Mauritius has a relatively large and well-developed domestic financial system and a growing offshore sector. Mauritius belongs to a select group of developing countries where domestic bank assets represent approximately 100 percent of Gross Domestic Product (GDP), and contractual savings exceed 40 percent of GDP. The growing offshore financial sector is also large relative to GDP, but weakly integrated with the domestic economy. The basic financial sector infrastructure, such as payment, securities trading and settlement systems, is modern and efficient. Access to financial services is extremely high, with more than one bank account per capita and widespread branch banking and Automated Teller Machine (ATMs). Unlike in most developing countries, new and small firms do not face major constraints in accessing financial services and credit.
In order to move to the next stage in financial sector development, however, Mauritius needs to further diversify its financial sector. While the financial sector is generally sound and profitable, the dominance of a few major players and the concentration of risks within a narrow banking sector pose certain systemic risks and inhibit competition and innovation.
Overall, the Mauritian financial sector is currently in good health, and the short-term stability risks are modest. The principal risks facing the domestic financial system are linked to the structure of the underlying economy. As wealth and economic activity are concentrated in a few sectors and in a number of large, diversified family-controlled conglomerates, credit concentration in the banking sector is high. A severe or prolonged downturn in economic activity in key sectors where bank exposure is significant could potentially threaten bank solvency, though stress tests indicate the system is resilient to all but very large shocks. A further risk arises from the short maturity profile of domestic public debt, which exposes the government to roll-over risk. Finally, there are some reputational risks associated with potential money laundering in the offshore sector, though recent measures to strengthen the Anti Money Laundering (AML) regime should help to mitigate this vulnerability.
The strategy for mitigating the potential risks facing the banking system in Mauritius requires a multifaceted approach. This includes:
- Continuing the strengthening of banking supervision and encouraging banks to reinforce their internal controls
- Fostering the development of alternatives to bank lending to reduce portfolio concentrations and increase competition
- Encouraging sound international risk diversification
- Strengthening provisioning levels so as to enhance the resilience of the system to a downturn in economic activity and
- Reducing the government’s implicit contingent liability in the banking system.
The assessment of standards and codes found a high level of compliance with internationally accepted norms and best practices. The authorities have made substantial progress in this area and are upgrading key financial sector legislation and regulations. The ongoing implementation of the assessments’ recommendations should help further strengthen the supervisory and regulatory framework and enhance the resilience of the financial system.
Last Updated on: 20-04-2010
