Finance In mauritius Essay Example | Topics and Well Written Essays - 2250 words

Finance In mauritius - Essay Example The rising market volatility due to the growing speculation in the stock markets led to failure in payment of debt among the banks, insurances and mortgage companies. The gravity of the problem was such that even the banks with huge capital reserves could not evade the situation (Mohamudally-Boolaky & Ramlall, 2010). This led to the fall of the one of the four pillars of Wall Street Lehman Brothers while some of the once ‘unfathomable to fall banks’ were either taken over at very low valuations or had to be rescued by the government. 1.1 Background Chan Lau (2008), states that the credit turmoil sent the US economy into a jittery. Even the European economies could not escape from the crisis and it gradually spread across the emerging economies. Initially, it was believed that the impact of the financial fiasco would be least on the African countries due to their limited exposure to structured financial products. However, this proved to be false. Ramlall (2009) highlighte d that the financial crisis increased the sensitivity of the stock market index of Mauritius to international markets (Mohamudally-Boolaky & Ramlall, 2010). ... The financial system of Mauritius is mainly bank-based with the banks representing 70 percent of the overall assets. In the â€Å"Financial Stability Report of the Bank of Mauritius† released in the year 2009 it has been stated that the recent credit fiasco did not have much impact on the indigenous banking sector. It is mainly because the banks in the country were not directly exposed to any toxic debt that affected the worldwide financial markets. The recent credit crisis has put forth the requirement to safeguard from vulnerabilities like rising foreign currency and credit risk, funding reliability and lending practices (Mohamudally-Boolaky & Ramlall, 2010). 1.2 Impact on financial parameters of Mauritian banks In a survey of Mauritian commercial banks and three important insurance companies it has been revealed that impact of the crisis was severe on the exports of the country with the mixed responses regarding the impact on the banks. As per this survey most of the banks witnessed a lag effect of the credit crisis mainly during the period 2009-10. Table 1- Impact of crisis on important banking ratios Source: (Mohamudally-Boolaky & Ramlall, 2010). The above table shows that the banking system in the country has emerged unscathed from the crisis. A rise in important financial parameters shows that the performance of the banks rose considerably. This implies that most of the banking activities are internal making it less risky as compared to those arising out of foreign operations (Mohamudally-Boolaky & Ramlall, 2010). The recent global financial crisis is reckoned as the worst credit crisis after the Great Depression. It initiated a number of policy actions by the central banks and governments across the world but