Saturday, September 8, 2012

The Mauritian Banking Sector

Business: AfrAsia Bank CEO James Benoit replies to l'express Weekly (Issue 23-29 August 2012):

1). The Mauritius banking sector has come under a lot of criticism for being dominated by two major banks. How difficult is it for a new bank to make it in the Mauritian market? 
Talk is cheap of course. It is perhaps too easy to make the criticism that the domestic banking sector indeed has two banks which have a substantial market share. Many new banks have now entered the market as we believe that new banks can enter and succeed in the domestic market. I cannot speak for the other newer or smaller banks but for AfrAsia Bank we have chosen specific market niches and have been pleased with customer response. As a result, our investors wish to keep growing the bank.

2). There have been repeated criticisms in the press about abusive and anti-competitive practices by the big banks to preserve their duopoly. How accurate is that assessment and what are some of the problems that small banks face because of that? 
That is a very strong statement. I don’t believe there yet has been any ruling in any court, by a regulator or other body that such abusive or anti-competitive practices exist. Clearly however in a limited market size of 1.3 million people, long established players may come to have well entrenched positions. If for example AfrAsia Bank wants to challenge them in the home loan market, I have to consider how much capital I will need to have to do that and the returns I can make on that after considering that I probably need to give the customer a better rate and better service to make him switch to us.  To date I have come to the conclusion that I cannot compete in that segment with the bigger banks. Now, whether our society, political and business leaders wish to then take other actions to encourage more competition or limit the scale of the bigger banks is a wider social policy question. 

3). Big banks dominate sectors such as the credit market. Does the offshore sector provide some breathing room for smaller banks to emerge?
I am not sure they will dominate the credit market for much longer, and I am not sure they dominate other than for the biggest companies that obviously need big banks. We already bank 75% of Top 100 companies, a clear example that we CAN compete in domestic credit.  I can say that AfrAsia Bank and many other newer banks can compete well for small medium enterprises.
Competing for credit however is a matter of having shareholders put enough capital into their banks and I do see that trend increasing here. We are growing our capital base steadily each year to ensure we can compete for the largest credit and loan deals in the country. And yes, the offshore market is also opening up amazing opportunities. In the case of AfrAsia, nearly 50% of our total business is already for offshore or global business. That is really a very exciting opportunity for all banks and for the country.

4). What can the government do further to allow smaller banks to emerge?
Well, as always, let me be the outspoken person on this matter. I really think we need customized policies and legislation. One size fits all regulations and governance just makes all banks look and act the same. We need regulations that encourage banks to play in niches or if they want to come in large size to do new things they probably need incentives or less restriction to do so. A microfinance business or a credit union serve very distinct roles and regulating them just like banks then takes away the customer benefits of their business model.  I was just in Alberta, Canada and had lunch with the senior executive of a credit union. They don’t want to become a bank and they hope they won’t be forced to. As I mentioned earlier why would I enter the home loan market in Mauritius? I also know other banks would like to do more treasury and foreign exchange business here but we have some considerable government intervention and control in that market again which constrains the size of that market now. At the end of the day, I have to convince shareholders to invest in AfrAsia and they need to see minimum returns on that investment. They need to see growing, dynamic market opportunities and we need to ensure policies are driving growth not just making things, apparently, safe.

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