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December 08, 2017

IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with Mauritius. The staff report highlights that the authorities are well-advanced in modernizing financial sector regulation and should now address salient banking sector issues. BOM has strengthened off-site supervision by upgrading its bank rating (CAMEL) system with a new scoring method, has begun to conduct solvency stress tests, and has aligned its capital adequacy and liquidity regulation with the Basel III framework.

In addition, holding companies with financial sector subsidiaries are now under the supervision of the Bank of Mauritius (BOM) and the Financial Services Commission (FSC). The BOM is also upgrading its framework for bank resolution and crisis prevention. Financial stability surveillance and macro-prudential policy have been strengthened through empowering the Financial Stability Committee, which includes the Ministry of Finance and Economic Development (MOFED), the BOM, and the FSC. Having implemented many recommendations of the 2015 FSAP, the authorities should take additional steps to shore up financial stability. These include lowering the still-high stock of nonperforming loans (NPLs), which remains high at 7.1% (with a number of banks having delinquency ratios of 10% or higher), through a more stringent approach to writing-off legacy exposures and safeguarding the longer-term foreign exchange funding needs stemming from banks’ swift expansion abroad. In addition, a formal macro-prudential body could be established.

Overall, banks are well-capitalized, liquid, and profitable. Beyond the adoption of the Basel III Liquidity Coverage Ratio (LCR) governing short-term exposures, staff advised the BOM to introduce the Net Stable Funding Ratio (NSFR) in the medium term. Staff encouraged the BOM to perform supervisory liquidity stress tests assessing liquidity and funding positions over the entire maturity range and to continue to scrutinize potential credit risks arising from increasing cross-border exposures through enhanced home-host supervisory cooperation. Staff recommended curtailing the leeway that banks enjoy in their write-off practices by introducing in supervisory guidance specific past-due periods after which defaulted loans should be written off. Also, improving the effectiveness of the AML/CFT framework will contribute to safeguard the reputation of the jurisdiction. The authorities concurred with staff’s recommendations.

The selected issues report discusses implications of international tax transparency and anti-tax avoidance initiatives, modernization of the monetary policy framework, and boosting international competitiveness of Mauritius.

 

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Keywords: Middle East and Africa, Mauritius, Banking, Insurance, Basel III, NPLs, FSAP, Article IV, IMF

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