean Regional Technical Assistance Centre (CARTAC) conducted two technical assistance (TA) missions in the Turks and Caicos Islands (TCI) between January and March 2024. The missions aimed to strengthen the financial stability framework of the Turks and Caicos Islands Financial Services Commission (TCIFSC) by enhancing credit risk modeling, stress testing, and the Financial Stability Report (FSR). The first mission, held from January 29 to February 2, 2024, focused on reviewing the latest Financial Stability Report to enhance its analytical depth and clarity. The mission also worked on developing sectoral credit risk models to assess the impact of macroeconomic scenarios on bank non-performing loans (NPLs). In addition, training was provided to TCIFSC staff on advanced credit risk modeling techniques. The second mission, conducted from March 11 to 15, 2024, focused on building a multi-factor, multi-period bank solvency stress testing tool tailored to TCI's financial sector. The mission reviewed available macroeconomic and regulatory data to refine stress test assumptions and conducted training sessions for TCIFSC staff on implementing the new framework. An illustrative stress test was performed using December 2023 data, incorporating baseline and adverse macroeconomic scenarios. The calibrated macroeconomic models considered key risks, particularly those associated with tourism-dependent credit exposures and external economic shocks. The mission provided several key recommendations to enhance the financial stability framework in the Turks and Caicos Islands. The Financial Stability Report should be further developed to improve risk communication and streamline its content. Institutionalizing regular stress testing exercises was recommended to improve the monitoring of financial resilience, while expanding financial data collection and management through the development of a centralized financial stability database would support ongoing macroprudential analysis. The mission also emphasized the need for increased coordination between the TCIFSC and the Ministry of Finance for scenario development in stress testing. The implementation of these recommendations will significantly enhance the monitoring of financial stability in the Turks and Caicos Islands and support efforts to strengthen macroprudential oversight and systemic risk management.