The credit portfolio of banks in Mauritius is “rather concentrated”, with 45% of banks’ private sector credit channeled to construction and tourism, according to the latest edition of the Financial Stability Report by the Bank of Mauritius.

Also, the report noted that the ten largest borrowers accounted for 74.7% of banks’ total capital base and 27.9% of total private sector credit.

Credits by banks in Mauritius to the ten largest borrowers stood at Rs 65.2 billion in March 2012 and hit Rs 78.7 billion six months later.

The central bank went on to note that the balance sheet vulnerabilities of some large corporates in Mauritius is a matter of concern for the Bank.

The report, which dedicated the majority of its analysis to state credit banks, specified that the growth of bank credits slightly decelerated during these last months, considering the evolution of the economic situation while emphasizing that “credit risks remained one of the main risks that banks face in Mauritius as advances constitute around 62 per cent of total banking assets.”

Total bank credit decelerated to 7.2% as at end September 2013 compared to 7.7% for the period ended September 2012.

Commenting on the evolution of the bank credits of a general point of view, the Bank of Mauritius confirms a diminution, by noting that: “Growth in credit to the private sector, which trended upward to 13.3 per cent as at end-February 2013, dropped to 9.0 per cent as at end-September 2013, driven by a deceleration in corporate credit.”

According to the report, “subdued and uncertain external demand conditions, weak business sentiment as well as internal operational challenges” might have an impact on the decisions taken by the firms’ investment.

As for the credit concentration ratio, the report highlights that the percentage dropped from 229.0 per cent to 219.6 per cent for the year ended September 2013 and it added that the credit concentration ratio was well below the prudential limits imposed on aggregate large credit exposures.”

Hence, a close monitoring of credit which is extended to large conglomerates is necessary because these may be engaged in inter-related economic activities.

The banking sector which had Rs 1 trillion worth of assets in May 2013, saw the value rise to Rs 1.015 trillion as at end-September 2013, achieving an increase of 10.9% in the period ended September 2013 compared to the 5.1 per cent achieved by end-September 2012.

Except for the ‘construction’ sector, all other sectors recorded positive growth rates.

Also, there has been a significant increase in the Non-Performing Loans (NPL) of the ‘construction’ sector which breached the Rs 6.1 billion-mark in the period ended September 2013, escalating from Rs 2.7 billion in the corresponding period of 2009.

The bank feels concerned about the rapid increase in credit to the ‘construction’ sector and anecdotal evidence that property prices are rising significantly in Mauritius. Credit concentration has also been a concern.

Accordingly, in October 2013, the Bank has introduced a set of macroprudential policy measures such as additional portfolio provision and sectoral limits that will become applicable, effective July 2014, for three specific sectors, notably ‘construction’, ‘tourism’, and ‘personal’.

The ‘tourism’ sector also needs closer monitoring despite reduction in NPLs, since tourism receipts have declined despite higher tourist arrivals.

With the implementation of additional policy measures and on-going reform of our regulatory framework, the Bank “remains vigilant to vulnerabilities associated with credit risk, and will continue to monitor sectoral developments as well as the evolution of corporate indebtedness”.

Image (The Real Deal): The report noted that there has been a significant increase in the Non-Performing Loans (NPL) of the ‘construction’ sector which breached the Rs 6.1 billion-mark in the period ended September 2013.

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