April 29, 2019

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

FCA Publishes Its Business Plan for the Coming Year

FCA published its Business Plan, which sets out the main areas of focus and priorities for 2019/20.

May 17, 2019 WebPage Regulatory News
News

IASB Issues Work Plan and Meeting Updates for May 2019

IASB published an updated work plan, along with the update of its meeting in May 2019.

May 17, 2019 WebPage Regulatory News
News

CFTC Proposes to Amend Derivatives Clearing Organization Regulations

CFTC proposed amendments to certain regulations applicable to registered derivatives clearing organizations (DCOs) under Part 30 of the CFTC regulations.

May 16, 2019 WebPage Regulatory News
News

APRA Licenses Societe Generale As Foreign Deposit-Taking Institution

APRA granted Societe Generale a license to operate as a foreign authorized deposit-taking institution under the Banking Act of 1959.

May 16, 2019 WebPage Regulatory News
News

EBA Provides Updates on Its Work on Basel III Impact Assessment in EU

EBA is working to finalize the impact assessment on implementation of Basel III standards, in response to the EC call for advice, which was received on May 04, 2018.

May 16, 2019 WebPage Regulatory News
News

ISDA Publishes Two Consultations on Benchmark Fallbacks

ISDA published two consultations on benchmark fallbacks, the comment periods for which expire on July 12, 2019.

May 16, 2019 WebPage Regulatory News
News

Sam Woods of PRA Speaks About Style of Regulation in UK After Brexit

Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of PRA, spoke at the UBS Financial Institutions Conference in Lausanne.

May 16, 2019 WebPage Regulatory News
News

FED Publishes Report Summarizing Regulatory and Supervisory Activities

FED published a report that summarizes banking conditions and the supervisory and regulatory activities of FED, in conjunction with semiannual testimony before Congress by the Vice Chairman for Supervision.

May 15, 2019 WebPage Regulatory News
News

US Agencies Propose to Amend Regulatory Framework for Foreign Banks

US Agencies (OCC, FED, and FDIC) proposed a regulatory framework for foreign banks operating in the U.S. that would more closely match the rules for foreign banks with the risks they pose to the U.S. financial system.

May 15, 2019 WebPage Regulatory News
News

ECB Consults on EONIA to €STR Legal Action Plan

ECB published a consultation, which was launched by the working group on euro risk-free rates, on recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA), as a result of the proposed transition from EONIA to the euro short-term rate (€STR).

May 15, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3089