The Cancer of Toxic Loans

Editorial

Institutional Failure, Political Shadow, and the Erosion of Trust in Mauritius

The recent, high-profile arrests of former SBM Bank CEO, Premchand Mungur, and Sanjiv Ramdanee, linked to an allegedly controversial Rs 470 million loan, cast a chilling spotlight on a recurring systemic failure within Mauritius’s financial institutions. While both Mungur and Ramdanee are presumed innocent until proven guilty, and justice will follow its course, the case highlights the concerning creation and proliferation of toxic loans within the sector.

These cases, following on the heels of the Rakesh Gooljaury affair at MauBank and the infamous SBM Kenyan saga, are not isolated incidents of commercial misjudgment. They reveal a deeper malaise rooted in institutional fragility, compromised corporate governance, the corrosive effect of political patronage, and a catastrophic lapse in professional and ethical responsibility among some of those entrusted with safeguarding the nation’s financial security and jurisdictional repute.

Toxic loans, or Non-Performing Loans (NPLs), are more than just bad debts; they are evidence of fundamental breakdowns in the lending institution. For instance, the ongoing investigation into the Silver Bank Case provides a chilling, textbook illustration of how such loans are generated through internal misconduct and systemic breakdown. At the core of the scandal are allegations that a former senior officer orchestrated the granting of fraudulent banking facilities, amounting to hundreds of millions of Rupees, to some private companies. The defining “toxicity” of these facilities stems from the fact that they were allegedly backed by fictitious guarantees, meaning that upon default, the bank was left with no valid collateral to seize, rendering the debt immediately unrecoverable. This situation highlighted a significant total liability for the bank due to these non-performing loans, exposing a catastrophic failure in the bank’s fundamental underwriting procedures and the critical controls exercised by its credit committee.

The details emerging from the Financial Crimes Commission (FCC) investigation suggest a clear pattern: the alleged use of misleading information to induce the bank’s Board of Directors into approving massive disbursements. This scenario exposes the three critical layers of institutional failure:

The Undermining of the Board

The Board of Directors is the ultimate fiduciary safeguard of any bank. Its role is to exercise independent oversight, scrutinize risk, and uphold governance standards. The allegation that a board was “misled” by past officers or CEOs implies a profound failure of governance. Did the board lack the expertise, the will, or the independence to challenge the information presented? Or were they presented with manipulated facts specifically designed to bypass due diligence? Whatever the case, a board that can be successfully misled on a multi-million-rupee exposure has ceased to be an effective check on executive power, rendering the entire corporate structure vulnerable to abuse.

Executive and Ethical Default

The crux of the scandal lies with the individuals — the CEO and senior management — who are the gatekeepers of the credit process. Their professional and ethical mandate is to protect the bank’s assets. The charge of “conspiracy to abuse position” and “inducing the board into error” points to a calculated decision to override prudential standards. The credentials of the men appointed to head these critical institutions become immediately suspect when they allegedly prioritize personal gain or external pressure over their fiduciary duty. They may have either failed to assume their responsibilities professionally and ethically or, worse, allowed themselves to be led by the nose by powerful external forces, including influential figures in government, ultimately transforming the bank into an instrument for crony enrichment.

Regulatory and Supervisory Gaps

While the Bank of Mauritius (BoM) has prudential regulations in place (like Basel III standards and strict NPL write-off timelines), the recurrence of these scandals suggests that regulatory and supervisory oversight may be insufficient or reactive rather than preventative. The failures imply either weak enforcement, inadequate inspections, or a lag in identifying and sanctioning systemic anomalies early. The regulator’s mission is to ensure that bank management and boards strictly adhere to commercial and prudential criteria, free from external interference. When large, politically sensitive NPLs repeatedly surface in state-affiliated banks, it calls into question the robustness of the central bank’s supervisory mandate and its capacity to ensure the independence of these institutions.

The Shadow of Political Patronage

The most toxic element in this financial matrix is the pervasive shadow of political patronage. The cases consistently feature individuals with alleged or confirmed close ties to the ruling political establishment, spanning different regimes. When an individual linked to a former Prime Minister’s family is arrested in connection with an alleged toxic loan, the public perception shifts from one of commercial default to one of “crony capitalism.”

Political influence corrupts the lending process by introducing a moral hazard that overrides standard due diligence. Loans are allegedly granted not on the basis of a solid business plan or sufficient collateral, but on the perceived power and protection afforded by political connections. This creates a deeply unequal playing field where ordinary citizens face “long, often humiliating trials” to secure a modest loan, while politically connected figures allegedly receive “VIP treatment” for multi-million-rupee facilities.

This patronage affects state-owned institutions most severely. The appointment of political nominees to head state-owned banks introduces a fundamental conflict of interest, making it easier for the bank to be pressed into extending concessionary or high-risk loans to favoured projects or individuals, regardless of commercial viability. The loss from these toxic debts is ultimately borne by the state and, by extension, the taxpayer, turning a banking loss into a fiscal burden.

The Catastrophic Impact on the Jurisdiction

The cumulative negative impact of these toxic loan scandals is severe, threatening not only the balance sheets of individual banks but the entire reputation of the Mauritian jurisdiction.

Erosion of Financial Stability: Toxic loans directly impair the financial solidity of the banks, requiring massive provisioning and write-offs. The losses detract from the capital base, limiting the bank’s ability to lend productively to genuinely viable sectors, thus stifling legitimate economic growth. For state-owned banks, these losses can force costly state-funded recapitalization, draining public funds that could otherwise be directed towards social and infrastructure development.

Damage to Public Trust: Perhaps the most enduring consequence is the erosion of public trust. The population has the right to be astonished and angry when they witness the apparent impunity with which powerful figures operate, only to have the risks transferred to the national balance sheet. This cynicism undermines faith not just in the financial sector but in the governance structures of the entire state, raising questions about accountability and justice.

Threat to Jurisdiction Credibility: Mauritius prides itself on being a reputable International Financial Centre (IFC) and a gateway to Africa. This reputation rests on strict adherence to international standards of compliance, transparency, and good governance. Recurring scandals involving high-profile NPLs linked to political figures severely damage this credibility. They signal to international partners, investors, and rating agencies that the jurisdiction is susceptible to money laundering risks and undue political interference, making it less attractive for capital flows and potentially inviting closer scrutiny from international bodies.

Accountability and the Road Ahead

The ongoing investigations by the Financial Crimes Commission are a crucial first step. The sheer complexity and potential scope of these cases — which must trace financial transactions, expose internal collusion, and establish political influence — will inevitably take a considerable amount of time.

The hope of the nation rests on a rigorous and impartial process that ensures the culprits are made fully accountable for any misdoings. This accountability must extend beyond the former executives and reach into the boardroom and, critically, to any political figure who may have abused their position to pressure or influence lending decisions.

Mauritius must now demonstrate an unwavering commitment to repairing its institutional framework. This requires strengthening the independence and expertise of bank boards, empowering the BoM to apply the most severe and non-negotiable sanctions, and instituting legislative firewalls to entirely insulate the credit-granting process of public banks from political interference. Only by demonstrating true zero-tolerance for the abuse of public trust can the country excise the cancer of toxic loans and restore integrity to its vital financial sector.

Mauritius Times ePaper Friday 5 December 2025