From an economic point of view, the State Bank of Mauritius cannot be bracketed in the same category as state-owned enterprises although the Government of Mauritius has, directly and through state corporations, a controlling stake of 70.4 per cent in it. The failure of a bank owned by public capital has a much wider impact on the local economy than, say, Mauritius Telecom. It is not sensible to brush off criticism against SBM performance simply for ideological reasons.
It remains that SBM has a common characteristic with all our state-owned enterprises: political intervention in business matters. This has become rampant today since politicians in power even dictate the recruitment policy. Raj Dussoye was let go from Bank One following losses on a USD 10 million deal in India. Yet he came back via politics, to the chagrin of the former governor of the Bank of Mauritius. This is Mauritius: as long as you are politically well connected, you can always get a second chance to mess up.
The guy was not an expert in structured trade finance, but was very good in retail banking. He could have been a better chief executive of MauBank than Sridhar Nagarajan, who would have fared better at SBM thanks to his experience at Standard Chartered Bank. But the government was ill-advised to put the wrong man in the wrong place, for he had no experience of retail banking at senior level. Nor is his successor at MauBank an experienced retail banker.
When doing business overseas, the traditional financing model best known by Mauritian bankers may not suffice. Other models such as trade finance require competence and skills, and above all knowledgeable people about risks. It appears that our banks do not have the expertise in-house to do deals in foreign markets. They need a broad range of talents willing to work abroad to make any foray into countries where they have little or no appreciation of the cultural and legal challenges that they face. The very few local banks that have expanded overseas have lost their shirts.
Political appointees are easy targets of commentators. Conversely, when Antony Withers and James Benoît left the Mauritius Commercial Bank and AfrAsia Bank respectively, no one dared to ask whether the board bought their silence. How did MCB incur a USD 100 million loss to an Indian company and another USD 50 million to an oil storage business in Seychelles? Why did MCB sell its operations in Mozambique and pull out of the Reunion Island? Why did AfrAsia Bank write off more than USD 30 million in Zimbabwe?
In the same vein, SBM made losses on two dud loans, USD 200 million in Kenya and USD 27 million in Dubai. Apparently, the Kenyan loan was originally a 10-year syndicated loan of USD 100 million introduced to Mauritian banks by Standard Bank of South Africa via its Nairobi office. Some jumped in because of the presence of Omnicane as co-borrower. The purpose of the loan was to facilitate the purchase of a 20 per cent interest in a sugar estate owned by Pabari that had to be completely refurbished. Omnicane was bringing its know-how, and Pabari its land. While the original intention of Omnicane was to increase its shareholding to 50 per cent, it later withdrew from the venture. Most participating banks followed in its steps, but SBM did not.
However that may be, SBM will maintain its aggressive strategy to increase its international exposure with the objective to double its total assets within five years. This ignores the principle that sound banking is not about inflating the balance sheet but about taking on calculated risks. It is better late than never that SBM is now advertising for a chief risk officer!
By contrast, the withdrawal of Barclays, HSBC and Habib Bank from the African continent is not encouraging new entrants. Mauritius is no exception in this regard as a number of foreign-owned banks want to exit the country. France has introduced laws to preclude its banks from operating in offshore banking centres, and Mauritius is viewed as one by OECD countries. But then international banks here will not raise their capital exposure to such a small market.
They have realised that they cannot compete in the retail deposit market as two banks (MCB and SBM) control more than 66 per cent of the domestic deposits. It is by increasing their deposits (or their debt through the issue of their own securities) that banks can grow their loan portfolio. But because of too much concentration on the two leading banks, the other banks do not have enough capital to disburse large corporate loans.
To succeed in foreign markets, banks need first and foremost huge amounts of capital. When our local banks are measured in terms of capital, only one appears in the Top 1,000 ranking of The Banker. MCB has USD 1 billion of capital whereas AfrAsia Bank shows just over USD 100 million. For our banks to attain a global status in terms of transactions and customer base, it will be necessary to raise significantly the minimum capital requirement, which is currently USD 11 million.
Meanwhile, international banking issues seem to be of a lesser concern to the Bank of Mauritius than monetary policy. This could justify the creation of a highly qualified banking supervisory body that would be solely in charge of regulating the banking sector. Still, political colonisation of regulators and of state-owned enterprises will produce the same result.