The latest edition of the Financial Stability Report published by the Bank of Mauritius (BoM) showed that the total credit stood at around Rs 541.8 billion as at end of March 2014. The credit to the private sector, which represented 44.3% of total bank credit, grew by 5.2% compared with 13.1% in the preceding year.
According to the report, the corporate sector credit was considered as the major share of private sector credit with 63.6% and it was followed by the household sector credit, which accounted for 28.3%.
It may be noted that banks account for around 97% of total credit, thus they play an important role in the allocation of credit.
In addition, credit to the private sector represented 73.2% of Gross Domestic Product (GDP) and the decline in private sector credit growth was reflected in a fall in the credit to GDP gap.
Regarding the 63.6% borrowed by corporates, the report stated that “most corporates in Mauritius borrow from banks operating in the domestic market, though some of them have issued bonds – total issuance is estimated at around Rs 3.5 billion.”
The report added that the corporate credit growth was reduced because of the slowdown in the construction sector, excluding housing loans, which was around 35% in the last quarter of 2012 to reach 7.3% as at end of March 2014.
“Conditions remained subdued for construction, which is expected to contract for the fourth consecutive year,” the report highlighted.
In addition, credit to the tourism sector increased from 6.7% last year to 6.9% as at end of March 2014 and 25.5% of the outstanding corporate credit was channelled to this sector.
On the other hand, households’ consumption loans increased by 19.3% as at end of March 2014 compared with growth of 17.2% last year.
As for the banking sector, it remained broadly profitable with pre-tax profit – measured as the sum of pre-tax profit of the preceding four quarters – rising by 14.4% to Rs 16.34 billion as at end of March 2014.
The central bank noted that the banking sector appeared to be resilient to adverse shocks affecting the credit quality of banks’ loan portfolios further to stress tests conducted by the central bank, which estimated that a majority of banks would not require additional capital injection under the tested scenarios.
The report also noted that as at end of March 2014, the ten largest borrowers accounted for 33.9% of total large credit exposures, down from 40% a year earlier and this credit represented 70.3% of banks’ total capital base.
The report highlighted that the distribution of credit exposures in key sectors of the economy as at end-March 2014 was generally strong among banks with Capital Adequacy Ratio (CAR) – a measure of the amount of a bank’s capital expressed as a percentage of its risk weighted credit exposures – of above 12%.
However, the fiscal consolidation is in progress to meet the statutory debt-to-GDP ratio of 50% by 2018, and efforts are being pursued to extend Government debt maturity profile and lessen rollover risks and costs.
Due to the banks’ size, interconnectedness and complexity, the financial stability and the real economy can be affected.
Hence, the central bank took action to identify domestic-systematically important institutions and determine an applicable capital surcharge.
Besides, the implementation of Basel III has already started with the aim of reinforcing the regulatory framework, improving bank’s soundness and strengthening financial stability.
Image (AFD): The ten largest borrowers accounted for 33.9% of total large credit exposures, down from 40% a year earlier.
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