RISK MANAGEMENT
REPORT
- Home
- RISK MANAGEMENT REPORT
MESSAGE FROM THE HEAD OF RISK
With the diverging pace of vaccination campaigns globally, there has been a more cautious optimism about the recovery trend of the world’s economy this past year, FY20/21. While financial markets have rebounded, the impact of the COVID-19 pandemic still affects many sectors, including the banking industry.
Banks have faced heightened risks since the beginning of COVID-19. Extension of several Government measures have been able to help the economic operators in Mauritius to stay afloat so far. The eminent opening of the border is expected to bring back the economy on track in the medium term and cure the market players. Banks have played their part in restructuring loans to match the expected recovery trend in order to sustain the economy and also prevent a systemic risk in the Financial Sector.
Our customer centric approach at AfrAsia Bank Limited has helped us to remain close to our clients, actively engaged with them, guided and supported them. At the same time, we proactively managed the balance sheet and other risks so as to protect the Bank’s capital. Due to the global pandemic and its impact on the macroeconomic landscape, we revisited the Bank’s IFRS 9 framework to re-calibrate our models in order to factor in the prevailing market uncertainties. We established new approaches, methodologies and processes to properly recognise the change in the underlying risks of our exposures as part of our robust and dynamic IFRS 9 framework.
We reviewed our risk appetite and devised new liquidity deployment strategies. This pandemic has pushed us to revisit our strategy and in turn resulted in a stronger and more resilient balance sheet.
RAKESH SEESURN
Head of Risk
RISK MANAGEMENT
STRATEGY
Risk management is the process of identifying, evaluating and managing the impact of uncertain events, and monitoring the consequences at acceptable levels. The risk-management cycle is comprised of four phases:
- establishing objectives by identifying the strategic goals and determining constraints;
- analyzing the risks;
- selecting controls and assessing the alternatives to address the risks; and
- implementing the alternatives and monitoring the progress and results.
The process organises information about the possibility of a spectrum of undesirable outcomes into an inclusive, orderly structure that helps decision makers to make informed choices about their organisation’s ability to manage risks.
OUR RISK APPETITE
FRAMEWORK
The Bank’s risk appetite is defined by a risk appetite framework set by the Board. It aids to emphasise its strong risk culture and helps define thresholds, processes and controls to manage aggregate risks through an acceptable scale.
In line with Bank of Mauritius Guidelines on Credit Concentration, Country Risk Management and Cross-Border Exposures, the Board has established a set of policies and procedures in respect of cross-border activities, which clearly translate to the Bank’s strategic goals within approved risk parameters.
Download PDF to view full section
CAPITAL STRUCTURE AND ADEQUACY
| Afrasia Bank Limited | 2021 | 2020 | 2019 | |
|---|---|---|---|---|
| MUR'000 | MUR'000 | MUR'000 | ||
| Common Equity Tier 1 capital: instruments and reserves | ||||
| Share Capital | 3,641,04913 | 3,641,049 | 3,641,049 | |
| Statutory reserve | 1,051,915 | 920,631 | 692,398 | |
| Retained earnings | 2,664,794 | 2,297,788 | 1,836,242 | |
| Accumulated other comprehensive income and other disclosed reserves | 251,890 | 198,526 | 108,365 | |
| Common Equity Tier 1 capital before regulatory adjustments | 7,609,648 | 7,057,994 | 6,278,054 | |
| Common Equity Tier 1 capital: regulatory adjustments | ||||
| Other intangible assets | (288,679) | (269,914) | (243,398) | |
| Deferred Tax | (149,593) | (124,388) | (100,953) | |
| Total regulatory adjustments to Common Equity Tier 1 capital | (438,272) | (394,302) | (344,351) | |
| Common Equity Tier 1 capital (CET1) | 7,171,376 | 6,663,692 | 5,933,703 | |
| Additional Tier 1 capital: instruments | ||||
| Instruments issued by the Bank that meet the criteria for inclusion in Additional Tier 1capital (not included in CET1) |
1,365,601 | 1,323,265 | 1,323,552 | |
| Additional Tier 1 capital (AT1) | 1,365,601 | 1,323,265 | 1,323,552 | |
| Tier 1 capital (T1 = CET1 + AT1) | 8,536,977 | 7,986,957 | 7,257,255 | |
| Tier 2 capital: instruments and provisions | ||||
| Provisions or loan-loss reserves (subject to a maximum of 1.25 percentage points of credit risk-weighted risk assets calculated under the standardised approach) |
555,833 | 399,896 | 463,159 | |
| Tier 2 capital (T2) | 555,833 | 399,896 | 463,159 | |
| Total Capital (capital base) (TC = T1 + T2) | 9,092,810 | 8,386,853 | 7,720,414 | |
| Risk weighted assets | ||||
| Credit Risk | 51,055,154 | 49,912,135 | 43,810,049 | |
| Market Risk | 107,997 | 245,359 | 499,978 | |
| Operational Risk | 5,045,198 | 5,205,652 | 4,404,267 | |
| Total risk weighted assets | 56,208,349 | 55,363,146 | 48,714,294 | |
| Capital ratios (as a percentage of risk weighted assets) | Regulatory Limits | |||
| CET1 capital ratio | 9.38% | 12.76% | 12.04% | 12.18% |
| Tier 1 capital ratio | 10.88% | 15.19% | 14.43% | 14.90% |
| Total capital ratio | 12.88% | 16.18% | 15.15% | 15.85% |
RECONCILIATION WITH AFRASIA BANK’S
AUDITED FINANCIAL STATEMENTS
| 30 June 2021 | ||
|---|---|---|
| Statement of Financial Position as in published financial statements |
Statement of Financial Position as per Basel III |
|
| ASSETS | MUR'000 | MUR'000 |
| Cash and cash equivalents | 97,810,099 | 99,970,48d |
| Due from banks | 17,974,090 | 17,977,444 |
| Derivative financial instruments | 407,880 | 407,880 |
| Loans and advances to banks | 6,638,835 | 6,668,316 |
| Loans and advances to customers | 18,749,929 | 19,146,511 |
| Investment securities | 45,410,195 | 45,451,398 |
| Financial assets held for trading measured at fair value through profit or loss | 5,534,813 | 5,534,813 |
| Debt instruments measured at amortised cost | 39,859,873 | 39,901,076 |
| Equity Investments designated at fair value through other comprehensive income | 13,804 | 13,804 |
| Equity Investment measured at fair value through profit or loss | 1,705 | 1,705 |
| Property and equipment | 137,437 | 137,437 |
| Intangible assets | 288,679 | 288,679 |
| Right of use assets | 44,518 | 44,518 |
| Deferred tax assets | 149,593 | 149,593 |
| Other assets | 2,471,954 | 315,696 |
| TOTAL ASSETS | 190,083,209 | 190,557,957 |
| LIABILITIES AND EQUITY | ||
| Due to banks | 1,000,122 | 1,000,122 |
| Deposits from banks | 364,726 | 364,726 |
| Deposits from customers | 178,846,558 | 178,846,558 |
| Derivative financial instruments | 210,392 | 210,392 |
| Retirement benefit obligations | 73,189 | 73,189 |
| Current tax liabilities | 85,647 | 85,647 |
| Lease liabilities | 47,658 | 47,658 |
| Provisions | - | 504,325 |
| of which: Provision reflected in regulatory capital | - | 504,325 |
| Other liabilities | 407,993 | 378,416 |
| TOTAL LIABILITIES | 181,036,285 | 181,511,033 |
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | ||
| Ordinary Shares | 3,641,049 | 3,641,049 |
| of which amount eligible for CET1 | 3,641,049 | |
| Class A shares | 1,385,768 | 1,385,768 |
| of which amount eligible for AT1 | 1,365,601 | |
| Retained earnings | 2,664,794 | 2,664,794 |
| Other reserves | 1,355,313 | 1,355,313 |
| of which: Provision reflected in regulatory capital | - | 51,508 |
| TOTAL EQUITY | 9,046,924 | 9,046,924 |
| TOTAL LIABILITIES AND EQUITY | 190,083,209 | 190,557,957 |
CAPITAL ADEQUACY RATIO
The capital adequacy ratios are computed in line with the “Guideline on Scope of Application of Basel III and Eligible Capital (June 2021)”. The Bank of Mauritius (BOM), as part of its number of measures set to mitigate the effects of COVID-19 on the Banking sector, has deferred the implementation of the last tranche of the capital conservation buffer to April 2022. Additionally, in compliance with the “Guideline for dealing with Domestic-Systemically Important Banks (“D-SIB”)”, the Bank is subject to an additional buffer of 1.00% for the calendar year 2021, following the yearly assessment carried out by BOM. The capital adequacy ratio of the Bank stood at 16.18% under Basel III as at end of June 2021, witnessing an increase of 103 basis points as compared to 15.15% as at end of the previous financial year. The Bank remains well capitalised with its capital adequacy ratio being above the regulatory limit of 12.88% for the calendar year 2021.
Capital Adequacy
RISK WEIGHTED ASSETS
In order to determine the risk weightage for its exposures, the Bank uses the ratings assigned by Moody’s Investors Service and Care Ratings. The risk weightages are calculated in accordance to the “Guideline on Standardised Approach to Credit Risk (Feb 2018)”. As at end of June 2021, the total risk weighted assets for the Bank grew by 1.5% to reach MUR 56.2bn in comparison to MUR 55.4bn for the previous financial year owing to an increase in business activities.
Analysis by risk type:
-
Credit Risk
MUR 51.1bn
-
Market Risk
MUR 0.1bn
-
Operational Risk
MUR 5.0bn
STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated and separate financial statements of the Group’s and the Bank’s operations in Mauritius presented in this annual report have been prepared by management, which is responsible for their integrity, consistency, objectivity and reliability. International Financial Reporting Standards of the International Accounting Standards Board as well as the requirements of The Companies Act 2001 of Mauritius, The Banking Act 2004 (amended August 2021) and the guidelines issued by the Bank of Mauritius, have been applied in the preparation and fair presentation of the financial statements for the year ended 30 June 2021 and management has exercised its judgement and made best estimates where deemed necessary.
The Group and the Bank have designed and maintained its accounting systems, related internal controls and supporting procedures, to provide reasonable assurance that financial records are complete and accurate and that assets are safeguarded against loss from unauthorised use or disposal. These supporting procedures include careful selection and training of qualified staff, the implementation of organisation and governance structures providing a well-defined division of responsibilities, authorisation levels and accountability for performance and communication of the Bank’s policies, procedure manuals and guidelines of the Bank of Mauritius throughout the Bank.
The Bank’s Board of Directors, acting in part through the Audit Committee, Conduct Review Committee, Corporate Governance Committee, Credit Committee, Risk Committee and Technology, Digitalization and Platforms Committee, which comprise non-executive and independent directors, oversee management’s responsibility for financial reporting, internal controls, assessment and control of major risk areas, and assessment of significant and related party transactions.
The Bank’s Internal Auditors, who has full and free access to the Audit Committee, conduct a well-designed program of internal audits. In addition, the Bank’s compliance function maintains policies, procedures and programs directed at ensuring compliance with regulatory requirements.
Pursuant to the provisions of The Banking Act 2004 (amended August 2021), the Bank of Mauritius makes such examination and inquiry into the operations and affairs of the Bank as it deems necessary.
The Bank’s external auditors, Deloitte, have full and free access to the Board of Directors and its committees to discuss the audit and matters arising therefrom, such as their observations on the fairness of financial reporting and the adequacy of internal controls.
INDERJIT SINGH BEDI
Chairperson
THIERRY VALLET
Interim Chief Executive Officer
JOAN JILL WAN BOK NALE
Director