But in its latest report on the Island, the credit rating agency Standard and Poor’s says that Jersey’s lack of debt and healthy cash reserves, including its rainy day fund, mean that it should be ‘resilient’ to any potential economic difficulties.
The agency, which assesses institution’s credit ratings – how risky it is to lend money to them – again assessed Jersey to have a AA- rating for long-term borrowing and A-1+ for short-term borrowing, meaning the Island is rated as a ‘high grade’ borrower, which is the second-best rank.
S and P’s rates borrowers on a scale from AAA to D, with a better rating meaning that borrowers can access cheaper lending rates. Jersey was downgraded from AA last year, following the UK’s decision to leave the EU.
Next year, the UK is set to introduce ring-fencing regulations, which will divide the banks between their retail services – such as branch, online or small-business services – and riskier investment banking operations.
The move is intended to protect ordinary customers by ensuring that ‘essential services’ are less likely to be affected if a higher-risk part of a bank fails.
The reports warns that the move could have a negative impact on Jersey’s banking sector, which relies on the free flow of funds for a large amount of business.
‘UK bank ring-fencing, set to be implemented by around mid-2018, could reduce the attractiveness of upstreaming deposits from Jersey-based subsidiaries to their mostly UK-based parents,’ it says.
‘We expect further growth in non-bank financial services, but we anticipate overall economic growth to stagnate after 2017 as Brexit negotiations take shape.’
However, the report says that Jersey’s rating remained stable because of its large balance of cash reserves, which should protect it against the economic threats of Brexit and ring-fencing.
‘We could raise the ratings, if Jersey’s financial sector and the broader economy prove more resilient than we currently expect.’
