Rameswurlall Basant Roi: Mauritius's long history of banking
Address by Mr Rameswurlall Basant Roi, Governor of the Bank of Mauritius, at the launching
ceremony of the Bank of China (Mauritius) Limited, Balaclava, 27 September 2016.
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Her Excellency, Madam President of the Republic of Mauritius
Honourable Minister of Finance and Economic Development
Honourable Ministers
His Excellency the Ambassador of the People's Republic of China
Chairman of the Board of Supervisors, Bank of China, and Leader of the Chinese Delegation
The CEO of the Bank of China (Mauritius) Limited
Distinguished Guests
Ladies and gentlemen
Good morning
Years ago, under my watch, five banks were licensed by the Bank of Mauritius: Deutsche
Bank (Mauritius) Ltd, Standard Chartered Bank (Mauritius) Ltd, Standard Bank (Mauritius)
Ltd, Banque des Mascareignes and Investec Bank (Mauritius) Ltd. Afrasia Bank Ltd and the
SBI (Mauritius) Ltd were about to set foot in our jurisdiction before my departure in 2006. On
March 18 this year, I handed over a banking license to the Bank of China (Mauritius) Limited
- a bank from the second largest economy of the world and the oldest society that is once
again writing its own story under a new mandate. It's indeed a great pleasure to be
associated with the Chinese delegation this morning for the launching of the bank. The bank
gets its moment under the sun in our jurisdiction as from today. Let me once again extend a
very warm welcome to the Bank of China.
Established in 1912, the Bank of China successively served as China's central bank,
international exchange bank and specialized international trade bank until 1949. The bank
eventually rose to a leading position in the Chinese financial industry and developed a good
standing in the international financial community. It's reckoned as a Global
SystemicallyImportant Bank and ranked 4th worldwide and 3rd in China in terms of Tier 1 capital in 2015.
The bank, largely owned by the Government of China, had wished to open a branch as
opposed to a subsidiary in Mauritius. But the Bank of Mauritius required the Bank of China to
go for a subsidiary and not for a branch as is imperatively demanded by our prudential
standards. The bank respectfully complied.
The Bank of China's stated capital stands at nearly Rs2.0 billion - almost ten times the
amount required as per our Banking Act - reflecting its determination to use its presence in
Mauritius as a strong and powerful conduit for facilitating and expanding businesses between
Africa and Mauritius and between Mauritius and China. The stated capital defines clearly the
scope and character of activities that the Bank of China is resolved to undertake in our
jurisdiction. Strong banks with strong stated capital give credibility to a jurisdiction. Low levels
of stated capital convey the perception that the requirements for obtaining a banking license
are very lax, even though there may be stringent conditions that need to be satisfied for
opening a bank. Most banks in our jurisdiction have stated capital well above what the
Banking Act prescribes.
Lately, the Bank of Mauritius has been taxed as being inflexible, and even arrogant, with
regard to issues having to do with regulation and supervision of deposit-taking institutions.
This is rightly an occasion for me to share some of my concerns.
Under the post-World War II gold standard, there never was a financial crisis that thrusted
systemic risk to the world economy. Since 1971, when the Bretton Woods System broke
down, the international monetary and financial system experienced 13 major crises:
• 1973 oil price shock and international monetary crisis
• 1979 oil price shock and the US dollar crisis
• 1982 Latin American debt crisis
• 1984 banking crisis and effective nationalization of Continental Illinois Bank in the
US
• 1987 October stock market crash
• 1989-91 S&L crisis and bailout in the US
• 1990 Japanese bubble collapse and banking crisis
• 1992-The European Exchange Rate Mechanism crisis
• 1994 Mexican peso crisis
• 1997 Asian currency crisis
• 2001 dot com crash
• 2007-09 Housing market collapse in the US and international financial crisis
• 2010-2012 European sovereign debt crisis
I am sure none of us feels good about a world ridden with crises. On average, every 4-year
period the world economy has suffered from a major currency or financial crisis over the last
45 years, let alone occasional political disturbances and rivalries between countries that
wreak mayhem in financial markets. The high frequency of crises and their increasingly
lasting character have kept regulators on their toes. Every crisis is known to have given
Ministers of Finance and Governors of central banks more and more troublesome times with
taxpayers bearing the brunt for regulatory mistakes and regulatory forbearance. From trusted
life-savers they turn into potential drowning victims. There are few worse sins in the business
of regulating and supervising financial institutions than falling "behind the curve". The
consequences are usually dire for the economy. Insouciance is costly to society. The
exigencies of universally accepted rules, laws and by-laws in the business of banking do not
allow us to adopt a relaxed and unperturbed attitude towards regulatory and supervisory
issues. To use a Shakespearean lexicon, the responsible regulator often has to be "cruel
only to be kind" to the financial system, the economy and, by extension, to society as a
whole. Under what appears to be the arrogance of central banking, lies the unspoiled
humility of the central banker.
A Damocles' sword is hanging, since quite some time, above the necks of banks in a number
of jurisdictions, particularly the smaller ones. Banks in smaller jurisdictions are operating in a
penalizing environment. Many of them have already been sanctioned by larger
correspondent banks overseas. A study conducted by the World Bank reveals that half of the
91 financial regulators surveyed have seen a decline in correspondent banking facilities in
the past three years. Correspondent banking is the business that banks do with one another
and is an essential link in cross-border payments, cheque clearing and remittance. Many of
us must be aware that a barrage of regulation aimed at stemming money laundering and
terrorist financing has led to billion-dollar fines for major banks recently. Several large banks
domiciled in advanced countries are retreating from some countries deemed high-risk. This
process of de-risking is on and it threatens to upend regional financial security. Most of the
170 smaller banks surveyed reported a loss of access to "scale and breadth" of services
provided by large banks overseas. The regions hardest hit are East Asia Pacific, Central
Asia, the Caribbean, Eastern Europe and small jurisdictions with "significant offshore banking
activities and high-risk jurisdictions". There are indications that some countries in Africa are
already losing correspondent banking facilities from larger overseas banks. Newly set up
banks unknown in the banking world are having serious problems regarding correspondent
banking facilities. Cheque clearing, payments and settlements, cash management and
international wire transfers have suffered the most. Foreign trade in the afflicted countries
have suffered as a result. This problem is best tackled at the very licensing stage of banks by
the regulatory authority.
In our domestic market, foreign currencies equivalent to as much as US$11.0 billion are
purchased and sold annually against rupees. In the last eighteen months, the Bank has
equipped itself with the right technology to pick up unfamiliar smells in financial transactions.
As regulator, we have defined our bearings in today's overbearing and unforgiving
environment. Mauritius cannot afford to take the kind of risk that could seriously jeopardize
its trade and financial transactions with the rest of the world.
Regulatory authorities in jurisdictions like ours have two choices: either to sound like
Cassandra or to get laid back on a multiple dose of congenital optimism and take it lightly as
another speed bump on the road to an imaginary perfect world. It's not amusing being
Cassandra. But remember, Cassandra ended being right. And the Trojan, having blissfully
disregarded her warnings, ended up being very wrong and very dead. With due regard to
some business persons seeking a banking license, I must say with all the humility of a
central banker that the regulator cannot afford to embrace crude populism as a way of
professional life.
Effective enforcement of prudential norms requires a strong regulatory and supervisory
framework. In the light of many regulatory challenges that the Bank has been facing for
several years, various attempts were made to consolidate our legal framework. The attempts
were in vain. This year, following the 2016-17 Government Budget, quite a good number of
amendments to the Banking Act and the Bank of Mauritius Act were proposed. This is an
occasion for me to thank the Honourable Minister of Finance for having taken the
amendments to the National Assembly, defended them with conviction and got them through.
Regulators need authority; they need discretion to use the authority as evolving situations
demand. But the Bank does also recognize that the inherent complexity and unpredictability
of markets and, more importantly, of human behaviour necessitate flexibility. The Bank does,
however, keep in mind a few basic principles when using this discretion. The authority thus
granted to the Bank of Mauritius is used responsibly and not vainly.
Mauritius has a very long history of banking. The oldest Mauritian bank is the Mauritius
Commercial Bank Ltd, established in 1838. Quite a few banks were operational long before
1838. And Mauritius used to be a regional financial hub since as far back as the 17th century
to the early decades of the 20th century. The Pound sterling, the Indian rupee, the US dollar,
gold, silver and some Middle Eastern currencies were used as media of exchange. Mauritius
had emerged as an important regional platform for payments and settlements between
traders from the West, Africa, the Indian sub-Continent and East Asia. The construction of
the Suez Canal and the two World Wars arrested the evolution of the financial hub. After
several decades, the platform was revived in 1989 with the hosting of our Offshore Banking
Centre. Mauritius does have its historical roots in serving international finance. We don't take
this attribute and the aptitude of our jurisdiction lightly. I seize this opportunity to tell the
people of China and the Chinese business community in Africa that we have no restriction
whatsoever on capital flows since 1994. Business people bring capital in and take capital out
of Mauritius freely - as long as anti-money laundering parameters set by the laws of the
country are positively observed. This vitally important characteristic of our jurisdiction
combined with a robust regulatory and supervisory framework for financial institutions makes
of Mauritius a safe and credible financial hub.
Mauritius is already a jurisdiction through which vast amounts of capital flow from various
parts of the world to China. The mass of trade between Africa and China needs a credible
jurisdiction for the usage of the RMB. The renminbi has moved fast from a regulatory-driven
currency to a market-driven currency in the past few years. Mauritius does have the potential
to grow into a regional "node" for the internationalization of the RMB. To the Chinese
business community in Africa, in particular, I wish to reassure that fund management,
treasury management of corporate bodies etc are competently conducted in our jurisdiction.
The advent of the Bank of China in our jurisdiction is thus a promising development.
Last year, I was in Shanghai, at the heart of the Chinese financial centre. During a
conversation over dinner with a group of bankers, I was a little surprised at their ignorance of
Chinese people having settled down here in Mauritius for around two centuries. They
listened to me in disbelief and jaw-dropped silence when I told them that the Spring Festival
is celebrated in Mauritius and the day of celebrations is a national holiday. To the people of
China, particularly to those Chinese businessmen having enterprises in Africa, I wish to tell
them that the Chinese Diaspora's contribution to the economic development of Mauritius has
been enormous. Sino-Mauritian relationship is a great story line which the Chinese
immigrants have constructed and woven through thick and thin since they first set foot in
Mauritius. The establishment of the Bank of China is a welcome response to the demands for
closer co-operation between Mauritius and the People's Republic of China.
The bank is headed by Mr Zhang Xiaoqing, a career banker. I understand the bank is
expected to be a game changer in the region under his leadership. On behalf of the Board of
Directors and the staff of the Bank of Mauritius, and on my own behalf, I wish the Bank of
China the very best.
Thank you.