Firstly, I believe the banking system here has avoided making the key errors of judgement outlined above. Business strategies remain generally soundly based.

The banking sector is well capitalised with minimum Tier 1 (equity + retained profits) capital ratios of 10 per cent. Leverage ratios are therefore moderate. Regulation has played a role in setting minimum capital ratios at 10 per cent but conservative management always operates with a cushion, especially in an emerging market economy, so in practice leverage is lower than 10 to 1.

The banking sector here, generally speaking, has little if any dependency on wholesale funding in that it makes loans based on deposits. The MUR loan to deposit ratio of local banks currently stands at 74.2% - which leaves a comfortable liquidity cushion. As bankers we are only too aware that there is no Repo Market to speak of and very little inter-bank lending ? and, whilst this may be perhaps more by accident than by design, it means that banks? business models here are predominantly based on lending off customer deposits.

Risk Management standards are already high and improving further, particularly in the context of Basel 2, which imposes on banks uniform standards of disclosure. The recently augmented scope of the Credit Information Bureau has a key role to play as regards compiling as complete as possible a picture of the total indebtedness of a borrower - so important in determining a borrower?s ability to service debt.

Availability of finance will always be an issue in an emerging market economy but it seems to me that banks? lending practices have not been lowered here in the way observed in the US and the UK. Regulation carried out by the Bank of Mauritius is also quite demanding for information in this area - and rightfully so.

<I> ?This will likely mean that foreign direct investment and perhaps tourism may plateau for a period of time. Mauritius is a ?niche market? economy on the global stage and may therefore be less affected than might be surmised.? </I>

There is no derivatives market of any depth yet in Mauritius and to my knowledge, banks here have not purchased or traded US sub-prime mortgage backed securities or associated credit default swaps.

Bank Managements are by and large experienced and capable and thus not ?fashion-conscious? in the sense that led the relatively inexperienced CEO of HBOS, a former consumer goods retailing executive, to chase volume growth ? ?sell them high and pile them high? ? financed from the wholesale markets instead of from customer deposits. Perhaps he succumbed too easily to the stock market wishes for accelerated growth.

I mentioned at last December?s private sector dinner that banks are always potentially ?fragile? creatures by virtue of being typically geared on their capital at levels of 10 to 1. This level of gearing carries with it a high degree of responsibility towards depositors, customers and counterparties as well as shareholders and in my view imposes on executive management and boards of banks a strong duty of care when setting out strategies for growth. The importance of having robust checks and balances, i.e. good governance cannot be emphasized strongly enough as regards decision making.

Let me now devote a word or two on the likely consequences of the financial crisis:

We are seeing the consolidation of the banking market as a result of the mergers and acquisitions of a number of banks.

I have mentioned earlier that the highly leveraged independent investment banking business model has probably had its day.

Wholesale funding dependencies will be significantly reduced as banks return to lending based predominantly on customer deposits.

The international bond and capital markets are likely to remain virtually closed, and certainly very expensive to access for the banking community for quite some time until bank balance sheets are repaired and trust is restored.

Longer term capital market funding will therefore remain a very scarce as well as costly resource.

Greater transparency in financial reporting and more regulation will become a part of the landscape. Regulation will likely become much more intrusive as regulators look to examine in ever greater detail asset quality, liabilities and capital structures as well as revenues and profitability. The cavalry invariably arrives late however and it would seem that the less foolhardy will, in future, be regulated to the standards that should have applied to the more foolhardy that had to be rescued or went bust.

Uncertainty will remain in the U.S. for some time for two key reasons:

Property prices have yet to stabilise.

The terms of the $700 billion bail out have yet to be agreed.

The large cost to U.S. taxpayers will inflate government borrowing, enlarge the fiscal deficit and likely put downward pressure on the U.S. dollar exchange rate.

Lastly there will also, I suspect, be extensive litigation in the U.S. from those shareholders that have suffered significant losses.

This is not to say that Mauritius is ?free and clear? of the consequences of the turmoil of the last two weeks.

It would be to my mind surprising if, as the developed world (individuals as well as banks) lowers its levels of leverage and saves more, consumption and growth do not fall to lower levels for a while. This will likely mean that foreign direct investment and perhaps tourism may plateau for a period of time. Mauritius is a ?niche market? economy on the global economic stage and may therefore be less affected than might be surmised.

Maintaining an?even keel? will require sustained both thoughtful economic management as well as regulation in the years ahead for Mauritius to continue its growth path.

The good news is that the banking system here is currently well capitalised, generally profitable, enjoys solid levels of liquidity, is pursuing sensible growth strategies and has experienced management i.e. the necessary aspects to finance, and therefore underpin, continued economic expansion.

Much progress has been made over the last few years and, without being complacent in any way, I remain optimistic that the success story that is Mauritius can be continued, despite the challenges posed by the global financial turmoil which, having arrived in the midst of a large inflationary spike in commodity prices, presents a difficult dilemma to all central banks as they look to set interest rates at the appropriate level.

<I> The Chief Executive Banking of the Mauritius Commercial Bank explained how local banks are coping with the global turmoil. </I>