This paper proposes an innovative approach for bankers by assessing the impact of the attributes of corporate firms on their repayment capacity in the case of Mauritian firms. Results show that profitability and leverage constitute the underlying forces that influence the Debt Service Coverage Ratio (DSCR) and the Interest Coverage Ratio (ICR). Findings further suggest the need for specificity of leverage analysis since Mauritian firms prefer short-term financing strategies relative to long-term financing. Besides, it also transpires that local companies heavily cling to leases. Long-term loan, Cash Conversion Cycle (CCC), size, growth, liquidity, age, investment, and the presence of foreign currency risk are not found to influence the repayment capacity of Mauritian firms. From the perspective of financial stability, the findings suggest that policy should be mainly geared toward import-substitution strategies so that local firms are able to maintain a sound debt servicing capacity with a view to alleviate the negative effects of the worst financial crisis, the US subprime crisis, since the Great Depression.

Any banker, when granting a loan to a company, has to monitor the performance of that company to ensure that repayment is made as and when required till the loan matures or expires. Consequently, with a view to enhance such monitoring needs of banks and other institutions which grant facilities to nonfinancial companies, it is of paramount significance to have a sound repayment capacity model for Mauritian firms. Indeed, no repayment capacity model has been devised for a developing country like Mauritius, let alone for a developed one. The aim of this paper is to thereby fill such a vacuum, providing, to the author's best knowledge, the very first credit risk model for an African country. The greatest advantage of such a model is that it is more geared toward practitioners rather than academicians who use structural or reduced-form credit risk models.

This paper is organized as follows: Section 2 provides a very concise review of the empirical literature on bankruptcy model, though it is not directly linked to the assessment of repayment capacity, literature on which does not exist as on date. Section 3 deals with data and methodology, while Section 4 discusses the empirical results. Finally, the conclusion is offered.

At the outset, it is vital to note that credit risk modeling is an essential ingredient of Basel II. The underlying rationale is that, compared to Basel I, in Basel II, risk is not constant but is instead directly related to the level of credit risk embodied in the credit portfolio. Subsequently, it becomes important for banks to have recourse to sound credit risk modeling with a view to have proper assessment of capital contingent to the level of risk really borne by the bank. This would be symptomatic with sound credit risk management principle in the view of "cutting one's coat according to one's cloth" for each bank. Usually, in simple terms, credit risk modeling uses attributes of the borrower which is then linked to his or her respective bankruptcy positions. The credit risk of any financial asset consists of three elements: (1) The Probability of Default (PD); (2) The Loss Given Default (LGD), which is equal to one minus the Recovery Rate (RR) in the event of default; and (3) The Exposure at Default (EAD).

Financial Risk Management Journal, Mauritian Firms, Credit Risk Model, Corporate Firms, US Subprime Crisis, Nonfinancial Companies, Empirical Literature, Credit Risk Management, Financial Assets, Cash Conversion Cycle, Working Capital Management, International Economies.