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Market Structure For Retail Banking Services in Mauritius
Market Structure For Retail Banking Services in Mauritius
Market Structure For Retail Banking Services in Mauritius
SUPERVISOR: Dr Nowbutsing
14th November 2015
Table of Contents
1. Overview of the Banking Sector..................................................................................1
1.1 Mauritius Banking sector Performance..................................................................1
Growth in banks claims on the private sector - comprising mainly households and
corporations - remained negative as at end-December 2014 but recent trends in 2015
indicate a recovery in bank credit extended to households and corporate. Net foreign
assets held mainly by subsidiaries of foreign-owned banks and domestic-owned
positions remained sizeable, while banks claims on the government and the central
bank have generally registered positive growth in recent years. Gross foreign asset
positions averaged US$25 billion during 2010-2014, with a net value of about US$10
billion. Banks claims on government refer mainly to holdings of government
securities, while banks claims on the central bank are holdings of BoM securities.
Equity Tier 1(CET1) capital to total risk weighted assets being computed at 13.8 per
cent. From the ownership perspective, branches of foreign-owned banks maintained the
highest Tier 1 capital ratio with an average of 23.9 per cent, followed by the
subsidiaries of foreign banks by 16.7 per cent, while domestic-owned banks continued
to post lower Tier 1 capital ratio at 13.7 per cent.
sheet exhibit fairly low currency mismatches and net exposure to foreign exchange risk,
the risk of loss from adverse movements in foreign exchange rates are assessed to be
relatively insignificant.
2. House Loan
Housing is the basic human need that shelters a family. Nowadays the priority after
getting a job is to look for a substantial source of income for the construction of a house
or an apartment. However this major overhead cannot be funded out of a family basic
monthly income. This is known as the most expensive asset that most family can
possess and will usually require external funding in the form of a loan. The loan in
question will need to be borrowed from financial institutions such as bank or insurance
companies and the borrower will undergo a list of checklist such as his/her monthly
income their capability to repay the home loan. The government through its housing
scheme provides exemption through tax concessions to young individuals who had
their first home loan taken from any Mauritian registered lender.
Mauritius being a developing country will continue to grow in population and with it
the number of people who will need to construct a new house. According to the
statistical bureau of Mauritius,
From the year 2010 to 2011, there have been about 10900 residential houses which
have been built and being inhabited. With the rise of construction prices every month,
the need to take a home loan shall help to fulfil the ultimate dream of every middle
class family.
The market structure for Home loan services by banks or insurance companies is
present in an oligopolistic market condition. This industry is not a really competitive
one
In Mauritius we have 23 operating banks registered with the Bank of Mauritius and are
listed below:
Note that we have two banks which conduct private banking exclusively and one which
conduct Islamic banking.
Banks
1. ABC Banking Corporation Ltd
2. AfrAsia Bank Limited
3. Bank One Limited
4. Bank of Baroda
5. Banque des Mascareignes Lte
with a loan
Land Purchase
76.67 (23)
23.33 (7)
House Purchase
66.67 (20)
33.33 (10)
House Construction
93.33 (28)
6.67 (2)
House renovation & Extension 56.67 (17)
43.33 (13)
Table 1: Survey on home loan takers
From table 1 above we can read that about 73.33% of the people who took the survey
will take a home loan and that only 26.67% will not take a home loan. Hence the
purpose of the home and its market is a practical mean of revenue for the banking and
financial sector.
The home loan scheme market has mostly existed since centuries where the financial
institution will lend to the people in need with a repayment interest rate. In the past
houses were built by their owners themselves or with the help of their families with raw
materials readily available such as wood, soil and bale of straw. But in a tropical
country like Mauritius where mostly each year there is heavy rainfall and cyclonic
weather conditions, a concrete house is a must have for all Mauritian Families.
The following checklist and estimated cost have been prepared for people who need to
construct a house of about 120m2 on a 160m2 plot of land:
a) Purchase of a land (minimum of about Rs800,000 outside rural areas)
b) House Plan and Building permit (minimum of about Rs30000)
c) House Construction and completion (Minimum of about Rs1,500,000)
Hence a minimum total of about Rs2.33 million will be needed for an individual to
build a house on a plot of land. According to Statistic Mauritius the average monthly
earning of an individual in Mauritius is Rs 24537 and without taking into consideration
the increase of the value of money over time, it will take a minimum of more than 7
years for an average income individual to have sufficient funds in his bank account to
be able to build a house.
Below Chart 1 shows the evolution of the construction price index from October 2014
to September 2015. We can analyse from the chart that since December 2014 there has
been a rise in the construction price index. Hence this will results in the need to have a
greater monthly income for an individual from a middle class family in order to build a
house.
Index
114.5
114
113.5
113
112.5
112
111.5
111
41913 41944 41974 42005 42036 42064 42095 42125 42156 42186 42217 42248
And with construction prices increasing every month as per figure 1 above, the market
for home loan is big in a developing country like Mauritius.
Under this study we shall consider only two main Commercial banks, That is:
1) Mauritius Commercial Bank Ltd
Loan
Amount
Rupees
Minimum
of 3 years
Greater
2million
less
4million
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provided scheme. All banks require a building insurance (fire, cyclone, and other
perils).
Interest Rate
7.90%
6.99%
6.15%
Loan Amount As
from As
from As
in Rupees
200,000
to 1million
to 2milion
999,999
2milion
3milion
Loan
repayment
term
5.99%
from As
from
to 3million
to
4million
Minimum
1 Minimum
1 Minimum
1 Minimum
1
month
and month
and month
and month
and
maximum 300 maximum 300 maximum 300 maximum 300
months
months
months
months
The above two banks provides a relatively same interest rates. This is because Home
Loan banking in Mauritius is more like an oligopolistic type of market where the Bank
of Mauritius affect all other banks interest rates for home loan by varying its Repo rate.
With a high degree of interdependence where if one banks offers a lower interest rate
on savings or fixed term deposit, this will results in a large amount of bank accounts
closure where the stability of the other banks will be at risk.
Home loan also consist of a large portion of monthly expenditure and remains the
primary assets in homeowners portfolios. In Mauritius each year homeownership
keeps on increasing and with home loan we can expect to have a favourable tax
treatment by the MRA at the end of each semester.
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3.0 Conclusion
Growth of household indebtedness, as measured by the growth of bank credit to
households, decelerated rapidly during the second half of 2014. Bank credit to
households, particularly consumption credit grew at relatively high double digit growth
rates during 2013, before registering a marked slowdown in recent months. Growth
rates of consumption credit are about those registered in mid-2012, while those of
housing credit are even lower than the growth rates registered during the heights of the
global financial crisis (2007/09). Housing credit represents around 60 per cent of total
bank credit to households. Consumption loans represent the remaining 40 per cent of
total bank credit to households.
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The recent stability of the household indebtedness ratio is consistent with an average
growth rate of disposable income of about 7 per cent during the period, and the
reported slowdown in the growth of consumption and housing loans to households.
Broadening the definition of households debt to include borrowing from banks and
non-bank financial institutions (i.e., insurance companies) does not change the
perceived trends in the household debt ratio.
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15
16
The financial burden increased from an equivalent of about 4 per cent of disposable
income in early 2009 to about 4.5 per cent by end-September 2014. The increase in the
debt service ratio has taken place against the background of generally declining interest
rates. On a cross-country basis, households debt service costs in Mauritius are
significantly lower than in comparator countries.
Household indebtedness and household debt service (both as a share
of disposable income) are relatively low by international standards
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References
Figures, graphs and charts were drawn on Microsoft Word 2013 from scratch by the
author of this report.
http://www.mcb.mu/en/individual/loans/housing-loan/Housing-loan-promo
https://www.sbmgroup.mu/interest_rates.php?lang=en
https://www.sbmgroup.mu/loan_calculator.php?lang=en
https://www.hsbc.co.mu/1/2/personal/loans/home-loan?
WT.ac=HBAP_MU_Home_Loan_FOM#features
http://www.tradingeconomics.com/mauritius/interest-rate
http://www.bom.mu/Default.asp?id=RepoRate
http://statsmauritius.govmu.org/English/Pages/default.aspx
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