A Critical Assessment of Basel III and its Implications on the Mauritian Banking Sector

This paper probes into the application of Basel III in Mauritius. Findings show that although Mauritian banks are well-capitalized and carry excess liquidity, they will have to restructure their balance sheets by incorporating highly liquid assets such as government securities. While Basel III will foster greater financial stability, this will translate into lower supply of credit, higher cost of credit and lower returns with potential strains on SME lending. Similarly, Bank of Mauritius’s ability to control credit growth will be hindered because banks’ existing leverage ratios are already higher than the stipulated minimum leverage ratio of 3%. To harness the full benefits of the reforms, additional measures tailored to the specificities of the Mauritian economy will be needed. Other challenges prevail like establishing robust data management, risk methodologies, reporting systems and IT architecture as well as identifying the timing and the size of the Countercyclical Capital Buffer. Local banks anticipate Basel IV in the coming years as a refined tool.     

Macroeconomic Effects of an Ageing Population in Mauritius

The economic literature focuses mostly on faster ageing of population among developed countries; however, many developing countries experience even more dramatic pace of this process. Mauritius, with the median age of population higher than the world average since 1990s, represents a prominent example of such a case. In this paper, we analyse demographic developments in Mauritius and discuss their macroeconomic implications using an open-economy OLG model with demographic shocks. We project that a decline in the Mauritian interest rate and net foreign assets to GDP resulting from ageing will be accompanied by a temporary increase in GDP, consumption and investment.     

Mauritius Financial System Stress Index: Estimating the Costs of the Subprime Crisis

Abstract

The aim of this paper is to develop a FSSI model for the Mauritius based on 11 components which reflect the core characteristics of Mauritius. Findings show that Mauritius had been affected by the crisis with the costs hovering around 3.4 to 5.4%. Latent risks are identified under public debt sustainability, tourist arrivals and earnings, central bank equity, quality of balance of payments sustainability, trade finance, net foreign investments on the stock market and future GDP growth paths in Europe and USA. Evidence is found of an impotent interest rate channel, a robust credit channel and a vibrant exchange rate channel. Banks’ profitability structure is found to be crisis-immune following a maintained interest rate spread at 7% despite a decline in the TED spread. The authorities should concentrate on tourism and credit channels while curtailing the interest rate spread to reinvigorate the interest rate transmission channel.