CONCENTRATION OF RISK
The key focus of the Bank’s credit risk management approach is to avoid any undue concentrations in its credit portfolio, whether in terms of counterparty, group, portfolio, and country. The Bank has always kept its large exposures within the regulatory limits. For instance, our concentration ratio of large exposures above 10% was 200.65% as at 30 June 2020, well within the regulatory limit as shown below:
| Regulatory Credit Concentration Limit | As at 30 June 2020 |
|---|---|
| Credit exposure to any single consumer shall not exceed 25% of the Bank’s Tier 1 Capital | Highest single customer: 16.28% |
| Credit exposure to any group of closely-related customers shall not exceed 40% of the Bank’s Tier 1 Capital | Highest Group of closely related customer: 28.11% |
| Aggregate large credit exposures to all customers and Banks of closely related customers above 10% of Bank’s Tier 1 Capital shall not exceed 800% of Bank’s Tier 1 Capital | 200.65% |
Furthermore, economic reports, country and industry analysis are prepared and submitted to the Board Risk Committee to highlight trade developments and risks to the Bank’s credit portfolio. These reports are used to define strategies for both our industry portfolio, and individual counterparties within the portfolio.
Industry Concentration
The Bank's financial assets, without taking account of any collateral held or other credit enhancements, is as follows:
| Sectorwise distribution of credit | JUNNE 2020 MUR'000 |
2019 MUR'000 |
2018 MUR'000 |
|---|---|---|---|
| Agriculture | 1,094,873 | 509,649 | 2,026,262 |
| Construction, infrastructure and real estate | 1,944,015 | 1,119,041 | 1,780,388 |
| Financial and business services | 98,914,194 | 121,014,380 | 102,120,488 |
| Government and parastatal bodies | 35,407,685 | 479,419 | 1,488,649 |
| Information, communication and technology | 254,487 | 16,516 | 45,544 |
| Manufacturing | 4,673,091 | 2,725,894 | 2,780,767 |
| Personal | 2,373,536 | 1,912,148 | 1,706,109 |
| Tourism | 4,537,676 | 3,165,754 | 2,412,999 |
| Traders | 5,342,073 | 1,550,713 | 1,561,372 |
| Others | 7,529,257 | 8,700,323 | 4,884,233 |
| Total | 162,070,887 | 141,193,837 | 120,806,811 |
Concentration by Geography
The Bank's financial assets before considering any collateral held or other credit enhancements, can be analysed as follows:
| COUNTRY OF EXPOSURE | MUR'000 | % |
|---|---|---|
| Africa | ||
| Mauritius | 58,704,122 | 36% |
| Other African countries | 12,332,502 | 8% |
| North America | 41,225,695 | 25% |
| Europe | 19,632,067 | 12% |
| Asia | 29,377,200 | 18% |
| Others | 799,301 | 0% |
| 162,070,887 | 100% |
Geographical Exposure (%)
Country Risk Assessment
Assessment of country risk involves the determination of the nature of risks associated with individual country exposure and the evaluation of country conditions. In this connection, the Bank conducts a thorough evaluation of risks associated with its cross-border operations and which have the potential to adversely affect its risk profile.
The aim is to identify the risk of a shock, such as an economic crisis or a sudden change in the political environment that would affect those conducting business within a country.
Country risks also arise where borrowers in a particular country are, or are expected to be, unwilling and unable to fulfil their foreign obligations for reasons beyond the usual risk that arise in relation to lending. Political, social and economic factors may give rise to instability in these markets. Thus, in order to mitigate those risks, a country risk assessment is undertaken by ABL to determine the level of risk on a case-to-case basis but within each assigned country limit. The country risk policy is set in line with BOM’s Guidelines for Country Risk Management (April 2010).
According to ABL’s country risk policy, the Board of Directors sets exposure limits for individual countries in order to manage and monitor country risk. Country exposure limits should apply to all on and off-balance sheet exposures to foreign borrowers.
Country risk ratings issued by external credit agencies (S&P, Moody’s or BMI research) are also used by the Bank to evaluate the risk exposure of each country. The Bank utilises two other types of approach:
- A bottom-up approach: analysis of the country risk pertaining in each cross-border by counterparty and product;
- A top-down approach:
- Analysis of the concentration/diversification of country risk in the Bank’s portfolio; and
- Analysis of the global or regional economic and political movements and their adverse effects on the country risk profiles.
Country Limit
An appropriate structure of limits is set for each individual country exposure. The determination of limits is based on the following:
- The overall strategy and commercial opportunities;
- The relation with Bank’s capital base;
- The perceived economic strength and stability of the borrowing country;
- The degree of perceived risk; and
- The diversification of the Bank’s international lending and investment portfolio.
The Board of Directors validates the structure and value of the limits. The Bank’s operations are performed strictly within the approved limits.