Harvesh Seegolam: Remarks - opening of the 3-day training on Basel
III reforms
Remarks by Mr Harvesh Seegolam, Governor of the Bank of Mauritius, at the opening
of the 3-day training on Basel III reforms by the Deutsche Bundesbank, Port Louis, 31
May 2023.
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Bank of Mauritius Board Director
The Chief Executive Officer of the Mauritius Bankers Association
Chief Executive Officer of banks
Distinguished resource persons from Deutsche Bundesbank
Colleagues
Ladies and gentlemen,
Good morning.
It gives me immense pleasure to welcome you on the occasion of the training on Basel
III Reforms by the representatives of the Centre for International Central Bank Dialogue
of the Deutsche Bundesbank.
Our ties with the Centre date back to December 2020 when we signed a Memorandum
of Understanding on technical central bank cooperation matters. This was followed by
close interaction between teams from the Bank of Mauritius and from the Deutsche
Bundesbank. I can proudly affirm that our collaboration with the Bundesbank has
reached new heights with tailor-made virtual courses organised for staff of the Bank of
Mauritius in IT audit and green finance. Concurrently, some of our staff have had the
opportunity to attend on-the-job training in Germany as well. I seize this opportunity to
commend the Bundesbank for partaking its expertise with our staff.
Ladies and gentlemen,
Training and human resource empowerment have always been at the kernel of my
priorities since I joined the Bank of Mauritius as Governor back in March 2020. The
banking sector, being a talent-intensive service industry, is subject to a wide range of
transformations which percolate through the various strata of the sector and which
ultimately affect the quality of its throughput. With talents and professionals occupying a
centerpiece of the sector's output function, productivity in the sector, and its underlying
competitiveness, can only be enhanced through constant upskilling strategies.
Endowing our pool of talent in the banking sector with the latest hard and soft skills,
especially those pertaining to regulatory overhauls and to digitization, is tantamount to
implementing labor-embodied technological progress in the sector. This is our passport
towards ensuring a competitive and resilient sector that can navigate fearlessly through
various storms, whilst ensuring enhanced contribution to our GDP.
Today, it is the first time, under our MoU, that staff of the Bundesbank have come in
person to impart training to our staff and to the banking sector at large on a topic of high
relevance to the banking sector. The items on the agenda are practitioner-focused and
facilitated by highly experienced personnel who offer first-hand knowledge and
experience. I will, therefore, urge all of you to extract maximum benefit and make the
different sessions as interactive as possible. I am confident that the three days intensive
training will enrich your knowledge and widen your perspective.
The topic of the day, namely Basel III Reforms, is highly seminal as it germinated from
a sad reality of modern finance: the 2008 Global Financial Crisis. Basel III represented
a long-running but fundamental overhaul of the global regulatory capital regime and
focused on quality of capital. While parts of the Basel III standards have already been
implemented, some have been refined over time and are sometimes referred to as
Basel 3.1. The new Standardised approach introduces more granularity and risk
differentiation to the capital requirement calculations. Other amendments pertain,
among others, to market risk, credit valuation adjustment, leverage ratio framework and
operational risk.
The primary objective of the revisions to the current framework is to improve the
reliability of capital ratios, by making standardised approaches more risk-sensitive,
addressing limitations of Internal Models, and restricting the benefits that Internal
Models can provide by introducing an 'output floor'. This would improve both the
measurement of risk and the comparability across firms. These changes are set to
fundamentally alter the market dynamics and might require banks to reassess their
strategies to ensure optimal use of capital.
As with major reforms, the Bank of Mauritius favours a consultative approach with its
regulatees. The presence of commercial banks over the three days bears ample
testimony to this. All of us will be provided with the crux of the reforms as well as the
possible challenges and impact. As commercial banks will be required to implement
same, I would expect that their representatives raise the practical issues that they could
potentially face with the experts for their opinions.
I wish to underline that, as an International Financial Centre of repute, Mauritius
subscribes to the adoption of international standards and best practices. Basel III is the
norm for the banking industry, and it is imperative for us to complete the necessary
reforms to maintain our competitive edge and preserve the reputation of our jurisdiction.
Ladies and gentlemen,
The banking sector has remained resilient despite the impacts of the pandemic, volatile
currency markets, regional liquidity issues in hard currencies and rising interest rates. I
am convinced that part of the secret of the resilience and strength of our banking sector
lies in our early adoption of specific Basel III measures. I look forward to continuing the
implementation of the remaining Basel III measures and, accordingly, we have planned
the roll out of a slew of regulatory upgrades including:
1. the introduction of the Net Stable Funding Ratio which will ensure that banks
maintain a stable funding profile over the long term;
2. the introduction of a Leverage ratio as an additional measure to limit excessive
leverage in the banking sector;
3. the alignment of regulatory risk weights for credit, liquidity, market and operational
risk exposures with Basel III; and
4. improving our disclosure and reporting requirements which will also comprise
climate-related disclosures.
A three-day exposure might not be enough for you to master all the reforms but the
journey must start somewhere. This is what we are doing today, together with you.
While the Bundesbank experts will be taking us through the contours of Basel III, I am
confident that at the end of sessions, you will have a solid understanding of the main
amendments required to our existing framework as well as the challenges ahead.
This is why in addition to the early adoption of certain Basel III measures, I have since
assuming Governorship in 2020 ensured that the ongoing upgrade of the Bank of
Mauritius' overall supervisory and risk management framework be targeted at the
specificities of our own risk topography. In this respect, we are expediting the full
implementation of our Risk-Based Supervision framework which is an innovative
supervisory toolkit and which provides us with a novel capacity to deep-dive into
specific risk areas and even look for feedback loops at the financial stability level. It will
blend particularly well with the risk-centric approach of Basel III. In particular, I have in
mind the market risk module which is providing us with important insights during the
current period of heightened interest and re-pricing risk.
Nevertheless, existing regulatory toolkit and planned upgrades have to be
complemented by continuous skills training for our supervisors for them to be really
effective. Our supervisors are at the center-stage of our rapidly evolving banking sector
and banking regulation and, perhaps, the pace of change we are witnessing here is far
greater than in more mature jurisdictions.
In this respect, we are particularly keen on ensuring that our supervisors have the
required skills to keep abreast with latest developments through a combination of local
and overseas training sessions. I would here encourage all banks to continuously invest
in the capacity-building of their professionals.
As you may be aware, ladies and gentlemen, Continuous Professional Development
programs are to the trained professional's mind what exercise is to the body. This
training by the Deutsche Bundesbank conspicuously embraces this very spirit.
With these few words, I thank you for your attention and wish you a productive training
and deliberations ahead.