BOM Issues Guidelines on Stress Testing & Macroprudential Measures
The Bank of Mauritius (BOM) issued guidelines on stress testing and additional macro-prudential measures for the banking sector.
The revised guideline on additional macro-prudential measures for the banking sector addresses risk-weighted assets, additional general provisions, and loan-to-value ratio. The guideline aims to mitigate potential systemic risks to the Mauritian banking sector as a whole. The changes in comparison to the previous version of the guideline include revision to the definition of “self-employed individual” and an update to the loan-to-value ratio. The guideline stipulates that the maximum loan-to-value ratio for residential property loans shall be 80% of the value thereof for self-employed individuals & contractual employees and 100% of the value thereof for other individuals. As per the revised guideline, banks may, on a case-to-case basis and depending on their risk appetite, apply a loan-to-value ratio higher than 80% for a self-employed individual, provided they have conducted a robust credit risk assessment and are satisfied with the track record and repayment capacity of the self-employed individual and provided the gross monthly income of the self-employed individual has, at a minimum, been at least equal to MUR 100,000 over the last 12 months preceding the application for the residential property loan. The revised guideline also states that in case of joint loans, the loan-to-value ratio to be applied shall depend on the main borrower servicing the debt.
The guideline on stress testing sets out the high-level principles to be followed by banks for the implementation of a sound stress testing framework. This guideline shall come into effect on June 23, 2022 and will be applicable to all banks licensed by BOM. Banks shall ensure full compliance with this guideline by November 30, 2022. The principles in this guideline should be applied on a proportionate basis, depending on the size, complexity, and risk profile of the bank. Branches and subsidiaries of foreign banks may use the stress testing framework of their parent banks as long as it meets the requirements of this guideline. The high-level principles to be followed by banks are as follows:
- Stress testing frameworks should have clearly articulated and formally adopted objectives.
- Stress testing frameworks should include an effective governance structure that is clear, comprehensive and documented.
- Stress testing should be used as a risk management tool and for making business decisions.
- Stress testing frameworks should capture material and relevant risks, as determined by a sound risk identification process and apply stresses that are sufficiently severe.
- Resources and organizational structures should be adequate to meet the objectives of the stress testing framework.
- Stress tests should be supported by accurate and sufficiently granular data and by robust IT systems.
- Models and methodologies to assess the impacts of scenarios and sensitivities should be fit for purpose and intended use of the stress tests.
- Stress testing models, results and frameworks should be subject to challenge and regular review.
Related Links
Keywords: Middle East and Africa, Mauritius, Banking, Macro-Prudential Policy, Risk-Weighted Assets, Systemic Risk, Stress Testing, Lending, Loan-to-Value Ratio, Basel, BOM
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous Article
BNM Committee Issues Guide for Adoption of TCFD RecommendationsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.