The COVID-19 pandemic and the associated containment measures have taken a toll on the Mauritian economy. The contraction in GDP has resulted in loss of income for many households and several productive sectors of our economy. In turn, this led to an increase in bank lending to households and the private sector. But it turns out that banks have been more cautious in lending to households than to businesses.
According to statistics released by the Bank of Mauritius on Thursday in the Financial Stability Report July 2021, there was slower growth in credit facilities provided to households, at 3% in March 2021, compared to 4.3% in December and 5.2% in September 2020. Of the facilities provided by banks, 67% are housing loans. These grew more slowly, by 5.9% in March 2021 compared to 6.9% in September 2020.
Due to the rise in unemployment and the subsequent fall in incomes as a result of the COVID-19 pandemic, households’ ability to borrow has been reduced. Many, who experienced financial difficulties, were unable to meet the eligibility criteria for new loans.
Moreover, the ratio of household debt to GDP at banks reached 27.5% in the first quarter of 2021, compared to 26.1% in the third quarter of 2020. The household debt ratio with all financial institutions thus reached 41% of GDP in the first quarter of 2021.
In addition, the ability of households to repay their debts has also deteriorated due to the prolonged negative impact of the Covid-19 pandemic, leading to a decline in household disposable income. However, the Bank of Mauritius indicated that low interest rates and various support programmes offered by the government and other parastatals have helped contain a potential increase in defaults.
Indeed, loan moratoria and restructurings have allowed households, and especially businesses affected by the COVID-19 economic crisis to defer repayment of their loans. In doing so, the likelihood of large-scale foreclosures has been minimized and the risks of financial instability have been significantly reduced, notes the Bank of Mauritius.
Nevertheless, with the COVID-19 pandemic still looming, with the second wave of infection still underway, the situation for businesses remains worrying, in terms of their profitability, liquidity and capitalization. The Bank of Mauritius had to do everything possible to help them. Interest rates have fallen to low levels. Moratoriums on loans cushioned the impact of revenue losses on the financial performance of companies while government measures have helped them to cope with operating expenses. The operating environment remains difficult and uncertain for the corporate sector, also given the effect of the depreciation of the Mauritian rupee.
