Bonnie Qiu: “FX deposits remained stable despite Covid-19 crisis”

In spite of the crisis, the banking sector has remained resilient, states the CEO of HSBC and Chairperson of the Mauritius Bankers Association. For instance, as at end of March 2021, banks’ capital adequacy ratio stood at 18.7%, comfortably above the regulatory minimum 11.9%. Similarly, the quality of assets remains good with non-performing loan ratio standing at 5.0%. In the interview below, Bonnie Qiu also talks about the interconnectedness between the banking sector and global business and expresses confidence that Mauritius will soon be removed from the European union’s blacklist.

Before we get to your appointment as Chair of the MBA, tell us more about your first year as CEO of HSBC Mauritius. What you and the team have been able to accomplish amid challenging Covid-19 circumstances?

The Covid-19 pandemic has affected us in different ways, but all has not been doom and gloom, as it has also created opportunities for us to get better at what we do. A case in point, has been the acceleration of our digitisation process, for instance. Indeed, we have successfully set up Instant Payment System on our internet banking platform which now allows customers to remit up to MUR100K interbank, and instantaneously 24/7. With the inconveniences caused by the lockdown of postal services, 70% of our personal banking customers have now moved to online/e-mail statements. We have also successfully migrated 97% of our corporate customers to our HSBCnet. The extended lockdown has greatly contributed to our switch to a flexible work model whereby a significant portion of our staff are now able to work from home fully when necessary or partially, to achieve work life balance, without impacting the service we provide to our customers. Our future focus is on new banking solutions such as green deals, escrow, receivable finance – and we are working with HSBC Group subsidiaries such as Serai on supply chain traceability. We are diversifying into new international corridors outside of Asia, deepening ties within the network to develop future sectors and working closely with the Economic Development Board (EDB) to position the Mauritian jurisdiction. On the domestic front, we continue to invest to transform ourselves for the future of banking via digital enablement. This transformation involves investment in more digital capabilities, while making changes to our branch footprint, in order to bring the branches to where customers regularly visit; such as malls.

 

What’s your appreciation of the banking industry in Mauritius and what is the role and importance of HSBC as an international bank in this equation?

The banking industry in Mauritius is resilient, well capitalised and run by long time banking professionals, who, for many, are internationally experienced and bring along their best practices to the table. I feel privileged to be representing such a professional group of seasoned bankers. HSBC’s role as a leading international bank present in 64 markets, is to continuously bring our best practices to Mauritius and support its growth and expansion as a regional international financial centre.

Perhaps better organised than during the 2008 economic crisis, in these times of turmoil, banks around the world have been able to coordinate their actions by adopting unconventional policies to prevent the collapse of the economy. With the Covid-19 crisis, have banks passed the litmus test?

The Covid-19 crisis has greatly reduced economic activity in many sectors globally, but it has also spurred new sectors like e-commerce and preventive pharma to emerge. The banking sector has showed its humane side by prioritising relief programmes for individuals and companies, in a number of economies around the world. The banking sector in Mauritius has remained resilient. As at end of March 2021 banks’ Capital Adequacy Ratio (CAR) stood at 18.7%, well above the regulatory minimum 11.9%, and the quality of assets remains good (the Non-Performing Loan ratio stood at 5.0%). The Global Business sector has also shown resilience, and as a result, banks’ FX liquidity has remained stable. As we work with Bank of Mauritius on the future of banking, we will start to explore new avenues of growth and alternative channels such the Central Bank Digital Currency (CBDC) and digital KYC.

So far, the Bank of Mauritius has injected MUR 140 billion (about 32.7% of GDP) to support the economy and avoid contagion to the banking sector. How does Mauritius compare with other developing countries in terms of bailing out the economy?

The Mauritius Bankers Association has worked closely with the Central Bank to develop the Bank of Mauritius’ Support Programme to assist economic operators, households, SMEs and individuals since the onslaught of the Covid-19 crisis in 2020. This programme has subsequently been extended until June 2022. The economy needed a support mechanism, which came in the form of Mauritius Investment Corporation (MIC), and has had a welcome stabilising effect on systemic companies. One thing which we have seen in more developed economies, is the deployment of loan guarantee schemes, which have enabled banks to issue credit facilities to businesses quickly and at competitive rates. It is a fact that the Covid-19 crisis has raised the credit risk environment, which makes it more difficult for banks to issue credit, as banks also have a duty to be cautious with depositors’ money.

Banks have abundant liquidity, and would like to play an even larger part in financing the economic recovery. In that context, the MBA is discussing with the relevant authorities a form of loan guarantee scheme, be it under MIC, or otherwise; to support SMEs and mid-caps.

 

While the impact of the crisis on the banking sector has so far been subdued, banks must remain prudent or risk high levels of non-performing loans. How do we balance the need to support the economy with the need to ensure financial stability?

The latest Financial Stability Report (July 2021) of the Bank of Mauritius notes satisfactory performance of banking sector as follows: “Across the world, banks have generally remained well-capitalised, reflecting substantial monetary and fiscal support together with regulatory forbearance policies. However, the pandemic poses considerable challenges to banks’ asset quality and profitability. Relatively low interest rates are squeezing banks’ net interest margins. Globally, regulators have encouraged banks in their jurisdictions to support the local economy through their buffers. The expiration of public policy measures in several countries in 2021 could weigh on asset quality of banks, thus the need for a carefully managed exit strategy. The financial system in Mauritius has continued to demonstrate resilience. Improving economic conditions and prospects as well as strong policy measures have supported the financial system, in spite of the second lockdown in March 2021.” Indeed, this is a difficult balancing act for banks who want to continue to help their customers and the regulators who want to ensure they can do so within acceptable parameters. In this regard, Bank of Mauritius issued a number of measures and moratorium, and banks themselves restructured loans and gave moratoriums to their client. We are now discussing with Bank of Mauritius for a transition back to the future normal being gradual, to ease businesses into a soft landing. A lot of Mauritian manufacturers supply to large global brands, rather than the bank or the local corporate taking additional risks, new solutions such as receivable finance in trade services should be considered as an alternative to conventional approaches. This puts the risk onto the end buyer outside of Mauritius and help the local corporate continue to grow where they have the capacity to.

Do our banks’ capital adequacy ratios remain at the level of the regulatory standards set by Basel III?

I believe that in Mauritius, banks’ capital ratios remain sound and generally exceed the minimum regulatory requirements by some margin. This is underpinned by the application of BASEL III standards, particularly in the areas of quality capital with a focus on common equity Tier 1 capital and the use of the standardised approach for calculating credit, markets and operational risks which is generally a more prudent methodology. In addition, the continuously adapting regulatory guidance ensures that banks’ policies and processes remain relevant to guard against the inherent risks; as well as remain resilient to be able to deal with shocks and stresses. As at end of March 2021, banks’ CAR stood at 18.7%, comfortably above the regulatory minimum 11.9%.

“The banking industry in Mauritius is resilient, well capitalised and run by long time banking professionals”

The excess liquidity in rupees and foreign currencies amounts to MUR 59.6 billion. Doesn’t this situation reflect excessive caution on the part of banks?

The Mauritian Rupee dynamics here is slightly different from the foreign currency ones. Mauritian Rupee liquidity in the market is a reflection of two things: First the asset books of banks are not growing fast enough as a result of the uncertain economic outlook due to Covid-19. In times of downturn, investors tend to remain on the sidelines, and are not too keen to invest, despite the low interest rate environment. The second aspect is the need to accelerate the development of a deeper capital market which can supply potential investors with more options to deploy their Mauritian Rupee. For individual savers, I welcome the latest strategy on Private Banking and Wealth Management development to bring more options to the table.

The growth of banks is increasingly driven by international business. And, as we know, the inclusion of Mauritius on the European Union’s blacklist has put enormous stress on the banking and non-banking financial sector. What has been its impact so far on the banking sector?

Mauritius is known to be a jurisdiction of international repute, and is well respected. It remains an attractive base for corporates and Financial Institutions as it offers a ready market with expertise in fund administration, low operating costs, no exchange controls and favourable trade agreements with key geographies in Asia and Africa. Mauritius is the only invest ment grade country in Sub-Saharan Africa and is favoured by international companies, due to its geopolitical stability. Whilst the inclusion of Mauritius on the European Union (EU) blacklist has put some pressure on the banking transactions and stricter regulatory requirements, the impact however, has been well managed. As a result, the ecosystem has been able to absorb any challenges thrown by the EU blacklist issue. I must also add that Mauritian banks have always adhered to high, international standards of AML/CFT, and that the Financial Action Task Force’s (FATF) recommendations were focussed on other parts of the ecosystem. We are optimistic about the September FATF onsite inspection, and we do hope that once Mauritius is out of this list, we should accelerate its journey to attract new business, investments and flows, knowing that the economic operators are observing a higher standard of AML/CFT. All the efforts being put in by the regulators, the banking and non-banking sector will ultimately benefit the financial services industry, which is one of the key contributors of Mauritius’s GDP. On this front, the MBA is very encouraged by the open dialogue and working group participation with the Bank of Mauritius.