Cayman Islands Central Bank Statement

Author: | Published: 19 Oct 2018
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The Cayman Islands continues to be one of the world's top international financial centres. It is the leading domicile for hedge funds and currently ranks second worldwide for captive insurers. The Cayman Islands is also home to licensed banks from over 30 countries, including a significant number of the top 50 banks worldwide. At the end of 2017, the Cayman Islands' ranking as an international banking centre stood at 8th and 7th in terms of cross-border assets and liabilities, respectively, with the majority of positions being cross-border providing capital to the global economy.

The Cayman Islands Monetary Authority (CIMA) supervised and regulated 148 banks with active licences at the close of 2017. Banks from Europe, South America and North America represented nearly three-quarters of the banking sector, followed by Asia, Australia, and the Caribbean. The continued trend of increasing global compliance costs has led international banks to restructure and consolidate their organisations in search of higher levels of efficiency and profitability. Despite this trend, there has been sustained interest and applications for new banking licences.

The domestic retail banking sector has exhibited relative stability as it relates to the composition and services offered. Nonetheless, access to international markets through correspondent banking relationships continues to be a challenge for some of the jurisdiction's smaller banks and money service businesses as US correspondent banks continue de-risking exercises. CIMA, in partnership with other local, regional and international stakeholders, remains actively engaged in dialogue to identify a long-term solution to this issue.

Banks in the jurisdiction are licenced under the Banks and Trust Company's Law (2018 Revision), which requires banks to maintain a minimal capital adequacy ratio of 10%, higher than the 8% prescribed by the Basel II capital accord. Adding further buffer to the minimum 10%, CIMA has prescribed that private and affiliate banks are required to maintain a capital adequacy ratio of no less than 15% and banking subsidiaries are required to maintain 12%.

As at September 2017, real GDP had grown by 2.4% from December 2016. Similarly, the financial services sector, which accounts for approximately 40% of GDP, was estimated to have expanded by 1.2% over the same period. This is in line with the country's forecasted average rate of 2.6% over the 2016-2018 period.

In accordance with the Currency Law 1974 Revision, the exchange rate for the Cayman Islands dollar (CI$) to the US dollar (US$) is fixed at CI$1 = US$1.20. The Currency Law has since been replaced by the Monetary Authority Law, CIMA's governing Law, and the exchange rates have remained the same to this date. CIMA, as a currency board and financial services regulator, does not set monetary policy, but instead leverages from the US prime rate. Like most jurisdictions, the supply of currency is determined by various economic factors and is forecasted using a computerised software application.

In its February 2017 credit opinion, Moody's Investors Services affirmed Cayman's sovereign debt rating as Aa3, and Aa2 for long-term foreign currency ceiling bonds and notes. To date, this rating remains unchanged due to a very high GDP-per-capita, a comparatively low and falling government debt burden, and a strong institutional framework with broad consensus on macroeconomic policies and fiscal oversight by the UK. Collectively, these factors augur well for a positive economic outlook for 2018.