Bermuda’s banks are profitable, well capitalised and rapidly losing deposits as they compete with higher-rate options available globally.

The banks are also continuing to report a high ratio of non-performing loans.

In the Bermuda Monetary Authority’s Quarterly Banking Digest, the regulator reported that, on average, deposits dropped 12.4 per cent on year and 2.8 per cent on quarter.

According to the report, demand deposit totals were down 16.3 per cent on year in the second quarter and savings deposits were down 20.2 per cent.

Interbank deposits dropped 44.2 per cent on year, though the BMA did note that time deposit balances rose 21.1 per cent on year.

Interest rates have increased dramatically over the past year, with the US federal funds rate rising from about 0 per cent to almost 5 per cent. As a result, banks have been upping their rates.

But they have been slow to adjust, and consumers have been rushing to higher returns available from money market accounts and government bills, notes and bonds.

The Vanguard Federal Money Market Fund, which has more than $250 billion in assets and investment primarily in government securities, has a yield of 5.28 per cent.

Banks in Bermuda are keeping rates far below the prevailing rates.

According to its website, HSBC Bermuda pays 0.01 per cent on savings deposits. NT Bank of Butterfield & Son pays 0 per cent.

HSBC pays 1.6624 per cent on 3-month-fixed-term time deposits up to $5,000. On a 5-year time deposit, it will pay 2.6247 per cent. Butterfield’s indicative rates are 3.150 per cent on 1-year time deposits between $5,000 and $25,000.

In the three months ending in June, non-performing loans were 5.3 per cent of all bank loans in Bermuda, according to the BMA. The NPL ratio in the US at the same time was about 1.2 per cent.

After-tax income for the sector was $149.6 million, down 2.9 per cent on quarter. Return on equity was 7.9 per cent, up from 4.9 per cent in June 2022.

The banks remain well capitalised, with the Basel III risk asset ratio at 25.5 per cent, up from 22.5 per cent in the same period a year earlier.