IMF Publishes Reports on 2019 Article IV Consultation with Mauritius
IMF published its staff report and selected issues report under 2019 Article IV consultation with Mauritius. The IMF Directors stressed the importance of implementing the outstanding Financial Sector Assessment Program (FSAP) recommendations for further strengthening financial stability. Directors also encouraged the authorities to continue to improve data quality and efforts to contain excess liquidity in the banking system.
The staff report highlighted that the financial soundness indicators point to continued financial sector stability. Bank capital is well above the regulatory minimum and banks meet enhanced liquidity requirements under Basel III (that is, the new liquidity coverage ratio or LCR). Banks have increased exposure to the region and BOM has strengthened cross-border supervision and cooperation with foreign supervisors. The non-performing loan (NPL) ratio has declined from 7.8% at end-2016 to 6.4% at the end of the third quarter of 2018 and is expected to fall further with the transfer of a majority of state-owned Maubank’s NPLs to a special purpose vehicle and the requirement for banks to accelerate write-offs, in line with previous recommendations. The results of the BOM stress tests, using severe scenarios proposed by staff, suggest that banks’ capital is adequate to absorb sizable shocks to NPLs, while liquidity and market risks also appear manageable. Furthermore, the non-bank financial institutions have been growing by double digits, spurred by pent-up demand for pension and insurance services, and are being monitored for stability risks by the Financial Services Commission (FSC).
The staff noted that outstanding issues in the financial supervisory and regulatory frameworks need to be addressed. While several recommendations of the last FSAP have been adopted, other recommendations—including implementation of risk-based and consolidated supervision, adoption of the remaining Basel III instruments, legal changes to upgrade the financial safety net, and establishing a macro-prudential authority—should also be followed. As the loan-to-value ratio was effectively suspended in mid-2018, staff advised close monitoring of credit and property market developments to periodically evaluate the need for its re-introduction. Mauritius aspires to become a regional hub for fintech activities. A regulatory sandbox licensing (RSL) regime for fintech start-ups has already been set up, along with a National RSL Committee to coordinate and assess all fintech-related RSL applications. Within the fintech domain, the authorities are initially focusing on activities relating to digital assets, but a more detailed fintech strategy, including for mobile money and payments, should be informed by an assessment of comparative strengths and limitations.
The selected issues report discusses about the Financial Conditions Index (FCI) for Mauritius—an instrument to gauge the operational state of the financial sector and predict real economic activity. The report assesses the usefulness of the FCI for informing macro-prudential policy, examining whether an FCI could be used as a trigger in activating the Basel III countercyclical capital buffer (CCyB). The FCI could be used to help inform the setting of CCyB. While it is challenging to give concrete guidance on setting the CCyB based on only one recent episode of mild banking distress, the Mauritian authorities will have to devise a buffer guide if they introduce the CCyB. Given the shorter financial cycles and the experience of a sudden NPL hike in the country, the authorities could opt for an earlier or more accelerated buffer build-up than advised by the BCBS guidance (2010). An important consideration in this regard should be the weakness of the credit gap in timely predicting the past credit boom or bust episodes. An analysis of the credit gap could thus be usefully complemented with the FCI (and possibly other indicators such as development in credit standards and asset prices).
Related Links
Keywords: Middle East and Africa, Mauritius, Banking, Insurance, Basel III, FSAP, Article IV, Macro-Prudential Policy, NPLs, CCyB, BOM, IMF
Related Articles
|
News
US Agencies Consult on Capital Treatment of Land Development LoansUS Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.
July 12, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: Second Update for July 2019Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.
July 12, 2019
WebPage
Regulatory News
|
|
News
ESMA Updates Manual for European Single Electronic Format in EUESMA updated the reporting manual for European Single Electronic Format (ESEF).
July 12, 2019
WebPage
Regulatory News
|
|
News
FED Updates Supplemental Instructions for Reporting Form FR Y-9CFED updated the supplemental instructions for FR Y-9C reporting.
July 12, 2019
WebPage
Regulatory News
|
|
News
EBA Publishes Report on Monitoring Implementation of LCR in EUEBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.
July 12, 2019
WebPage
Regulatory News
|
|
News
APRA Applies Additional Capital Requirements to Three Australian BanksAPRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.
July 11, 2019
WebPage
Regulatory News
|
|
News
IMF Report on 2019 Article IV Consultation on Euro Area PoliciesIMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.
July 11, 2019
WebPage
Regulatory News
|
|
News
FSB to Survey Practices on Cyber Incident Response and RecoveryFSB launched a survey on the industry practices on cyber incident response and recovery.
July 11, 2019
WebPage
Regulatory News
|
|
News
ECB Appoints New Members of Supervisory BoardThe Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.
July 11, 2019
WebPage
Regulatory News
|
|
News
OSFI Consults on Applying Proportionality to Pillar 1 Rules in CanadaOSFI published a discussion paper seeks input on possible tailoring of the capital and liquidity requirements for small and medium-size deposit-taking institutions.
July 11, 2019
WebPage
Regulatory News
|
