Menu
  • Home
  • Corporate Profile and Overview
    • About Afrasia bank
  • Corporate Governance Report
    • PRINCIPLE TWO – THE STRUCTURE OF THE BOARD AND ITS COMMITTEES
    • PRINCIPLE EIGHT – RELATIONS WITH SHAREHOLDERS AND OTHER KEY STAKEHOLDERS
  • Sustainability at AfrAsia
  • Risk Management Report
  • Management Discussion & Analysis
    • Business segments achievements
    • PROFIT OR LOSS AND OTHER COMPRHENSIVE INCOME REVIEW
    • FINANCIAL POSITION REVIEW
  • Statement of Management Responsibility for Financial Reporting
  • Financial Statements
    • Notes 1 - 2
    • Notes 3A-B
    • Notes 4 - 17
    • NOTES 18- 24
    • Notes 25 -34
    • Notes 35 - 37
    • Notes 38 - 41
  • Home
  • Corporate Profile and Overview
    • About Afrasia bank
  • Corporate Governance Report
    • PRINCIPLE TWO – THE STRUCTURE OF THE BOARD AND ITS COMMITTEES
    • PRINCIPLE EIGHT – RELATIONS WITH SHAREHOLDERS AND OTHER KEY STAKEHOLDERS
  • Sustainability at AfrAsia
  • Risk Management Report
  • Management Discussion & Analysis
    • Business segments achievements
    • PROFIT OR LOSS AND OTHER COMPRHENSIVE INCOME REVIEW
    • FINANCIAL POSITION REVIEW
  • Statement of Management Responsibility for Financial Reporting
  • Financial Statements
    • Notes 1 - 2
    • Notes 3A-B
    • Notes 4 - 17
    • NOTES 18- 24
    • Notes 25 -34
    • Notes 35 - 37
    • Notes 38 - 41

CREDIT RISK

Credit risk arises from the possibility of financial losses stemming from the failure of clients or counterparties to meet their financial obligations to the Bank. Credit processes control the credit risk of individual and corporate clients. Other sources of credit risk arise from trading activities, including: debt securities, settlement balances with market counterparties, amongst others. The objective of credit risk management is to maintain a rigorous and effective integrated risk management framework to ensure that all controls are in line with risk processes based on international best practices.

Organisation and Structure

The Bank has structured the responsibilities of credit risk management so that decisions are taken as close as possible to the business, whilst ensuring that there is an adequate segregation of tasks. Credit policies and processes monitor and manage credit risk in a manner that complies with the Bank of Mauritius guidelines and AfrAsia Bank’s risk appetite.

CREDIT RISK POLICIES

rm ›Establishing contact ›Evaluate first customer information ›Customer meeting ›Shareholding structure ›Segmental information ›Performs Operational Evaluation on the credit request ›Provide details on the deal and rationale for financing ›Provide details on Client’s background, client base and products base & markets ›Highlights the key business risks ›Review MCIB and search report ›Requests supporting documents ›Proposes Facility structuring ›Obtains information ›Completeness and plausibility review ›Financial spreading and Financial Analysis ›Provides recommendation to Relationship Managers (Domestic Banking or Global Business) ›Provides in-depth advice on appropriate security structure; ›Vetting of documentation ›Review of existing securities (and advises on flaws or pending documentation if any) ›Ensures compliance with regulatory and Internal Credit Risk Policy ›Reviews documents and facility structure ›Assesses credit-related factors linked to lending ›Assesses Loan to Value ratio ›Formulates independent recommendation on the credit request ›Evaluates exposure ›Industry/Country exposure ›Approval by decision-makers and depending on authority structure CREDIT APPROVAL PROCESSCUSTOMER SERVICE ASSISTANT/ CUSTOMER SERVICE OFFICERRELATIONSHIP MANAGERCREDIT MANAGERLEGAL VETTINGCREDIT RISK MANAGEMENTMCC/BCCFRONT - OFFICERELATIONSHIP MANAGEMENTCREDIT MANAGEMENTAPPROVAL PROCESSAccount Opening KYC PerfectionOperational Evaluation Provide details on Background and dealsCollect and review data; credit analysis and submission of credit proposalVetting of proposed security structure for complex structuresCredit Risk Assessment Approval by Management Credit Committee or Board Credit Committee ›Establishing contact ›Evaluate first customer information ›Customer meeting ›Shareholding structure ›Segmental information ›Performs Operational Evaluation on the credit request ›Provide details on the deal and rationale for financing ›Provide details on Client’s background, client base and products base & markets ›Highlights the key business risks ›Review MCIB and search report ›Requests supporting documents ›Proposes Facility structuring ›Obtains information ›Completeness and plausibility review ›Financial spreading and Financial Analysis ›Provides recommendation to Relationship Managers (Domestic Banking or Global Business) ›Provides in-depth advice on appropriate security structure; ›Vetting of documentation ›Review of existing securities (and advises on flaws or pending documentation if any) ›Ensures compliance with regulatory and Internal Credit Risk Policy ›Reviews documents and facility structure ›Assesses credit-related factors linked to lending ›Assesses Loan to Value ratio ›Formulates independent recommendation on the credit request ›Evaluates exposure ›Industry/Country exposure ›Approval by decision-makers and depending on authority structure CREDIT APPROVAL PROCESSCUSTOMER SERVICE ASSISTANT/ CUSTOMER SERVICE OFFICERRELATIONSHIP MANAGERCREDIT MANAGERLEGAL VETTINGCREDIT RISK MANAGEMENTMCC/BCCFRONT - OFFICERELATIONSHIP MANAGEMENTCREDIT MANAGEMENTAPPROVAL PROCESS

Impact of IFRS 9 Financial Instruments

AfrAsia Bank Limited has run a centrally managed IFRS 9 program since 2018, which included business functions and subject matter experts on methodology, data sourcing and modelling, IT processing and reporting. Overall governance of the program’s implementation has been through the Bank’s IFRS 9 Steering Committee and included representatives from Risk, Credit, IT and Finance department. The adoption of IFRS 9 has enabled AfrAsia Bank to enhance its internal control system with a better end-to-end management on an ongoing basis, which is critical to avoid unintended consequences. In addition, IFRS 9 Financial Instruments have allowed the Bank to analyse high frequency market data to enhance the risk assessment of our portfolios; while still delivering a consistent customer experience within set risk parameters. IFRS 9 is much more sensitive to new information compared to IAS 39 in terms of embedding forward-looking information. IFRS 9 reinforces the risk mitigation process through internal controls and credit monitoring.

Controls & Lines of Defense

rmCEOSENIOR MANAGEMENTBOARDFirst Line of DefenceBUSINESS UNITS Follow a risk process ›Identify, manage, measure and mitigate inherent risks in daily activitiesSecond Line Of DefenseRISK AND COMPLIANCE Establish the integrated management framework for risks and management policies. Provide independent monitoring of management practices and a critical review independent of the first line of defense. Develop Risk management/Risk appetite frameworkThird Line Of DefenseINTERNAL AUDIT Review 1st and 2nd lines of defense Give independent assurance to the Management and the Board on the effectiveness of policies, processes and practices of risk management and controls

Credit Rating

As per Basel II Capital Accord, a Rating System must have 2-Dimensions and provide for a separate assessment of borrower and transaction characteristics to provide for a meaningful differentiation of risk. The Bank uses the CRISIL Risk Solutions to provide a suite of software that is critical for ensuring compliance with regulatory guidelines. CRISIL’s Risk Assessment Model (RAM) is the largest deployed internal risk rating solution in India. This model as well as CRISIL Retail Scoring Solution (CRESS) have been implemented to assist the Bank in complying with the requirements under the internal ratings-based approach of the Basel II Accord. Both models now facilitate credit risk appraisal of a borrower through a judicious mix of objective and subjective methodologies and act as a comprehensive database for all borrower-specific information.
CRISIL Description 
AAABorrowers has extremely strong capacity to meet its financial commitments.
AA+Borrowers are judged to offer high safety of timely payment.
AABorrowers are judged to offer high safety of timely payment.
AA-Borrowers are judged to offer high safety of timely payment.
A+Borrowers have adequate capacity to meet its financial commitments.
ABorrowers have adequate capacity to meet its financial commitments.
A-Borrowers have adequate capacity to meet its financial commitments.
BBB+Borrowers offer moderate safety of timely payment of interest and principal for the present.
BBBBorrowers offer moderate safety of timely payment of interest and principal for the present.
BBB-Borrowers offer moderate safety of timely payment of interest and principal for the present.
BB+Borrowers are judged to offer moderate safety for timely payment of interest and principal for the present. There is a marginal difference in the degree of safety provided.
BBBorrowers are judged to offer moderate safety for timely payment of interest and principal for the present. There is a marginal difference in the degree of safety provided.
BB-Borrowers are judged to offer minimum safety for timely payment of interest and principal for the present.
B+Borrowers are judged to offer minimum safety for timely payment of interest and principal for the present.
BBorrowers are judged to offer minimum safety for timely payment of interest and principal for the present.
B-Borrowers are judged to offer minimum safety for timely payment of interest and principal for the present.
CCBorrowers have a greater susceptibility to default
DBorrowers are in default

CREDIT MONITORING

Credit risk exposures are managed through a robust post disbursement monitoring process. This involves regular portfolio reviews and detection of any early warning signals. Exposures showing signs of deterioration are put on watch list and the files are reviewed at least monthly to ensure prompt actions are taken. Regular and ad-hoc checks are performed to ensure that guidelines and policies set by the Board are adhered to. With the implementation of IFRS 9, all borrowers, regardless of financial health, are subject to a full review of all facilities on at least an annual basis, more frequent interim reviews may be undertaken should circumstances dictate to identify any significant increase in credit risk.

LOANS AND ADVANCES TO BANKS

S&P rating gradeStage 1Stage 2Stage 3Total
 MUR'000MUR'000MUR'000MUR'000
Credit rating A+ to A-1,521,469--1,521,469
Credit rating BBB+ to BBB-2,763,402--2,763,402
Credit rating BB+ to BB-1,425,850--1,425,850
Credit rating B+ to B-323,505--323,505
Total gross carrying amount6,034,226--6,034,226

LOANS AND ADVANCES TO CUSTOMERS

Internal Rating gradeStage 1Stage 2Stage 3Total
 MURMURMURMUR
Performing:    
Credit rating AAA63,306,471--63,306,471
Credit rating AA+ to AA-947,277,771--947,277,771
Credit rating A+ to A-13,099,640,083--13,099,640,083
Credit rating BBB+ to BBB-4,647,831,599--4,647,831,599
Credit rating BB+ to BB-1,665,109,848--1,665,109,848
Credit rating B+ to B-279,795,095--279,795,095
Credit rating CCC+ to C-1,117,417,016-1,117,417,016
Non performing:    
Credit rating D--2,242,335,2562,242,335,256
Total gross carrying amount20,702,960,8671,117,417,0162,242,335,25624,062,713,139
During the financial year 2018/19, AfrAsia Bank has taken active steps in prudently managing its exposures and ensuring that its loan book is judiciously diversified, while periodically conducting stress tests to assess the resilience of its portfolio in case of unfavorable events. Over the years, the Bank has been keeping a close attention on its credit concentration to ensure it meets regulatory requirements.

CONCENTRATION OF RISK

The Bank of Mauritius Guidelines on Credit Concentration (revised September 2017) restrict the granting of credit facilities to non-financial institutions and other related parties to:

  • A maximum exposure to any single customer of 25% of the Bank’s Tier 1 Capital;
  • Related group of companies to 40% of the Bank’s Tier 1 Capital; and
  • In aggregate, any individual exposure of 10% above of the Bank’s Tier 1 Capital shall not exceed 800% of its Bank’s Tier 1 Capital.

The key focus of the Bank’s macro credit risk management approach is to avoid any undue concentrations in its credit portfolio, whether in terms of counterparty, group, portfolio, product, country, sovereign, or currency. The Bank has always kept its large exposures within these limits. For instance, our concentration ratio of large exposures above 10% was 252% as at 30 June 2019, well within the regulatory limit as shown below:

Comprehensive assessment of the credit risk portfolio for provision is part of ABL’s portfolio management process to mitigate subsequent risk and diversification across numerous geographical frontiers, sectors, segments and products; with the main objective of maximizing shareholder value. Furthermore, economic reports, country and industry analysis are prepared and submitted to the Board Risk Committee to highlight trade developments and risks to the Bank’s credit portfolio. These reports are used to define strategies for both our industry portfolio, and individual counterparties within the portfolio.

Capital as @ 30 June 2019MUR'000
Tier 1 Capital7,257,255
Tier 2 Capital463,159
Capital Base7,720,414
Total Large Exposure (above 10%)18,478,477
% Total Large Exposure vs Capital Base (Limitation 800%)239%
"GROSS MAXIMUM EXPOSURE THE BANK  
 20192018
 MUR'000MUR'000
Agriculture509,6492,026,262
Construction, infrastructure and real estate1,119,0411,780,388
Financial and business services121,014,380102,120,488
Government and parastatal bodies479,4191,488,649
Information, communication and technology16,51645,544
Manufacturing2,725,8942,780,767
Personal1,912,1481,706,109
Tourism3,165,7542,412,999
Traders1,550,7131,561,372
Others8,700,3234,884,233
 141,193,837120,806,811
The Bank regularly compares its internal risk ratings with the ratings of the major international rating agencies. Country risk limits are reviewed regularly by the Board Risk Committee in conjunction with the review of country risk ratings.

Country Risk Assessment

Assessment of country risk involves the determination of the nature of risks associated with individual country exposure and the evaluation of country conditions. In this connection, the Bank conducts a thorough evaluation of risks associated with its cross-border operations and which have the potential to adversely affect its risk profile.

The aim is to identify the risk of a shock, such as an economic crisis or a sudden change in the political environment that would affect those conducting business within a country.

The Credit and Risk teams analyse the following elements:

  • The short and long term Economic Risk: The aim is to assess the degree to which the country approximates the ideal of non-inflationary growth, contained fiscal and external deficits, and manageable debt ratios. The analysis takes into account GDP growth, unemployment, inflation, real interest rates, exchange rates, the fiscal balance, the current account balance, external debt and a number of other structural factors; and
  • The short and long term Political Risk: The political risk assessment compares the state against a theoretical ideal state, essentially a liberal state and a homogenous society in terms of ethnicity and income equality, with the premise that democracies are more able to contain and manage direct threats to the political system and offers template for greater long-term stability.

Country risks also arise where borrowers in a particular country are, or are expected to be, unwilling and unable to fulfil their foreign obligations for reasons beyond the usual risk that arise in relation to lending. Political, social and economic factors may give rise to instability in these markets. Thus, in order to mitigate those risks, a country risk assessment is undertaken by ABL to determine the level of risk on a Case-to-Case basis but within each assigned country limit. The country risk policy is set in line with BOM’s Guidelines for Country Risk Management (April 2010).

According to ABL’s country risk policy, the Board of Directors sets exposure limits for individual countries in order to manage and monitor country risk. Country exposure limits should apply to all on and off balance sheet exposures to foreign borrowers.

Country risk ratings issued by external credit agencies (S&P, Moody’s or BMI research) are also used by the Bank to evaluate the risk exposure of each country. The Bank utilises two other types of approach:

1. A bottom-up approach: analysis of the country risk pertaining in each cross-border credit file, placement, financial product;

2. A top-down approach:

  • Analysis of the concentration/diversification of country risk in the Bank’s portfolio; and
  • Analysis of the global or regional economic and political movements and their adverse effects on the country risk profiles.

Country Limit

An appropriate structure of limits is set for each individual country exposure. The determination of limits is based on the followingThe overall strategy and commercial opportunities;

  • The relation with Bank’s capital base;
  • The perceived economic strength and stability of the borrowing country;
  • The degree of perceived risk; and
  • The diversification of the Bank’s international lending and investment portfolio.

The Board of Directors validates the structure and value of the limits. The Bank’s operations are performed strictly
within the approved limits.

social share

  • Copyright © 2025 AfrAsia Bank Limited