asia must strengthen its infrastructure for allocating capital. banks are still the principal channel for allocating capital in asia, and post - asian financial crisis, many asian authorities have taken steps to strengthen their banks. banking systems were cleaned up of their non - performing loans, recapitalised, and strengthened. capital adequacy ratios were raised and a more risk - differentiated view was taken of bank assets. risk management systems were made more robust. it was in large part because of these changes, that asia was better able to withstand the global financial crisis in 2008 and 2009. 18. but much work remains to be done in one important area. developing asia needs to continue to develop its capital markets. the asian financial crisis was essentially due to a double - mismatch in bank financing – currency mismatches and maturity mismatches. this is where strong capital markets can play a useful role in allocating capital in a more balanced and efficient manner. they also help to deepen financial intermediation, so as to facilitate the deployment of the region ’ s high savings for investment within the region. 19. this was why, nearly ten years ago, the asean + 3 countries ( namely the ten nations of asean together with china, japan and south korea ) introduced the “ asian bond markets initiative ( abmi ) ”. the abmi has had a good start – the asian corporate bond market has grown by more than 2. 5 times during 2002 to 2010. but it is still too small relative to the size of asia ’ s investment needs. it needs to be more liquid and diverse. access to capital market funding is still mostly restricted to large conglomerates and government - linked companies. 20. emerging asia is also under - represented in the equity universe. the region ’ s 45 countries in the msci ac world index account for less than 10 per cent of the index although their share of world gdp is 19 per cent. 21. we need to make emerging asia ’ s capital markets deep enough to effectively intermediate its considerable savings pool and broad enough to provide a range of suitable instruments for risk mitigation. 22. the crying investment need in asia is for infrastructure. a report released by the asian development bank institute estimates that the total investment needs for national infrastructure development in asia will average close to us $ 750 billion per year from 2010 to 2020. but private participation in infrastructure investments in asia amounted to just us $ 15 billion in 2009, less than half the us $ 39 billion that

an adversely stressed scenario. the objective is to examine if the bank has the financial muscle and strength to withstand shocks. the bank, along with the prized assistance of an econometrician, associate professor, jameel khadaroo, of the university of mauritius, has developed a stress testing framework for producing a suite of macro - prudential models for in - house use by the staff of the bank. the findings of the last stress testing exercise indicated that the domestic banking sector is indeed strong and resilient to shocks with some grey areas that need close monitoring. i need to share with the audience two more findings : a reduction in interest rates sustained over a long period of time with a view to stimulating the economy tends to raise credit risk, measured in terms of nonperforming loans in sectors like manufacturing, construction and personal. a depreciation of the rupee aiming to promote the export sectors reduces credit risk in the manufacturing and tourism sectors but it increases the credit risk to the trade sector because of our dependence on imports. six months have gone by since the protocol on the double tax avoidance agreement was signed. it was feared that the revision of the agreement would trigger a flight of global business deposits. at the end of march 2016, aggregate deposit liabilities of the banking industry stood at rs855 billion, out of which gbc deposits were rs320 billion. rather than dropping as initially feared, gbc deposits had gone up to rs350 billion by the end of september last. even after allowing for exchange rate effects gbc deposits have increased considerably in the last six months. the rising level of gbc deposits, despite the signing of the protocol, does not go to say that the bank or anyone of us should be complacent about. with the expiry of the grandfathering clause by 2019, the risk of an erosion of the deposit base of banks is clear and present unless all participants in our jurisdiction come up with innovative and meaningful business strategies. already, there are indications of a growing demand for mauritius to position itself as treasury centres for multinationals operating in africa. a few international banks are actually engaged in promoting this business. the bank of mauritius stands ready to support such initiatives. a drop in gbc deposits would deprive the country of foreign exchange inflows for the financing of the current account deficit. the bank had feared that a drop in gbc deposits would adversely impact on the liquidity positions of banks. a