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
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.

Amnon Levy
Financial researcher; authority in credit portfolio management and AI/ML, risk-based pricing, climate and credit, CECL/IFRS 9; credit and ALM
Previous Article
FSB Publishes Peer Review on Bank Resolution PlanningRelated Articles
BIS Innovation Hub Sets Out Work Program for 2021
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
EC Plans to Consult on Crisis Management and EDIS Framework Revisions
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.