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    BoM Joins NGFS and Publishes Financial Stability Report

    BoM announced that it has become a member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), with the request for membership receiving unanimous approval from NGFS members on July 23, 2020. BoM also published the financial stability report, which covers developments in the first quarter of 2020 and updates related to the COVID-19 pandemic. An assessment of risks to financial stability, with a view to identify and mitigate vulnerabilities in the domestic financial system are underlined in this report. The report highlights that the financial system in Mauritius appears to be resilient to the pandemic.

    The financial stability report highlights that banks in Mauritius entered the COVID-19 period with relatively strong solvency and liquidity positions. The loan portfolio of banks was relatively more skewed toward financial services prior to the pandemic while non-performing loans in affected sectors were low and well-covered. Banks were primarily funded through deposits and enjoyed relatively high Liquidity Coverage Ratios. BoM conducted a survey on the impact of COVID-19 on banks. Risk areas that were covered by the survey included credit quality, profitability, liquidity, capital adequacy, and Anti-Money Laundering and Terrorist Financing (AML/CFT) and other operational risks. So far, it can be concluded that resilience of the banking system can be supported by three main mechanisms—targeted and timely measures by the authorities, adequate capital and liquidity buffers in the banking system, and prudential measures that have been already followed by banks to deal with contingencies. While risks to banks have increased in the wake of the pandemic, stress tests results show that, so far, banks appear to have adequate liquidity coverage as depicted by Liquidity Coverage Ratio and there seems to be no disruptions to funding.

    Although solvency may take a hit with the crisis, banks appear to have adequate buffers. However, if the ripple effects of the crisis remain sustained for a long period of time, some banks appear to be more vulnerable than others. The situation regarding the Global Business sector is equally being monitored, given its importance in funding the banking system and the Balance of Payments. The categorization of Mauritius in the list of jurisdictions under increased monitoring by the Financial Action Task Force and the country’s black listing by the EU may also entail risks to the Global Business sector in the absence of remedial measures. However, the Mauritian authorities remain determined to address any deficiencies that remain, to improve the rating category of the country and salvage the reputation and integrity of the jurisdiction.

    The report also highlights that BoM has implemented a number of financing options and has reviewed its regulatory and supervisory measures through schemes designed to financially assist borrowers that are most likely to be affected by the crisis. On the regulatory and supervisory fronts, BoM has reviewed the risk-weight for certain categories of exposures and has temporarily put on hold its guideline on income recognition and loan impairment as well as its debt-to-income ratio requirement. Furthermore, banks have been encouraged to be flexible with respect to the application of IFRS 9. Banks have also been encouraged to provide moratoria to existing borrowers to help them contain the effects of the shock on their indebtedness level, with the proviso that these moratoria would not entail penalties in the Mauritius Credit Information Bureau. In addition, various financing schemes have been proposed through the nexus of state-owned financing enterprises to assist businesses most affected by the pandemic. BoM is monitoring the evolution of the major risk indicators for the banking and non-bank deposit-taking sector. It stands ready to take any additional measures it deems appropriate to maintain the stability of the financial system and to mitigate any adverse impact on the economy.

     

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    Keywords: Middle East and Africa, Mauritius, Banking, COVID-19, Financial Stability Report, Regulatory Capital, NGFS, Stress Testing, IFRS 9, Credit Risk, Liquidity Risk, Climate Change Risk, ESG, Basel, BOM

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