mahendra vikramdass punchoo : the impact of basel iii reforms in the implementation of basel ii / iii in emerging market and developing economies speech by mr mahendra vikramdass punchoo, second deputy governor of the bank of mauritius, on the impact of basel iii reforms in the implementation of basel ii / iii in emerging market and developing economies, port louis, 24 july 2018. * * * the director of afritac south, ms effie psalida the resident adviser afritac south, mr ravi mohan ladies and gentlemen, a very good morning to you all. last year, in august, i delivered a speech on the same topic and at the same venue. the seminar was so successful and i recall that many participants expressed interest that such seminars feature again in the annual work programme of afritac south. i am happy that afritac south has obliged, giving this opportunity to as many participants as possible. such high - level exposures to the intricacies of basel iii do not come spontaneously to us in this part of the world given the relative unsophistication of our banking system and limited experience. that so many high - calibre technical experts should fly down to mauritius is in itself a testimony of the commitment the international monetary fund, through the presence of afritac south, has towards member countries in promoting best practices in the business of regulation and supervision of banks. under basel ii banks had too little capital and were highly leveraged. their incentive to take risks was disproportionately high. the flexibility given to these banks under the internal ratings - based approach for credit risk had led them to significantly under - estimate the risk - weighted assets so much so that banks with similar portfolio, risk profile and business models had widely dispersed risk - weighted assets. in addition, their increasing reliance on the interbank market to fund assets made them vulnerable to a liquidity squeeze. basel iii has not only improved the quality of the capital that banks are required to hold but also increased the capital requirements. higher quality capital in the form of common equity tier 1 capital and comprising mainly of equity and retained earnings, has been raised from 2 per cent to 4. 5 per cent of the risk - weighted assets while tier 1 capital has been increased to 6 per cent. to deter banks on the irb approach from taking undue advantage of the model - based approach to credit risk, basel iii has introduced a floor for risk - weighted assets. for

bulk clearing system for low - value electronic transactions, in september 2011. the next step in the modernization of the payments system will be the implementation of a national switch on which work is proceeding. • in april 2012, we introduced the depository system for government securities that provides for a strict deliver - versus - payment mechanism for the issue of such securities. this mechanism is aimed at eliminating settlement risks and is in accordance with the recommendations of the bank for international settlements for securities settlement. • we broadened the coverage of the mauritius credit information bureau to include insurance companies, non - bank deposit taking institutions, and utility providers, as well as the central bank itself. thus, a comprehensive picture of the aggregate indebtedness of the prospective borrowers is now available, and this should, under normal circumstances, curb the level of non - performing loans in the system. • we increased the efficiency of the financial markets through the conduct of singlematurity auctions of treasury bills and by holding frequent auctions during the week. we eliminated paper bids at auctions and moved to a platform where participants can submit their bids online. we enlarged the spectrum of instruments by introducing a 273 - day treasury bill as from october 2011. we introduced single - maturity auctions as from november 2011 to enable the government to determine its debt profile. new benchmark securities — 3 - year treasury notes and 5 - year bonds — were issued to enhance liquidity in the secondary market. we finalized preparations for trading these benchmark securities on the stock exchange to create a proper bond market for mauritius. concurrently, the issue of 2 - year and 4 - year treasury notes was discontinued in 2012. • the bank continued its efforts to issue new guidelines and improve existing ones, incorporating the latest developments in international best practices as recommended by international standard - setting bodies such as the basel committee on banking supervision. the latest guideline to have been issued ( august 2012 ) is the guideline on corporate governance after prolonged consultation with the industry. bis central bankers ’ speeches • the bank actively participated in both regional and continental fora such as the comesa committee of central bank governors, the committee of central bank governors of sadc, and the association of african central banks ( aacb ). since february 2012, the bank is a member of the sub - saharan regional consultative group of the financial stability board, which operates under the aegis of the bank for international settlements. in 2011, i had the honour to co - chair on behalf of fellow - governors