Johannesburg - Mauritian banks are becoming beacons of
growth and stability in sub-Saharan Africa.
Unscathed by the vagaries of the oil price and unhindered
by the political battles that have roiled some of their continental peers, the
Indian Ocean island’s lenders have been bolstered by an economy growing faster
than many of the mainland countries. The central bank expects the Mauritian
economy to expand as much as 4 percent this year, compared with International
Monetary Fund projections for an average 2.6 percent for the continent.
“Mauritius benefits from favourable business policies,
which significantly enhance the appeal of the economy from a trade and
investment perspective,” said Craig Metherell, an analyst at Avior Capital
Markets in Cape Town. “The stability the country offers is appealing when
compared with other volatile African markets.”
Already considered by the World Bank as the easiest place
to do business in Africa, Mauritius passed a law this month to promote
cross-border trade and remove licensing bottlenecks, which may spur demand for
credit and help soak up excess cash held by banks.
The country’s two biggest stocks and largest banks, MCB
Group and SBM Holdings, reported increased profit in 2016 and
forecast more earnings growth this year.
Read also: Tiny Mauritius leads the continent at Source Africa 2017
The lenders trade at price-to-book ratios of 1.3 times
and 1 respectively, compared with an average of 2.3 for South African banks,
where the top four lenders all reported lower profit for last year.
Johannesburg-based Standard Bank Group has almost 16 times the amount of assets
as MCB.
‘Financial hub’
“Mauritius, with its reputable and strong regulatory
framework alongside a sophisticated banking platform, has the potential to
become a financial hub,” Neeraj Umanee, a manager at Swan Securities Ltd.
in Port Louis, the Mauritian capital, said on May 19.
That comes as Nigerian banks -- where the economy is 40
times larger than that of Mauritius -- recover from a dollar shortage and low
oil prices that caused soured loans to soar. In Kenya, lenders are hamstrung by
interest-rate caps that stifled lending and cut profit. Peers in South Africa
are contending with a credit downgrade in the country’s debt ratings to junk
while fending off political attacks.
It’s not all sunshine on the island once the home of the
now-extinct dodo bird. Prime Minister Pravind Jugnauth, who also serves as
finance minister, last year boosted spending on infrastructure by 51 percent
after activity in the construction industry fell, the Mauritian rupee weakened
and Britain’s decision to exit the European Union threatened to disrupt exports
in the $12 billion economy, which relies mainly on sugar and textiles. The U.K.
accounts for 12 percent of Mauritius’s exports and tourism.
Ponzi scheme
The industry is also rebounding from the collapse of
Bramer Banking in 2015 after the government said it had evidence the lender was
involved in a 25 billion-rupee ($718 million) Ponzi scheme. SBM’s shares
plummeted after Bramer’s license was revoked and, along with MCB, it
experienced a lull in loan applications as consumers cut back on investments
and let deposits accumulate.
In spite of the events of 2015, “funding growth has
remained robust and this mix has led to the problem of excess liquidity in
the banking sector,” Avior’s Metherell said.
Another challenge may come from the country’s
renegotiated double-taxation avoidance agreement with India, which introduces
taxes on capital gains from Indian firms headquartered in Mauritius, analysts
at BMI Research said in a May 23 note. This could slow asset and deposit
growth.
Positive signals
To counter these difficulties, Mauritius’ biggest banks
have expanded in other African countries and increased cross-border lending,
said Bhavik Desai, head of research at Axys Group in Port Louis.
MCB wants to be seen as the bank of choice in the region
for trade finance, payments and card operations, while SBM has started its
regional expansion into East Africa through the acquisition of troubled
Fidelity Commercial Bank of Kenya, he said.
A drop in external debt, an increase in tourist arrivals
and interest rates at their lowest level in more than a decade may also help
lenders. Foreign direct investment is forecast by government to increase at
least 21 percent this year. The rupee has strengthened 3.4 percent against the
dollar so far this year.
“The current government will provide a politically stable
foundation to re-balance the economy and to expand the financial-services
sector,” said Robert Besseling, Johannesburg-based director at Exx Africa,
which advises companies on business risks. “Mauritius’ banking sector has
robust capital adequacy ratios, a relatively low non-performing loan ratio, and
supportive profitability.”