Organisation and Structure
The Bank has structured the responsibilities of credit risk management so that decisions are taken as close as possible to the business, whilst ensuring that there is an adequate segregation of tasks. Credit policies and processes are in place to ensure the effective monitoring and managing of credit risk in compliance with the Bank of Mauritius guidelines and AfrAsia Bank’s risk appetite.
CREDIT RISK POLICIES
Impact of IFRS 9 Financial Instruments (“IFRS 9”)
AfrAsia Bank Limited has run a centrally managed IFRS 9 programme since 2018, which included business functions and subject matter experts on methodology, data sourcing and modelling, IT processing and reporting. Overall governance of the programme implementation has been through the Bank’s IFRS 9 Steering Committee and included representatives from Risk, Credit, IT and Finance department. The adoption of IFRS 9 has enabled AfrAsia Bank to enhance its internal control system with a better end-to-end management on an ongoing basis, which is critical to avoid unintended consequences. In addition, IFRS 9 has allowed the Bank to analyze high frequency market data to enhance the risk assessment of our portfolios; while still delivering a consistent customer experience within set risk parameters.
The Bank also complies with the macro-prudential policy measures as set out in the Guideline on Credit Impairment Measurement and Income Recognition to compute Portfolio Provisioning. In the event IFRS 9 provisioning is lower than General Provisioning, the difference is accounted in the general banking reserve.
OUR CREDIT RATING
The CRISIL models is used to rate companies including small and medium enterprises & large corporates and global & domestic banks, while the CRISIL Retail Scoring Solution (“CRESS”) is used to rate retail customers. CRISIL is a global analytical company and is one of India's leading ratings agency and provider of high-end research to the world's largest banks and leading corporations. CRISIL is majority owned by S&P Global Inc.
The system uses the following criteria in determining the credit rating:
- financial information,
- collateral details,
- credentials of the counterparty,
- details of facilities and
- qualitative assessment of industry of operation.
CRISIL rating grades and descriptions for each grade are as follows:
CREDIT MONITORING
Credit risk exposures are managed through a robust post disbursement monitoring process. This involves regular portfolio reviews and detection of any early warning signals. Exposures showing signs of deterioration are put on watch list and the files are reviewed at least monthly to ensure prompt actions are taken. Regular and ad-hoc checks are performed to ensure that guidelines and policies set by the Board are adhered to. With the implementation of IFRS 9, all borrowers, regardless of financial health, are subject to a full review of all facilities on at least an annual basis, more frequent interim reviews may be undertaken should circumstances dictate to identify any significant increase in credit risk.
COVID-19 poses a challenge to the country that goes far beyond monetary and financial stability. In response to the COVID-19 pandemic, the Bank has reviewed its Credit Risk Policy and has set up a Forbearance Policy for COVID-19 impacted sectors. Clients falling under those impacted sectors are being closely monitored by the Bank.
| GROSS LOANS AND ADVANCES TO BANKS | ||||
|---|---|---|---|---|
| External Rating Grade | Stage 1 MUR'000 |
Stage 2 MUR'000 |
Stage 3 MUR'000 |
Total MUR'000 |
| Performing: | ||||
| Credit rating A+ to A- | 321,758 | - | - | 321,758 |
| Credit rating BBB+ to BBB- | 1,404,181 | - | - | 1,404,181 |
| Credit rating BB+ to BB- | 3,328,236 | - | - | 3,328,236 |
| Credit rating B+ to B- | 203,422 | - | - | 203,422 |
| Total gross carrying amount | 5,257,597 | - | - | 5,257,597 |
| GROSS LOANS AND ADVANCES TO CUSTOMERS | ||||
|---|---|---|---|---|
| Internal Rating Grade | Stage 1 MUR'000 |
Stage 2 MUR'000 |
Stage 3 MUR'000 |
Total MUR'000 |
| Performing: | ||||
| Credit Rating AAA | 444,346 | - | - | 444,346 |
| Credit Rating AA+ to AA- | 3,109,194 | 83,667 | - | 3,192,861 |
| Credit Rating A+ to A- | 12,782,569 | 50,749 | - | 12,833,318 |
| Credit Rating BBB+ to BBB- | 4,853,103 | 290,918 | - | 5,144,021 |
| Credit Rating BB+ to BB- | 699,862 | 26,734 | - | 726,596 |
| Credit Rating B+ to B- | 239,199 | 6,679 | - | 245,878 |
| Credit Rating CCC+ to C | 17,457 | - | 17,457 | |
| Non Performing: | - | - | - | - |
| Credit Rating D | - | - | 2,829,328 | 2,829,328 |
| Total gross carrying amount | 22,128,273 | 476,204 | 2,829,328 | 25,433,805 |
During the financial year ended 30 June 2020, AfrAsia Bank has taken active steps in prudently managing its exposures and ensuring that its loan book is judiciously diversified, while periodically conducting stress tests to assess the resilience of its portfolio in case of unfavorable events. Over the years, the Bank has been keeping a close attention on its credit concentration to ensure it meets regulatory requirements.