Moody’s Investors Service (“Moody’s”) has on Friday affirmed all ratings and assessments of the three rated Mauritian banks, namely: Mauritius Commercial Bank Limited (“MCB”), SBM Bank (Mauritius) Ltd. (“SBM Bank”), and Absa Bank (Mauritius) Limited (“Absa Mauritius”). As part of the same rating action Moody’s has changed the outlooks to stable from negative on MCB’s and SBM Bank’s long-term deposit and issuer ratings. The outlook for Absa Mauritius’ long-term deposit ratings remains stable.
A full list of affected ratings can be found at the end of this press release.
The rating action follows Moody’s decision to downgrade the Mauritian government’s long-term issuer rating to Baa3, from Baa2, with an outlook change to stable from negative on 28 July 2022. The stable outlook on the sovereign captures Moody’s expectations that Mauritius’s credit profile will remain aligned with Baa3-rated sovereigns. For further information on the sovereign rating action, please refer to Moody’s press release: “Moody’s downgrades Mauritius’s rating to Baa3, changes outlook to stable”, https://www.moodys.com/research/–PR_467667.
RATINGS RATIONALE*
The affirmation of the three Mauritian banks’ ratings reflects the resilient financial profile despite the increasingly challenging operating environment. While banks asset risks remain elevated, to varying degrees, banks maintain strong liquidity and solid capital buffers, and we expect their profitability to rebound following the pandemic.
While the post-pandemic economic recovery remains fragile, following Russia’s invasion of Ukraine that will lead to higher inflation and lower global growth rates, we expect any asset-quality deterioration for Mauritian banks to be manageable as a result of targeted support measures. Affected households and businesses have benefitted from moratoriums on loan repayments and wage assistance schemes, and large enterprises have received longer-term support from the Mauritius Investment Corporation (MIC).
The creation of MIC, a special purpose vehicle that is fully owned by the Bank of Mauritius and funded through $2 billion of international reserves, has supported financial stability by providing funding to systemically important corporates. The creation of MIC has, in this way, shielded the local banks from a sharp surge in asset quality’s deterioration, which is positive for the banking system, but in turn exposes the central bank’s balance sheet to increased credit risk.
The stable outlooks on the three banks’ long-term deposit and issuer ratings reflects Moody’s view that the banks’ ratings already capture the current risks to the banks’ financials from the still challenging operating conditions. The stable outlooks on the banks’ long-term deposit and issuer ratings also incorporate the stable outlook on the sovereign rating, as Moody’s expects that the sovereign’s capacity to provide support to banks, in case of need, will remain broadly stable.
ISSUER-SPECIFIC RATING DRIVERS
MAURITIUS COMMERCIAL BANK LIMITED (“MCB”)
The affirmation of MCB’s Baa3 long-term deposit and issuer ratings reflects its solid capital levels, with a shareholders’ equity-to-assets ratio of 10.3%. At the same time, high liquid banking assets-to-tangible banking assets ratio of 51% as of March 2022; and its stable domestic funding profile, mitigate MCB’s sizeable offshore deposits and growing market funding reliance. Despite a drop since the pandemic, MCB’s profitability strongly positions it among its global peers and Moody’s expects a gradual improvement supported by reduced loan loss provisions, the recent high growth in its international lending and the higher interest rate environment.
These drivers are moderated by residual risks to MCB’s asset quality amid the bank’s high borrower concentrations, and in the context of the still fragile post-pandemic economic recovery and following Russia’s invasion of Ukraine that will lead to higher inflation and lower global growth rates.
MCB’s Baa3 long-term deposit and issuer ratings reflect its ba1 Baseline Credit Assessment (BCA), and a one-notch rating uplift, resulting from Moody’s assessment of a high likelihood of support from the Government of Mauritius in the event of need, driven by MCB’s importance to Mauritius’ domestic financial system.
The stable outlook on MCB’s long-term deposit and issuer ratings reflects Moody’s view that the bank’s ratings already capture the current risks to the bank’s financials from the tough operating conditions. The stable outlook also incorporates Moody’s view that the sovereign’s capacity to provide support will remain broadly stable, given the stable outlook on the sovereign rating.
SBM BANK (MAURITIUS) LTD. (“SBM BANK”)
The affirmation of SBM Bank’s Ba1 long-term deposit and issuer ratings reflects the bank’s high share of liquid assets at 64.5% of tangible banking assets as of March 2022, its predominantly domestic retail deposit funded profile, with a low loan-to-deposit ratio; and strengthened capital levels with a reported regulatory Tier 1 capital ratio of 16.4% as of March 2022.
The ratings also reflect SBM Bank’s weak asset quality, with a higher share of NPLs at 10.0% of gross loans as of year-end 2021, that remains its key credit challenge. Residual risks remain in the context of the still fragile post-pandemic economic recovery and following Russia’s invasion of Ukraine that will lead to higher inflation and lower global growth rates.
SBM Bank’s Ba1 long-term deposit ratings reflect its ba2 BCA and a one-notch uplift, resulting from Moody’s assessment of a high likelihood of support from the Government of Mauritius, in the event of need.
The stable outlook on SBM Bank’s long-term deposit and issuer ratings reflects Moody’s view that the bank’s ratings already capture the current risks to the bank’s financials from the tough operating conditions. The stable outlook also incorporates Moody’s view that the sovereign’s capacity to provide support will remain broadly stable, given the stable outlook on the sovereign rating.
ABSA BANK (MAURITIUS) LIMITED (“ABSA MAURITIUS”)
The affirmation of Absa Mauritius’ Ba1 long-term deposit ratings reflects its strong liquidity buffers at 63% of tangible banking assets as of March 2022 and solid capital levels with a reported regulatory common equity Tier 1 capital ratio of 19.0% and a total capital adequacy ratio of 23.1% as of December 2021. The bank’s profitability and franchise benefit from the close cooperation with its parent, Absa Group Limited (AGL, Ba3 stable), and other group companies in the region, as well as its role as the group’s international banking, wealth management and asset hub, results in its ability to source good-quality regional business in the broader Africa continent.
The ratings also capture the high credit risks stemming from the still fragile post-pandemic economic recovery and following Russia’s invasion of Ukraine that will lead to higher inflation and lower global growth rates.
Absa Mauritius Ba1 long-term deposit ratings reflect its ba2 BCA and a one-notch uplift to its BCA, stemming from Moody’s assessment of a moderate likelihood of support from the Government of Mauritius, in case of need.
The stable outlook on Absa Mauritius’ long-term deposit ratings reflects Moody’s view that the bank’s ratings already capture the current risks to the bank’s financials from the still challenging operating conditions. The stable outlook also incorporates Moody’s view that the sovereign’s capacity to provide support will remain broadly stable, given the stable outlook on the sovereign rating.
