The global economic meltdown caused by the subprime mortgage crisis in the\nUnited States in 2007 along with its subsequent adverse effects on the economy,\nfinancial participants around the world, have raised questions on the\neffectiveness of the financial risk management policies adopted by financial\ninstitutions and banks worldwide. This study focuses on the analysis of the\nrisk management framework and its efficiency in the Mauritian banking sector.\nPanel regression and Non-parametric regression Lowess Smoother methodologies\nwere employed in measuring the impact of the various financial\nrisks on the efficiency of risk management of a sample of ten Mauritian banks\nover a period of eight years. The dependent variable selected to measure risk\nmanagement efficiency is the Capital Adequacy Ratio (CAR). On the other\nhand, the financial risks indicators are the credit risk (CRisk), liquidity ratio\n(LQR), interest sensitivity ratio (ISR) and foreign exchange risk (FER). Both\nthe parametric and non-parametric regressions indicate that the risk variables\nare significant and have a positive relationship on risk management efficiency.\nA dual approach has been employed through the administration of a survey\nto gauge into the perspectives and practices adopted by Risk managers in\nbanks. Moreover, the findings obtained from the survey substantiated the\nmain results. The methods used by the Mauritian banks and the importance\nof the Basel principles for effective risk management were also revealed by the\nquestionnaires.
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