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    BOM Issues Guidelines on Climate Risk and Other Prudential Aspects

    The Bank of Mauritius (BOM) issued guidelines on additional macro-prudential measures for banking sector, standardized approach to credit risk, and climate risk management.

    The revised guideline on additional macro-prudential measures for the banking sector address Risk-Weighted Assets, Additional General Provisions, and Loan-To-Value Ratio, respectively. To address the systemic risk posed by both the stock of existing loans and new loans in the construction sector, a bank shall risk-weight its fund-based and non fund-based credit facilities secured by residential property and commercial real estate granted for the purpose of purchase/construction, as detailed in the guidance on additional macro-prudential measures. The guideline also explains the additional general provisions, wherein, to ensure early provisioning against future credit losses due to rising corporate indebtedness and non-performing loans in some key sectors of the economy, a bank shall make additional general provisions over and above the provisions on standard credit in accordance with the requirements of the Guideline on Credit Impairment Measurement and Income Recognition. Additionally, the guideline stipulates that the maximum loan-to-value ratio for residential property loans shall be  80% of the value thereof for self-employed individuals & contractual employees and 100% of the value thereof for other individuals. 

    The revised guideline on standardized approach to credit risk (under Basel II) provides a framework for banks to apply a uniform approach to the measurement of risks relating to their on- and off-balance sheet credit exposures for capital adequacy purposes. Banks shall be required to use the standardized approach to credit risk for capital adequacy purposes unless they have obtained approval from the Bank of Mauritius to use an internal ratings-based approach. This guideline also sets out the methodology for determining the appropriate risk-weight for an exposure secured by eligible collateral, guarantee and/or credit derivative. The revised guideline shall come into effect on April 01, 2022.

    The guideline on climate risk management sets out expectations of a prudent approach to climate-related and environmental financial risks with a view to enhancing the resilience of the banking sector against these risks. The guideline outlines the broad principles that financial institutions may use to develop their climate-related and environmental financial disclosures. BOM has taken into consideration the recommendations of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in its Guide for Supervisors, “Integrating climate-related and environmental risks into prudential supervision” (issued in May 2020), and other related guidance issued by the NGFS, the Financial Stability Board, the Basel Committee on Banking Supervision, and other regulators. This guideline applies to all banks and non-bank deposit taking institutions licensed by the Bank of Mauritius, herein collectively referred to as financial institutions. The guideline will come into effect on April 01, 2022 and provides financial institutions with a transitional period of up to December 31, 2023 for the development and implementation of relevant frameworks. However, financial institutions are required to submit their internal roadmaps within six months from the effective date of this guideline and progress reports on a half-yearly basis.

     

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    Keywords: Middle East And Africa, Mauritius, Banking, Basel, Regulatory Capital, Credit Risk, Climate Change Risk, ESG, Standardized Approach, Disclosures, Risk-Weighted Assets, Macro-Prudential Policy, BOM

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