rundheersing bheenick : the first pan - african derivatives exchange in mauritius address by mr rundheersing bheenick, governor of the bank of mauritius, at the seminar on currency derivatives, organised by global board of trade, port louis, 16 july 2009. * * * it is a great pleasure for me to be with you this morning at the opening ceremony of this seminar on currency derivatives, organized by the global board of trade. the launch of the first pan - african derivatives exchange – which is what gbot is – here in mauritius marks a milestone in the development of our financial sector. the waves of financial sector liberalization first touched our shores in a big way in 1994 with the suspension of exchange control which was how we had kept our external accounts in balance until then, supported much of the time by steep import tariffs, administrative controls, lending ceilings and directed interest rates. our financial sector has attracted favourable reviews from international financial institutions and has emerged over the past few years as an important contributor to the economy. it has also been a key driver in our efforts to participate fully in globalization, supported by other measures such as tariff reduction and fiscal consolidation. in 2008, the financial sector was the second - fastest growing area of activity, just after the booming construction sector, with a growth rate of 10. 1 per cent, against 7. 5 per cent in 2007. it employed 12, 500 persons and its share in gdp was just below 11 per cent. and this year, when the global economy has stalled as western economies have nosedived in what has been called the great recession, our financial sector continues on its growth path. its contribution to gdp is predicted to rise to 11. 5 per cent in 2009 and to keep rising thereafter as the contributions of traditional sectors to gdp continue on their declining trend. although our financial sector witnessed an impressive development over the last decade following the suspension of capital controls, the focus remained on sound bank lending, securities issuances and trading, and foreign direct investment. we relied on domestic retail deposits, not foreign wholesale money markets. we, as regulator and supervisor, did not fall asleep at the wheel and our banks have continued to be profitable and have not become wards of the state! our financial system is of course far from perfect and suffers from several deficiencies – e. g. markets for bonds, currency and derivatives are thin! in a brief interview i had given to the “ business standard ” newspaper in india in march last year,

the extremes of the credit delinquencies of the past. can we be sure that the basel ii framework can provide greater protection in the future? capital adequacy, even when risk - based, is no substitute for liquidity when markets dry up. you will know that we at the central bank have also embarked on a review of the operational guidelines to give banks more functional freedom, without losing sight of prudence. growth in the financial sector must be matched with the best standards of governance. it is heartening to note that the banking system in mauritius has remained insulated from the meltdown in the west in the wake of the sub - prime mortgage lead crisis. today, looking back over the twelve months ended june 2008, we are seeing strong growth in the banking sector. the number of bank branches in the country has increased from 178 to 186. the number of atms has gone up from 334 to 382. we are now on the threshold of issuing licenses for the first islamic banks. these fresh players will keep you all on your toes. june to june figures show the total balance sheet of our banks growing from about rs 624 billion to rs 729 billion in june 2008, that is an increase of over rs 100 billion in one year. there is more than adequate liquidity in the system. the declining trend in the percentage of npls to total loans continued. profits during the year shot up by rs 1 billion, or 11 per cent higher than the previous year, and were just shy of rs 10 billion. the capital base of banks continues to be strong. the shares of the two listed banks have held steady on the local stock exchange. so much so that these two banks now account for an astounding 42 per cent of total market capitalisation, compared to little above 30 per cent in june last year. we trot out these figures with some satisfaction. we are nevertheless, aware that there is no room for complacency either on our part as regulator or on the part of the banks themselves. we will maintain our vigilance and we will be proactive in dealing with any asset bubble or liquidity crunch, should we foresee any on the horizon. as a regulator on banking, one has to say, that in the past there has been rather too much inertia in the area of consumer choice, unrelated to evidence - based assessment. we want to achieve greater transparency regarding spreads, fees, charges, commission and the like. we