Financial Stability of Mauritian Households Drops to Historic 1.8%

The recently released Financial Stability Report by the Bank of Mauritius, published in December 2024, revealed a significant upswing in several indicators that point to an enhanced quality of assets and households’ ability to meet their financial obligations.

The report highlighted a notable decline in the ratio of non-performing loans (NPL), which plummeted to 1.8% in June 2024, its lowest point in several years.

Specifically, the NPL ratio for the mortgage portfolio has dropped to 1.4%, while that for consumer loans fell to 2.8%.

Such trends signal a marked improvement in households’ repayment discipline.

Households’ Sustainable Debt Levels

The report also underscored the sustainability of household debt, estimated at Rs 253 billion as of June 2024, remaining robust due to several key factors.

A continuous growth in income has eased the burden of debt servicing.

Furthermore, a decline in unemployment rates, coupled with decreasing inflation in the first half of 2024, has enhanced households’ borrowing capacity.

Consequently, the ratio of household debt to Gross Domestic Product (GDP) remained steady at 37.7% in June 2024, while debt levels relative to income slightly decreased to 103.8%.

Households’ capacity to meet their debt obligations has remained strong, bolstered by favourable labour market conditions.

With low inflation and rising wages, the weight of debt repayments has become more manageable.

Fiscal measures, including the Housing Loan Relief Allowance introduced for mortgage loans and statutory wage compensation in January 2024, have further strengthened household financial health.

According to the report, the debt servicing ratio relative to GDP and income stood at 6.1% and 16.9%, respectively, in June 2024.

Moreover, most banks have reported that the average debt-to-disposable income ratio in household credit portfolios remains below 50%.

Growing Interest in Foreign Currency Deposits

A notable trend emerging from the report is the growing interest among households in foreign currency deposits (FX).

In the first half of 2024, these deposits surged by 18.4%, reaching USD 1.6 billion by June 2024. As a result, the share of FX deposits in total household deposits climbed to 14.8%.

This trend is attributed to the attractive interest rate differential offered by the US dollar.

Strength of the Labour Market

The report further indicates that the risks to financial stability related to the household sector are continuing to diminish.

A thriving labour market, along with rising incomes and declining inflation, has bolstered the financial robustness of households.

Additionally, the Monetary Policy Committee’s (MPC) decision to reduce interest rates by 50 basis points in September 2024 has alleviated the burden of debt servicing.

Nevertheless, a tightening of monetary policy anticipated at the start of 2025 may reverse these positive trends, although its impact on households is expected to be limited.

Simultaneously, reinforced macroprudential requirements for the household sector should ensure better protection against potential economic shocks.

A Promising Horizon Ahead

Looking towards the 2025, the outlook remains favourable.

The ongoing decline in inflation is expected to continue boosting households’ purchasing power.

Furthermore, cautious monetary policy and structural reforms should reinforce the stability of the financial sector.

However, close attention must be paid to shifts in interest rates and broader economic trends that could affect households’ borrowing capacity.

Source: L’Express