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annual report 2009
In sync with all its partners and
following numerous other global
initiatives, the MCB Group has set
out to breathe new life into our
planet. Initiative 175 is our way
of contributing to sustainable
development and caring for the
community in which we operate.
Changing the mindset and habits of
present generations to ensure that
the environment becomes an inherent
preoccupation will help us build a
lasting legacy for future ones. So let’s
all go green together…
2. Group Financial Summary
6. Corporate Profile 10. MCB Board and Management
16. Report of the Directors
24. Corporate Governance Report
58. Management Discussion and Analysis 58.Highlights 60.External Forces Review 69.Review of MCB Operations 86.Financial Review 96.Risk Report 107.Basel II 114.Forward Together
2009 in Retrospect
Administrative Information
Local Branch Network
This report has been prepared to assist shareholders to assess the Board’s strategies and their potential of success. The statements
contained herein may include declarations of future expectations and other forward-looking statements that are based on
management’s current views and assumptions. These involve risks and uncertainties that could cause actual results, performance
or events to differ materially from those expressed or implied in such statements.
Readers are advised not to place undue reliance on the forward-looking statements relating to the Group’s business strategy,
plans, objectives and financial positions as these statements rely on assumptions and hypotheses which inherently represent
an accuracy risk. Actual results, performance and events may differ from those in such statements due to general evolution
of economic, political and industry conditions, interest rate levels, currency exchange rates as well as changes in laws and
regulations and the extent of competition and technological factors. In addition, the MCB Ltd. does not undertake to update
any forward-looking statement that may be made from time to time by the organisation or on its behalf.
Loans and assets
0
40
80
120
160
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09
Gross loans
Total assets
Rs
bn
Rs
bn
Rs
bn %
Rs
Rs
bn
Rs
bn
%
%
Liquid assets to deposits
0
30
60
90
120
150
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09
Rs bn
0
10
20
30
40
50
%
Deposits
Borrowings
Liquid assets ratio
(right scale)
Profit attributable to shareholders
0
1
2
3
4
5
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09
Rs bn
0
4
8
12
16
20
RsProfit
Earnings per share
(right scale)
Recurring earning power
0
1
2
3
4
5
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09
Rs bn
1.5
2.0
2.5
3.0
3.5
4.0
%
Pre-provision profit
Recurring earning
power (right scale)
Recurring Earning Power = Pre-provision profit excluding net income
from financial instruments and sale of securities to average assets
Capital resources
0
4
8
12
16
20
Jun 05 Jun 06 Jun 07 Jun 08 Jun 09
Rs bn
0
4
8
12
16
20
%
Shareholders' funds
BIS ratio (right scale)
Tier 1 ratio (right scale)
Sources of Group profit (FY 2008/09)
Local Non-Bank 5.4%
Local Bank 55.6%
Foreign 39.0%
The MCB: Thriving with a robust business model amidst challenges
Fostering business development with a healthy funding model and comfortable liquidity position…
The MCB depicts a commendable profitability path, with focus on long-term economic value creation...
While upholding solid capital as cushion, underpinned by diversified earnings
2 3
MCB Group Annual Report 2009
group financial summary
2009 2008 2007 2006 2005
IncomeStatement(Rsm)
Operating profit 4,406 3,820 2,693 2,052 1,911
Exceptional items - - - 79 -
Profit after tax 4,046 3,886 2,547 2,013 1,685
Profit attributable to shareholders 3,964 3,694 2,461 1,986 1,658
Statementsoffinancialposition(Rsm)
Total assets 150,476 132,972 110,143 99,410 85,232
Total loans (net) 96,859 77,552 65,768 58,026 55,123
Total deposits 121,241 105,487 84,624 76,736 68,914
Shareholders' funds 18,574 16,346 13,475 12,334 10,232
Tier 1 Capital 17,517 14,704 *11,913 *10,139 *8,657
Risk-weighted assets 135,222 110,301 91,965 78,471 71,293
PerformanceRatios(%)
Return on average total assets 2.8 3.0 2.3 2.2 2.0
Return on average equity 22.7 24.8 19.1 17.6 16.9
Return on average Tier 1 capital 24.6 27.8 22.3 21.1 20.1
Non-interest income to operating income 39.0 44.0 38.5 34.6 35.6
Loans to deposits ratio 82.7 76.5 81.6 80.0 84.5
Cost to income ratio 42.1 42.9 47.5 49.8 49.7
CapitalAdequacyRatios(%)
Capital & reserves/Total assets 12.3 12.3 12.2 12.4 12.0
BIS risk adjusted ratio 15.1 16.9 *17.2 *15.2 *13.9
of which Tier 1 13.0 13.3 *13.0 *12.9 *12.1
AssetQuality
Non-performing loans (Rs m) 4,809 4,692 4,833 4,750 4,712
NPL ratio (%) 4.8 5.8 7.0 7.7 8.1
Allowance for loan impairment losses (Rs m) 3,377 3,196 3,246 3,359 3,142
Provision coverage ratio (%) 70.2 68.1 67.2 70.7 66.7
InvestorData
Earnings per share (Rs) 16.71 15.58 9.74 7.40 6.16
Earnings yield (%) 13.3 9.1 9.5 13.2 15.3
Price earnings ratio (times) 7.5 11.0 10.6 7.6 6.5
Net assets value per share (Rs) 78.29 68.90 56.87 45.95 38.12
Dividends per share (Rs) 5.25 4.55 2.90 2.12 1.90
Dividend yield (%) 4.2 2.6 2.8 3.8 4.7
Dividend cover (times) 3.2 3.4 3.4 3.5 3.2
MarketData
Market capitalisation (Rs m) 31,547 43,065 25,789 15,798 11,369
Market price per share (Rs) :-
High 172.00 195.00 109.00 58.00 41.20
Low 82.00 101.00 56.00 40.30 34.00
Closing (Year end) 126.00 172.00 103.00 56.00 40.30
* Comparatives have been reinstated with a view to ensuring comparability except for Risk-weighted assets.
The equilibrium of nature is fragile. Weighing down upon it can only
create misbalance.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
6 7
MCB Group Annual Report 2009
corporate profile
OurVision
To be the obvious choice for
financial services in the region and
beyond
Ourcorevalues
Integrity
Customer care
Teamwork
Innovation
Knowledge
Excellence
Moody’sratings• Foreign Currency Deposits Baa2/P-2
• Foreign Currency Issuer Baa1
• Global Local Currency Deposit A3/P-1
• Financial Strength D+
• NSR Senior Unsecured
MTN-Domestic Currency Aa3.za
• NSR Subordinate
MTN-Domestic Currency Aa3.za
in terms of netinterest income and profitsEco Austral Spécial 100 PremièresEntreprises de L’Océan Indien
regionalbank1st
Awardsandrecognition
Mauritian Quality Institute
nationalcustomer serviceaward 2008
MasterCard
e-commerce partner award
Price Waterhouse Coopers Corporate Reporting Awards
annual report:best managementdiscussion analysis 2008
bank of the year
2008awardThe Banker
AbouttheMCBGroupFounded in 1838, the Mauritius Commercial Bank Limited (MCB) is a key banking
and financial institution in sub-Saharan Africa, while being the undisputed leader
in Mauritius. Besides being at the forefront of the socio-economic development
of the country, the Group has successfully diversified beyond domestic shores.
Backed by continually enhanced capabilities and service quality, the MCB offers
flexible and innovative financial solutions to individual and corporate clients,
anchored on high-impact delivery channels, notably an extensive network of
branches, a comprehensive ATM grid and reliable electronic services. Epitomising
the prominent MCB brand, the Group keeps on building long-lasting relationships
with its shareholders, customers, staff and other partners as well as the society at
large.
KeyFactsandFigures• Leading banking institution in Mauritius
- Market shares of some 40% in respect of credit to the economy and local
currency deposits & of around 50% of cards issued locally
- Extensive network of 42 branches (including counters), 146 ATMs and above
4,400 point of sale terminals in Mauritius and Rodrigues
- Around 700,000 individual and institutional customers
• Present in eight other countries through its subsidiaries, associated company,
foreign branch and representative offices
• Highest market capitalisation of more than USD 1 billion on the local bourse,
representing a share of 23%
• Over 18,000 local and foreign investors
• Some 2,600 employees dedicated to the Group
GlobalRankings(TheBanker-July2009)• 696th among the Top 1000 Banks; 17th in sub-Saharan Africa
• 139th worldwide in terms of soundness
• 53rd – Profit growth
• 40th – Return on assets
• 38th – Profits on average capital
8 9
MCB Group Annual Report 2009
MCB group structure
Businesssegments
RetailWith its wide-ranging distribution channels, the MCB caters for the day-to-day needs of different categories of individual customers as well as small and medium enterprises, with a due focus on the requirements of high net worth clients
CorporateSupporting the growth-oriented needs of established and emerging sectors of the economy, the MCB provides them with flexible and innovative financial solutions and advice, thus helping to transform opportunities into winning strategies
CardsBy means of its advanced technology, global partnerships and extensive merchant network, the MCB acts as a one-stop-shop for all cards related needs of clients, duly anchored on the expertise of its business and technical specialists
InternationaloperationsLeveraging on its network of international correspondents, access to global finance and state-of-the-art technology, the MCB offers custom-made financial solutions, including financing, payments services and treasury products
GlobalbusinessTaking full advantage of Mauritius as a competent Global Business jurisdiction, the desk offers a palette of solutions to meet the needs of clients worldwide, notably by devising financial services to offshore companies, funds and trusts
Non-bankfinancialservicesThe MCB Capital Markets Group has the suitable insight and experience to accompany clients through investments over a lifetime by providing fast, efficient and flexible solutions through speciality-driven subsidiaries
Financialsolutions
• Financing • Bank guarantees • Investment • Payment services • Cards• Trade finance • Factoring • Electronic banking • International services• Confidential reports • Leasing • Treasury services
MCB Bank >CorporateBanking
>RetailBanking
>Cards
>InternationalOperations
>GlobalBusiness
Local subsidiariesand associates
•MCBCapitalMarketsLtd. 90.00%
•MCB Investment Services Ltd. 90.00%
•MCB Stockbrokers Ltd. 90.00%
•MCB Investment Management Co. Ltd. 66.21%
•MCB Registry & Securities Ltd. 90.00%
•MCB Fund Managers Ltd. 90.00%
•MCB Capital Partners Ltd. 90.00%
GHF Futures Ltd. 45.00%
•MCBEquityFundLtd. 100.00%
•MCBFactorsLtd. 100.00%
•FincorpInvestmentLtd. 57.56%
• Finlease Company Ltd. 57.56%
Promotion and Development Ltd. 26.72%
•InternationalCardProcessingServicesLtd. 80.00%
•MCBPropertiesLtd. 100.00%
•BluePennyMuseum 97.88%
Foreign entities •MCBMadagascar 85.00%
•MCBMoçambique 95.00%
•MCBSeychelles 100.00%
•MCB International Services 100.00%
•Mascareignes Properties 100.00%
BanqueFrançaiseCommercialeOcéanIndien Réunion, Mayotte & Paris
49.99%
>MaldivesBranch
>RepresentativeOffices Johannesburg & Paris
Figures refer to effective holding of MCB Ltd.
• Subsidiaries Associates
10 11
MCB Group
board of directors committees of the board
Annual Report 2009
PresidentJ. Gérard HARDY (Independent)
VicePresidentE. Jean MAMET (Independent)
MembersBertrand DE CHAZAL (Independent)
Philippe A. FORGET (Executive)
Sanjiv GOBURDHUN (Independent)
Navin HOOLOOMANN, c.s.k. (Independent)
Edgar JULLIENNE (Independent)
Thierry KOENIG
Jean Pierre MONTOCCHIO (Independent)
Pierre-Guy NOEL (Executive)
Antony R. WITHERS (Executive)
Margaret WONG PING LUN (Independent)
SecretarytotheBoardJean-François DESVAUX DE MARIGNY
SupervisoryandMonitoringCommitteeMembers J. Gérard HARDY (Chairperson)
E. Jean MAMET
Philippe A. FORGET
Pierre-Guy NOEL
Antony R. WITHERS
Secretary Jean-François DESVAUX DE MARIGNY
AuditCommitteeMembers Bertrand DE CHAZAL (Chairperson)
E. Jean MAMET
Margaret WONG PING LUN
Secretary Jean-François DESVAUX DE MARIGNY
RiskMonitoringCommitteeMembers E. Jean MAMET (Chairperson)
Sanjiv GOBURDHUN
Thierry KOENIG
Pierre-Guy NOEL
Antony R. WITHERS
Alternate Philippe A. FORGET (to Pierre-Guy Noël or Antony R. Withers)
Secretary Denis MOTET
NominationandRemunerationCommitteeMembers J. Gérard HARDY (Chairperson)
Navin HOOLOOMANN, c.s.k.
Jean Pierre MONTOCCHIO
Pierre-Guy NOEL
Edgar JULLIENNE (also acts as Secretary)
ConductReviewCommitteeMembers Margaret WONG PING LUN (Chairperson)
Bertrand DE CHAZAL
J. Gérard HARDY
Secretary Jean-François DESVAUX DE MARIGNY
12 13
general management
CHIEF EXECUTIVE (Group)
Pierre-Guy NOEL
CHIEF EXECUTIVE (Banking)
Antony R. WITHERS
DEPUTY CHIEF EXECUTIVE (Banking)
Philippe A. FORGET
CHIEF MANAGERS
Jean-François DESVAUX DE MARIGNY Head - Group Finance and Company Secretary
Gilbert GNANY Group Chief Strategy Officer (as from August 2009)
Eddy JOLICOEUR Head - Group Human Resources
Marc LAGESSE Head - Capital Markets
Alain LAW MIN Head - Retail
Jean-Michel NG TSEUNG Head - Corporate
SENIOR MANAGERS
Paul CORSON Deputy Head - Corporate
Jean Philippe COUVE DE MURVILLE Group Chief Engineer
Jean-Marie D’ESPAGNAC Head - Private Banking (until June 2009)
Jean Michel FELIX Head - Group Internal Audit
Raoul GUFFLET Head - International
Andrew HEATHCOTE-MARKS Head - Organisation & Systems (until August 2009)
Angelo LETIMIER Head - Cards
Denis MOTET Head - Group Risk
MANAGERS
Jocelyn AH-YU Managing Director - MCB Seychelles
Koomaren CUNNOOSAMY Team Leader - Corporate
Hemandra Kumar HAZAREESING Team Leader - Corporate
Vinoba Devi LALLAH Head - Banking Products
Roselyne LEBRASSE-RIVET Head - Legal
Steve LEUNG SOCK PING Head - Marketing
Bhavish NAECK Head - Financial Management
Cyril PERRIER Head - Group Compliance
André WONG TING FOOK Head - Accountancy
ADVISERS
Jean-Marie STEPHEN HR & Banking Products (until September 2009)
Jacques TENNANT Property, Premises & Equipment
MCB Group Annual Report 2009
15
Take not to felling all that grows.Let it run its course, watch it mellow and mature,
and learn from its discourse.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
16 17
The Directors of
the Mauritius Commercial
Bank Ltd. (MCB) are pleased
to submit to the shareholders
the Annual Report
of the Group and of the Bank
for the year ended
30 June 2009.
OverviewDespite the severe world recession that originated
from the international financial sector turmoil, and the
ensuing slowdown of economic growth in Mauritius,
the MCB Group results have reached Rs 3,964 million
in FY 2008/09, representing an increase of 7.3% on the
previous year. The targeted Rs 4 billion mark would
have been comfortably exceeded were it not for a
change in legislation in July 2009, which meant that the
special levy charged on banks’ income and profits for
the year under review was doubled. The Bank’s results
grew by 12.1% to reach Rs 3,252 million. Excluding
the non-recurrent profit of Rs 425 million realised in
2008, attributable profits for the Group grew by a most
satisfactory 21.3%, as did earnings per share, which
reached Rs 16.71 for the year to 30 June 2009.
Due to the financial crisis, stock markets worldwide
were depressed throughout 2008. Although there
has been some recovery since February 2009, indices
are still under their June 2008 levels. In line with
the general trend, the Mauritius stock exchange all-
share index, SEMDEX, has fallen by 23% during the
financial year ended 30 June 2009. Correspondingly,
the MCB share price which stood at Rs 172 as at 30
June 2008, gradually retracted to a low of Rs 82 in
February 2009 before recovering to close at Rs 126 at
30 June 2009, down by 26.7% for the financial year.
As at 29 September 2009, the MCB share was trading
at Rs 139, representing a market capitalisation of
some USD 1.1 billion.
Amidst the worldwide financial upheaval, the Group
has achieved sustained growth in all its banking
activities while investment-linked activities were
affected by the downturn of international markets.
Consequently, the share of total income originating
from non-banking activities decreased quite materially
from the previous year. On the other hand, the MCB’s
strategy of international diversification has enabled
it to maintain the contribution of foreign-sourced
income at around 40% of Group net results.
It is worth mentioning that the MCB climbed 163
places in the 2009 edition of The Banker Top 1,000
World Banks to reach the 696th rank in terms of
Tier 1 capital. It was also ranked 38th on the basis of
Performance (Profits on average capital) and 40th in
terms of Return on Assets.
Moreover, MCB has continued to assume its social
responsibility towards the community. In line with the
Board’s decision taken in 2005 to devote 1% of the
Group pre-tax profits to financing Corporate Social
Responsibility (CSR) projects, an amount of Rs 30
million was dedicated to this end for the year ended
30 June 2009. Following the recent Budget measure
rendering it mandatory for profitable companies to
spend 2% of book profit on CSR activities, the MCB
Group will adjust its contributions accordingly.
Reflecting its commitment to sustainable development,
MCB implemented two major projects during the year:
• The new building near Ebene is the first building
in Mauritius to have obtained the certificate of the
Building Research Establishment Environmental
Assessment Method ( BREEAM )
• Initiative175 is an action plan extending over four
years aimed at saving energy and improving the
environment. A number of different initiatives have
been identified, some of which are already on stream
notably relating to the reduction of paper waste,
household energy saving and protection of trees.
Importantly, they are aimed at raising awareness
of the entire population on environmental issues,
thereafter impacting positively on living standards.
A detailed review of this year’s achievements and
realisations is given in the ‘Management Discussion
and Analysis’ on pages 66-123.
ActivitiesandResultsNotwithstanding the difficult local and international
economic context, the Group has sustained its growth
momentum during the past financial year with
activities and results posting excellent performances.
Net interest income edged up by 20.9% at Group level
to reach Rs 5,036 million and by 24.1% at Bank level
to attain Rs 4,550 million, supported by a notable fall
report of the directors
MCB Group Annual Report 2009
18 19
in interest expense against the backdrop of falling
interest rates while interest income fared relatively
well. Non-interest income fell during the year but this
was essentially due to the impact of substantial non-
recurrent gains on sale of securities in FY 2007/08.
Excluding these items, non-interest revenue grew at
appreciable rates of 8.6% and 12.9% for the Bank and
the Group respectively to reach Rs 2,571 million and Rs
3,220 million, underpinned by a robust increase in fees
and commissions. Overall, operating income climbed to
Rs 8,256 million for the Group and Rs 7,121 million at
Bank level, representing increases of 11.0% and 11.8%.
Despite a high inflation rate and a surge in operating
activities, growth in operating expenses was contained
at 6.2% at Bank level and 8.9% for the Group, reflecting
effective cost management and efficiency gains.
The rise in the cost base of the MCB was fuelled by
continued investment in human capital, infrastructure
and technology in line with efforts to enhance efficiency
as well as delivery and quality of service. Indicative of
prudent risk management practices, allowances for
credit impairment for FY 2008/09 declined by 11.6% to
Rs 361 million for the Bank and 12.8% to Rs 371 million
for the Group. As such, profit before tax rose by 19.2%
to Rs 3,928 million at Bank level and by 10.6% to Rs
4,934 million at Group level. The income tax charges
for the year under review increased considerably at
both Group and Bank levels to Rs 888 million and Rs
676 million respectively, partly owing to a charge of
Rs 167 million with respect to the doubled special levy
applicable to banks.
Profits attributable to the owners of the MCB Group
rose by 7.3% to Rs 3,964 million, leading to a similar
increase in earnings per share to Rs 16.71. On excluding
the non-recurring item which impacted last year’s
accounts, attributable profits grew by a noteworthy
21.3% at Group level.
The resilient performance of the MCB in the face of
the difficult external conditions underscores the merit
of its business model which promotes the pursuit of an
expansion strategy based on sound principles with due
emphasis on customer service and internal capacity.
Highlighting its diversification thrust, the share of
income from foreign sources and non-bank activities
stood at 44.4% although declining from previous
levels on account of the dampening impact of the
global financial crisis on investor services.
Total assets of the Group increased to Rs 150.5 billion
as at 30 June 2009 as compared to Rs 133.0 billion one
year earlier. Financial soundness indicators remained
healthy as gauged by an ample liquidity level, a
comfortably high capital adequacy ratio and a marked
improvement in asset quality, with a notable drop in
non-performing loans levels, which fell below 5% for
both the Group and the Bank.
DividendsandCapitalResourcesAn interim dividend of Rs 2.25 per share was declared
and paid in December 2008 while a final dividend of
Rs 3.00 per share was declared by the Board in June
2009 and paid in July. As such, overall dividend per
share in FY 2008/09 was 15.4% up from the previous
financial year. Total dividends paid during the year
under review amounted to Rs 1,246 million, with
undistributed profits of Rs 2,718 million carried to
reserves. Capitalisation levels remained strong, with
Group shareholders’ funds increasing by 13.6% to
reach Rs 18.6 billion as at 30 June 2009. As at that date,
the risk-adjusted capital adequacy ratio, computed
under Basel II definitions, stood at a very respectable
level of 15.1% for the MCB Group.
CodeofConductThe MCB Group is committed to the highest standards
of integrity and ethical conduct in dealings with all
its stakeholders. The MCB’s Code of Conduct is based
on the model code of the Joint Economic Council as
adapted to meet the specific needs of the MCB Group.
ProspectsNotwithstanding a relative pickup in activity lately,
the offshoots of the global financial and economic
crisis in terms of a deceleration of economic growth
and a worsening of the investment outlook should
continue to pose major challenges in the coming
periods for the Mauritian economy in spite of its well-
honed macroeconomic fundamentals. Nonetheless,
on the strength of its sound financial conditions in
terms of profitability, capital adequacy, asset quality
and liquidity amongst others, the MCB is confident of
judiciously confronting testing times and seizing the
right opportunities for growth via prudent exposures
in established and new markets.
This confidence is clearly demonstrated by the high
level of strategic investments currently underway
such as:
• the construction, in the Ebene region, of the new
building dedicated to technology and training,
equipped with advanced communication facilities,
energy saving and environmentally friendly features;
• a new core banking system Temenos T24, being
developed by a 100-strong team. The standard
version is already operational at MCB Maldives and
the full version will be rolled out in Mauritius during
the course of 2010;
• the adoption of a new Branch concept with an
innovative design, indicative of the commercial
strategy first applied to the Port Louis Main Branch
in 2008 and which is now being extended to the
whole retail network alongside a re-branding
exercise of the MCB conducted with the help of
Allen International; and
• a new Human Resource Management philosophy
providing greater opportunities to employees and
facilitating career development.
report of the directors
MCB Group Annual Report 2009
20 21
Overall, the MCB is convinced that its focus on a
diversification of activities at the local, regional and
international levels – grounded in an upgrade of
internal capabilities and the provision of the highest
level of service quality to customers – should foster the
creation of ever-increasing value to shareholders over
the medium term. In present circumstances, however,
results for FY 2009/10 are expected to show a slower
rate of growth.
StatementofDirectors’ResponsibilitiesCompany law requires the Directors to prepare
Financial Statements for each financial year, which
give a true and fair view of the state of affairs of the
Bank and of the Group. In preparing those Financial
Statements, the Directors are required to: ensure that
adequate accounting records and an effective system
of internal controls and risk management have been
maintained; select suitable accounting policies and
then apply them consistently; make judgements and
estimates that are reasonable and prudent; state
whether applicable accounting standards have been
followed, subject to any material departures disclosed
and explained in the Financial Statements; and prepare
the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Bank will
continue in business. The Directors confirm that they
have complied with these requirements in preparing
the Financial Statements. The external auditors are
responsible for reporting on whether the Financial
Statements are fairly presented. The Directors are
responsible for keeping proper accounting records
which disclose with reasonable accuracy, at any time,
the financial position of the Group and of the Bank
while ensuring that: the Financial Statements fairly
present the state of affairs of the Group and of the
Bank, as at the financial year end, and the results of
its operations and cash flow for that period; and they
have been prepared in accordance with and comply
with International Financial Reporting Standards as
well as the requirements of the Banking Act 2004 and
the guidelines issued thereunder. Directors are also
responsible for safeguarding the assets of the Group
and of the Bank and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities. Other main responsibilities
of the Directors include assessment of the General
Management’s performance relative to corporate
objectives, overseeing the implementation and
upholding of the Code of Corporate Governance and
ensuring timely and comprehensive communication to
all stakeholders on events significant to the Group.
The Board of the MCB, recognising that the MCB
Group, as a financial organisation, encounters risk
in every aspect of its business, has put in place the
necessary committees to manage such risks, as required
by Basel II. The Board, whilst approving risk strategy,
appetite and policies, has delegated the formulation
thereof and the monitoring of their implementation
to the Risk Monitoring Committee.
The structures, processes and methods through which
the Board gains assurance that risk is effectively
managed, are fully described in the ‘Management
Discussion and Analysis’ section of this report.
AuditorsThe Auditors, BDO De Chazal Du Mée, have expressed
their willingness to continue in office and a resolution
proposing their re-appointment will be submitted to
the Annual Meeting.
AcknowledgementsThe Board wishes to express its appreciation to the
Group’s Management and staff for their continued
hard work during the past year and to congratulate
everyone for the excellent financial results achieved.
We would also like to place on record our thanks to
our fellow members of the Board for their support and
contribution.
APPROVED BY THE BOARD OF DIRECTORS AND
SIGNED ON ITS BEHALF
J. Gérard HARDY
President
Bertrand DE CHAZAL
Director
ChairmanAuditCommittee
report of the directors
MCB Group Annual Report 2009
There is nothing in which birds differ more from man than the way in which
they can build and yet leave a landscape as it was before.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
24 25
StatementonCorporateGovernanceCorporate governance involves a set of relationships
between a company’s management, its board, its
shareholders and other stakeholders. Effective
corporate governance practices are essential to
achieving and maintaining high levels of public trust
and confidence in the banking system.
The Board of the MCB is fully committed to attaining
and sustaining the highest standards of corporate
governance. This is ensured through bank-wide
awareness of its operating ethics and the stewardship
and close supervision of the management of the Bank
by the Board of Directors.
The Company’s constitution provides that the minimum
number of directors shall be twelve and the maximum
number eighteen. In accordance with the constitution,
the Board has all the powers necessary for managing,
directing and supervising the management of the
business and affairs of the Company. The Board is
ultimately responsible for the affairs of the Company.
The methods through which the Board exercises its
powers and discharges its responsibilities are set out in
the MCB Board Charter which provides, among others,
for the following:
• the composition of the Board with preferably a
majority of independent non-executive directors;
• the Chairperson of the Board must be an independent
non-executive director;
• the creation of Board Committees;
• a corporate code of conduct addressing inter alia
issues relating to conflicts of interests;
• the establishment of strategic objectives;
• the appointment and remuneration policy of
members of the General Management;
• the existence of clear lines of responsibility and
accountability throughout the organisation;
• the provision to the shareholders of timely and
transparent information relating to material
events; and
• the timely communication to the shareholders and
the public of accurate financial results.
Approval of the Board is specifically required for,
amongst other important matters, modifying the
Company’s constitution, issuing fresh capital or buying
back its own shares, declaring dividends, acquiring or
divesting sizeable stakes in subsidiaries or associated
companies, and establishing the remuneration of
directors and members of Management.
The Board presently comprises 12 directors,
3 executives and 9 non-executives, of whom 8 are
independent. The President and Vice President of the
Board are independent non-executive directors.
The Board has created five Board Committees to help
it in carrying out its duties and responsibilities: the
Supervisory and Monitoring Committee, the Audit
Committee, the Conduct Review Committee, the
Nomination and Remuneration Committee and the
Risk Monitoring Committee.
Each committee has its own charter which has been
approved by the Board. Through the deliberations
and reporting of its various committees, the Board
ensures that Management’s daily actions are in
line with the Board’s objectives and regulatory
requirements.
The Board and Senior Management of the MCB are
required by the Bank of Mauritius, the Financial
Services Commission and corporate governance
best practices to demonstrate, inter alia, to the
satisfaction of the regulatory authorities, a clear
structure of policy and systems of control emanating
directly from the Board, which manifestly identify
and manage the risks inherent in the businesses of
the MCB. To this end, the Board has approved the
Group Risk Policy relating to credit risk, operational
risk and market risk.
In line with such requirements, there is a clear
separation between the executive role of day-to-
day decisions relating to credit and the Board’s role
of setting out the credit policy and ensuring that the
business is effectively run in accordance with such
policy through an adequate organisational structure
and proper control and reporting systems.
Regarding risk management in particular, the Bank is
compliant with Basel II Standardised Approach.
The Bank has adopted the best practice Internal
Capital Adequacy Assessment Process (ICAAP) and is
finalising its application in line with the draft guideline
on Supervisory Review Process issued recently by the
Bank of Mauritius. The Bank has also adopted a formal
disclosure policy as defined in the Basel II framework.
Besides optimising shareholder value, the Bank,
being particularly conscious of its responsibilities as
a dominant player in the local market, has always
supported the generally higher risk businesses
associated with new economic initiatives and start-
ups whilst contributing to the well-being of the
community through an extensive involvement in social
actions (humanitarian, education, environmental and
cultural).
The Bank is committed to the highest standards of
business integrity, transparency and professionalism
and ensures that all its activities are managed
responsibly and ethically whilst seeking to enhance
business value for all stakeholders. In line with
this objective, the Bank issued a Code of Conduct
in February 2002, based on the model code of the
Joint Economic Council, as appropriately adapted
to meet its own specific needs. The Bank adheres to
the Mauritius Bankers Association Code of Banking
Practice issued in 2007 and subscribes to the Code of
Corporate Governance for Mauritius, which was issued
in October 2003.
The directors continuously review the implications of
corporate governance best practices and are of the
opinion that the Bank complies with the requirements
of the Code of Corporate Governance in all material
aspects.
MCB Group Annual Report 2009
corporate governance report
26 2726 27
Annual Report 2009
corporate governance report
DirectorateandManagementBoardofDirectorsDirectors’ ProfileThe Board is composed of 12 members comprising 9 non-executive directors, of whom
8 are independent, and 3 executive directors. The average age of the Board is 57 years.
The profiles of the directors are provided hereafter.
J.GérardHARDY-Age65After spending 4 years in London having qualified as Certified Accountant, he moved to Paris in 1969 where he qualified as an “Expert Comptable”. He has worked for 8 years with KPMG before spending 17 years with the IP Group, which he left as Deputy Managing Director to set up his own consultancy firm. He returned to Mauritius in 2001.
He was first appointed to the Board at the shareholders’ meeting of October 2002 and was elected Vice President. In July 2003, at the request of the Board, he chaired the Bank’s Management Committee until its dissolution at the beginning of 2005. He is currently President of the Board, Chairperson of the Supervisory and Monitoring Committee and of the Nomination and Remuneration Committee as well as being a member of the Conduct Review Committee.
E.JeanMAMET-Age66Certified Accountant since 1975, he has worked for 40 years in the field of auditing, before retiring in 2003 as Senior Partner of Ernst & Young in Mauritius.
He was first appointed to the Board at the shareholders’ meeting of December 2003. He is currently Vice President of the Board, Vice Chairperson of the Supervisory and Monitoring Committee, Chairperson of the Risk Monitoring Committee and a member of the Audit Committee.
Directorship in other listed companiesUnited Basalt Products Ltd.IPRO Growth Fund Ltd.
BertrandDECHAZAL-Age68Fellow member of the Institute of Chartered Accountants in England and Wales and a “Commissaire aux Comptes”. After a career with the accounting firm Touche Ross in Paris and then in West Africa, he joined the World Bank in Washington in 1986 from which he retired as Senior Financial Analyst in 2003.
He was first appointed to the Board at the shareholders’ meeting of October 2004. He is Chairperson of the Audit Committee and a member of the Conduct Review Committee.
Directorship in other listed companiesCaudan Development Ltd.Promotion and Development Ltd.
PhilippeA.FORGET-Age59Holder of a BSc (First Class Honours) in Computational and Statistical Science from the University of Liverpool and an MSc (with distinction) in Management & Operational Research from the Imperial College of Science and Technology, London. After working as an economist for 2 years for the Food & Allied Group, he joined the Bank in 1978 and was appointed Assistant General Manager in 1996. Philippe A. Forget is a board member of several companies of the MCB Group.
He was first appointed to the Board at the shareholders’ meeting of December 2005. He is a member of the Supervisory and Monitoring Committee and also acts as alternate to the Chief Executive (Group) or Chief Executive (Banking) in the Risk Monitoring Committee.
Board structure and composition
Executive 25% (3)
Others 8% (1)
Independent 67% (8)
MCB Group
28 2928 29
Annual Report 2009
corporate governance report
SanjivGOBURDHUN-Age44After a spell in market research in the UK, he joined Rose Hill Transport in 1990 and was appointed Managing Director in 1995. He previously formed part of the National Committee on Corporate Governance and is currently a member of the Institute of Directors, UK.
He was first appointed to the Board in 2001. He is a member of the Risk Monitoring Committee.
Directorship in other listed companiesIPRO Growth Fund Ltd.
NavinHOOLOOMANN,c.s.k.-Age50Holds a First Class Honours degree in Surveying from the University of West of England and is a Fellow of the Royal Institution of Chartered Surveyors, UK, since 1992. He has some 20 years of experience in the construction industry in Mauritius. He is the founder and Managing Director of Hooloomann & Associates Ltd., a local construction project management and cost management consultancy firm with subsidiary offices in the Seychelles, Maldives and India.
He was first appointed to the Board at the shareholders’ meeting of October 2002. He is a member of the Nomination and Remuneration Committee.
EdgarJULLIENNE-Age66An Honours graduate in Civil Engineering from Loughborough College obtained in 1965, he is a member of the UK Institute of Civil Engineers and has practised since 1973 as an engineer in the UK, South Africa and finally Mauritius. He ended his active professional career as Executive Director of General Construction Co. Ltd.
He was first appointed to the Board at the shareholders’ meeting of December 2003. He is a member of the Nomination and Remuneration Committee.
ThierryKOENIG-Age51Holder of a “Maîtrise en Droit” from the University of Réunion obtained in 1983, he enrolled as an Attorney in 1986 and has since been practising with De Comarmond & Koenig. He is a member of the European Commodities Trademark Association and the International Trademark Association as well as being the Mauritian representative of the International Litigation Committee of the International Bar Association.
He was first appointed to the Board in 2002. He is a member of the Risk Monitoring Committee.
MCB Group
30 3130 31
Annual Report 2009
corporate governance report
JeanPierreMONTOCCHIO-Age46Notary Public since 1990, he drew up the new constitution of the Bank and has participated on the National Committee on Corporate Governance.
Pierre-GuyNOEL-Age53Holds a BSc (Honours) in Economics from the London School of Economics and Political Science and is an Associate of the Institute of Chartered Accountants in England and Wales. From 1981 to 1991, he worked at De Chazal Du Mée & Co. where he became a partner in financial consultancy.
He was first appointed to the Board in 2001. He is a member of the Nomination and Remuneration Committee.
Directorship in other listed companiesCaudan Development Ltd. (Chairperson)Fincorp Investment Ltd. (Chairperson)New Mauritius Hotels Ltd.Promotion and Development Ltd. (Chairperson)Rogers & Co. Ltd.
He joined the MCB in 1992 as Planning and Development Consultant before being appointed General Manager of the Bank in 1996. In July 2005, he was appointed Chief Executive (Group).
Pierre-Guy Noël is a board member in several companies of the MCB Group acting either as Chairperson or Director namely in Banque Française Commerciale Océan Indien, MCB Moçambique, MCB Madagascar and MCB Seychelles.
He was first appointed to the Board at the shareholders’ meeting of December 2005. He is a member of the Supervisory and Monitoring Committee, the Nomination and Remuneration Committee and the Risk Monitoring Committee.
AntonyR.WITHERS-Age55Heads the banking operations of the MCB as the Chief Executive (Banking) since April 2006. He is the holder of an MA in Economics from Christ’s College, Cambridge and was also awarded an MBA by IMD, in Lausanne, Switzerland. Secretary to the Board
He has accumulated wide-ranging experience in the banking sector shouldering an array of high level responsibilities in a number of institutions. These include Citibank, Bank of Montreal, S.G Warburg & Co. Ltd., UBS Securities Ltd., Commerzbank A.G and, Lloyds TSB Bank plc where he was Director and Global Head of Financial Institutions & International Trade Finance. Since November 2006, Antony Withers acts as the Chairperson of the Mauritius Bankers Association.
He was first appointed to the Board at the shareholders’ meeting of December 2006. He is a member of the Supervisory and Monitoring Committee and of the Risk Monitoring Committee.
MargaretWONGPINGLUN-Age55Holds a BA (Honours) in Business Studies (UK) and is a fellow member of the Institute of Chartered Accountants in England and Wales. Prior to joining the University of Mauritius in 1991 where she is a lecturer in Accounting and Finance, she was a Senior Manager at De Chazal du Mée’s Consultancy Department. She is a member of the Listing Executive Committee of the Stock Exchange of Mauritius.
She was first appointed to the Board at the shareholders’ meeting of October 2004. She is currently Chairperson of the Conduct Review Committee and is a member of the Audit Committee.
Jean-FrançoisDESVAUXDEMARIGNY–Age55Fellow member of the Institute of Chartered Accountants in England and Wales. Following several years of experience as an auditor in Europe, he joined the MCB in 1986. He was involved in the launching of the Stock Exchange of Mauritius in 1989. He has strongly participated in the development of the MCB’s regional network and is a director of a number of subsidiaries and associates of the Group. He is presently responsible for the Group’s finances and also acts as secretary to the Board of Directors, the Audit Committee, the Conduct Review Committee and the Supervisory and Monitoring Committee.
MCB Group
32 33
Committees of the Board of DirectorsThe composition of the committees of the Board of
Directors appears on page 13 of the Annual Report.
SupervisoryandMonitoringCommittee
The committee is, subject to any decision which the
Board may take from time to time, competent to
exercise all or any powers, authorities and discretions
vested in or exercisable by the Board other than those
set out in the Seventh Schedule of the Companies Act
2001 and those relating to the appointment of senior
officers who, when appointed, shall form part of the
General Management of the Bank.
The committee is chaired by the President of the
Board of Directors. The other members are: the Board
Vice President, the Chief Executive (Group), the Chief
Executive (Banking) and the Deputy Chief Executive
(Banking). The Company Secretary is the secretary of
the committee which meets weekly.
The committee’s roles and responsibilities include:
• submitting to the Board the development strategy
of the Group;
• setting out the corporate values and principal
policies, including the credit policy, in respect of the
conduct of the business;
• ensuring that the organisation structure is best
suited to the implementation and realisation of such
policies and strategy while providing for clear lines
of responsibility and accountability;
• delegating authority to the Chief Executives and
supervising the delegation of authority by the
Chief Executives to the members of the General
Management;
• ensuring that adequate succession planning exists at
senior executive level;
• liaising with all the Board Committees;
• reviewing the yearly budget, the quarterly results
and yearly financial statements to be submitted to
the Board;
• proposing the dividend policy;
• monitoring strategic alliances and major litigation
issues; and
• ensuring that the Board is permanently informed of
the running of the affairs of the Group.
AuditCommittee
The Audit Committee of the Bank consists of three
independent non-executive directors including
the Chairperson. It meets at least four times a year
corresponding to the Bank’s reporting cycle and its
principal function is to oversee the Bank’s financial
control and financial reporting processes. In particular,
it reviews the quarterly results and annual financial
statements before these are approved by the Board.
The activities of the Audit Committee include regular
reviews and monitoring of the following:
• the effectiveness of the Bank’s internal financial
control and risk management systems;
• the effectiveness of the internal audit function;
• the independence of the external auditors and the
assessment of the external auditors’ performance;
• the remuneration of the external auditors and their
supply of non-audit services;
• the Bank’s procedures for ensuring compliance with
laws and regulations relevant to financial reporting
and with its internal code of business conduct; and
• specific issues where the committee considers action
or improvement is needed.
In carrying out its responsibilities, the committee meets
regularly with the Executive Management of the Bank
and receives regular reports from both internal and
external auditors. Separate sessions are held with both
sets of auditors at least four times a year, without
Management being present. The committee has
fulfilled its responsibilities for the year in compliance
with its terms of reference.
RiskMonitoringCommittee
The committee, which meets at least quarterly, consists
of the Chief Executive (Group), the Chief Executive
(Banking) and a minimum of two and a maximum
of three non-executive directors appointed by the
Board. The committee is chaired by an independent
non-executive director. The Head of Group Risk acts
as secretary and the Deputy Chief Executive (Banking)
acts as an alternate to the Chief Executive (Group) or
to the Chief Executive (Banking) in their absence.
The principal responsibilities of the Risk Monitoring
Committee are to:
• monitor the credit risk and market risk portfolios of
the Bank, set against the agreed risk appetites as
well as the operational risk tolerance in compliance
with the Basel II Accord;
• monitor the utilisation of capital to make sure that
the Bank has, at any time, a capital adequacy ratio
corresponding to at least the regulatory minimum;
• ensure that the Group’s security structure is adequate
and that appropriate levels of protection for people
and the Bank’s assets are established;
• ensure that the confidentiality, integrity, availability
and protection of the Group’s information assets
are under constant review and that its information
systems software and hardware devices that relate
to and support them are adequate and effective;
• ascertain that adequate measures are taken to ensure
compliance with all relevant laws, regulations, codes
of conduct and standards of good governance; and
• monitor country exposure limits once these
have been approved by the Board following the
recommendations of the Country Risk Committee.
The Risk Monitoring Committee receives regular
reports and recommendations from the Group Risk
SBU, the Executive Credit Committee, the Assets
and Liability Committee, the Operational Risk and
Compliance Committee, the Security BU and the
Country Risk Committee.
Through its chairperson, the committee reports to
the Board in a timely manner on all risk issues that
could have an impact on the operations or reputation
of the Bank.
NominationandRemunerationCommittee
The committee’s charter provides that the committee
shall consist of four to five members, the majority of
which shall be independent non-executive directors.
Presently, the committee consists of 5 members, one
being the Chief Executive (Group) and the four others
are independent non-executive directors.
MCB Group Annual Report 2009
corporate governance report
34 35
The committee is responsible for making
recommendations to the Board on the appointment
of directors and senior executives. This responsibility
includes:
• ascertaining whether candidates are fit and proper
persons, have the required skills and expertise, and
are free from material conflicts of interest;
• reviewing the Board structure, size and composition
(including balance between independent/non-
executive/executive); and
• reviewing the composition of the Board Committees,
including those of wholly-owned subsidiaries.
The committee is also responsible for making
recommendations on the level of the directors’ fees,
including the remuneration of the Board committee
members, to be submitted at the shareholders’
meeting as well as the remuneration policy for senior
executives and members of Management.
The Nomination and Remuneration Committee
meets at least twice a year and on an ad-hoc basis
when required. To fulfil its responsibilities during the
financial year ended 30 June 2009, the committee met
seven times with respect to:
• reviewing the Company’s remuneration policy
concerning senior executives and managers;
• determining and submitting to Board ratification
individual remunerations for the top executives and
managers in line with the aforementioned policy;
• reviewing individual promotions proposals, by Chief
Executives, to and within General Management and
making recommendations to the Board thereon;
• reviewing the directors’ remuneration;
• undertaking the selection and making
recommendations in respect of new Board members
and the composition of the Board Committees; and
• reviewing the proposals received for the subsidiaries’
boards and making recommendations thereon/
ratifying them.
ConductReviewCommittee
The committee, chaired by a non-executive director,
currently comprises two other non-executive directors.
The Company Secretary acts as secretary to the
committee. The committee meets four times a year and
is responsible for monitoring and reviewing related
party transactions, their terms and conditions, and
ensuring the effectiveness of established procedures
and compliance with the Bank of Mauritius Guidelines.
The mandate of the committee includes:
• ensuring that policies and procedures have been
established by Management to comply with the
requirements of the Guidelines;
• periodically reviewing the existing procedures to
ensure their continuing adequacy; in particular,
ascertaining that they are sufficient to identify any
transactions with related parties that may have
a material effect on the stability and solvency of
the Bank and ensuring that such transactions are
properly dealt with;
• reviewing and approving credit exposures to
related parties and ensuring that market terms
and conditions are applied to all related party
transactions; and
• reporting on a quarterly basis to the Board of
Directors on matters reviewed by it.
Board and Committee AttendanceThe following table gives the record of attendance at meetings of the MCB Board and its committees for FY 2008/09.
Boardof
Directors
BoardCommittees
Supervisoryand
Monitoring AuditRisk
Monitoring
Nominationand
RemunerationConductReview
Numberofmeetingsheld 12 37 4 3 7 4
Meetingsattended
J. Gérard HARDY 11 34 - - 7 4
E. Jean MAMET 12 30 3 3 - -
Herbert COUACAUD, c.m.g. (until Dec. 08) 5 - - - 5 -
Anil CURRIMJEE (until Dec. 08) 4 - 1 - - -
Bertrand DE CHAZAL 12 - 4 - - 4
Philippe A. FORGET 11 34 - 3 - -
Sanjiv GOBURDHUN (as from Dec. 08) 7 - - 2 - -
Navin HOOLOOMANN, c.s.k. 11 - - - 7 -
Edgar JULLIENNE 10 - - - 6 -
Thierry KOENIG 12 - - 3 - -
Jean Pierre MONTOCCHIO (as from Dec. 08) 5 - - - 1 -
Pierre-Guy NOEL 11 32 - - 6 -
Antony R. WITHERS 11 34 - 3 - -
Margaret WONG PING LUN 12 - 4 - - 4
MCB Group Annual Report 2009
corporate governance report
36 37
Directors’ Interests and Dealings in SharesWith regard to directors’ dealings in the shares of
their own company, the directors confirm that they
have followed the absolute prohibition principles
and notification requirements of the model code
on securities transactions by directors as detailed
in Appendix 6 of the Stock Exchange of Mauritius
Listing Rules.
The Company Secretary maintains a Register of
Interests which is updated with every transaction
entered into by directors and their closely related
parties. Such transactions, which have to take place
exclusively outside the close periods prescribed by
the Stock Exchange Regulations, require the written
authorisation of the Board of Directors, through the
delegation given to the Supervisory and Monitoring
Committee.
All new directors are required to notify in writing to
the Company Secretary their holdings in MCB shares
as well as those in related corporations. This is entered
in the Register of Interests, which is subsequently
updated with all relevant movements. The minimum
holding of MCB shares required from the directors by
the constitution of the Bank is 500.
The following tables give the interests of the directors
in the share capital of the Bank and Fincorp Investment
Ltd. as well as transactions in MCB shares by directors
who have served during the year. None of the directors
had any interest in the equity of subsidiaries of the
Bank other than Fincorp Investment Ltd.
InterestsinMCBsharesasat30June2009
Numberofshares
Direct Indirect
J. Gérard HARDY 4,000 -
E. Jean MAMET 149,000 133,523
Bertrand DE CHAZAL 500 16,000
Philippe A. FORGET 41,238 20,700
Sanjiv GOBURDHUN 45,500 3,199,490
Navin HOOLOOMANN, c.s.k. 55,910 840,029
Edgar JULLIENNE 98,400 357,561
Thierry KOENIG 17,579 3,766
Jean Pierre MONTOCCHIO 1,000 18,197
Pierre-Guy NOEL 1,022,132 28,302
Antony R. WITHERS 40,000 -
Margaret WONG PING LUN 500 9,900
TransactionsinMCBsharesduringtheyear
Numberofshares
purchasedNumberofsharessold
J. Gérard HARDY 1,500 -
Herbert COUACAUD, c.m.g. 40,000 27,200
Philippe A. FORGET 5,040 -
Sanjiv GOBURDHUN 10,000 25,000
Edgar JULLIENNE 51,900 -
Pierre-Guy NOEL 145,400 -
Antony R. WITHERS 13,130 -
InterestsinFincorpInvestmentLtd.
Numberofshares
Direct Indirect
E. Jean MAMET 15,000 -
Navin HOOLOOMANN, c.s.k. - 362,200
Jean Pierre MONTOCCHIO - 9,370
Pierre-Guy NOEL 750,166 32,250
Directors’ RemunerationRemuneration and benefits received by directors during the financial year were as follows:
Directors
FromtheHoldingCompany FromSubsidiaries Total
Rs‘000 Rs‘000 Rs‘000
J. Gérard HARDY 2,589 - 2,589
E. Jean MAMET 1,975 130 2,105
Herbert COUACAUD, c.m.g. (until Dec. 08) 252 38 290
Anil CURRIMJEE (until Dec. 08) 271 - 271
Bertrand DE CHAZAL 848 135 983
Sanjiv GOBURDHUN (as from Jan. 09) 270 - 270
Navin HOOLOOMANN, c.s.k. 516 - 516
Edgar JULLIENNE 516 - 516
Thierry KOENIG 528 - 528
Jean Pierre MONTOCCHIO (as from Jan. 2009) 264 147 411
Margaret WONG PING LUN 762 15 777
Total Non-executive 8,791 465 9,256
Philippe A. FORGET 18,322 - 18,322
Pierre-Guy NOEL 21,424 - 21,424
Antony R. WITHERS 18,561 - 18,561
Total Executive 58,307 - 58,307
Total(Non-executiveandExecutive) 67,098 465 67,563
Net fees from companies where executive directors serve as representatives of the MCB Ltd. are reimbursed to the Bank.
MCB Group Annual Report 2009
corporate governance report
38 39
Additionally, directors of subsidiaries, who did not
sit on the MCB’s Board during the year, received the
following remuneration and benefits:
2009 2008
Rs‘000 Rs‘000
Executive (Full-time) 40,245 27,467
Non-executive 775 759
41,020 28,226
Directors’ Service ContractsThere were no service contracts between the Bank and
its directors during the year.
SeniorManagementProfilesThe profiles of Pierre-Guy NOEL, Antony R. WITHERS,
Philippe A. FORGET and Jean-François DESVAUX DE
MARIGNY appear in the Directors’ Profiles section.
GilbertGNANY–Age47
Holds a degree in Mathematical Economics and a
Masters in Econometrics from the University of Toulouse
and a ‘DESS’ in Management/Micro-Economics from
Paris-X. Gilbert has been appointed Chief Strategy
Officer of the MCB Group in August 2009. He also
acts as Advisor to the Board of Directors. Previously,
he had a two-year stint at the World Bank Group as
Board Official and Senior Advisor in the Office of the
Executive Directors where he was responsible for issues
relating to the private and financial sectors and the IFC
in particular. Prior to joining the World Bank, he was
the Group Chief Economist of the MCB after having
been the Economic Advisor to the Minister of Finance.
During his career, Gilbert has been involved in various
high-profile boards/committees. Amongst others, he
chaired the SEM as well as the Cabinet-appointed
Committee on the Modernisation and Democratisation
of the Stock Exchange. He has also been a member of
the Board of Governors of the MOBAA.
EddyJOLICOEUR–Age52
Holder of a BA (Honours) in Economics and Social Policy
& Administration from the University of Kent and an MSc
in Human Resources Management from the University of
Surrey, Eddy has known a fulsome career spanning the
breadth of the sugar industry namely Deep River-Beau
Champ (1983-1990), Mon Desert Alma (1990-1999) and
Medine (1999-2000). Eddy joined Rogers & Co. Ltd. in
2000 where he had been the Chief Human Resources
Executive until he joined the Bank in August 2008 as
Head of Human Resources.
MarcLAGESSE–Age46
Holds a BSc (Honours) in Statistics and Economics from
the University College London (UCL) and an MBA
from the London Business School. After graduating
from UCL, Marc spent twelve years on the London
International Financial Futures Exchange, the last
eight of those as an own account trader in interest
rate derivatives. He returned to Mauritius in 1996
to manage the Mauritius Fund Ltd., a London listed
closed-end country fund. From 1998 to 2006, Marc was
Managing Director of MCB Investment Management
Co. Ltd. He is currently responsible for the MCB Capital
Markets Ltd., a subsidiary of the MCB Group which
encompasses the entities involved in the investment
business - namely MCB Fund Managers Ltd., MCB
Investment Services Ltd., MCB Registry & Securities
Ltd., MCB Stockbrokers Ltd., MCB Capital Partners Ltd.
and MCB Investment Management Co. Ltd. - while
having a stake in GHF Futures Ltd.
AlainLAWMIN–Age50
Graduated in Economics with a BA (Honours) and is
an Associate member of the Institute of Chartered
Accountants in England and Wales. He also holds an
MBA from Cranfield University. Alain is responsible for
the Retail SBU which, inter alia, consists of the branch
network, the Private Banking BU, the Business Banking
BU and the Remote Banking BU that manages the
Bank’s remote delivery channels. Prior to his current
position, Alain launched leasing, factoring and private
banking services and acted as Project Director for the
Business Process Re-engineering exercise initiated with
Accenture. Before joining the MCB, Alain was Senior
Manager at De Chazal Du Mée’s consulting division.
Jean-MichelNGTSEUNG–Age41
Graduated with a First Class Honours in Mathematics
at the Imperial College of Science and Technology,
London. He qualified as a Chartered Accountant out
of the London office of Arthur Andersen in 1990 and
was made a partner thereof in Mauritius in 1997,
acting during his last 4 years with the firm as Head of
the Audit and Business Advisory division. Jean-Michel
joined the MCB in July 2003, coming from Ernst &
Young and is currently Head of Corporate.
MCB Group Annual Report 2009
corporate governance report
40 41
Interests in SharesThe interests of Senior Management in the share capital of the Bank and its subsidiaries at the end of the financial
year are given below:
Numberofsharesasat30June2009MCBLtd. FincorpInvestmentLtd. MCBCapitalMarketsLtd.
Direct Indirect Direct Indirect Direct Indirect
Jean-François DESVAUX DE MARIGNY 271,543 274,538 - 133,225 - -
Marc LAGESSE 7,830 - - - 83,334 -
Alain LAW MIN 108,452 595 51,070 - - -
Jean-Michel NG TSEUNG 7,885 - - - - -
• the definition of the different types of related party
transactions and the setting out of regulatory limits
on credit exposures to related parties; and
• the definition of basic rules for monitoring and
regulatory reporting of related party transactions
and their disclosure in the Annual Report.
In fact, the Guideline is more stringent than the
applicable International Accounting Standard (IAS
24) in that a person holding directly or indirectly 10%
or more of the capital or of the voting rights of the
Bank also falls within the definition of related party.
As a general rule, all transactions with a related party
must be carried out on terms and conditions that are
at least as favourable to the Bank as market terms and
conditions.
Related party transactions include:
• loans, finance leases and service agreements;
• giving a guarantee on behalf of a related party;
• making an investment in any securities of a related
party;
• deposits and placements; and
• professional service contracts.
The Guideline classifies exposures to related parties
into three categories:
1. Directors, their close family members and any
entity where any of them holds more than a 10%
interest;
Shareholders owning more than 10% of the
financial institutions’ capital;
Directors of any controlling shareholder; and
Entities (excluding subsidiaries) where the financial
institution holds more than a 10% interest.
2. Senior Management, their close family members
and any entity where any of them holds more than
a 10% interest;
Senior Management of any controlling
shareholder; and
Subsidiaries of the financial institution.
3. Senior Management, provided their exposures
are within the terms and conditions of their
employment contract.
Category 3 above, as well as exposures representing
less than 2% of the institution’s Tier 1 Capital, are
excluded from regulatory limits which are set, in
aggregate, at 60% of Tier 1 Capital for Category 1 and
150% thereof for the total of Categories 1 and 2.
The Bank’s policy on related party transactions sets
out the rules governing the identification of related
parties, the terms and conditions applicable to
transactions entered into with them and reporting
procedures to the Conduct Review Committee.
Note 36 to the Financial Statements sets out on- and
off- balance sheet exposures to related parties as at
30 June 2009.
Aggregate exposure of related parties, excluding
exposure of the Bank to subsidiary companies,
amounted to Rs 3,064 million (on-balance sheet) and
Rs 452 million (off-balance sheet), which represented
respectively 3.1% and 1.2% of Group loans and Group
contingent liabilities as at 30 June 2009.
Exposure of the Bank’s top six related parties as at 30
June 2009 were Rs 887 million, Rs 795 million, Rs 721
million, Rs 478 million, Rs 318 million and Rs 295
million. These balances represented 7.8%, 7.0%, 6.4%,
4.2%, 2.8% and 2.6% respectively of the Bank’s Tier 1
Capital.
None of the loans granted to related parties was non-
performing as at 30 June 2009.
MCB Group Annual Report 2009
corporate governance report
RelatedPartyTransactionsFor the purposes of these Financial Statements, parties
are considered to be related to the Group if they
have the ability, directly or indirectly, to control the
Group or exercise significant influence over the Group
in making financial and operating decisions, or vice
versa, or if they and the Group are subject to common
control. Related parties may be individuals or other
entities. In January 2009, the Bank of Mauritius issued
a revised Guideline on Related Party Transactions,
which superseded that issued in December 2001.
The new Guideline has largely simplified and
rationalised reporting procedures and requirements.
It is articulated around 3 main elements:
• the role of the Board of Directors of a financial
institution, its Conduct Review Committee and
that of its Senior Management in establishing and
implementing appropriate policies on related party
transactions and administering the process for
handling the transactions;
42 43
DirectorsofMCBSubsidiariesThe directors of the Bank’s subsidiaries during FY
2008/09 were as follows:
MCBMADAGASCAR
Jean-François DESVAUX DE MARIGNY (Chairperson)
Marc DE BOLLIVIER
Raoul GUFFLET
E. Jean MAMET
Pierre-Guy NOEL
Michel PICHON (appointed in Dec. 08)
Patrick RAZAFINDRAFITO
MCBMOÇAMBIQUE
Pierre-Guy NOEL (Chairperson)
Jean-François DESVAUX DE MARIGNY
Jorge FERRAZ
Philippe A. FORGET
Raoul GUFFLET
MCBSEYCHELLES
Jocelyn AH-YU
Jean-François DESVAUX DE MARIGNY
Raoul GUFFLET
E. Jean MAMET
Pierre-Guy NOEL
MCBINTERNATIONALSERVICESLTD.
Jocelyn AH-YU
Jean-François DESVAUX DE MARIGNY
MASCAREIGNESPROPERTIESLTD.
Jocelyn AH-YU
Raoul GUFFLET
E. Jean MAMET
Pierre-Guy NOEL
MCBEQUITYFUNDLTD.
Bertrand DE CHAZAL (Chairperson)
Jocelyn DE CHASTEAUNEUF
F. Jacques HAREL
E. Jean MAMET
MCBCAPITALMARKETSLTD.
Bertrand DE CHAZAL
Marc LAGESSE
E. Jean MAMET
Pierre-Guy NOEL
Jeremy PAULSON-ELLIS
MCBFUNDMANAGERSLTD.
Bashirali Abdulla CURRIMJEE, g.o.s.k. (Chairperson)
Bernard D’HOTMAN DE VILLIERS
Jocelyn DE CHASTEAUNEUF
Thierry Maurice JAUFFRET
Shivraj RANGASAMI (appointed in Sep. 08)
Bernard YEN
MCBINVESTMENTSERVICESLTD.
Pierre-Guy NOEL (Chairperson)
Marc LAGESSE
Vimal ORI
Akesh UMANEE
MCBREGISTRY&SECURITIESLTD.
F. Jacques HAREL (Chairperson)
Jean-François DESVAUX DE MARIGNY
Marivonne OXENHAM
MCBSTOCKBROKERSLTD.
F. Jacques HAREL (Chairperson)
Jean-François DESVAUX DE MARIGNY
Raj TAPESAR
MCBCAPITALPARTNERSLTD.
Marc LAGESSE (Chairperson)
Ziyad BUNDHUN
Raoul GUFFLET
Thierry KOENIG
Gary SHARP (appointed in May 2009)
Bernard YEN
MCBINVESTMENTMANAGEMENTCO.LTD.
Richard CARRS
Michaël COLLYER
Jean-François DESVAUX DE MARIGNY
Philippe A. FORGET
Marc LAGESSE
Jean-Michel NG TSEUNG
MCBFACTORSLTD.
Jean-Michel NG TSEUNG (Chairperson)
Alain LAW MIN
E. Jean MAMET
Margaret WONG PING LUN
MCBPROPERTIESLTD.
Jean-François DESVAUX DE MARIGNY
Philippe A. FORGET
Pierre-Guy NOEL
FINCORPINVESTMENTLTD.
Jean Pierre MONTOCCHIO (Chairperson)
Herbert COUACAUD, c.m.g.
Bashirali Abdulla CURRIMJEE, g.o.s.k.
Jocelyn DE CHASTEAUNEUF
Michel DOGER DE SPEVILLE, c.b.e.
Bruno MARGEOT
FINLEASECO.LTD.
Jocelyn DE CHASTEAUNEUF (Chairperson)
Jean-François DESVAUX DE MARIGNY
Jean Michel FELIX
Philippe A. FORGET
Alain LAW MIN
E. Jean MAMET
Bruno MARGEOT
Jean Pierre MONTOCCHIO
Jean-Michel NG TSEUNG
INTERNATIONALCARDPROCESSINGSERVICESLTD.
Pierre-Guy NOEL (Chairperson)
Angelo LETIMIER
Mohamed HORANI
BLUEPENNYMUSEUM
Jean-François DESVAUX DE MARIGNY
Philippe A. FORGET
J. Gérard HARDY
Pierre-Guy NOEL
MCB Group Annual Report 2009
corporate governance report
44 45
ShareholderRelationsandCommunicationThe Board aims to properly understand the information
needs of all shareholders and places great importance
on an open and meaningful dialogue with all those
involved with the Company. It ensures that shareholders
are kept informed on matters affecting the MCB. Besides
official press communiqués and occasional letters to
shareholders where appropriate, the Bank’s website
is used to provide relevant information. Open lines of
communication are maintained to ensure transparency
and optimal disclosure. All Board members are requested
to attend the Annual Meeting, to which all shareholders
are invited.
Largestshareholders Numberofsharesowned %Holding
The Mauritius Union Assurance Company Ltd. 8,001,140 3.20
The Anglo-Mauritius Assurance Society Ltd. 7,195,919 2.87
POLICY Ltd. 5,692,371 2.27
Promotion and Development Ltd. 5,000,000 2.00
SSLN c/o SSB Boston Old Mutual Life Assurance Co. (South Africa) Ltd.
4,346,535 1.74
State Street Bank and Trust Co. (A/C The Africa Emerging Markets Fund)
4,201,537 1.68
National Pensions Fund 3,651,645 1.46
Rose Hill Transport Investments Ltd 3,196,490 1.28
La Prudence Mauricienne Assurances Limitée 3,196,097 1.28
Pictet et Cie. (A/C Blakeney LP) 2,695,264 1.08
MCB Group Annual Report 2009
corporate governance report
Dividend per share, dividend cover and dividend yield
Dividend per share (Rs)
Dividend cover (number of times)
Dividend yield (%)
Comparative rate of return (5-year period)
0
5
10
15
20
25
30
35
Treasury bills* SEMTRI** MCB share**
* 91-day T-bills rate compounded over a 5-year period
** Based on total return which combines both capital
gains/losses and dividends that are assumed to be re-invested
%
0
1
2
3
4
5
6
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
DividendPolicyThe MCB aims to supply its shareholders with ongoing
returns in the form of a stable and relatively predictable
dividend path. Interim dividends are declared in
November, based on best estimates of half-yearly
results to 31 December while the final dividends are
announced by the Board just before the end of the
financial year, when the trend in Group profitability
is more firmly established, and paid towards the end
of July. Key dividend ratios as well as an analysis of
the return on investment in MCB shares compared to
Treasury Bills and the SEMTRI over the past five years
are depicted in the following illustrations.
MaterialClausesoftheConstitutionThere are no clauses of the constitution deemed
material to be disclosed.
ShareholdersAgreementsThere is currently no shareholders agreement affecting
the governance of the Company by the Board.
ShareholdingProfileOwnership of ordinary share capital by size of
shareholding and the ten largest shareholders as at
30 June 2009 are given in the following tables:
Sizeofshareholding Numberofshareholders Numberofsharesowned %Holding
1-500 shares 11,655 1,407,346 0.56
501-1,000 shares 1,555 1,163,783 0.46
1,001-5,000 shares 2,359 5,769,888 2.30
5,001-10,000 shares 746 5,406,256 2.16
10,001-50,000 shares 1,160 27,647,075 11.04
50,001-100,000 shares 280 20,245,887 8.09
Above 100,000 shares 376 175,616,266 70.14
The MCB Ltd. (Treasury shares) 1 13,119,094 5.24
Total 18,132 250,375,595 100.00
46 47
ShareInformationLike various foreign bourses, the domestic stock
market was characterised by a generally bearish mood
during the first half of FY 2008/09 and the beginning
of 2009. This was mainly attributed to apprehensions
instigated by the worsening of the global financial
and economic crisis as well as mounting challenges
faced by key economic sectors. As such, the SEMDEX
contracted by some 23% during FY 2008/09 to close
at 1417.47 as at 30 June 2009, while the SEMTRI, the
total return index, shrank by around 20% in rupee
terms over the period. In line with domestic trends,
the MCB share price contracted by 26.7% in FY 2008/09
notwithstanding the sound fundamentals portrayed
by the institution. It is worth noting that the MCB
maintained its leadership position, with market
capitalisation standing at around Rs 31.5 billion as at
end June 2009, representing about 24% of the overall
stock market. While the downtrend of the MCB share
price was particularly acute in the closing months of
2008, the initially sluggish upturn gained meaningful
momentum over time on account of retreating risk
aversion internationally and hints that the Mauritian
economy is proving resilient to external shocks.
As such, the MCB share price appreciated considerably
by nearly 54% between 26 February and 30 June 2009,
before somewhat stabilising in the early months of FY
2009/10.
Shareholders’Diary
November 2009Declaration of interim dividend and release of first quarter results to 30 September 2009
December 2009 Annual Meeting of Shareholders
December 2009 Payment of interim dividend
February 2010 Release of half-year results
May 2010Release of results for the 9-month period to 31 March 2010
June 2010 Declaration of final dividend
July 2010 Payment of final dividend
September 2010Release of full-year results to 30 June 2010
StatementofRemunerationPhilosophyThe Company’s remuneration philosophy concerning
directors, proposed by the Nomination and
Remuneration Committee and approved by the Board
provides that:
• there should be a retainer fee for each individual
director reflecting the workload, the size and the
complexity (national/international) of the business
as well as the responsibility involved. This retainer
fee should be the same for all directors be they
executives or non-executives;
• the President and Vice President having wider
responsibilities, being present on a weekly basis at
the Bank should have higher remunerations;
• there should be committee fees for non-executive
directors with the fees differing in accordance with
the time for preparation, frequency and duration
of meetings. Chairpersons of committees should be
paid a higher remuneration than members; and
• no share option or bonus should be paid to non-
executive directors.
The remuneration philosophy for Management and
staff is based on meritocracy and ensures that:
• full protection is provided against the rise in cost of
living at the lower end of the income ladder;
• fairness is promoted throughout the organisation;
and
• opportunity is given to all employees to benefit
from the financial results and development of the
Group. Indeed all staff members of the Bank receive
an annual bonus based on the performance of the
Company and Group as well as their own rated
contribution thereto. Since 2006, all staff members
have the added possibility to be incentivised further
through a share option scheme.
Generally, the finalisation of remuneration packages is
anchored on a range of factors including qualifications,
skills scarcity, past performance, personal potential,
market norms, responsibilities shouldered, matching
belief sets and experience.
MCB Group Annual Report 2009
corporate governance report
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
Performance of MCB share price vis-à-vis the market
30405060708090
100110120
MCB share price index
SEMDEX (rebased)
1 Ju
ly 2
008
= 1
00
Value of shares traded
0
2
4
6
8
10
12
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09
0
5
10
15
20
25
30
MCB
Other shares
% Market capitalisation of MCB (right scale)
Rs
bn %
48 49
With a view to attaining appropriate remuneration
levels, the Bank is guided by the following
considerations:
• general market conditions are regularly surveyed
in order to ensure that remuneration packages are
motivating and competitive;
• superior team and group performance is stimulated
and rewarded with strong incentives; and
• remuneration practices are regularly reviewed
and restructured where necessary, providing clear
differentiation between individuals’ contribution to
group performance.
The Broadbanding initiative, which includes a review
of the compensation structure and benefits from the
expert advice of Hewitt Associates and the input of a
wide spectrum of experienced parties within the Bank,
is now almost complete and the new framework, which
will provide higher degrees of flexibility and efficiency
will be rolled out no later than November 2009.
IntegratedSustainabilityReportingThe MCB is committed to the highest standards of
integrity and ethical conduct in dealing with all its
stakeholders. Staff at all levels adhere to the Bank’s
Code of Conduct and the national Code of Banking
Practice while epitomising our core values in their
daily activities, thereby upholding the organisation’s
unique culture. Reasonable grievances and disciplinary
procedures are in place to enable enforcement of the
codes.
The Bank has developed and implemented social,
health and environmental policies and practices that
in all material respects comply with existing legislative
and regulatory frameworks. The health and safety of
staff and visitors are of paramount importance to us
and all reasonable measures are taken to ensure a
sound and healthy working environment.
The MCB is an equal opportunity employer and does
not discriminate in any way with regard to race,
religion or gender. Employment opportunities are
openly advertised.
In December 2007, the MCB signed the United
NationsGlobalCompact, the world’s largest voluntary
corporate citizenship initiative. The Global Compact
initiative requires companies to embrace, support and
MCB Group Annual Report 2009
corporate governance report
EmployeeShareOptionSchemeThe objectives of the Bank’s Employee Share
Option Scheme, introduced since 2006, are to align
employees’ interests with those of shareholders,
foster congruence between individual and
organisational objectives while promoting
staff commitment and motivation through the
opportunity to share in the growth and prosperity
of the MCB. All employees of the Bank are granted
options, exercisable through four specific time
windows over a one-year period, to assign up to
25% of their annual performance bonus towards
the purchase of MCB shares, with a vesting period of
three years. The option price is based on the average
of the MCB share price over the quarter preceding
the first window to which a discount is applied. In
October 2008, 496,609 options were granted, none
of which has been exercised owing to the current
market price being below that of the option price.
enact within their sphere of influence, a set of core
values in the areas of human rights, labour standards,
environment and anti-corruption. The MCB fully
supports the ten principles of the Global Compact
and is committed to making them part of its strategy,
culture and day-to-day operations. Furthermore, the
Bank ensures public accountability and transparency
through regular and clear communications with its
stakeholders. In December 2009, the MCB will, for the
first time, report on the various actions undertaken
towards meeting the different principles of the Global
Compact initiative.
Besides, reflecting its commitment to promote
best practices, the MCB is in the preliminary stages
of exploring the possibility to adopt the Equator
Principles, a globally-recognised benchmark for the
financial industry to manage social and environmental
issues in project financing.
In line with its commitment to promote sustainable
development and the country’s ‘Maurice Ile Durable’
proposal, the MCB launched Initiative 175, a
programme aimed at fostering environment-friendly
practices through a series of concerted and protracted
initiatives culminating on the 175th birthday of the
MCB in 2013.
Auditors’FeesandFeesforOtherServicesGroup Bank
2009 2008 2009 2008
Rs‘000 Rs‘000 Rs‘000 Rs‘000
Auditfeespaidto:
BDO De Chazal Du Mée 13,405 11,291 12,075 10,048
Other firms 5,288 2,843 - -
Feesforotherservicesprovidedby:
BDO De Chazal Du Mée 1,839 1,622 1,569 1,412
50 51
MCB Group Annual Report 2009
corporate governance report
Green,togetherOn 1 September 2013, the Bank will have had an
uninterrupted existence of 175 years. Echoing its
150th anniversary, when the Bank offered a gift to
its depositors in the form of an option to convert
an interest premium into bank shares, MCB is again
offering a gift for its birthday, this time to the nation
as a whole. Launched by a press conference on 6 March
2009, Initiative 175 will endeavour to originate
concerted, sustained and multiple actions in favour of
energy saving, renewable energy production and the
environment - all to the benefit of the island and its
population. The Bank will thus articulate initiatives for
and by its employees, its customers and, more widely,
the general public.
Already,thetrackrecordisfarfrombeingnegligible.Since 19 June 2009, the Bank has fully financed, at a
cost of Rs 4.4 million, a series of 26 mini-documentaries
entitled ‘Unisvert‘ which is broadcast weekly on
prime time television. While depicting the ecological
challenges facing Mauritius, the programme invites
the population to be more nature-conscious and to
adopt a more ecologically responsible behaviour.
‘UnisVert’ will also, ultimately, find its way to schools
in order to maximize its message and impact.
In an attempt to reduce the levels of paper waste and
attendant littering, balance enquiries at ATMs have
been priced at 1 rupee each since 7 July 2009. The
result has been both impressive and immediate: 86%
of balance enquiries are now consulted on screen,
resulting in the reduction of the wasteful abuse of a
free service and ATM lobbies looking much cleaner.
Should those figures be maintained, close to 6 million
balance enquiry chits will no longer be printed every
year.
Additionally, customers have been invited since
April 2009 to consider suppressing the printing of
their statements of account especially if they opt for
Internet Banking. To date, more than 7,000 of them
have responded favourably. This invitation will be
renewed over the coming months in order to further
reduce needless paper usage and move customers to
alternative ways of managing their accounts which are
more modern, ‘greener’ and more efficient. Such shift
will soon see customers saving on service (ledger) fees.
52 53
Annual Report 2009
From 1 March 2009, commissions applying to letters of
credit have been reduced by 50% for genuine imports
of energy saving goods and equipment. This offer was
also linked to sponsored import loan rates (savings
rate + 2%) for up to 120 days. The take-up rate has
been rather modest to date, but the offer will remain
effective for the foreseeable future.
The MCB launched a ‘light’ housing loan scheme on
6 May 2009, through which a solar water heater was
offered for free for every loan above Rs 1 million.
The campaign was a roaring success with more than
300 customers qualifying for a free solar water heater
at a potential cost to the Bank of some Rs 7.5 million.
The Bank has also been targeting the more modest end
of its customers’ portfolio by handing out free economic
light bulbs to those taking loans of under Rs 500,000.
More than 20,000 economic bulbs have thus found
their way into Mauritian homes, thus complementing
CEB’s earlier campaign which had sponsored the cost of
purchase of such bulbs down to Rs 40.
For the World Environment Day, the Bank distributed
over 2,000 plants to its employees. Specially chosen
for their air cleansing capabilities, these plants were,
symbolically, a way of co-opting the Bank staff (who
will be front liners in these initiatives) into higher
levels of awareness of ‘green’ issues.
As from October 2009, the Bank is a signatory to
40 million euros loan agreement with Agence Française
de Développement which provides subsidised funding,
in foreign exchange or in Rupees in support of the
realisation of ‘green’ projects. The loan agreement also
provides for advisory services for customers and the
Bank in order to better structure local development
initiatives resulting in smarter energy use and lighter
touch impacts on the environment.
It is further useful to underline that several other
initiatives are ongoing in-house. Bank-wide energy
audits are being conducted in order to be more energy
efficient. O2Zone, a web-based ideas platform which
is strictly internal for the time being, regroups news
items, a blog and useful links. Painstaking research is
also being conducted to ensure that our brand new
building in Ebene becomes as energy efficient and
as eco-friendly as possible - a 30% gain in energy
consumption being targeted at this stage - when it will
be inaugurated sometime in 2011.
MCB Group
CorporateSocialResponsibilityA bank with a heartThe Bank has for long been involved in activities
designed to promote the interests of the community
and the creation of a sustainable society. In line
with a policy decision taken in 2005, the MCB has
hitherto dedicated an amount equivalent to 1% of
pre-tax profits to Corporate Social Responsibility
(CSR) activities, a ratio which will henceforth be
revised upwards in the wake of the recent budgetary
measure requiring firms to set up an annual CSR fund
representing 2% of their book profit derived during
the preceding year. As a result, the Bank ploughs back
in the community, and towards the welfare of the
society at large, a sum that increases proportionally
with the growth of its business.
To maximise efficiency, funds devoted to CSR activities
are channelled through a dedicated unit within the
Group’s Communication Strategic Business Unit,
which ensures that these are allocated to earmarked
priority areas. Furthermore, for CSR projects to have
a real impact at the local level, the MCB makes use
of its extensive branch network and encourages
staff to actively participate in endeavours designed
to enhance the welfare of fellow citizens. The aim is
to make a perceptible difference in people’s lives by
working closely with the community and ensuring that
CSR funds are allocated to those in need via a more
direct channel.
Besides, an ‘Appel à Projets’ was launched in April 2008
to invite non-governmental organisations (NGOs) and
individuals supported by NGOs to submit their projects
for consideration. This operation generated wide-
ranging interests with 188 projects submitted, 37 of
which were financed at a cost of Rs 7 million during
FY 2008/09.
For the year ended June 2009, an amount of Rs 30
million was spent on projects as detailed in the
following table. No political donations were made
during the year.
Rs‘000
Arts, Culture & National Heritage 2,240
Education 10,906
Poverty Alleviation 7,720
Environment 3,270
Sports 2,707
Others 3,157
Total 30,000
Some Examples of SupportEducation
• ‘My Words My World’ – launched in September 2008,
this national campaign seeks to promote literacy
through the distribution of educational packs to
around 125,000 primary school students in Mauritius,
Rodrigues and Agalega
• MCB Education Scheme – comprehensive support to
schools located in underprivileged regions
• MCB Scholarships – every year, the MCB offers two
scholarships at tertiary level: (i) the MCB Foundation
Scholarship to the Mauritian student ranking next
in line to the State of Mauritius scholarships on the
Economics side at the local Higher School Certificate
examinations and (ii) the MCB Rodrigues Scholarship
to a student from Rodrigues for study at the
University of Mauritius
corporate governance report
54 55
• Creative workshops – children attending schools in
underprivileged areas are initiated to circus, theatre
and woodwork among others
Poverty alleviation
• Rehabilitation of drug addicts – financial assistance
to outreach programmes for young people,
post-rehabilitation follow-up for women and
empowerment of families
• Prévention Information Lutte contre le Sida (PILS) –
support to prevention and counselling programmes
concerning HIV Aids
• Association de Parents d’Enfants Inadaptés de l’Ile
Maurice (APEIM) – financial help for the construction
of a new building to accommodate children suffering
from mental problems
• Micro enterprises – support to women entrepreneurs
by financing micro projects such as poultry rearing
Arts, Culture & National Heritage
• National Heritage Fund – contribution to the
preservation and restoration of Ile de la Passe
• Train No. 21 – funding of a roving exhibition on the
now dismantled Mauritian railways
Sports
• MCB Football Academy (MCBFA) – this innovative
project blends sport with pedagogical follow-up
to enhance the personal development and, thence,
prospects of children (aged between 7 and 11) of
underprivileged areas. More than 350 children of
St Hilaire, Poste de Flacq and Grand Bay benefit from
coaching sessions every Saturday morning while
their academic education is monitored by specialists
and counselling is provided to their parents when
necessary
Staff Involvement
• MCB Football Academy – presence of MCB staff
every Saturday morning at St Hilaire, Poste de Flacq
and Grand Bay
• Friends in Hope – participation in the Royal Raid
2009 to raise funds
• Sourire de Noël 2008 – voluntary financial
contribution from employees for the benefit of
children from underprivileged communities and
elderly persons
Jean-François DESVAUX DE MARIGNY
CompanySecretary
MCB Group Annual Report 2009
I certify that, to the best of my knowledge and belief, the company has filed with
the Registrar of Companies all such returns as are required of the company under the
Companies Act 2001 in terms of section 166(d).
Jean-François DESVAUX DE MARIGNY
CompanySecretary
Head Office
9 – 15, Sir William Newton Street
Port Louis
29 September 2009
company secretary’s certificatecorporate governance report
Nature always tends to act in the simplest way.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
58 59
HighlightsThe diligent approach chosen by the MCB in its
undertakings, anchored on a sound business model,
continues to bear fruit as gauged by the strong
performance registered during the last financial year
regardless of the sternly testing times confronting
financial institutions across the globe. Indeed,
attributable earnings rose by a notable 7.3% to
reach Rs 3,964 million for FY 2008/09 and would have
broken through the Rs 4 billion mark had it not been
for the change in legislation to double the special levy
chargeable on income and profits of banks, which
increased the tax charge for the MCB. The progression
in Group results was even more impressive at 21.3%
when excluding the non-recurring gain on the sale
of securities recorded in the previous year, with
satisfactory performances registered across business
lines amidst heightened challenges in the operating
environment especially in the second half of the
financial year. Accordingly, earnings per share reached
Rs 16.71 for the year ended 30 June 2009. Reflecting the
broad-based foundations of the Group, the combined
contribution of income from foreign sources and non-
bank services to Group profit stood at an appreciable,
albeit reduced 44.4% while the adoption of sensible
practices throughout the years has translated into
improving credit quality, a stable and growing deposit
base, ample liquidity, and comfortable capitalisation
levels.
These commendable achievements are reassuring in
view of the detrimental impact of adverse exogenous
developments that cropped up in FY 2008/09. Having
paved the way for healthy business growth for the
Group, the generally enabling operating environment,
supported by favourable economic evolution and
reinforced supervisory and regulatory framework,
was inevitably impaired by a sharp deceleration in
activity trend and heightened uncertainty induced by
the unfolding of an unprecedented global downturn
as well as by country-specific troubles. As a result,
the high increase in the loan portfolio of the Bank
observed in the second semester of 2008 could not,
thereafter, be sustained at the same pace. For their
part, investor-related businesses suffered from
dampened confidence, whereas marked idiosyncratic
difficulties coupled with unfavourable external
dynamics took their toll on key overseas subsidiaries,
particularly in early 2009.
The high degree of resilience depicted by the MCB
Group in the face of tough conditions underscores its
endeavours to scale to new heights towards creating
long-term value for its stakeholders by way of a well
structured and coherent diversification strategy in
addition to strengthening its foothold in established
and appealing segments. Concurrently, due emphasis
is being laid on customer service, risk management
and efficiency as well as capacity-building both in
terms of infrastructure and human capital.
Whilst adopting a more cautious approach in its
operations on account of degenerating economic
conditions, the MCB has pursued several business
development initiatives at different levels during
the last financial year. As such, the Group has made
significant progress in relation to its ‘Bank of Banks’
strategy as gauged by its standing as the first ‘SWIFT
Member-Concentrator’ in sub-Saharan Africa, the
creation of a new subsidiary for card-processing needs
of banks and key milestones reached with regard to
the establishment of a letter of credit re-issuance hub.
Furthermore, alongside extending its footprint and
replicating the Bank’s offerings in presence countries,
the MCB is capturing an increasing share of regional
business flows backed by the continuous broadcast
of its appetite for syndications and risk participation
in targeted areas. For instance, significant growth
in revenue has emanated from the conclusion of
Master Risk Participation Agreements for commodity
financing and the MCB’s expertise in the hospitality
sector is increasingly being acknowledged as
evidenced by its lead arranger status for major hotel
projects in Seychelles and Maldives. Major headway
has also been made with respect to the Bank’s drive to
deepen its involvement in the global business sector
thanks to the dedicated desk set up in the recent past.
Besides, the participation of the MCB in the Global
Trade Finance Program of the International Finance
Corporation as Confirming Bank marks an important
step in providing further comfort to its expansion
strategy linked to trade transactions in the region,
particularly considering the ongoing wariness of
financial institutions.
On the domestic front, following the welcomed
redesign of the Port Louis Main Branch (PLMB), the
Bank has embarked on a wide-ranging programme
to remodel all branches with the prime objective of
ensuring consistent and superior customer service and
relationship across the whole network. Moreover,
efforts have been maintained to upgrade our product
and service offerings. As such, the Bank has reviewed its
delivery in targeted segments, including the affluent
and younger markets, during FY 2008/09 alongside
enriching its portfolio with new facilities such as
American Express cards and MoneyGram services as
well as ‘cash only’ and ‘Forex’ ATMs among others.
The MCB Capital Markets Ltd. has also extended
its investor reach through the introduction of new
funds and, more recently, via the launch of the MCB
Education Plan providing parents with an interesting
instrument to save for further studies of their children.
At another level, in line with its strategy to diversify
its revenue streams, the MCB has recently concluded
a joint venture with a local insurance company for
the provision of credit insurance services to customers
wishing to cover for risk of default by debtors.
In striving to consolidate the risk management
framework and enhance efficiency, the Bank has
centralised all credit management areas with the
credit risk function left to concentrate on monitoring
the performance of credit exposures and facilitating
decision-making with reference to capital planning.
Further productivity gains are emerging from the
roll-out of the first phase of branch back-office
centralisation, underpinned by the use of technological
advances as appropriate. In parallel, the MCB has
sustained its investment momentum to accommodate
and bolster future growth. Hence, projects intended
to uplift its physical and technological infrastructure
to new echelons, including the construction of the
energy-conscious landmark building near Ebene and
the implementation of Temenos T24 as the new core
banking system, have made resolute progress. In
addition, unrelenting focus is being laid on fostering
a competent, motivated and adaptable workforce.
Apart from the provision of generic and tailored
training programmes to staff, the Bank is currently
MCB Group Annual Report 2009
management discussion and analysis
60 61
finalising the review of its compensation structure
under the Broadbanding initiative which is projected
inter alia to inject higher organisational flexibility and
promote competency development.
Being a proponent of inclusive and sustainable
development, the MCB has complemented its business
growth initiatives by a perpetual involvement within
the community not only in Mauritius but also in
the region as demonstrated by the replication of
the literacy campaign ‘My Words My World’ in the
Seychelles. Crucially, the Bank launched a far-reaching
programme, labelled Initiative 175 – in the context of
its 175th anniversary due in 2013 – to promote practices
conducive to the protection of the environment for
the benefit of the nation as a whole. In this respect,
a series of measures have already been initiated,
including the full financing and prime time TV
broadcast of mini-documentaries entitled ‘UnisVert’,
the main purpose of which is to foster enhanced
ecological awareness, as well as actions carried out in
favour of energy saving, reducing paper consumption
and environment-friendly projects. The MCB has also
signed a loan agreement with Agence Française de
Développement for subsidised funding in support of
‘green’ ventures.
As a testimony of its solid fundamentals and
strong franchise, the MCB won several awards and
recognitions during the last financial year. In effect,
the Group featured among the highest movers in
the latest listing of The Banker’s Top 1000 Banks to
reach the 696th position worldwide with a rank of 139
being achieved in terms of soundness while being at
the 17th spot in sub-Saharan Africa. The Group’s role
as a key regional player was confirmed by Eco Austral
magazine which classified the MCB as the top bank
in the Indian Ocean region in terms of profitability.
On the local scene, reflecting its undisputed leadership
position and rational principles in business operations,
the MCB won the Bank of the Year 2008 Award of
The Banker magazine. Furthermore, the PLMB was
attributed the National Customer Service Award 2008
on the strength of its unique customer experience offer
and the Bank secured the MasterCard E-commerce
Partner Award for its proactive stance in the related
field as well as collecting the Best Management
Discussion and Analysis prize at the Price Waterhouse
Coopers Corporate Reporting Awards 2008, thus
highlighting the importance attached to transparency
by our organisation.
External Forces ReviewLegal and Institutional EnvironmentDuring the past financial year, the domestic financial
sector was subject to various changes on the legal and
institutional front aimed at preserving stability and
enabling the industry to adapt to new exigencies of the
evolving operating environment. A key development
relates to the decision by the Bank of Mauritius (BoM)
to shift to the full implementation of the Standardised
Approaches of the Basel II framework as from the
second quarter of 2009 given that an adequate state of
readiness by banks to migrate to the new framework
was observed during the parallel capital adequacy
reporting under Basel I and Basel II. Moreover, with
a view to strengthening risk management, promoting
financial soundness and fostering transparency of
operations, the Central Bank released a Guideline
on the Measurement and Management of Market
Risk in July last while amendments were brought to
the Guideline on Credit Concentration Risk and the
Guideline on Related Party Transactions.
In an endeavour to uphold financial stability, the Bank
of Mauritius Act 2004 was amended in July 2009 to
pave the way for the setting up of a Financial Stability
Committee comprising the Central Bank, the Financial
Services Commission as well as the Ministry of Finance
and Economic Empowerment for a regular review of
the soundness of the financial system. In the same
vein, the Financial Services Commission has signalled
its intention to upgrade the processes for acquiring
adequate information from operators dealing in
the country’s jurisdiction – especially in relation to
Category 2 Global Business companies – so as to
enhance the status of Mauritius as a financial centre
of repute and promote transparency. Moreover,
various initiatives have been undertaken during the
last financial year to reinforce customer satisfaction
and protection. As such, a proposal was made by the
authorities for the constitution of an office of the
Ombudsperson to merge the relevant functions for
banking and non-bank financial services as well as that
of the Commissioner for the protection of borrowers.
Besides, a Guideline on Control of Advertisement was
released by the Central Bank in November 2008 to
guard customers against misleading advertisements
and foster highest ethical standards. A Competition
Commission was also established in early 2009 mainly
to prohibit anti-competitive restrictive agreements.
The inclusion of blue-chip companies listed on the Stock
Exchange of Mauritius (SEM) into the Dow Jones SAFE
100 Index, launched by the Dow Jones Indexes and the
South Asian Federation of Exchanges in March 2009,
should help enhance foreign investor interest in the
local bourse. The SEM is also currently contemplating
to introduce Index Futures trading and clearing
primarily aimed at the SEM-7 index. Moreover, the
profile of the financial sector is likely to be raised by
the establishment of a derivatives exchange anchored
on commodities and currency trading from Mauritius.
In the same line of thought, the BoM is endeavouring
to develop a secondary market for treasury bills
and Bank of Mauritius bills. Besides, in its attempt
to improve efficiency, the BoM embarked on the
modernisation of the existing Mauritius Automated
Clearing Settlement System, allowing multi-currency
transactions with extended settlement functions. The
Regional Payment and Settlement System was also
launched in June 2009, providing a single gateway for
central banks to effect trade payment and settlement
on a complete real-time online system.
After being announced in the National Budget
(July-December 2009), various measures affecting
banks were proclaimed under the Finance Act 2009.
As such, with a view to reinforcing public finances
and adequately supporting the implementation
of growth-enhancing policies, the special levy on
profitable banks has been doubled to 1% of operating
income and 3.4% of book profit for the financial
years commencing 1 July 2009 and 1 January 2010,
thus already impacting the MCB results in FY 2008/09.
Moreover, all profitable firms, including banks, are
required to either spend 2% of their book profit on
Government-approved Corporate Social Responsibility
activities or transfer the funds to the authorities to
be used for social investment. Besides, following the
management discussion and analysis
MCB Group Annual Report 2009
62 63
Government’s decision to match its fiscal year to the
calendar year, the tax year will be altered accordingly as
from January 2010. On a different note, the legislative
set-up has been upgraded in order to improve the
ease of doing business and foster enhanced efficiency
of operations as demonstrated by the country’s
remarkable progression in the World Bank Doing
Business 2010 rankings. For example, the Insolvency
Act came into effect in June 2009 with the objective
of aligning the relevant framework with international
best practices. Moreover, the Employment Rights Act
2008 and the Employment Relations Act 2008 became
effective in February 2009 to foster greater flexibility
and enhance the effectiveness of collective bargaining
in the labour market.
MacroeconomicOverviewAfter a protracted spell of an environment generally
conducive to business growth, a markedly unfavourable
shift in economic conditions was detected through the
last financial year, largely linked to the severe global
slowdown. Indeed, a reduction in external demand
and the drag-down effects of amplified uncertainty
on activity levels combined to hinder the appreciable
expansion path taken by Mauritius and the sub-Saharan
Africa region at large, leading, among other things,
to reduced growth and curtailed trade and financial
flows since the latter part of 2008. Furthermore, the
ensuing difficulties in specific countries where the
MCB is present have been compounded by adverse
internal developments. Specifically, political upheavals
in Madagascar have marred business sentiment since
December last despite a rather strong growth in
2008, owing to significant investment in extractive
industry projects. For its part, the Seychelles economy
registered a downturn amidst a balance of payments
and debt crisis and the subsequent implementation of
a structural adjustment programme with the support
of the IMF which, nonetheless, is projected to reap
positive dividends in the medium term. This increasingly
difficult background has prompted the MCB to
reinforce its vigilance in business operations during
the year, alongside closely monitoring vulnerable areas
and taking actions deemed appropriate to safeguard
the interests of the Group.
In Mauritius, notwithstanding the dampening impact
of elevated inflationary pressures, the strength of the
rupee on average and a contraction of some key export
sectors largely induced by the worldwide slump in late
2008, a satisfactory growth rate of 5.3% was registered
last year. This outcome was buoyed by progress achieved
in bolstering macroeconomic fundamentals over
time with robust performances noted within various
sectors being promoted to diversify the economic
base. From an expenditure perspective, significant
support to activity emanated from the expansion of
household consumption and private investment, to
some extent reflecting relative economic buoyancy
sustained in the recent past and reforms undertaken
to improve the business framework. Nevertheless, as
the degenerating international climate took its toll on
the domestic economy, primarily through the knock-
on effects of restrained exports of goods and services,
a marked deceleration was recorded, especially in
the first semester of the current year, implying that
the notable momentum observed lately is likely to
be hampered in 2009. At a projected rate hovering
around 2.5% though, the growth outlook for the year
represents a circumstantially resilient performance,
buttressed by reinforced intrinsic capabilities gradually
moulded via wide-ranging reform programmes and by
policy responses in the form of fiscal stimulus packages
and monetary loosening. Whilst nascent signs of
recovery in some advanced countries are encouraging,
appropriate diligence should continue to be exercised
since economic conditions should remain soft in the
short term at least in view of the still high uncertainty
level as well as the prevalence of structural imbalances
locally. In this respect, it is laudable to note that due
emphasis has been laid on enhancing the operating
framework but there is an ever urgent need to gear
up efforts to upgrade public infrastructure and re-
engineer some public bodies towards addressing long-
standing inefficiencies and boosting competitiveness.
At sectorial level, the textile and tourism industries
are bearing the brunt of global disturbances. Already,
since the second quarter of 2008, weighed down by
rupee strength and certain latent constraints of a
few operators, the former sector was confronted by
some difficulties which were later on exacerbated by
a serious cutback in demand orders and downward
pressures on offered prices, both associated with
the unfolding of the worldwide economic disorder.
As a result, the sector stagnated last year and is
projected to shrink by a fairly significant margin in
2009 despite recent indications of a possible upturn
and average euro appreciation against the local
currency. For its part, after holding up relatively well,
the tourism sector started to contract towards the
end of 2008 leading to an overall modest expansion
rate of 2.4% for the year and an important negative
growth of 9.3% for the first semester of 2009 during
which receipts dropped by 17.7%. On the basis of
waning international tourism movements and current
holidaying preferences for short-haul destinations as
well as the market uncertainty created by the influenza
A (H1N1) outbreak, it appears that the situation in the
hospitality sector will remain delicate for some time
yet. Given that the sector still represents a promising
avenue for the medium to long term, it is vital that a
diversified and flexible growth strategy be embraced,
while preserving the exclusivity eminence of the
management discussion and analysis
GDP growth GDP growth excl. sugar
%
GDP growth rate
0
1
2
3
4
5
6
7
2005 2006 2007(1) 2008(1) 2009(2)
%
(1) revised estimates (2) MCB forecasts
MCB Group Annual Report 2009
64 65
Mauritian destination, so as to reduce the extent of its
vulnerability to shocks.
The impaired economic activity level triggered by the
testing external environment is also impacting other
sectors such as trade, construction and transport
as well as the domestic oriented industry. Growth
in the trade sector is expected to record a subdued
performance this year as compared to an appreciable
4.5% in 2008 following a curtailment of freeport
activities and of imports induced by dampened activity.
The construction sector registered an impressive
expansion rate of 11.1% last year on account of
investment in commercial buildings, hotels, Integrated
Resort Schemes (IRS) and residential buildings but an
important slowdown is foreseen in 2009 despite some
segments posting a satisfactory performance. This is
mainly attributable to the wait-and-see attitude of
some operators prompted by heightened risk aversion
and cash flow difficulties. Growth in the transport
sector should be held back by concerns besetting
the national carrier, whereas the domestic oriented
industry should sustain a relatively weak performance
with enduring competitive limitations amidst the trade
liberalisation process being only partly compensated
for by Government support to enterprises affected by
external shocks.
In contrast, the business and financial services sector
has warded off impending threats linked to the global
financial crisis relatively well as evidenced by its robust
growth of 10.4% in 2008, underpinned by a sound
and stable financial system. Though a lower expansion
rate is projected for 2009 in line with a deceleration
in domestic growth and the mitigating effect of
the uncertain environment on the global business
segment, the business and financial services sector
should post a healthy performance again this year
on account of its growth momentum and creditable
competitiveness. Besides, the new pillars of the
economy such as the information and communication
technologies (ICT) sector and the seafood industry have
been making interesting strides to grow by 12.6%
and 7.5% respectively in 2008. These sectors are likely
to maintain a robust expansion this year with the ICT
sector being boosted by good performances in the
telecommunications and business process outsourcing
segments and the seafood industry capitalising on
established market penetration even though declining
fish stocks and relatively stringent EU rules-of-origin
norms in some cases represent a potential drag on the
sector. As regards the sugar industry, production rose
by only 3.7% largely due to a further decline in area
harvested and in view of continued excessive rainfall,
while receipts dropped by 13.7% following a price cut
equivalent to 12% of the initial guaranteed level in
respect of exports to the European market. Even though
the sector will suffer from another 19% price cut as from
October this year, sugar receipts could be boosted by a
move to ship a large proportion of exports before the
reference date, relative euro strength and, importantly,
higher value added resulting from the manufacture of
refined instead of raw sugar. Even if progress has been
made in fostering a cane cluster, pending reform issues
on energy policy in particular should be sorted out for
enabling the cane industry to effectively contribute to
the ‘Maurice Ile Durable’ vision.
The restrained rise in national income is contributing
to a widening of the resource gap situation on
account of a rather appreciable growth in real
consumption leading to a more than proportionate
fall in the savings to GDP ratio this year as compared
to the investment ratio, somewhat supported by
non-negligible contribution from the public sector.
While being generally comprehensible in current
circumstances, the currently large resource gap
remains a cause for concern and necessitates judicious
measures for boosting domestic savings through
widened nationwide income generation. On the other
hand, upgraded economic capacity, notably through
sustained growth and higher investment over the last
few years, coupled with micro-strategies to facilitate
job creation has contributed to a firming up of the
labour market. In effect, the unemployment rate
fell by 130 basis points to 7.2% last year, thereby
underscoring the significance of sustained efforts
towards tackling inherent rigidities on the employment
front. Notwithstanding targeted measures adopted
by the Government for supporting the viability of
enterprises and boosting the employability of workers
among others, labour market conditions have started
to deteriorate on account of sluggish economic activity
as demonstrated by a rise of 90 basis in the joblessness
rate in the second quarter of 2009 compared to the
corresponding period last year.
A positive spin-off of the global crisis is that it has
abated inflationary pressures by prompting a sharp
fall in commodity prices abroad. Combined with lower
prices of some basic items subsequent to the stimulus
package of December last as well as a fall in mortgage
interest rates amidst economic uncertainty and falling
communication costs, the pass-through effects of
international developments have contributed to a
prolonged reduction in year-on-year inflation over time,
leading to a decrease in headline inflation from its peak
of nearly 10% in November 2008 to 6.9% in June 2009,
with the downward trend expected to be maintained
in the near term. The declining movement in inflation
coupled with worldwide interest rate orientations
has paved the way for considerable monetary easing.
Indeed, after tightening conditions at the beginning of
FY 2008/09 through a rise of 25 basis points in the key
Repo rate and an increase in the cash reserve ratio from
4% to 6% in line with apprehensions regarding the
inflation outlook at that time, the Central Bank tilted
its stance to an easing bias since October 2008 in an
attempt to prop up activity. As such, the reference rate
was slashed by a cumulative 250 basis points to reach
management discussion and analysis
Selected growth rates (Year 2008)
+0 +2 +4 +6 +8 +10 +12 +14
TextileManufacturing, (excl. sugar, food & textile)
Hotels & restaurantsSocial & general public services
SugarElectricity, gas & water
Wholesale & retail tradeInsurance
Transport, storage & communicationsNon-sugar agriculture
Food manufacturing (excl. sugar)Business activities
ConstructionBanking
%
MCB Group Annual Report 2009
66 67
5.75% in March 2009 before being kept on hold, while
the cash reserve ratio was brought down to 5.0% and
4.5% in November and December 2008 respectively.
Accordingly, the Bank rate on an annual average basis
dropped from 8.96% in FY 2007/08 to 7.34% in the
last financial year, while declining by 2.69 percentage
points on a point-to-point basis to reach 4.76% as at
end-June 2009. Considering the reduction in inflation
to manageable levels, the flimsy recovery in our main
export markets and the generally favourable foreign
interest rate differentials to Mauritius, the domestic
reference interest rate should remain relatively low in
the near future even though a shift in the monetary
stance could be contemplated over the medium
term in the event of a sustained upturn globally and
domestically, particularly in a context characterised by
a low level of savings.
Evolutionofkeyinterestrates(%)Asat Weightedaverage
30-Jun-08 30-Jun-09 FY08 FY09
Repo rate 8.00 5.75 8.93 7.08
MCB Prime lending rate
10.250 8.125 11.42 9.49
MCB Savings rate
6.75 4.50 7.92 5.85
Bank rate 7.45 4.76 8.96 7.34
Complementing the monetary loosening cycle, the
Government adopted an expansionary budgetary
stance in response to heightened challenges posed by
rapidly deteriorating conditions. Hence, an additional
stimulus package worth Rs 10.4 billion, representing
3.8% of GDP, was announced in December 2008, the
scope of which has been extended and intensified in
the last National Budget. As a result, the declining
tendency in the fiscal imbalance observed in recent
years was reversed with the budget deficit estimated
at 3.9% of GDP in FY 2008/09 and 4.8% for the six
months to December next. Whilst understandable
in current circumstances, the worsening of public
finances necessitates close attention to avoid any
fiscal slippages, with the prompt implementation of
capacity-building measures warranted to optimise
their expected positive effects on economic activity.
On the external front, the trade deficit increased
considerably to Rs 64.2 billion last year on account of
a notable rise in the import bill following elevated
commodity prices until the third quarter of 2008 and
dampened export revenues linked to rupee strength
on average, a large cut in sugar price and curtailed
demand orders. With tourism receipts increasing
by only 1.3%, this deterioration caused the current
account deficit to widen from 5.6% of GDP in 2007
to 10.4% in 2008. Nonetheless, given outweighing
reprieve emanating from a surplus in the financial
and capital account as well as net unrecorded inflows,
the balance of payments posted a surplus of Rs 4.6
billion last year – thereby consolidating the country’s
reserve position – even though an overall deficit was
recorded in the fourth quarter as a result of slowing
financial flows. In the first half of 2009, despite
inferior investment inflows and reduced surplus
on the services account, the balance of payments
shifted back to a positive balance brought about by
a sharp decline in the trade deficit induced primarily
by lower imports and continuing support from
unrecorded flows. Against this background, after an
episode of relative strength, the rupee embarked on
management discussion and analysis
a depreciating trend in effective terms since the latter
part of 2008 although firming up against the pound
sterling, before regaining some vitality since March
2009 particularly against the greenback.
MarketEnvironmentOn the basis of its strong fundamentals and the
generally supporting domestic economic activity, the
local banking sector performed appreciably well last
year notwithstanding the challenges emanating from
the global financial and economic crisis. In effect, the
level of credit to the economy registered a notable
growth of 20.5% during FY 2008/09 to stand at Rs
201.3 billion as at 30 June 2009, despite a noticeable
slowdown observed during the first half of 2009 in line
with deteriorating economic conditions.
The general rise in the industry’s loan portfolio over
FY 2008/09 has been relatively broad-based with credit
to several key sectors of the economy contributing to
the overall performance. Indeed, robust growth was
registered in respect of the global business, ICT – albeit
from a low base – and construction sectors, reflecting
their buoyancy until recently, as well as in credit to the
cane industry following restructuring initiatives therein
and to tourism in view of reconstruction works being
undertaken by various establishments. Furthermore,
the industry’s exposure to public non-financial
corporations increased significantly partly due to
financial distresses of some organisations in which the
Government has a notable stake. Conversely, a subdued
performance was recorded in relation to the personal
and professional segment, potentially prompted by
the high uncertainty characterising the economy, while
advances to the export oriented sector witnessed a
contraction given difficulties faced by textile industries
in particular amidst dampened external demand. As
regards the financial and business services industry,
related exposures expanded marginally due to a fall in
credit to investment companies.
Mauritius Exchange Rate Index (MERI2)
80
85
90
95
100
105
110
Feb-07Apr-07 Jun-07 Aug-07Oct-07 Dec-07Feb-08Apr-08 Jun-08 Aug-08Oct-08 Dec-08Feb-09Apr-09 Jun-09 Aug-09
Jan-Dec 2007 = 100
Notes:
(i)The MERI2, which is a weighted average of bilateral exchange rates for the Mauritian rupee,
is based on the currency distribution of merchandise trade and tourism earnings
(ii) An increase/decrease in the index indicates a depreciation/appreciation of the rupee
Source: Bank of Mauritius
Feb2007
Apr2007
Jun2007
Aug2007
Oct2007
Dec2007
Feb2008
Apr2008
Jun2008
Aug2008
Oct2008
Dec2008
Feb2009
Apr2009
Jun2009
Aug2009
Jan
-Dec
200
7=10
0
MCB Group Annual Report 2009
68 69
Credittotheeconomy
SectorsJune08
RsmJune09
RsmChange
%
Agriculture and fishing 9,248 12,222 32.2
Export oriented industry 8,454 7,848 (7.2)
Domestic oriented industry
8,851 10,194 15.2
Tourism 24,038 30,134 25.4
Transport 956 926 (3.1)
Construction 29,957 38,248 27.7
of which Housing 18,616 21,790 17.1
Traders 20,054 23,295 16.2
Information & Comm. Technology
925 1,245 34.6
Financial & business services
18,820 18,928 0.6
Infrastructure 5,125 5,170 0.9
Global Business Licence Holders
11,264 18,645 65.5
Personal & Professional 16,693 17,302 3.6
Public Nonfinancial Corporations
7,768 12,137 56.2
Others 4,960 5,032 1.5
Total 167,111 201,326 20.5
Bank deposits registered a modest growth of 2%
over the last financial year, mainly attributable to an
unfavourable movement in foreign currency deposits
which dropped by 3% when expressed in local currency
terms despite rupee depreciation over the period. This
movement was partly linked to the repercussions arising
from the worldwide financial crisis on the positions
held in the global business segment. On the other
hand, local currency deposits grew at a decelerating,
albeit notable, rate of 12.3% in concordance with
the evolution of nationwide income and declines in
interest rates. Specifically, as compared to an increase
of 33.5% in FY 2007/08, demand deposits expanded at
a much lower rate of 14.2% in the last financial year,
to some extent highlighting liquidity strains on some
sectors provoked by adverse external developments,
whereas the slowdown in growth rates of savings and
time deposits was less pronounced.
Depositsinthebankingsector
TypesofdepositsJune08
RsmJune09
RsmChange
%
Rupee 175,162 196,670 12.3
Savings 88,943 99,171 11.5
Demand 22,339 25,515 14.2
Time 63,881 71,984 12.7
Foreign currency 361,915 351,093 (3.0)
Total 537,077 547,763 2.0
By and large, on the basis of judicious balance sheet
management, the banking industry continued to post
generally appreciable profitability levels during the
last financial year despite stiffer competitive pressures
and a demanding operating environment. In fact,
aggressive strategies have been adopted by different
players in both the corporate and retail sectors in
order to improve market penetration and capture
new businesses, including the unveiling of new
products and services targeted to specific segments
at competitive prices. For instance, Islamic financial
products have been launched by some operators
while tailored customer service has been fostered,
partly backed by assertive promotion campaigns and
an expansion of the network of branches and other
delivery channels. Moreover, as part of fiscal stimulus
measures, commercial banks have been called upon by
the authorities, notably through financing schemes, to
assist enterprises with viable financial fundamentals to
better face up external difficulties.
In addition to appreciable revenue generation, the
banking sector – which is not exposed to any of
the toxic assets that led to the collapse of various
international financial institutions – performed
suitably well during the last year in respect of several
financial soundness indicators, with overall healthy
operating fundamentals guarding it against the
challenging climate generated by the worldwide crisis.
Firstly, reflecting sound financial management amidst
testing times, the liquid assets to rupee-denominated
deposits ratio stayed at comfortable levels during
FY 2008/09, albeit declining to 37.3% as at 30 June
2009 as compared to 43.3% attained one year
earlier. Secondly, upholding suitable cushions against
potential shocks and in spite of mounting problems
confronted by various economic sectors, banks have
remained well capitalised and sustained appreciable
asset quality positions. Indeed, latest figures at the
industry level demonstrate that the capital adequacy
ratio and gross non-performing loans to gross loans
ratio reached comfortable rates of 17.1% and 2.4%
respectively as at March 2009.
All in all, in spite of the testing operating environment
in terms of competitive pressures and repercussions of a
slowdown in real economic activity in Mauritius and the
regional markets, the MCB is confident that its sound,
proactive and multi-pronged strategic orientations
will facilitate the maintenance of its notable growth
path, bolster its leading market position and shore up
capabilities for long-term value creation.
ReviewofMCBOperationsConfronted by a highly hostile operating environment,
most business lines of the MCB Group performed
circumstantially well to post reassuring results in FY
2008/09, underpinned by past and ongoing initiatives
to consolidate and broaden their foundations.
While carefully scrutinising and duly responding to
the delicate economic environment, the Group has
pursued its growth strategy anchored on reinforcing
established segments and diversifying its products
and markets. To uphold the business development
thrust, key emphasis has been laid on providing
tailored offerings across various client segments and
upgrading customer service and relationship alongside
endeavouring to capture an increasing share of regional
business flows. In parallel, the MCB has maintained its
capacity-building momentum to upgrade its internal
management discussion and analysis
Banking sector: credit to the economy (q.o.q. growth)
0
2
4
6
8
10
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09
%
MCB Group Annual Report 2009
70 71
capabilities. As such, significant headway has been
made in respect of back-office centralisation and
the implementation of Temenos T24 as the new core
banking system whereas the Broadbanding exercise
reviewing the compensation structure to embed an
enhanced HR performance culture is nearly complete.
Furthermore, the landmark energy-conscious building
near Ebene Cybercity has started to take shape and
is on target for completion in 2011. Besides catering
for future business growth, this project is an important
element of Initiative 175, an ambitious programme
launched by the Bank during the last financial year
aimed at fostering environment-friendly practices
both at the MCB and nationally through a series of
concerted and protracted initiatives.
LocalBankingBusinessCorporateDespite heightened uncertainty and difficulties in its
markets, the Corporate Banking Business Unit (BU)
continued to fare well in the last financial year, an
accomplishment attributed to an effective balancing
act between business development and credit risk
management. The Corporate Banking BU can pride
itself in developing a sound and healthy credit portfolio
with relatively low exposures in the perceived higher
risk areas such as the export oriented sectors of the
economy. Given the generally challenging economic
environment, business strategy was geared towards
leveraging on consistent service delivery to acquire
market share in key areas as well as devoting particular
attention to existing exposures and commitments in
seemingly vulnerable sectors, such as tourism, textile
and construction, in order to mitigate the adverse
impact of the global crisis on financial performance.
The first half of FY 2008/09 saw continued growing
demand for credit from the corporate sector. However,
in the wake of the deterioration of the global
economic environment, the impact of which was
mainly felt in Mauritius during the second half of the
last financial year, lending opportunities became more
limited. As a result, the Bank honed its efforts on its
unique competences and offerings, such as Structured
Trade Finance, Credit Insurance, Factoring, Project and
Syndicated Finance, and IRS and Property Finance, to
support business development. The corporate loan
portfolio thus increased by a significant 22% during
the last financial year with a corresponding growth
of some 30% in net interest income on advances,
reflecting lower interest provisioning made during the
year and better margins registered on the advances
extended. On a different note, a marginal rise was
recorded for non-interest income as the second half of
the year proved very challenging amidst a significant
drop in business transactions, including import and
export activities, thus giving rise to a contraction in
trade finance fees and commissions as well as in income
on foreign exchange transactions. On the other hand,
progress was achieved during the year with regard to
bank guarantees and financing fees as the momentum
in construction and property development activities
from the preceding year carried its impact over the
period under review.
The Corporate Banking BU continues to build on
realisations posted during the past years to strengthen
its team and position itself for sustained growth. The
management of its business development activities
is today undertaken in a more systematic manner,
leading to accurate estimates of the pipeline of
lending prospects through an executive dashboard. It
also provides a motivating environment for account
executives to report, follow up and materialise leads and
business opportunities in a more efficient and effective
manner. On the technology front, the management
team of Corporate Banking spares no effort in
providing the unrelenting focus, energy and resources
to the T24 project team in order to ensure that the
development of the new core banking platform to be
deployed in the next financial year is fully aligned with
the strategy to continuously improve the efficiency of
operations and the quality of services to customers. As
regards the human capital aspect of operations, the
Corporate Banking team benefits from a well planned
capacity building programme comprising targeted
training courses, both locally and overseas, aimed at
further empowering employees to do their jobs more
efficiently, to manage banking relationships with
customers more effectively as well as to identify and
profitably exploit new business opportunities.
Moving ahead, the Corporate Banking BU will uphold
its focus on reinforcing as well as broadening its client
relationships and enhancing its revenue streams by
providing the right expertise, outstanding quality
service, and comprehensive and customised financial
solutions to its customers. It is also committed to
continue to play a leading role, particularly during the
current difficult period, to support various economic
sectors and thereby contribute to the national
economic recovery.
RetailButtressed by the prompt execution of its diligently
crafted multi-pronged strategy in a segment with
a high potential, MCB Retail sustained a robust
financial performance in the face of an increasingly
challenging operating environment amidst economic
uncertainty and strong competition particularly in
niche markets. Indeed, business growth was solid
in the last financial year with average deposits and
loans rising by some 20%, contributing to an increase
of around 15% in net interest income. Basically, the
retail strategy revolves around providing tailored
facilities to the different customer segments through
appropriate delivery channels backed by high service
quality and long-lasting client relationships.
Building on the success of the Port Louis Main Branch
(PLMB) redesign in terms of enhanced customer
experience, an overhaul of the entire branch network
is currently under way with five branches having
been completely remodelled during FY 2008/09. In
addition to creating a more pleasant atmosphere and
reinforcing the MCB brand, the new branch concept
fosters greater customer proximity while promoting
the ease and convenience of accessing the Bank’s
offerings anchored on adapted enablers, including
areas dedicated for specific services, self-service lobbies,
greeters for informing and channelling clients more
effectively, and active queue management among
others. Moreover, the revamping of branches has been
accompanied by a comprehensive and tailored training
programme meant to strengthen the service culture
in order to deliver consistent quality service. These
actions have also led to efficiency gains and enhanced
effectiveness of the sales strategy with a significant
shift from a transactional to a more relationship-
based focus. Testifying to the fresh standards set by
this branch transformation project, the PLMB was
management discussion and analysis
MCB Group Annual Report 2009
72 73
awarded the National Customer Service Award 2008
organised by the Mauritian Quality Institute.
MCB Retail has continued to promote needs-based
selling with the value propositions for various segments
being refined through upgraded and/or new services
and products. Thus, in addition to MCB Private Banking
which caters for the higher end of the market with
due emphasis on wealth management, the personal
banking division of the Bank has been reviewed during
the year to boost service delivery in the high income
segment by way of strengthened capacity, dedicated
areas in the main branches and exclusive packages.
For its part, the Business Banking unit has made
interesting strides and presently provides financing
solutions as well as business advice and support to
some 4,000 small and medium enterprises. For the
younger customers, after revamping the MCB Rupys
product in FY 2007/08, the year under review has seen
the launch of a product package aimed at customers
aged between 18 and 25 which generated high market
interest. The introduction of an education plan by the
MCB Group to allow parents to save for higher studies
of their children should complement our service
delivery linked to the youth segment. From a general
perspective, service offerings have been enriched
during the year by the ‘cash only’ and ‘Forex’ ATMs as
well as by the provision of MoneyGram services within
the domestic retail network, in relation to which the
MCB has acquired the ‘Super Agent’ status for the
Mauritius, Reunion, Mozambique, Seychelles and
Maldives territories.
To support sales initiatives and increase brand
visibility, MCB Retail has maintained its presence in
different media channels alongside conducting various
promotional campaigns. For instance, the ‘Anou Kozé’
open day operations in different branches have gone
a long way in marketing the Bank’s offerings and
fostering customer proximity while the end-of-year
commercial campaign, labelled ‘Merry Christmas
Banking’, generated interesting business volume.
Reflective of its commitment to support sustainable
development, MCB Retail has largely been involved
in Initiative 175 notably through the ‘light’ housing
loan scheme whereby a solar water heater was offered
for free for every loan above Rs 1 million and the
distribution of energy saving bulbs upon opening of
account and approval of instant loans.
In its strive to attain efficiency gains with the objective
of underpinning business growth, MCB Retail has
endeavoured to review and streamline operational
processes, particularly considering the upcoming
implementation of the new core banking system.
Moreover, the use of technological advances linked
to scanning and archiving as part of the back-office
centralisation project are likely to increase productivity
gains. Alongside promoting remote delivery channels,
the use of Teller Cash Recyclers (TCRs) is being extended
to the branch network, contributing to enhanced
security and efficiency.
The competitive edge harnessed by MCB Retail
over the years on the strength of its significant
investment in human capital and infrastructure
should uphold its leadership position in the period
ahead notwithstanding the fallout of the economic
slowdown. Ongoing efforts will be maintained
towards closely matching the value proposition to
the needs of customers to provide solutions at each
stage of their life with a particular focus on judiciously
exploiting opportunities in niche markets.
CardsThe Cards Strategic Business Unit (SBU) achieved a
sound financial performance in FY 2008/09, with its
gross operating margin registering a sizeable growth
of some 60%. This outcome has been spurred by
focused initiatives to boost revenue drivers coupled
with the maintenance of tight control over expenses
and the quality of assets.
The MCB offers a suite of card payment solutions that
include debit cards, fleet cards, personal and corporate
credit cards. In October 2008, the prestigious American
Express (AMEX) Green card and Gold card added up to
the range of products on hand, thereby exhibiting an
exclusive premium offering to the market. These cards
provide innovative and unique benefits designed
to meet the needs of consumers domestically and
globally, including a worldwide assistance service,
a range of insurance covers and a generous loyalty
programme with life long points. It is worth noting
that the MCB had an exclusive partnership to acquire
AMEX merchant transactions since 2003 and that the
issuance of AMEX cards in FY 2008/09 represents a
milestone in the Bank’s growing relationship with this
network company.
The focused marketing initiatives of the Cards SBU
have been successful in prompting customers to
increase the usage of their cards at different points of
sale (POS). This time, the end-of-year campaign, ‘Make
a Wish’, featured a Rs 1 million cash prize. During
the promotional period in December 2008, the MCB
crossed the Rs 2 billion mark in terms of sales volume
for the first time, with overall card utilisation growing
by 23% compared to last year’s figures. Moreover,
strong synergies between the issuing and acquiring
businesses contributed to the positive development of
the MCB. While more than 70% of the issuing volume
is being processed on the MCB’s own POS, the Bank
is pursuing its value-based acquiring strategy to offer
increased benefits to its affiliated merchants. Besides,
the POS service offers a wide range of acceptance
spanning the major card franchises and the secured
online payment gateway of the Cards SBU allows its
customers to benefit from numerous opportunities
linked to the e-world. Reflecting its endeavour to
capture new market share, the Bank has recently
signed an acquiring agreement with China Union
Pay, the biggest card network company in China.
Considering growing economic ties between Mauritius
and China as well as an increasing number of visitors
from this country, this partnership is a building block
underpinning the MCB’s pursuit of diversified growth
avenues. Twenty years after launching the first credit
card in Mauritius, the Cards SBU has continuously
upheld its liveliness and is well positioned to maintain
its leading market position in the years to come.
Delivery ChannelsDuring FY 2008/09, the MCB maintained and reinforced
its efforts to bolster its channel capabilities and better
integrate the latter within its distribution model,
thereby providing more rapid, flexible and convenient
services to its customers.
management discussion and analysis
MCB Group Annual Report 2009
74 75
Basically, branch redesign remained a cornerstone of
the aim to uplift the Bank’s value proposition following
the successful physical refurbishment of the Port Louis
Main Branch. The Kit of Parts (KOP) project aims to
overhaul all MCB branches around the country so as to
provide enhanced banking experiences to clients on
the basis, amongst others, of more gratifying physical
space, a wider array of adapted services and facilities,
and technological improvements. The project involves
posting greeters to welcome, advise and guide
incoming customers, promoting the utilisation of
alternative delivery channels through the creation of
self-service corners, and implementing TCRs machines
to improve the productivity of operations by ensuring
greater security through minimum cash handling and
reduced waiting time for customers in the banking
hall. While the KOP project has already been executed
at five branches during the last financial year, it will
gradually be extended country-wide.
Moreover, the MCB improved the multiplicity of its
delivery options in the last financial year by widening
its ATM park to 146 locations, while technological
advances include the setting up of ‘cash only’ ATMs
at the large branch lobbies, hence providing faster
cash withdrawal facility, and the launch of the first
ever ‘Forex’ ATM in Mauritius at the Caudan and Flic
en Flac branches. The latter machine allows customers
to exchange foreign currency into MUR, thereby
enabling them to spend less time queuing up at forex
counters and banking halls as well as offering change
facilities on 24/7 basis. Elsewhere, the online banking
service of the MCB has been enhanced over time with
an overhaul of its internal capacity. Since September
2008, taxpayers are able to undertake payments
to the Mauritius Revenue Authority in a timely
and convenient way through the Internet Banking
interface. As regards telephone service, the opening
service hours for general assistance and information to
customers have been extended, while a desk has been
set up to provide 24-hour service to AMEX customers.
Noticeably, the Bank continuously promoted the
utilisation of remote channels throughout the last
financial year via several awareness campaigns and
demos made in-branch, underpinned by the provision
of training sessions to corporate and business
banking customers on the utilisation of Internet
Banking. By and large, the volume of transactions
with regard to both Internet Banking and merchant
point of sale rose by around 12% over FY 2008/09,
contributing to a further rise in the overall share of
electronic transactions.
Volumeoftransactions('000)FY2006/07 FY2007/08 FY2008/09
Automated Teller Machines
30,700 32,696 33,367
Merchant Point of Sale
6,198 7,495 8,381
Internet Banking 237 374 419
Going forward, the MCB will continue to enhance
its service offerings through diversified and modern
delivery channels, whilst paying due consideration to
operational efficiency and service quality to ensure
that it remains customer-focused and continues to
promote excellence in banking services.
InternationalOperationsDuring FY 2008/09, the drying up and uncharacteristic
volatility of credit markets, the loss of confidence by
investors in financial assets and the downgrade in
economic prospects have not left the sub-Saharan
region and its players unscathed. Specifically, the
decline in export revenues, current transfers and
capital flows has materially impacted on export and
fiscal revenues in some of the countries where the
MCB operates. Against this backdrop, the Group has
endeavoured to renew its commitment and support
to its clients in addressing revenue shortfalls. In
effect, the MCB showed adequate resistance to the
difficult operating environment as gauged by a
chain of accomplishments at the level of the Group’s
International arm and the overseas subsidiaries which
have altogether bolstered the Group’s foothold and
credentials in regional and international markets.
Unrelenting in its strategic pursuits, the foremost
of which is the furtherance of its ‘Bank of Banks’
initiative, the MCB has continued to leverage on its
long-standing expertise and strong infrastructure to
position itself as a regional hub in handling trade
finance, payments and cards operations outsourcing.
Today, the MCB has achieved the status of ‘SWIFT
Member-Concentrator’, offering connectivity services
and the administration of SWIFT-related matters for
other banks in the region. Furthermore, considerable
headway has been registered in respect of the
Group’s endeavour to become a regional cards hub,
servicing the needs of its overseas subsidiaries as
well as African counterparts, with the promotion of
this new capability to be undertaken by the MCB’s
Africa Representative Office based in Johannesburg
and the newly incorporated subsidiary, International
Card Processing Services Ltd. As regards its goal of
becoming the centre of excellence for trade finance
in the region, a major development relates to
the participation of the MCB Group in the Global
Trade Finance Program of the International Finance
Corporation as Confirming Bank.
The year under review has seen considerable ground
covered on the African continent in respect of
correspondent banking, Master Risk Participation
Agreements (MRPAs), syndications, purchase of
risks via silent and disclosed confirmation of letters
of credit (LC) and other structured cross-border
management discussion and analysis
Automated transactions as a % of total transactions
82
84
86
88
90
92
June 05 June 06 June 07 June 08 June 09
%
%
MCB Group Annual Report 2009
76 77
transactions amongst others. As a result, the Group is
being increasingly viewed as a privileged partner by
counterparts when it comes to the financing of major
deals in emerging economies of sub-Saharan Africa
and the SADC regional bloc in particular. Indeed,
the growth in revenue generated from MRPAs for
FY 2008/09 exceeded 50%, while major bilateral and
syndicated participations in presence countries have
materialised. Besides, the Group has entered into
syndications arranged by major financial institutions
from Nigeria to Bahrain while further diversifying
its portfolio into countries such as Benin, Gabon
and Togo. The surge in the volume of requests for
LC confirmation for commodities adds to the MCB
Group’s image and credentials in this field.
Intent on reinforcing its position in presence countries,
the Group has deepened and diversified its activities
whilst adapting to local market conditions. This has
notably been achieved by further entrenching the
MCB brand franchise in the petroleum and tourism
sectors, and by enlarging the products and services
line-up and replicating them in subsidiaries as
exemplified by the launch of the MCB ReFill service
at MCB Seychelles and the MoneyGram roll out in
Madagascar. Moreover, MCB’s Maldives branch has
built up an appreciable presence and harnessed a rather
attractive competitive position in its host country.
In the Seychelles, the opening of a new counter
supplies evidence of the Group’s desire to further
consolidate its foothold while enlarging its coverage
of the territory. In the same vein, notwithstanding
strong competition from established international
banks, the Madagascar subsidiary has registered a
highly satisfactory performance for the financial year
ended 31 December 2008. Furthermore, the opening
of a new branch in Ambohibao has extended MCB
Madagascar’s network over the territory. Alongside
physical presence, skills development has been a major
focus area with the extension of the ‘Moving Customer
Boundaries Programme’ on service culture to the
subsidiary’s personnel. MCB Moçambique, which has
celebrated its 10th anniversary last August, has spared
no efforts in targeting niche markets and developing
new products that will be introduced in the next few
years. The opening of the Matola branch there bears
testimony of the Group’s desire to further broaden
the base of its operations in line with its commercial
market penetration strategy.
It is also worthwhile to note that there has been an
unrelenting pursuit of Group synergies from within
the organisation during the last financial year. For
instance, with the help of the Bank’s personnel, the
overseas subsidiaries have successfully conducted
business risks as well as strategic thinking and
planning workshops towards the presentation of three
year strategic objectives to their respective Boards.
Furthermore, significant progress has been achieved
on the harmonisation of overseas subsidiaries’
operational processes with those of the Head Office.
It can also be noted that staff exchange programmes
involving overseas subsidiaries and the Head Office
have been renewed during the last financial year and
are expected to be repeated as a result of encouraging
results obtained.
In addition, a major breakthrough this year in
reinforcing internal capacity has been the inception of
the Structured Trade Finance and Commodities desk
which was inaugurated in January 2009 and whose
mandate is to structure short term finance transactions
across the commodity trade value chain.
Global Business DeskLast year’s burgeoning Global Business Desk has now
evolved to become a full-fledged revenue generating
stream as evidenced by the materialisation of major
deals for the Bank – including but not restricted to
project financing and trade finance facilities – out of a
continuously growing client portfolio. In parallel, the
year under review has seen the development of an
experienced talent pool intended to gear up the unit
in order to fully justify its raison-d’être and achieve
set strategic ambitions. Major initiatives earmarked
for forthcoming years include: (i) sound business
development through deal origination and funding
both in existing and new markets, (ii) investigation of
double tax avoidance treaties towards harnessing new
business ventures from unexploited territories, (iii)
promulgation of the reputational, fiscal and locational
distinctiveness of the ‘Mauritian Value Proposition’ as
serviced and packaged by the MCB, and (iv) developing
and strengthening partnerships with management
companies and other industry players. In order to
meet challenges of the current operating environment
and to achieve growth objectives, key focus areas
will be to broaden and deepen client relationships,
while boosting brand and market presence through
enhanced field visibility and targeted marketing
campaigns. As such, the substantial growth potential
of the global business sector and earmarked business
strategies augur well for future accomplishments of
the Desk, with operating income expected to at least
double in FY 2009/10.
International Card Processing Services Ltd. (ICPS)ICPS is a joint venture of the MCB (80%) and Hightech
Payment Services (20%) established in November 2008.
ICPS provides a highly developed Card Management
System, enabling banks to achieve economies of
scale in outsourcing their card processing activities.
Positioned as a one-stop shop, ICPS intends to offer
an array of services ranging from card personalisation
services for private label and branded cards (magnetic
stripe/chip card) to full issuer and acquirer services,
inclusive of POS and ATMs monitoring and transactions
switching. In fact, several banks in Mauritius and Africa
have already approached ICPS for outsourcing their
card processing activities. By the end of FY 2009/10,
particularly with the planned roll-out with respect to
two banks namely in Tanzania and Madagascar, ICPS
is expected to gain further momentum as the various
card projects in the pipeline are instigated in the
region and in Africa.
MCB MadagascarThis subsidiary, in which the MCB consolidated its
position by buying another 10% of the capital from a
minority shareholder during the past year, progressed
very well during 2008, with profits surging by 38%
to reach MGA 7.4 billion for the calendar year. Total
assets and customer loans increased by 23% and 49%
respectively, a reflection of the relatively favourable
economic conditions prevailing at that time.
Unfortunately, this relatively bright outlook virtually
disappeared in early 2009, when the country
plunged once again in a major political turmoil with
the overthrow of the ruling Government and the
management discussion and analysis
MCB Group Annual Report 2009
78 79
subsequent establishment of a transitional Council.
This episode involved street rioting and looting,
resulting in major damage being caused to commercial
buildings in some parts of the capital, Antananarivo,
and in several provincial towns. One of the subsidiary’s
counters, in the suburbs of the capital, was completely
destroyed with, fortunately, no injuries inflicted to
its staff. These untimely events, allied to the global
financial crisis, have had an immediate effect on all
economic activity in Madagascar, in particular tourism
and the two large mining projects, which were hitherto
driving GDP growth in the country.
MCB Madagascar has seen, since the beginning of
2009, a major slowdown in business activity at its
counters, which has had a direct effect on fee income
principally, as trade activity in the country has been
cut down drastically. Operating income for the six
months to 30 June 2009 was down on the previous
year and, more precisely, about 20% below budgeted
figures. Although several exposures have had to be
restructured, there has been no increase in impairment
charges as the underlying quality of the loan portfolio
is strong and clients have, for the most, a healthy asset
base and sound business fundamentals, which should
help them recover as soon as the political situation is
normalised. Aided by the strong performance of 2008,
the contribution of MCB Madagascar to Group profits
increased by 22% to Rs 93 million.
Prospects for the coming year depend on the timing
of the country’s economic recovery, which itself
hinges on how fast a political solution is found out
of the present stalemate. Negotiations are ongoing,
under the aegis of African and other friendly States,
to finalise a transitional power-sharing structure,
which should see Madagascar through to General and
Presidential elections in the periods ahead.
MCB MoçambiqueAlthough our subsidiary in Mozambique is still
functioning in a difficult operating environment,
characterised by subdued economic activity and a
stringent regulatory framework, there have lately been
some positive signals that its operations and profitability
are picking up after several years of stagnation.
Results for the calendar year 2008 were again
disappointing with a flat loan book and no growth
in operating income, which coupled with credit
impairment charges contributed to a drop of 22%
in net profits to MZN 30 million. On the other hand,
the first semester of 2009 has been more encouraging
with the loan portfolio starting to grow again. Some
interesting short term prospects are apparent and
the subsidiary is looking for opportunities to expand
its branch network. Most of the credit impairment
charges which impacted the 2008 accounts have now
been reversed and contribution to the Group’s profits
has increased substantially to Rs 62 million, from its
low of Rs 25 million in FY 2007/08.
MCB SeychellesThe economic fundamentals of the Seychelles have
worsened during the course of 2008. The economy,
which relies essentially on revenue from tourism,
has borne the full impact of the global recession
and the level of its foreign debt servicing became
unsustainable. After defaulting on the repayment of
specific loan instalments in early 2009, the country has
requested IMF support through a structural adjustment
programme with ongoing negotiations with foreign
creditors to facilitate the path to recovery.
Preceding these measures, the Seychelles rupee, which
had been kept artificially high for many years by being
pegged to the US dollar, was left to float on the market
in October 2008 and immediately lost about half of
its value against the major international currencies.
This event, which was accompanied by a series of
fundamental measures to restructure the economy,
seems to have led to a much more stable currency
market with the virtual disappearance of ‘off market’
transactions. Following the implementation of the
IMF structural adjustment programme, the Seychelles
authorities appear quite optimistic about the return to
more stable economic conditions.
MCB Seychelles has, paradoxically, performed quite
well during the past financial year, partly linked to the
revaluation of its foreign currency position when the
Seychelles rupee was floated on the market. Results
jumped by 59% to SCR 54.3 million for the year ended
31 December 2008 whereas the first six months of 2009
were much more difficult, reflecting the slowdown in
economic activity. The loan book contracted by 15%
over that period and results were down on the previous
year. Moreover, the recovery of the local currency as
from April 2009 has led to the reverse of some of the
exchange profits realised in late 2008. Boosted by non-
recurrent revenue from the sale of an investment, the
overall contribution of subsidiaries in the Seychelles to
the Group’s profits for the last financial year amounted
to an appreciable Rs 116 million, slightly down as
compared to FY 2007/08.
MCB Maldives This entity, which completed its first year of operations
in June 2009, is progressing satisfactorily. The Maldives,
whose economy is similar to that of the Seychelles
in that it is heavily dependant on tourism, has been
affected by the global downturn and several hotel
projects have been delayed while some others, under
construction, have been finding it harder to obtain
finance. Generally though, customers appear to be
facing the crisis with a certain degree of resilience, in
line with the Maldivian economy, which seems to be
riding the storm pending the expected return to more
normal trading conditions in the hospitality industry.
The MCB is expanding its activities in the Maldives
by building on cross-selling opportunities with local
and international operators, mainly in the tourism
sector. The Group’s strategy locally is to generate
trade finance and card-related income from business
relationships which started with hotel project finance.
In its first year of presence in the Maldives, the branch
has realised a small profit of Rs 10 million. Prospects
for FY 2009/10 are good and the MCB, in the wake
of the new local banking legislation, is planning to
convert its branch into a fully-owned subsidiary. The
appropriate steps to this end have been initiated with
regulatory authorities in the Maldives and with the
Bank of Mauritius.
Banque Française Commerciale Océan Indien (BFCOI)This company, a joint venture with Société Générale
which is consolidated in the accounts of the MCB
as an associate, continued to progress impressively
management discussion and analysis
MCB Group Annual Report 2009
80 81
during the year, in line with the trend witnessed over
the last five years. Although balance sheet growth
has been slowing down lately, the notable loan book
expansion, as gauged by an increase exceeding 15%
over the last year on average, is testimony to the
ambitious growth strategy which has contributed to
the associated company steadily gaining market share
and consolidating its commercial offer to both retail
and corporate customers. During the calendar year
2008, BFCOI opened four new branches in Reunion
Island, its main place of business, and achieved net
results of EUR 17.3 million for that year, an increase
of 42% over 2007. The company has continued to
perform well since the start of 2009 with the outlook
remaining positive for the rest of the year. Profits for
the six months to 30 June 2009 reached EUR 8.8 million,
representing a 17% rise over the corresponding
period one year earlier. As a result, contributions to
MCB Group earnings for the year ended 30 June 2009
totalled Rs 397 million, representing a progression of
41% over that of FY 2007/08.
Non-BankActivitiesMCB Capital Markets Ltd.MCB Capital Markets Ltd. (MCBCM) is the holding
company for all the subsidiaries of the MCB Group
involved in the investment business. The October 2008
to March 2009 period was possibly one of the most
volatile in around eighty years and the stock market
declines in that period were truly extraordinary. The
rally that followed has also been one of the most
vigorous in generations. These conditions placed
a huge burden of responsibility on the investment
personnel, as the reaction from many clients was
typically one of bewilderment and fear. The collective
skills and experience of the investment teams allowed
them to take an objective, balanced and responsible
approach and it is most gratifying to note that all the
MCBCM subsidiaries acquired new clients (with almost
none lost) during this period, a fact that should augur
well for the future.
Generally, conditions in global equity markets are
expected to remain difficult during the year ahead
while uncertainty and apprehension will continue to
cause markets to overshoot, both on the downside
and the upside. Market movements should, however,
be more data driven in the coming year as the
psychological ‘fear’ factor subsides. It is to be noted
that actions to shore up the financial system by
Governments and monetary authorities around the
developed world have given markets the confidence
to build on recent gains. Nevertheless, the legacy
of public debt that these emergency measures have
created could affect markets for a considerable time,
requiring major adaptability and fleetness of foot
from the investment teams.
Internally, the roll-out of the MCBCM group strategy
continued rapidly during the year and each subsidiary
made encouraging progress towards the attainment
of their medium and long term objectives.
On a consolidated basis, total income for MCBCM
amounted to Rs 112.5 million (2008: Rs 89.6 million)
while profit after tax stood at Rs 18.4 million (2008:
Rs 20.7 million), with positive results registered by all
of its subsidiaries with the exception of MCB Fund
Managers (MCBFM) and GHF Futures. The contribution
of MCBCM to Group profit stood at Rs 13.7 million.
A significant improvement is expected in FY 2009/10
as the turbulence in markets subsides and the new
initiatives, particularly at MCBFM and GHF Futures,
begin to bear fruit.
MCB Investment Management Co. Ltd.
Profit after tax of MCB Investment Management Co.
Ltd. (MCBIM) rose by 1.9% over 2008 to reach Rs 17.7
million, which represents a satisfactory performance in
view of the testing year during which the worldwide
financial crisis profoundly impacted stock markets and
investor confidence. Turnover for FY 2008/09 stood
at Rs 32.6 million, down by 6.2% from the preceding
year. Included in profit after tax are favourable
exchange gains amounting to Rs 2.3 million, compared
to exchange losses of Rs 1.4 million in FY 2007/08.
With new mandates won mostly from institutional
clients, MCBIM’s core client base, total assets under
management continued its ascent to reach Rs 8.0
billion at 30 June 2009, representing a growth of
5.2% over the year. It is also worth noting that MCBIM
has, during the financial year, signed an agreement
with Threadneedle Investment Services, a UK-based
asset management company which invests on behalf
of pension schemes, insurance companies, private
investors, corporations and mutual funds. The latter’s
existing range of investment funds is considered to be
a good complement to MCBIM’s product range.
Overall, MCBIM remained dedicated to its investment
philosophy and discipline throughout the financial
turmoil in FY 2008/09 allowing the company to weather
the storm relatively well. Looking forward, the focus
for MCBIM will remain the delivery of top quartile risk-
adjusted investment performance and excellent client
service. Additional emphasis will be laid on further
developing the business in view of its medium term
objectives, while adapting investment strategies to
meet the challenges brought about by the evolving
nature of mandates from institutional clients.
MCB Registry & Securities Ltd.
The turnover for FY 2008/09 of MCB Registry &
Securities Ltd. (MCBRS) amounted to Rs 13.9 million
compared to Rs 12.8 million in FY 2007/08, representing
an increase of 7.9%. Profit after tax stood at Rs 63,000
in the last financial year as compared to Rs 2.6 million
in FY 2007/08, with the decrease mainly attributable to
the costs related to the new Corporate and Unit Trust
Registry IT system. The implementation of this new IT
system is due to be completed during the course of
FY 2009/10 and will enable the company to provide
more efficient and cost effective services to both
companies and collective investment schemes.
New mandates from well recognised groups were
added during the year, thus strengthening the
customer base and increasing fee revenues. The
internal structure was also improved so as to increase
knowledge transfer and job flexibility. The emphasis
on efficiency and quality also paid off, and together
with a new fee structure, the current year should see a
significant improvement in underlying results.
MCB Stockbrokers Ltd.
Despite the global crisis and a decrease of 15.4%
in overall market turnover, MCB Stockbrokers Ltd.
(MCBSB) managed to secure a profit after tax of
Rs 2.8 million in FY 2008/09, compared to a figure of
Rs 8 million for the previous financial year. Revenues
management discussion and analysis
MCB Group Annual Report 2009
82 83
fell from Rs 20.9 million in FY 2007/08 to Rs 13.5 million
for the year ended 30 June 2009.
With a portfolio of mainly local clients, MCBSB’s
share of market turnover was impacted by the large
volume of foreign trading which accounted for more
than 38% of overall transactions on the market.
However, MCBSB managed to increase its local client
base implying that it currently operates more than
30% of all CDS accounts opened in Mauritius. In order
to diversify its product offerings, MCBSB now offers
clients the ability to trade on the main international
securities markets and in some selected African stock
markets. Furthermore, to remain closer to its clients,
MCBSB has developed and launched a user-friendly
website which provides useful market information.
In FY 2009/10, MCBSB will strive to increase its foreign
market share through a strong focus on research.
With a somewhat less volatile market environment,
activity should pick up, thereby bringing about an
increase in revenues.
MCB Fund Managers Ltd.
MCB Fund Managers Ltd. (MCBFM) successfully
completed a number of major projects during the
year. ‘The Penny’ Unit Trust structure and its sub-funds
managed by MCBFM were rebranded with the ‘MCB’
name. The MCB Domestic Equities Fund, formerly The
MFL Fund, was opened up for subscriptions as from 1
March 2009 while a new fund, MCB Overseas Fund,
was launched. With five funds under management, all
duly authorised by the Financial Services Commission
(Mauritius) under the Securities Act 2005 and CIS
Regulations 2008, the company now offers a wide
choice of investment opportunities to local investors.
In this context, a major advertising and communication
campaign was undertaken in March 2009, the benefits
of which should accrue in the medium term.
Nonetheless, the company registered a net loss of
Rs 1.4 million for the year under review, attributable
mainly to major expenses incurred in respect of the
above initiatives as well as to a fall of 32% in revenues
to Rs 5.6 million on account of falling markets across
the world. Although stock markets are likely to remain
volatile in the short term, the restructuring exercise
undertaken by the company recently as well as the
launch of the MCB Education Plan should contribute
to improve results as from FY 2009/10.
MCB Capital Partners Ltd.
MCB Capital Partners Ltd. (MCBCP) manages the
unlisted investments of the MCB Equity Fund Ltd.
Revenues for the year were up by 31% (2008: 46%) to
Rs 19.2 million (2008: Rs 14.6 million) on the back of
new investments worth Rs 459.9 million made by the
Equity Fund, with funds under management on a fair
value basis increasing by 15% from Rs 1,544 million to
Rs 1,776 million.
The administration costs for FY 2008/09 increased
marginally to Rs 13.7 million as compared to Rs 13.1
million a year before. The increase is attributable
principally to salaries and professional fees, in particular
expenses relating to the continued involvement of
a UK-based private equity consultant appointed to
streamline investment processes and to help ensure
best international investment practice. On the other
hand, the final repayment of a Rs 8 million bank loan
during the year resulted in a substantial decrease in
finance costs. As a result, profit for the year increased
from Rs 0.5 million to Rs 4.7 million.
Following the completion of the review and
reorganisation of its investment processes undertaken
over the best part of FY 2008/09, the management of
MCBCP has reshaped its investment strategy with a
specific focus on increasing its deal flow activity within
the Indian Ocean region and continental Africa. The
objective is to invest in targeted countries offering
significant value creation potential on a scale that will
attract good opportunities for exit in the future. This
is in line with its intended strategy to raise third party
funds in the medium term. To that end, additional
resources will be required on its human capital
front with the recruitment of senior private equity-
experienced investment executives being considered
for the current financial year as well as planning for
significant investment in a specialised private-equity
portfolio management software.
MCB Investment Services Ltd.
MCB Investment Services Ltd. (MCBIS) acts as a shared
services company for the MCBCM group subsidiaries,
providing legal, finance, IT and strategic management
services. MCBIS also has an Investment Adviser
(Restricted) licence to enable it provide transaction
advisory and other related services to third parties.
For its first year of full operation, MCBIS made a profit
after tax of Rs 9.7 million. Total income for the year
was Rs 30.9 million, with expenses and salaries reaching
Rs 19.6 million. Revenues were equally split between
transaction advisory fees and shared service fees.
GHF Futures Ltd.
GHF Futures Ltd., a 50/50 joint venture with GHF
Holdings Ltd., started operations in Mauritius in
January 2009. Based in Ebene, the company currently
employs 25 traders.
Recruitment and training have been the main thrust
of operations for this initial period, with numerous
recruitment sessions being held at the various tertiary
education establishments in Mauritius, and also at the
office in Ebene. Over 1,000 candidates have attended
these sessions, with about 10% of this number passing
the various numerical and logical tests. After extensive
interviews, 39 traders were recruited while further
sessions are scheduled over the coming periods to
meet the target of 45 full-time traders by 2012.
Results so far have been on budget, with losses
totalling Rs 16.4 million registered for FY 2008/09.
Most of these losses are due to significant operational
and salary costs at a time where new traders are not
generating much profit. Further losses are expected
this year although the profits from the more
experienced traders will mitigate somewhat the costs
of the recruitment and training of the new batches.
Thereafter, a significant improvement in the financial
performance of the company is anticipated as the core
of retained traders becomes more experienced.
For the moment, all traders are dealing with short term
European interest rate futures (Euribor) but further
products may be added in the short to medium term.
management discussion and analysis
MCB Group Annual Report 2009
84 85
MCB Equity Fund Ltd.The Fund recorded a decrease in its net profit from
Rs 500.2 million in FY 2007/08 to Rs 63.3 million for
FY 2008/09. This decline was anticipated given the
exceptional gain realised in 2008 following the disposal
of the Fund’s holding in Sun Resorts which itself
contributed Rs 426.2 million to the results of that year.
Total income for FY 2008/09 dropped to Rs 84.6 million
compared to Rs 93.6 million realised in respect of the
previous financial year, principally attributable to a
decrease in dividend income for 2009 to Rs 59.0 million
(2008: Rs 85.6 million). For its part, Management fees
increased to Rs 20.2 million (2008: Rs 17.0 million).
Capital calls for FY 2008/09 aggregated Rs 459.9 million
(2008: Rs 249.3 million) with no redemptions recorded
for this year (2008: Rs 333.1 million). The fair value
reserves of the Fund dropped from Rs 519.7 million
at the close of FY 2007/08 to Rs 171.7 million at the
end of FY 2008/09, reflective of the downturn in the
financial markets affecting listed investments and the
global deterioration in economic conditions that have
impacted the businesses of the unquoted companies
in which the Fund has invested. The fair value of the
portfolio rose in aggregate by 9.3% to Rs 2.2 billion
over the year (2008: Rs 2.1 billion).
The above capital calls were invested in the media
sector (Rs 67 million), the travel and leisure sector
(Rs 198 million), the agro-industry (Rs 127 million)
and real estate (Rs 67 million). The portfolio’s sectorial
allocation on a cost basis as at 30 June 2009, showed
predominance in travel and leisure (39%), real estate
(20%) and media (15%).
MCB Factors Ltd.MCB Factors Ltd. provides a full sales ledger
administration service to its customers inclusive of
funding against assignment of their trade receivables.
The services provided greatly facilitate clients’
administration of their credit sales ledger while
simultaneously providing much needed cash to manage
their business and meet their financial commitments.
Despite the sluggish international economic activity
and its ensuing impact on the domestic market, MCB
Factors Ltd. has still managed an increase of 20% in its
activity albeit with decreased profitability, net results
falling by some 17% to Rs 29 million as at 30 June 2009.
For the current financial year, the MCB Factors Ltd. will
pursue its aim of introducing new services so as to offer
a full range of factoring services to its customers.
Fincorp Investment Ltd.This subsidiary, a quoted company on the Stock
Exchange of Mauritius in which the MCB has a 57.6%
stake, has on its books two strategic investments:
Finlease, the leasing arm of the MCB Group, which is a
fully owned subsidiary and a 46.4% stake in Promotion
and Development Ltd. (PAD), another quoted company
having diversified interests, including a majority stake
in Caudan Development Ltd. (Caudan), a property
company that owns and manages the waterfront real
estate development in Port Louis, and a holding of
about 30% in Medine Sugar Estates Co. Ltd.
Like most leasing companies, Finlease had a difficult
year given that it operated in a very competitive
environment where margins have been squeezed. The
company was hit by fast-falling interest rates during
the last financial year to the extent that fixed interest
leases are offered with the impact on the results being
compounded by a highly liquid balance sheet given
that deposits could not be redeployed profitably.
Against this background, net finance lease receivables
fell by 6% to Rs 1,896 million. Consequently, net
results of Finlease, which were also affected by some
credit impairment charges, declined to Rs 30 million
for the year ended 30 June 2009, as compared to Rs 46
million in the previous year. The current financial year
is expected to be equally challenging.
Results of PAD for the year to 30 June 2009 dropped
quite sharply to Rs 269 million from Rs 706 million in
FY 2007/08. However, as is customary with investment
and property companies, the Income Statement is
regularly affected by fair value adjustments to core
assets and by realised profits following opportunistic
sales of investments. The latter was particularly true
during FY 2007/08 when PAD took advantage of the
bullish state of the stock market by locking in Rs 175
million profits on sale of shares. Furthermore, Rs 383
million were credited to profits of that year in respect
of an increase in fair value of investment property in
the books of Caudan. Otherwise, the performance of
PAD’s investment activities was quite satisfactory, with
a reasonable increase in turnover and net revenue.
Caudan inaugurated the second phase of its Port Louis
Waterfront development during the year, comprising
commercial units, office space and multi-storey
parking. While this project is yet to attain its cruising
speed, the company’s results have been affected by
increased finance costs. Nevertheless, as occupancy
levels increase, the economies of scale realised at
the level of operating costs will lead to much better
profitability. Associate companies, in particular
Medine Sugar Estate Co. Ltd., performed very well
during the year, with the share of results attributable
to PAD more than doubling to reach Rs 139 million.
Overall, the Fincorp Group’s contribution to MCB
profits fell by about 67% to Rs 68 million for the year
ended 30 June 2009. At that date, the net asset value
of Fincorp shares stood at Rs 32.05, representing a
drop of 5% from the previous year. This small decrease
compares quite favourably to the highly bearish
performance of stock markets worldwide and leaves
the share, which is presently trading within the Rs 17-
18 range, at a large discount to net asset value.
MCB Properties Ltd.This subsidiary essentially owns a number of properties
housing banking premises of the MCB Group. During
the year, it sold one of its main investments, a building
in Reunion Island, previously used as a branch but
now vacated by BFCOI. Consequently, net results of
MCB Properties, which included the profit realised on
the sale of that building, increased substantially from
around Rs 6 million in FY 2007/08 to more than Rs 41
million for the past financial year.
Blue Penny MuseumThis company, which runs the museum located
in the Caudan Waterfront, represents one of the
contributions of the MCB Group towards the
promotion of arts and culture and, more generally,
the protection of the National Heritage in Mauritius.
It realised a small operating surplus during the
year, a welcome sign towards attaining financial
independence from the Bank.
management discussion and analysis
MCB Group Annual Report 2009
86 87
FinancialReviewPerformanceAgainstObjectives
OBJECTIVESFORFY2008/09 PERFORMANCEINFY2008/09 OBJECTIVESFORFY2009/10
Returnonaverageequity(ROE)
ROE, excluding exceptional income, is expected to stay above 23%.
ROE, based on Tier 1 capital, remained within targeted range, at 24.6%, which is close to last year’s figure (excluding the non-recurring gain registered).
On prudent estimates, ROE will probably decrease by over 2 percentage points.
Returnonaverageassets(ROA)
Excluding non-recurrent items, ROA is expected to be maintained at about current levels (2.69%).
ROA edged up to reach 2.80%, reflective of better asset utilisation.
In view of current trends in balance sheet growth, ROA will be slightly lower than in FY 2008/09.
Operatingincome
Expected growth approaching 20% in net interest income, on the back of continued buoyancy in the level of average lending, particularly on regional project finance. Slower growth of around 15% in other income, due to difficult foreign exchange market conditions.
Net interest income increased by 24.1% and 20.9% at Bank and Group level respectively. In spite of the restraining impact of tight market conditions, non-interest income grew at an appreciable 12.9% for the Group (excluding non-recurring items) on account of non-negligible expansion in fee income and commissions as well as net trading income.
The impact of difficult market conditions, coupled with a drop in Treasury Bills yields, will restrict net interest income growth to below the 15% level. Non-interest income will be affected by the slowdown in local and international trade flows and will grow at a much lower rate than that achieved last year.
Operatingexpenses
Human resource costs are expected to rise by about 13% for the year, following recent salary reviews. However, the current upgrading of our IT systems and general pressure on infrastructure costs will again contribute to an overall increase in operating expenses in excess of 15%.
Operating expenses expanded by 8.9% in line with increases in salaries and employee benefits coupled with outlays related to building maintenance and upgrade of IT systems. The growth is lower than expected on account of higher efficiency and reduced depreciation charges.
While employee costs will not rise by more than 10%, operating expenses will be heavily impacted by depreciation and other costs relating to investments in systems and infrastructure, in the course of being rolled out, leading to an overall expected increase of more than 15% in Group operating expenses.
Costtoincomeratio
This ratio, based on Group figures, excluding contributions from Associates, should improve further, the target of the MCB, in the medium term, being the low forties.
The cost to income ratio improved compared to that of last year to stand at 42.1% on the basis of more efficient operations, with the indicator falling below the forties at Bank level to reach 39.8%.
In view of the heavy investment programmes being currently rolled out, cost to income ratio is expected to edge up to around 43% next year, before reverting to a decreasing trend thereafter.
OBJECTIVESFORFY2008/09 PERFORMANCEINFY2008/09 OBJECTIVESFORFY2009/10
Loansandadvancesgrowth
With the momentum recently gained, foreign currency loans are forecast to grow by nearly 50%, contributing to an increase of about 20% in the average loan book.
Notwithstanding the adverse impact of difficult economic conditions on credit allocation in the second half of the year, the average loans balance posted a growth of above 25% at Bank level, supported by corresponding increases of 58% in average foreign currency loans and of 17% in rupee loans. As such, the Group loan portfolio expanded by 24% during the year ending June 2009.
The slowdown in economic activity will have adverse effects on balance sheet expansion. Nonetheless, the average loan book is expected to increase by more than 15%, with foreign currency loans once again being the major catalyst of growth.
Depositsgrowth
The existing liquidity situation is likely to persist, with average balances growing by more than 15%, boosted by continuing buoyancy of our foreign currency resource base.
Despite declining interest rates, average customer deposits grew by 23% at Bank level, supported by a significant growth of 48% in foreign currency deposits. Consequently, deposits at Group level went up by 15% during the year ended June 2009.
Average customer deposits to grow by about 15% during the year.
Assetquality
Gross NPLs to loans ratio to approach 5% with the net ratio to fall further below 2.5%.
Group NPLs declined further to 4.8% of the loan book, while the ratio of net NPLs dropped to 2.2% on the strength of reinforced risk management.
It is expected that recent trends in asset quality will persist, albeit at a slower pace, with the gross NPL ratio edging below 4.5%.
Capitalmanagement
Capitalisation levels are targeted to remain at sufficiently high levels to assist the MCB in adequately catering for growing business volume and the corresponding risk, while creating enabling conditions for future growth.
The BIS capital adequacy ratio for the Group remained comfortable at 15.1%, with Tier 1 ratio standing at 13.0%.
The capital adequacy ratios are expected to be maintained at around current levels, while continuing to support growth initiatives.
management discussion and analysis
MCB Group Annual Report 2009
88 89
PerformanceAgainstObjectivesbyLOBs–MCB(Bank)
PERFORMANCEINFY2008/09 OBJECTIVESFORFY2009/10
Retail
Notwithstanding an ever demanding operating environment, the average retail loan balances in FY 2008/09 grew by some 20% on the strength of tailored facilities provided to a judiciously segmented customer base, contributing to a rise of around 15% in net interest income.
Average retail loans for FY 2009/10 is expected to grow by around 15% on the basis of continued emphasis on exploiting opportunities in established and budding market segments as well as fostering long-lasting client relationships. Accordingly, net interest income is forecast to rise by a similar percentage.
Corporate
Underpinned by reinforced business development strategies and high-quality service delivery, the average loan portfolio at corporate level increased appreciably by some 22% during FY 2008/09. Consequently, net interest income grew by around 30%, supported by an improvement in margins extended on advances.
Even though economic conditions would remain sub-optimal, the Bank aims to achieve an expansion of some 15% in its average corporate loan portfolio for FY 2009/10 on account of careful market positioning, provided that the foreseen upturn in activity materialises. Net interest income for the corresponding period is thus expected to increase by around 10%.
EntitiesoutsideMauritius
Reflective of the Bank’s effective regional diversification strategy, a significant growth of around 50% was registered in average loan balances with regard to the ‘entities outside Mauritius’ segment for FY 2008/09. Net interest income grew by an impressive 96% as a result of the materialisation of major deals and overall better margins.
While upholding its vigilance in the current challenging environment, an expansion of 20% is targeted by the MCB with respect to credit to entities outside Mauritius on account of enhanced product and market diversification, with a better exploitation of regional trade and business flows amongst others. A rise of around 30% is hence expected in net interest income.
the wake of slowing economic activity stemming from
the global downturn and country-specific difficulties.
Overall, the combined share of non-bank services and
profit from foreign sources, including activities of the
Bank with non-residents, stood at 44.4% in the last
financial year.
On the strength of headway made in respect of
business development initiatives to support the
Group’s diversification strategy alongside reinforcing
its position in existing markets, operating income
went up by 11.8% and 11.0% to reach Rs 7,121
million and Rs 8,256 million for the Bank and the
Group respectively. With increases in non-interest
expenses being contained to moderate levels in spite
of continued capacity-building investment, operating
profit before provisions rose by 15.8% for the Bank
and 12.5% for the Group. This has led to a further
progression in corresponding recurring earning
power – the ratio of pre-provision profit excluding
net income from financial instruments and sale of
securities to average assets – to 3.33% and 3.29%
respectively, highlighting enhanced efficiency in the
utilisation of invested capital. Besides, illustrative of
diligent risk measurement and monitoring in addition
to improving asset quality backed by prudential
market penetration, allowances for credit impairment
dropped by around 12%. As such, profit before tax of
the Bank shot up by 19.2% to Rs 3,928 million while,
on a consolidated basis, it increased by a lower rate of
some 10.6% following a fall in the share of income of
associated companies from its high of Rs 640.8 million
in FY 2007/08 to Rs 527.9 million, notwithstanding
improved contribution from BFCOI. The tax charge
witnessed a substantial rise to reach Rs 675.7 million
and Rs 888.0 million for the Bank and Group
respectively, being compounded by an under-provision
with respect to the previous year and, importantly, by
the doubling of the special levy applicable to banks
operating in Mauritius which led to the relevant
charge for the MCB increasing to Rs 167 million.
Underpinned by rational business practices, the
financial soundness of the MCB was conspicuously
reinforced in FY 2008/09. Indeed, alongside enhanced
profitability, the Group boasts an adequate liquidity
position with the liquid assets to deposit ratio
standing at 30.0% and a comfortable capital cushion,
management discussion and analysis
ReviewbyFinancialPriorityAreaAnalysis of ResultsThe execution of a carefully designed expansion
strategy, translating into solid and broad-based
increases of business volume over the years, upheld
the growth momentum in the financial results of
the MCB in FY 2008/09 despite significant downward
pressures emanating from the sharp deterioration in
the operating landscape lately. Group profit to owners
of the parent rose by 7.3% to reach Rs 3,964 million
with the growth working out at a remarkable 21.3%
when excluding the non-recurring gain from the
disposal of Sun Resort shares by MCB Equity Fund Ltd.
in FY 2007/08. It is worth mentioning that attributable
earnings would have crossed the Rs 4 billion mark had
it not been for the impact on tax charge for the year of
the change in legislation brought about by the Finance
Act 2009 to double the special levy chargeable on the
operating income and book profit of banks. The overall
performance was boosted by relative buoyancy in
activities of the Bank whose profit jumped to Rs 3,252
million in FY 2008/09, representing a rise of 12.1% over
the preceding year and an increase of 26.9% after
adjusting for non-recurrent income. On the other hand,
although it was seriously hindered by the worldwide
financial turmoil, the contribution from non-bank
services remained comfortingly positive while a resilient
performance was registered by overseas subsidiaries in
Profit attributable to shareholders
0
1
2
3
4
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
Rs bn
Bank
Group
Rs
bn
Operating profit before provisions
0
1
2
3
4
5
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
Rs bn
Rs
bn
MCB Group Annual Report 2009
90 91
as gauged by a capital adequacy ratio of 15.1%, while
the continued fall in non-performing loans (NPLs)
testifies to better asset quality. Together with ongoing
initiatives to boost revenue-generating capacity, these
strong fundamentals should act as a springboard
for the MCB to sustain a resilient performance in
the period ahead although the after-effects of the
economic slowdown should restrain its future growth.
Revenue GrowthNet Interest Income
Reflecting significant loosening in monetary conditions
in response to the severe global economic downturn,
interest income growth of the Bank was rather flat in
the last financial year. In particular, a large drop was
observed in revenues from placements with banks, in
line with dwindling money market rates abroad. On
the other hand, notwithstanding lower yields, interest
receipts from customer loans and advances edged up
by 2.6% to stand at Rs 7,700 million on the strength
of substantial disbursements, especially in the second
semester of 2008. Despite the downward movement
in the Bank rate, income from securities rose by
6.8% on account of higher average holding of these
instruments during the year.
Interest expense for the Bank registered a notable
fall of 15.8% to Rs 4,867 million largely due to the
decrease in rates. As a result, net interest income at the
Bank level recorded a significant increase of 24.1%,
contributing to a rise of 20.9% to Rs 5,036 million
for the Group. This represented a very satisfactory
performance in view of the delicate environment of
the relevant local economies. As such, the net interest
margin improved by 14 and 10 basis points to 3.95%
and 4.10% respectively for the Bank and the Group,
highlighting more productive lending operations and
heightened riskiness linked to prevalent uncertainty.
The corresponding ratios for net interest income to
average assets rose to 3.60% and 3.55% respectively.
Non-interest Income
Non-interest revenue decreased in FY 2008/09 given
that this source of income was boosted by gains on
sale of securities of a non-recurring nature in the
preceding financial year at both the Bank and Group
levels. Excluding these items, non-interest income
progressed satisfactorily by 8.6% and 12.9% to
Rs 2,571 million and Rs 3,220 million respectively at
the Bank and consolidated levels, mainly supported
by high growth rates in net fees and commissions.
The latter went up by more than 16% on account of
a strong performance in relation to credit cards and
guarantees as well as trade finance, both in Mauritius
and on regional operations. Other non-interest income
for the Bank was pinned down by a drop in dividends
receivable and net gains on sale of securities, while
that of the Group grew by some 9.6% excluding non-
recurrent items, mainly on account of an important
rise in profit on foreign exchange dealings at the level
of the banking subsidiaries.
Cost ControlIn spite of ever increasing operating activities during
the last financial year, non-interest expenses rose by
relatively restrained rates of 6.2% and 8.9% to reach
Rs 2,832 million and Rs 3,479 million at Bank and
Group level respectively partly reflecting effective cost
management. Furthermore, a decline in depreciation
charges was noted principally due to the postponement
of charges for some of the new infrastructural
developments. As such, growth in the cost base of the
MCB in the last financial year was largely attributable
to higher personnel expenses, generally inflation-
linked, and to continued investment in human capital.
Besides, non-interest expenses were also affected by
higher maintenance costs and IT software purchases.
Overall, with earnings growing at a faster pace than
expenses, the cost to income ratio for FY 2008/09
management discussion and analysis
Net interest income - Bank
0
2
4
6
8
10
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
Rs bn
100
120
140
160
180
200
FY 2004/05 = 100
Interest income
Interest expense
Growth index - NII (right scale)
FY 2
004/
05 =
100
Rs
bn
Interest income
Interest expense
Growth index - NII (right scale)
Net interest income - Group
0
3
6
9
12
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
Rs bn
100
120
140
160
180
FY 2004/05 = 100
FY 2
004/
05 =
100
Rs
bn
Rs
bn
Breakdown of non-interest income - Group
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
Rs bn
OthersProfit from dealing in foreign currenciesFee income and commissions
MCB Group Annual Report 2009
92 93
management discussion and analysis
At the sectorial level, the main contributors to growth were the tourism and construction segments, in line with
their broadly favourable performances and prospects, in spite of growing challenges emerging in the second half of
the last financial year. Noticeable contributions were also noted from the agriculture and trade segments where the
loan portfolios at Group level rose by 29.2% and 28.4% respectively. Conversely, loans and advances to the financial
and business services sector declined during the year under review, while a contraction was also registered at the
level of the EPZ sector.
June09 Loanstocustomers Non-performingloans(NPLs) Allowancesforcreditimpairment
MCBGroup Rs m Y.o.y growth (%) Rs m % of loans Rs m % of loans % of NPLs
Agriculture and fishing
7,831 29.2 69 0.9 86 1.1 125.0
Manufacturing 9,559 (1.0) 1,090 11.4 561 5.9 51.5
of which EPZ 3,280 (23.1) 401 12.2 349 10.6 86.9
Tourism 20,627 53.4 90 0.4 89 0.4 98.3
Construction 17,032 35.2 983 5.8 544 3.2 55.3
Traders 14,542 28.4 859 5.9 540 3.7 62.9
Financial and business services
5,081 (32.0) 51 1.0 32 0.6 62.8
Personal and professional
8,289 10.9 1,321 15.9 656 7.9 49.6
of which credit cards 419 (0.4) 136 32.4 85 20.1 62.2
Global Business Licence holders
4,635 73.7 34 0.7 48 1.0 141.8
Others 10,316 25.5 312 3.0 816 7.9 261.9
Total 97,912 24.1 4,809 4.9 3,371 3.4 70.1
attributed to ambitious strategic undertakings allied
to tightened risk management where necessary. It was
essentially engineered at Bank level where the loan
portfolio grew by a significant 26.2% during the year
under review to reach Rs 94.6 billion, supported by
healthy contributions from both local and foreign-
sourced activities, with very satisfactory achievements
with respect to the corporate and retail segments.
Strikingly, gross Segment B loans rose by an impressive
57.7% during the last financial year, in line with the
objective of the Bank to diversify its revenue sources,
particularly those originating from outside Mauritius.
Similarly, loans to Global Business Licence holders more
than doubled in FY 2008/09 to reach Rs 4.6 billion,
following the materialisation of major deals by the
Global Business Desk.
declined to 39.8% at Bank level and 42.1% for the
Group, compared to 41.9% and 42.9% respectively
for the previous year. On excluding the non-recurring
gains on sale of securities realised in FY 2007/08, the
drop in cost to income ratio in the last financial year
was even more pronounced, improving by more than
four and three percentage points at Bank and Group
level respectively.
Credit ExposureDespite some deceleration in activity in the second
half of FY 2008/09 as a result of the knock-on effects
of the global financial crisis, gross loans and advances
for the Group recorded a noteworthy expansion
of 24.1% during the year ended 30 June 2009 to
reach Rs 100.2 billion. This good performance was
Cost to income ratio
35
40
45
50
55
FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09
%
Bank
Group
%
June09 Totalloans Non-performingloans(NPLs) Allowancesforcreditimpairment
MCBBank Rs m Y.o.y growth (%) Rs m % of loans Rs m % of loans % of NPLs
Segment A 74,575 19.7 4,534 6.1 3,136 4.2 69.2
Segment B 20,056 57.7 85 0.4 144 0.7 169.9
Total 94,631 26.2 4,618 4.9 3,280 3.5 71.0
Against the backdrop of good lending opportunities,
principally in the first semester of the financial year,
investment in government securities decreased
substantially by 37.1% to reach Rs 13.1 billion as at
30 June 2009. Accordingly, the ratio of liquid assets to
deposits declined over FY 2008/09, despite remaining
at comfortable levels of 29.7% and 30.0% at Bank
and Group level respectively as at June 2009. It is also
important to note that there has been a noteworthy
expansion of 26.3% in investment in subsidiaries by
the Bank to around Rs 3 billion over the last financial
year, this being explained by capital calls of Rs 459.9
million from MCB Equity Fund Ltd., by the purchase
of another 10% of the capital of MCB Madagascar
from a minority shareholder and an investment of
Rs 80 million in the newly created International Card
Processing Services Ltd.
MCB Group Annual Report 2009
94 95
management discussion and analysis
past loss experience and current attributes and outlook. The portfolio provision increased by Rs 136 million during
the year, reflecting the growth in the loan book.
The net charge for specific provisions was Rs 236 million for the Group, a drop of 31% from the previous year,
reflecting the steadily improving delinquency rate of the portfolio.
Provisioningandassetquality Group Bank
Movementinallowancesforcreditimpairment(Rsm) 2007 2008 2009 2007 2008 2009
Provisions at start 3,359 3,246 3,196 3,270 3,158 3,101
Provisions made during the year 338 283 393 279 231 374
of which specific charge 335 341 236 330 327 226
Provisions released during the year (64) (47) (78) (34) (23) (60)
Amounts written off (387) (286) (135) (357) (265) (135)
Provisions at end 3,246 3,196 3,377 3,158 3,101 3,280
Keyratios(%)
Income Statement charge (specific) to total loans 0.5 0.4 0.2 0.5 0.4 0.2
Total provision to non-performing loans 67.2 68.1 70.2 66.8 68.8 71.0
Total provision to total loans 4.7 4.0 3.4 4.9 4.1 3.5
Groupexposuresasat30June 2007 2008 2009
On-BalanceSheet Rsm Rsm Rsm
Lending 69,014 80,748 100,236
Loans to customers 67,834 78,926 97,912
Loans to banks 1,180 1,823 2,324
Trading 3,535 3,470 3,401
Investments 18,533 28,862 20,822
91,082 113,080 124,458
Off-BalanceSheet Rsm Rsm Rsm
Acceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and foreign exchange contracts
25,892 36,461 27,717
Commitments 4,488 6,001 7,311
Other 1,273 1,307 1,247
Contingentliabilities 31,653 43,768 36,275
Credit QualityThe positive trend, witnessed over the last 5 years, in
relation to non-performing loans (NPLs) has persisted
this year, with the ratio of NPLs to total loans falling
more than a full percentage point from its 30 June
2008 level to reach 4.9% for the Bank and 4.8% for
the Group. In absolute terms, the NPL portfolio has
stayed around the same level as last year, a testimony
to the fact that delinquencies are not rising in spite of
the global recession and the more difficult economic
conditions under which the MCB and its subsidiaries
are operating. This, in turn, can be largely attributed to
the strong risk management framework now in place
at the MCB. The stringent procedures implemented to
measure and monitor credit risk have led, on a day-to-
day basis, to much lower levels of over-limit exposures
and, in the long run, to a healthier loan portfolio.
The ratio of net NPLs to net loans has also shown a
marked improvement, reaching 2.2% for both the
Group and the Bank, down from 2.6% and 2.7%
respectively a year ago, while the percentage cover
of NPLs by specific provisions has remained steady
around the 57% mark. The uncovered portion of the
NPL portfolio is more than adequately covered by
collateral held by the Bank, suitably written down in
value where need be, to reflect market parameters
and delays in recovery. Additionally, the Bank, in
conformity with the Bank of Mauritius Guideline
on Credit Impairment Measurement and Income
Recognition, recognises the varying degrees of risk
attached to the different components of its loan
portfolio. Loans have been analysed by sector, each
sector having similar characteristics, and a statistical
provision has been assigned to each sector based on
NPLs to gross loans
4
5
6
7
8
9
June 05 June 06 June 07 June 08 June 09
%
BankGroup
% %
Net NPLs to net loans
2.0
2.5
3.0
3.5
4.0
June 05 June 06 June 07 June 08 June 09
%
FundingDeposits and borrowings
Partly due to prevailing economic conditions and
reflective of customers’ confidence in the MCB, total
deposits of the Bank rose significantly by 17.4%
to reach Rs 114.5 billion as at 30 June 2009, despite
falling interest rates. This performance has been
largely driven by a considerable growth of 28.5%
in foreign currency deposits which reached Rs 36.7
billion – a key contributor being an expansion of
MCB Group Annual Report 2009
96 97
management discussion and analysis
of the new core banking system. The key changes
brought are as follows:
• the operational tasks of the Credit Risk BU have
been transferred to a newly created BU called
Credit Management BU, reporting to the Head of
Group Risk, with the purpose of regrouping the
assessment of credit requests, management of
excesses, credit processing and the credit recovery
activities of the Bank;
• the Credit Risk BU will focus on the performance
of the credit exposures of the Bank and facilitate
Senior Management and Board decisions relating to
capital planning; and
• formerly known as the Information Security
Management BU, the Information Risk Management
BU now reports to the Head of Group Risk instead of
the Chief Executive (Banking).
These modifications made by the Bank aim at further
strengthening the risk management function while
striving to offer superior services to its customers.
profile of its activities while upholding an environment
conducive to attracting and promoting business
opportunities. The goal is to enhance stakeholders’
confidence with respect to the Bank’s management
of current and potential credit, market, information
and operational risks through adequate internal
control mechanisms, up-to-date and comprehensive
risk policies, adherence to legal and regulatory
requirements and reliable decision-making support.
GroupRiskStructureThe Group Risk structure, as illustrated below, focuses
on credit risk, operational risk, information risk and
market risk with a setup that facilitates the ongoing
refinements in capital allocation among these main
risk categories, in line with the Basel II risk framework.
Besides, independent teams oversee the internal
audit function, the compliance to all applicable laws,
regulations, codes of conduct and standards of good
practice, the physical security and the legal function
across the MCB Group.
During the last quarter of FY 2008/09, the Group Risk
structure was altered in the wake of a review of the
Bank’s processes in parallel with the implementation
Capital resources
In FY 2008/09, the commendable performance of
the MCB contributed to a substantial growth of
29.7% in retained earnings despite a strong dividend
payout of Rs 1.2 billion. This achievement led to a
growth of 13.6% in the Group shareholders’ funds
to Rs 18.6 billion even though some Rs 563.0 million
were released from capital reserves following a non-
negligible decline in the fair value of available for
sale financial assets. As such, net asset value per share
increased to Rs 78.29 at the end of FY 2008/09 from
Rs 68.90 one year earlier, an expansion of 13.6%.
Consequently, as a buffer against potential shocks,
the capitalisation position of the MCB stayed at very
comfortable levels in the last financial year, with the
equity-to-assets ratio remaining at 12.3% and the risk-
weighted capital adequacy ratio attaining 15.1% as
per Basel II definitions.
RiskReportThe mission of the risk management function is
to identify, assess and manage the credit, market,
operational and information risks to which the MCB
Group is exposed, thereby improving the risk-return
some 32% in the demand balance – to some extent
explained by the roll-out of promotional campaigns
to boost the funding source through special rates
offers. Rupee-denominated deposits also rose by
a notable 12.7% during the year ending 30 June
2009, mainly underpinned by an increase of around
Rs 6 billion to Rs 48.1 billion in savings deposits which
represents above 60% of the relevant total base. For
their part, rupee time and demand deposits went up
to reach Rs 18.0 billion and Rs 11.8 billion during the
last financial year, representing increases of around
11% and 10% respectively. Reflecting the expansion
at Bank level, total deposits for the Group increased
by 14.9% to reach Rs 121.2 billion as at 30 June
2009. As regards borrowings, a substantial reduction
of 47.4% was recorded by the Bank during the last
financial year following the scheduled reimbursement
of USD 20 million representing the part repayment of
the syndicated loan arranged by ING Bank N.V and
Sumitomo Mitsui Banking Corporation Europe Ltd.
Conversely, the rise of nearly 19% in subordinated
liabilities during FY 2008/09 represented a revaluation
difference, following the change in parity of the rupee
against the US dollar.
Bank
Group
Rs
bn
Deposits
30
50
70
90
110
130
June 05 June 06 June 07 June 08 June 09
Rs bn
Bank
Group
Rs
bn
Shareholders' funds
0
4
8
12
16
20
June 05 June 06 June 07 June 08 June 09
Rs bn
MCB Group Annual Report 2009
98 99
management discussion and analysis
exposures and in accordance with comprehensive
credit policies – to manage the approval of loans
depending on how well the loan fits into the target
market criteria set by the Bank and on whether it is in
line with the intended risk-return profile.
Credit Risk MeasurementThe Bank measures the credit risk capital requirements
by applying the appropriate risk weights to on-
balance sheet and off-balance sheet exposures in
line with the Guideline on Standardised Approach
to Credit Risk issued by the Bank of Mauritius (BoM)
and as required by the Basel II framework. The
capital adequacy and return on capital levels for the
individual risk categories of the Bank’s portfolio are
regularly monitored by the RMC against the overall
risk-bearing capacity of the Bank, in order to ensure
that the Group is, at all times, maintaining adequate
capital to provide for its growth and to support a
reasonable measure of unexpected losses.
The operational aspect of credit risk measurement,
now taken over by Credit Management, consists
of appraising the track record of customers as
appropriate to predict the likely future behaviour of
existing accounts for ongoing credit risk management.
The frequency of review is increased in accordance
with the size and likelihood of potential credit losses
to ensure the timely detection of problem loans.
Performing exposures are reviewed on a regular
basis, with all corporate exposures being examined
at least annually. Deteriorating higher-risk exposures
are referred to a dedicated team for closer scrutiny
where appropriate. The Bank’s disciplined approach
to provisioning and loan loss assessment is based on
CreditRiskCredit risk is defined as ‘the risk of loss arising from the
non-performance by a customer, client or counterparty
in any of its obligations towards the MCB’.
Credit Risk GovernanceThe Board of the MCB has ultimate control and
oversight of credit risk management as well as credit
risk policies and their deployment through the
Supervisory and Monitoring Committee (SMC) and
the Executive Credit Committee (ECC). In particular,
the SMC, in consultation with line management, is
accountable to the Board through the normal chain
of operational command and control for setting out
the credit policy as well as ensuring the proper and
prudential segregation of duties within the credit
risk management architecture of the MCB. Besides,
through the RMC, the Board has access to expert
analysis and reporting on the key risks of the Bank
from areas functionally independent from the risk-
taking business units.
Credit Risk ManagementThe goal of credit risk management at the MCB is to
maximise the return on capital by maintaining credit
risk exposure within the Bank’s risk appetite, with due
consideration being given to the long-term success of
the organisation, through the effective identification,
measurement, monitoring and control of the credit
risk inherent in the entire portfolio.
Effective credit risk management relies on the Bank’s
well-established dual control structure, its sound credit
processes and its clear delegation of decision-making
authority – commensurate with the size and risk of
to the agreed risk appetites and tolerance as may be
appropriate in the light of changing circumstances,
and highlights the key risks of the Bank to the Board.
The RMC also reviews reports from the Group Risk
SBU as well as from the Physical Security, Compliance
and Legal functions in respect of strategic and
business risks and determines actions to be taken as
appropriate. Besides, country limits, approved as and
when required by the Board, are monitored quarterly
by the RMC.
RiskMonitoringCommitteeThe Risk Monitoring Committee (RMC) comprises
three non-executive directors, of which two are
independent, two executive directors and the Head of
Group Risk as secretary with its principal responsibility
being to monitor the credit and market risk portfolios
of the Bank against the agreed risk appetite as well as
the Bank’s operational risk tolerance at least quarterly.
In this respect, the RMC adopts the risk appetite as
set by the Board, monitors the utilisation of capital
and current capital adequacy, recommends changes
BOARD
Risk Monitoring Committee
Group Risk SBU
Credit Management
Credit Risk
Market Risk
Operational Risk
Information Risk Management
Group Compliance
Physical Security
Legal
Supervisory andMonitoring Committee Audit Committee
Group Internal Audit SBUGeneral Management
MCB Group Annual Report 2009
100 101
management discussion and analysis
Monitoring and MitigationThe Operational Risk BU deploys, in collaboration with
the business and functional divisions, both forward
and backward-looking approaches to ensure proper
identification and mitigation of operational risk.
The BU contributes to the identification of operational
risk and the recommendation for appropriate controls
in a proactive manner prior to the implementation of
new products and processes or amendments thereof.
In addition, the deployment and consolidation by
the Operational Risk BU of an incident/loss reporting
framework is pivotal to the management of
operational risk at the MCB.
Formal operational risk awareness sessions, designed
to foster an operational risk culture, are conducted by
the operational risk function, whereby each employee
is trained to monitor and report all potential or
materialised operational losses/incidents or ‘near
misses’. The operational risk incident reports provide
historical data for the analysis and review of the
adequacy of mitigating strategies.
All key operational risk issues are communicated to
relevant stakeholders for timely corrective action and
are reported to ORCC and RMC on a regular basis for
informed decision-making.
The advisory role of the Operational Risk BU dovetails
with those of other risk functions for a coherent
overall risk management structure within the MCB.
framework, policies and standards required to ensure
the sound management of operational risk. The
operational risk management framework and the
computation of the operational risk capital charge
at the MCB follow the requirements of the Basel II
Standardised Approach, providing the measurement
methodology for the Bank.
Governance and StructureThe Group Operational Risk Policy encapsulates the
standards and methods for operational risk management
at the MCB. The Policy establishes the risk management
governance, based not only on the necessary managerial
involvement throughout the entire organisation, from
the board of directors to business line managers, but
also on the necessary contribution of each and every
employee at all levels of the Bank.
Reporting to the Board of Directors, the RMC reviews
and approves the operational risk management
framework, whilst Senior Management is responsible
for ensuring the implementation of the framework.
The monitoring of the entire operational risk cycle is
undertaken by the Operational Risk and Compliance
Committee (ORCC), which is chaired by the Chief
Executive (Banking) and comprises the Head of Group
Risk and the Head of Group Compliance, with the
Manager of Operational Risk BU acting as secretary.
Furthermore, the Operational Risk BU defines
and implements an operational risk management
framework – in line with good operational risk
management practices and regulatory requirements –
that keeps pace with developments occurring at the
levels of the institution and the industry.
gives total credit facilities including guarantees,
acceptances and other similar commitments extended
by the Bank to any one customer or group of closely-
related customers for amounts aggregating more than
15% of its capital base, classified by sector.
Country Exposure Limit ModelThe country exposure limits are based on the Bank’s
areas of expertise, its intimate knowledge of the
local economy in presence countries and its strategy
to increase its regional presence, with the maximum
risk limit being determined by the risk appetite of
the Bank. Country limits are approved annually by
the Board and monitored quarterly by the RMC and
include, where necessary, sub-limits relating to short
term trading operations in strategic commodities. The
monitoring and limitation of the concentration of
exposures in certain risk classes are crucial in detecting
the deterioration of the portfolio in a timely manner.
OperationalRiskThe MCB defines operational risk as ‘the risk of
loss resulting from inadequate or failed internal
processes, people and systems or from external events.
Operational risk includes legal risk, but excludes
strategic and reputational risk’. This definition
delineates the pervading nature of operational
risk which requires a concerted effort for its proper
identification, assessment, monitoring, controlling
and mitigation.
The MCB recognises the challenges emanating
from the management of operational risk which is
inherent to all aspects of a business. As such, it has
resolutely adopted and implemented the appropriate
the Guideline on Credit Impairment Measurement and
Income Recognition, issued by the BoM.
Ultimately, the Bank assesses whether the individual
business areas provide sufficient contribution to the
targeted risk-return profile in order to determine
the capital allocation that yields the optimum return,
achieved by channelling risk capital away from low-
return to high-return business areas.
Credit Risk MitigationSeveral appropriate forms of risk mitigation are used
by the MCB to reduce or transform risk exposures.
The credit risk mitigation techniques used within the
MCB include security/collateral, netting, guarantees
and political risk covers, all of which contribute to a
reduction in the MCB’s credit risk for exposures where
such instruments are available and felt required.
Credit Risk ConcentrationThe mitigation and avoidance of adverse concentrations
of risk associated with large exposures, representing
credit risk concentration through large advances to
groups of connected clients, is an important element
in the management of risk exposure. The Bank is
compliant with the Guideline on Credit Concentration
Risk issued by the BoM in December 2008. It is the
policy of the MCB to limit credit risk exposures and
concentrations within the constraints of the Bank’s
capital base. The MCB’s credit portfolio is thus also
diversified by industry and the Bank regularly monitors
the credit risk concentration aggregating to more
than 15% of its capital base, classified by industry
sector, to ensure that its risk-bearing capacity is not
jeopardised. Note 5b(v) to the Financial Statements
MCB Group Annual Report 2009
102 103
management discussion and analysis
general banking activities within the MCB, across all
currencies and on a consolidated basis is formulated in
terms of both the official regulatory limit of the BoM
and an internal target.
Liquidity RiskLiquidity risk is defined within the MCB as ‘the risk
that, at any time, the MCB does not have sufficient
realisable financial assets to meet its financial
obligations as they fall due’.
The management of liquidity risk at the MCB is
undertaken under the framework issued by the BoM
in its Guideline on Liquidity.
The liquidity policy of the MCB seeks to ensure that
the Bank:
• can meet its financial obligations as they fall due in
the normal course of business; and
• maintains an adequate stock of highly liquid assets to
cater for unexpected funding needs at short notice.
This policy requires the establishment and maintenance
of three mutually supporting ‘lines of defence’ namely:
• cash flow management – where the MCB creates a
continuously maturing stream of assets and liabilities
through time;
• maintenance of a portfolio of liquid assets; and
• maintenance of a diversified liability base.
InformationRiskManagementThe Information Risk Management (IRM) BU is generally
responsible to ensure the adequate security level for
data sets of the Bank. It undertakes operational activities
pertaining to highly sensitive and critical information
underpinned by the flexibility provided by funding
sources to manage cash flows and liquidity needs, the
focus on judicious risk-return profiles of investment
portfolios and the monitoring of the all-inclusive
reputation, strategic, credit, interest rate and price
risks to earnings or capital.
Interest Rate RiskInterest rate risk is defined as ‘the exposure of the
Bank’s financial condition to adverse movements in
interest rates’.
One of the main sources of interest rate risk relates to
timing differences between the interest reset dates of
bank assets, liabilities and off-balance sheet positions.
The MCB manages interest rate risk in the trading and
non-trading books (i.e. across the whole balance sheet)
by setting gap and cumulative mismatch targets based
on a maturity/repricing schedule. The purpose of these
targets is to set benchmarks which are intended to
limit the amount of interest rate exposure at different
points in the interest rate maturity spectrum.
Foreign Exchange RiskForeign exchange risk (FX risk) is defined as ‘the risk
that the Bank’s foreign currency positions will be
adversely affected with the movements in exchange
rates between one currency and another’.
The MCB manages FX risk as a whole, whether arising
from its day-to-day trading decisions or embedded
within the balance sheet. For trading activities involving
FX risk, the MCB allocates trading limits which specify
the maximum trading positions. The target structure
for FX risk in the balance sheet, or otherwise from the
subsidiaries as well as assisting with the provision of
balance sheet and market risk analysis information to
the Asset and Liability Committee (ALCO).
Asset and Liability CommitteeThe main purpose of ALCO is to ensure that the overall
asset/liability and market risk mix within the MCB is
constantly managed within limits and targets set by
the GMRP and in accordance with guidelines laid
down by the BoM. Chaired by the Chief Executive
(Banking), ALCO comprises key members of Senior
Management who meet monthly to review the end of
month balance sheet, specific market risk situation as
well as information on local financial markets.
ALCO has been particularly proactive in the midst of
the current global financial crisis in managing the
liquidity risk of the Bank, particularly with regards
to its foreign currency liquidity. It has systematically
reviewed its foreign currency projected gap analysis
whilst adhering to conservative liquidity risk metrics
and selective disbursement of funds. The maturity of
placements has been kept deliberately short so as to
provide a readily available cushion of liquid assets to
face emergency needs that may arise. The counterparty
credit risk of banks with which placements were made
was also subject to more regular scrutiny. In so doing,
ALCO has upheld the highest standard of liquidity
management without overly compromising on the
profitability of projects that were specifically approved
for disbursement.
Overall, whilst the Group ensures sufficient funds are
available at reasonable cost to meet obligations on a
timely basis, effective liquidity management is further
Business ContinuityThe MCB is committed to implementing a Business
Continuity Management (BCM) framework that fosters
the resilience of its critical operational infrastructure
with the aim of providing an uninterrupted service
to its customers. Business Continuity Plans and
procedures for all key operations are reviewed
regularly. The Operational Risk BU is responsible for
coordinating the phasing-in of the key stages of the
BCM continuous process, subject to the organisation’s
evolving structure as well as developments at both
micro and macro level.
MarketRiskThe MCB Group defines market risk as ‘the risk of
gain or loss arising from activities undertaken in, or
impacted by, financial markets generally. This includes
both market price risk as well as ancillary risk such as
liquidity and funding (liability) risk’.
The framework for market risk is set out by the Group
Market Risk Policy (GMRP) which is a Board-approved
sub policy of the Group Risk Policy. The GMRP covers the
policies, principles and main functional responsibilities
in relation to the management of market risk to be
applied across the MCB Group.
Market Risk BUThe Market Risk BU (MRBU) acts as the primary
risk control and monitoring function in respect of
market risk activities on behalf of the MCB. The core
responsibilities of MRBU consist of exercising overall
control and monitoring of market risk (including
credit and operational risk arising from market risk
activities), collating related information from overseas
MCB Group Annual Report 2009
104 105
management discussion and analysis
practices and procedures documented in the Physical
Security Manual have been updated in the context
of the changing operational environment while
quarterly security audits are carried out to ensure
compliance to security policies. The MCB emergency
plan, approved by the authorities, translated into the
successful completion of the first evacuation exercise
as per legal requirement.
The above measures relating to security resulted in no
major incident being reported at the MCB over the
year under review.
ComplianceCompliance risk is defined by the MCB as ‘the risk arising
from failure by companies of the Group to comply with
laws, regulations, codes of conduct, and standards of
good practice relevant to their respective business
environment in the countries in which they operate’.
It is a composite risk made up of the likelihood of
regulatory sanctions, financial loss, litigation and loss
of reputation. These risks, which may be inter-related
for financial services institutions, are of concern to the
MCB, particularly reputational risk.
The MCB Group’s approach to compliance risk is fourfold:
1. Review of changes in laws and regulations in order
to ensure that the Group addresses the risks arising
from such changes;
2. Monitoring of compliance with existing rules and
regulations while mitigating the effects of any
unintentional non-compliance;
3. Management of productive dialogue with
regulators in order to ensure effective two-way
communication; and
Professional Practice of Internal Audit issued by the
above mentioned institute.
Mindful of the increased expectations of different
internal and external stakeholders and capitalising
on its current achievements, the Group Internal
Audit SBU will strive ‘doing more of the same’, while
providing the necessary audit and risk insights towards
furthering the strategic orientations of the Group.
PhysicalSecurityReflecting its objective of providing appropriate
levels of protection and abiding by proven standards
thereof for its employees, customers and assets, the
Bank has reinforced ongoing security arrangements
during the year under review. Measures undertaken
include the outsourcing of ATM cash replenishment to
specialised services, the installation of anti-scheming
devices on all ATMs, the deployment of cash recycling
machines at the main branches of the Bank and the
implementation of a programmable visitor card system
at the MCB Centre.
An extensive training program was also provided
to the security staff of the Bank to facilitate the
use of the latest state-of-the-art electronic security
equipment installed at the MCB Centre. Besides, a
crime prevention awareness program involving Bank
officials was launched through a series of meetings
across the island in partnership with the Mauritius
Police Force and other members of the Mauritius
Bankers Association.
With the aim of continuously providing first class
services in a secured environment, the MCB security
accountability and to the Executive Directors for
administrative interface and support – ensures that the
quality of internal audit services of the MCB is aligned
with recognised best practices. Over the past few
years, it has conscientiously and scrupulously geared
up its efforts towards implementing a risk centric
model without challenging the need for a purely
compliance approach for some carefully identified
business areas. A systematic disciplined approach
through notably the use of Mauritius Qualifications
Authority approved control self assessments, computer
aided audit techniques (CAAT) and an audit software
provides the necessary platform to evaluate and
improve the effectiveness of risk management control
and governance processes.
The outcomes of the different audit assignments,
including a risk-based grading of the relevant issues,
are periodically presented to functional heads, line
managers and Executive Directors. The Group Audit
SBU communicates a summarised implementation
status of all issues to the Executive Directors on a
monthly basis for discussion if need be. Quarterly or
more frequent meetings are scheduled with the Audit
Committee. The annual audit plan, issues and progress
regarding implementation thereof, and resource
requirements are typical items on the agenda.
The Institute of Internal Auditors (IIA) currently
requires each internal audit function to have an
external quality assessment conducted at least once
every five years. This exercise has recently been carried
out for the MCB by an internationally recognised
auditing firm which has confirmed the Group’s full
compliance with the International Standards for the
while performing risk impact analysis in respect of
information confidentiality, integrity and availability as
well as identifying the appropriate mitigating solutions
and practices. During the year under review, the newly
named Information Risk Management BU, now forming
part of the Group Risk SBU, has made significant
progress towards achieving mature information risk
management within the Bank. In line with international
best practices and industry standards, the IRM BU has
pursued its strategy of becoming a business partner by
aligning itself with business activities, initiatives and
strategies in addition to maintaining its participation
and advisory role in Bank-wide projects.
Furthermore, the IRM BU has embarked on the
implementation of various new frameworks in risk
management, logical access and awareness areas,
whilst its operational activities have been streamlined
to further promote efficiency towards exceeding
business expectations. While IRM continues to give due
attention to further improving the Bank’s IT continuity
framework, business continuity management is now
entrusted to the Operational Risk BU with the aim of
enhancing its profile and efficiency.
As a logical evolution of information risk assessments,
the IRM BU pursued its business risk assessments and
plans to provide enhanced service to the Business Units
in relation to their respective information risk status,
thereby allowing them to take appropriate decisions
for the organisation.
InternalAuditThe Group Internal Audit SBU – whose Head reports
directly to the Audit Committee for direction and
MCB Group Annual Report 2009
106 107
management discussion and analysis
limits, whilst ensuring it has sufficient capacity for its
future development after serving a remuneration to
its shareholders. In line with the Basel II Accord, the
capital adequacy is estimated by the ratio of the sum
of risk-weighted assets and risk-weighted off-balance
sheet exposures of the Bank to its capital base, which
is calculated as the sum of Tier 1 and Tier 2 Capital net
of relevant deductions, as per the new BoM Guideline
on Eligible Capital.
Whereas the 1988 Basel Capital Accord focuses on
the capital base of banks, Basel II emphasises the
measurement and management of key banking risks
including credit risk, market risk and operational risk.
As such, it is meant to better reflect the underlying risks
in banking and is thus expected to foster stronger risk
management practices within the banking industry.
The risk management framework proposed in Basel
II seeks to ensure that the strategies formulated by a
bank are clearly linked to its appetite for risk, so that
its capital resources are managed at an optimum level
to support both its risk and strategic objectives. Basel
II is anchored on three pillars, namely:
Pillar 1: minimum capital requirements – Whilst key
elements of the 1988 Accord have been retained
with respect to capital adequacy, namely the general
requirement for banks to hold total capital equivalent
to at least 8% of their risk-weighted assets, the revised
framework entails significantly more risk-sensitive
capital requirements that are both conceptually
sound and adaptable to the existing supervisory and
accounting systems in individual member countries.
Modifications to the definition of risk-weighted assets
have two primary elements: substantive changes
mission to uphold, secure and defend the supreme
interest of the MCB Group and its constituents from a
legal standpoint, with several efficiency gains already
accruing to the Bank.
BaselIIScopeofApplicationSince April 2007, the MCB has implemented the
Standardised Approach to the measurement of
credit, market and operational risk. Moreover, it
has significantly enhanced the robustness of its
information systems enabling the timely reporting
on credit and market risk exposures on counterparty
groups or portfolios to senior executives. The amount
of credit risk capital is arrived at by applying the risk
weights based on the external credit assessments for
sovereign, central bank and bank exposures along
with the standard Basel II risk weights as applicable
under the Standardised Approach for corporate, retail,
mortgage and past due exposures. The capital charge
for market risk is based on the assessment of foreign
exchange risk in the Bank’s trading book and banking
book, and of interest rate risk in the trading book.
The computation of operational risk capital follows
the Basel II measurement methodology whereby gross
income is used as a proxy for the scale of operational
risk exposure.
CapitalStructureThe BoM sets the regulatory requirements with
respect to a bank’s capital structure in Mauritius and
has exercised its discretion in fixing the minimum
capital adequacy ratio at 10%, that is, above the 8%
norm of the Basel Committee. The MCB maintains its
capital structure within prudential and supervisory
Group Compliance is responsible for fraud prevention
and for the conduct of investigations in that respect. It
is involved in designing and implementing appropriate
training programmes to raise staff awareness on
fraud, as well as performing enquiries with respect
to cases of suspected fraud, breach of policies and
procedures, inappropriate conduct by Bank personnel,
and unresolved customer complaints. The function
also assists the MLRO in investigating into suspicious
transaction reports received from within the Bank.
LegalAs a result of its continuous endeavour to capitalise
on its distinct speciality, the Legal SBU is now in
the process of completing its challenging milestone
of regrouping under one roof all ‘legal-connotated’
functions and hence, achieving a synergy across all
legal aspects of banking, well ahead of the 3-year
agenda set for that purpose. This process will conclude
with the consolidation of competencies and the design
of developmental career paths for both the expert
legal staff and the newly annexed corps of paralegal
personnel of the Legal SBU.
The SBU is well poised to pursue its ambitious mission
as set in its development plans. With a view to
filling knowledge gaps and improving operational
effectiveness, two series of specialised and targeted
legal training have already been delivered by Law
Professors of the ‘Faculté de Droit’ of ‘l’Université
de la Réunion’ since the beginning of this semester,
thus enabling the MCB’s Legal Department to move
forward with ‘privileged high calibre legal partners’,
backed by a unique learning and growth perspective.
Overall, the Legal SBU spares no effort to fulfil its
4. Assisting management in promoting a culture of
integrity, including initiating actions to raise staff
awareness on fraud prevention and Anti-Money
Laundering and Combating the Financing of
Terrorism (AML/CFT)
The Board of Directors bears final responsibility for
compliance even if it delegates authority to line
management through the Board Risk Monitoring
Committee and the General Management. The Head
of Group Compliance – who also assumes the function
of Money Laundering Reporting Officer (MLRO) – and
the compliance function assist the Board, General
Management and line managers in discharging their
compliance accountabilities.
The Compliance function facilitates the management
of compliance risk by establishing the necessary policies
and standards; providing an independent reporting
mechanism to the Board; participating in the review
and approval of new business initiatives, products,
services and systems; fostering good relations with
regulators; and assisting in the establishment of
a homogeneous and coherent global compliance
function across all subsidiaries of the MCB Group in
their respective jurisdictions. The key areas covered by
Group Compliance are laws and regulations, codes of
conduct, standards of best practice, key business ethics
and values, and reputational risk.
With regard to the AML/CFT obligations of the Bank,
the Compliance function is duty-bound to ensure that
adequate processes have been put in place, processes
are being effectively executed, and adequate training
is provided to staff.
MCB Group Annual Report 2009
108 109
management discussion and analysis
The table hereafter shows the components of Tier 1 and Tier 2 Capital for the MCB and the resulting capital adequacy
ratios calculated as per Basel II requirements.
MCBBank June08 June09
CAPITALBASE Rsm Rsm
Paid up or assigned capital 2,504 2,504
Share premium 39 41
Statutory reserve 2,504 2,545
Other disclosed free reserves including undistributed balance in Income Statement 4,016 5,797
Current year's retained profit 1,822 2,007
Other intangible assets (202) (276)
Deferred tax (13) (26)
Treasury shares (376) (376)
Corecapital 10,293 12,216
50% of investment in unconsolidated banking and financial subsidiary companies (374) (418)
50% of investments in capital of other banks and financial institutions (443) (457)
Netcorecapital(A) 9,476 11,340
General banking reserve 534 534
Portfolio provision 520 650
Reserves on revaluation of securities not held for trading 610 543
Subordinated debt 1,237 1,472
Supplementarycapital 2,901 3,198
50% of investment in unconsolidated banking and financial subsidiary companies (374) (418)
50% of investments in capital of other banks and financial institutions (443) (457)
Netsupplementarycapital(B) 2,084 2,322
Capitalbase(A+B) 11,560 13,662
Total Risk Weighted Assets 94,148 121,881
CAPITALADEQUACYRATIOS(%)
BIS risk adjusted ratio 12.28 11.21
of which Tier 1 10.06 9.30
MCBGroup June08 June09
CAPITALBASE Rsm Rsm
Tier 1 Capital 14,704 17,517
Tier 2 Capital 3,981 2,858
Capital Base 18,685 20,375
Total Risk Weighted Assets 110,301 135,222
CAPITALADEQUACYRATIOS(%)
BIS risk adjusted ratio 16.94 15.07
of which Tier 1 13.33 12.95
international and domestic accounting standards.
Basel II endeavours to foster market discipline by
developing a set of disclosure requirements which
will allow market participants to assess key pieces of
information on the scope of application, capital, risk
exposures, risk assessment processes and, hence, the
capital adequacy of the institution. It is deemed that
such disclosures have particular relevance under the
revised framework, given that increased reliance on
internal methodologies gives banks more discretion in
assessing capital requirements.
Reflecting its commitment to ensure a good risk
management framework, the MCB has, since April
2007, adhered to the Basel II Standardised Approach
to credit risk, operational risk and market risk. This has
enabled the Bank to promote enhanced risk awareness
at all levels of the organisation and to align its capital
requirements more closely to specific risks. Capital
allocation has, as a result, become more sensitive to
risk and reflects a better assessment of return against
risk, thus further improving the strategic decision-
making process.
to the treatment of credit risk relative to the 1988
Accord and the introduction of an explicit treatment
of operational risk that leads to a measure of this
category of risk being included in the denominator
of the calculation of the capital ratio. Another major
feature of Basel II is that it enables a greater use of
internal risk assessments by banks.
Pillar2:supervisoryreviewprocess discusses the key
principles of supervisory review, risk management
guidance and supervisory transparency and
accountability produced by the Committee with
respect to banking risks. This includes guidance relating
to the treatment of interest rate risk in the banking
book, credit risk, operational risk and enhanced cross-
border communication and co-operation. In addition
to ensuring that banks have adequate capital to
support all the risks in their business, the supervisory
review process of the New Accord aims at encouraging
them to develop and use better risk management
techniques. The forward-looking approach to capital
adequacy supervision fostered by Basel II would
facilitate subsequent adjustments to the framework
to reflect market developments and advances in risk
management practices.
Pillar3:marketdiscipline is intended to complement
the minimum capital requirements (Pillar 1) and
the supervisory review process (Pillar 2) through
the alignment of supervisory disclosures to
MCB Group Annual Report 2009
110 111
management discussion and analysis
RiskWeightedAssetsJune09
MCBBank Amount WeightWeighted
Assets
RiskWeightedOn-BalanceSheetAssets Rsm % Rsm
Cash items 1,347 0 - 20 42
Claims on Sovereigns 14,339 0 - 100 1,792
Claims on central banks 4,244 0 - 100 0
Claims on banks 17,992 20 - 100 5,956
Claims on non-central government public sector entities 1,029 0 - 100 904
Claims on corporates 69,152 100 68,660
Claims on retail segment 8,419 75 5,566
Claims secured by residential property 6,678 35 2,467
Fixed assets/other assets 7,188 100 7,188
Past due claims 5,998 50 - 150 8,290
On-balancesheettotal 100,865
June09
MCBBankNominalAmount
CreditConversion
Factor
CreditEquivalent
AmountWeight
WeightedAmount
RiskWeightedOff-BalanceSheetAssets Rsm % Rsm % Rsm
Direct credit substitutes 705 100 677 0 - 100 701
Transaction-related contingent items 14,971 50 7,484 0 - 100 7,197
Trade related contingencies 5,662 20 1,116 0 - 100 820
Outstanding loans commitment 7,115 50 3,558 100 3,558
Foreign exchange contracts 4,491 1 156 20 - 100 131
Off-balancesheettotal 12,406
June09
MCBGroup Amount WeightWeighted
Assets
RiskWeightedAssets Rsm % Rsm
On-balance sheet 150,767 0 - 150 111,129
Off-balance sheet 34,823 0 - 100 13,035
TotalGroupRiskWeightedAssets 124,163
CreditRiskCapitalAs specified in the BoM Guideline on Scope of Application of Basel II and the Guideline on Standardised approach
to Credit Risk, the regulatory credit risk capital requirements with respect to the MCB Group are determined by
applying the appropriate risk weights based on the ratings assigned by external rating agencies, particularly for
sovereign, central bank and bank, to each credit exposure.
The MCB uses the ratings of Standard & Poor’s Rating Services, Moody’s Investors Services and Fitch Ratings in line
with the BoM Guideline on the Recognition and Use of External Credit Assessment Institutions. The following table
indicates the risk weights applicable for each asset class, based on credit ratings assigned by Moody’s Investors
Services.
TypeofClaimAaa
toAa3A1
toA3Baa1
toBaa3Ba1
toBa3B1
toB3Below
B3Unrated
1 Sovereign & Central Banks * 0% 20% 50% 100% 100% 150% 100%
2 Multilateral Development Banks 20% 50% 50% 100% 100% 150% 50%
3 Banks - for long-term claims 20% 50% 50% 100% 100% 150% 50%
4 Banks - for short-term claims 20% 20% 20% 50% 50% 150% 20%
* Claims on the Government of Mauritius and the BoM denominated and funded in Mauritian rupees are assigned a preferential risk weight of 0%.
Other exposures are assigned standard Basel II risk-
weights as follows: claims of up to Rs 5 million secured
by residential property are risk-weighted at 35%
subject to a loan-to-value ratio not exceeding 80%;
each individual retail exposure not exceeding Rs 12
million are assigned a risk weight of 75%; all claims
on corporate exposures are attributed a risk-weight
of 100%; and claims that are past due for more than
90 days and for which specific provisions are less
than 20% of the outstanding amount of the loan are
allocated a risk weight of 150%. Risk-weighted assets
are determined by weighing on-balance sheet and off-
balance sheet exposures according to their perceived
level of risk.
The BoM Guideline on the Scope of Application of
Basel II requires a home banking group – one whose
centre of economic interest is in Mauritius – to adhere
to capital adequacy requirements on a consolidated
basis for the Group and on a stand-alone basis for each
majority owned entity as the different entities existing
within the Group may impact on the overall risk profile.
In this respect, majority owned entities within the MCB
Group namely MCB Moçambique, MCB Seychelles,
MCB Madagascar, MCB Maldives, Finlease Co. Ltd.
and MCB Factors Ltd. have been fully consolidated.
The Group’s overseas banking subsidiaries have also
complied with the capital requirements of their host
country regulators.
MCB Group Annual Report 2009
112 113
management discussion and analysis
Exposures of the MCB are assigned comfortable capital levels to mitigate exposure to risk. Overall, the Group’s
capital base provides ample cushion to effectively withstand potential shocks not covered under Pillar 1. Indeed,
the BIS capital adequacy ratio at Group level was maintained at 15.07% as at 30 June 2009, which is a more than
comfortable ratio that exceeds the regulatory limit of 10% and the 8% international norm. For its part, the tier 1
ratio stood at a prominent 12.95% as at June last.
Geographical Distribution of ExposuresThe table below shows the distribution of exposures by country of operation to which exposures have been booked.
The cross border operations of the Group accounted for 33% of total credit exposures as at 30 June 2009.
MCBGroup LocalOperations OverseasOperations
June09(Rsm) Bank Non-Bank Total Madagascar Seychelles Mozambique Maldives Total
SegmentA SegmentB
On-Balance Sheet 98,586 36,998 5,232 140,817 3,659 3,349 1,853 1,089 9,951
Off-Balance Sheet 20,665 12,280 - 32,945 1,048 141 476 213 1,878
TotalExposures 119,251 49,278 5,232 173,761 4,707 3,490 2,329 1,302 11,829
Bank. Accordingly, the Bank’s activities are mapped, in a mutually exclusive and jointly exhaustive manner, into the
following four Basel II business lines and their corresponding Beta Factors namely, Trading and Sales (18%), Retail
Banking (12%), Commercial Banking (15%) and Agency Services (15%).
Gross income within each business line serves as a proxy for the scale of operational risk exposure whereas the
Beta Factor is the proxy for the industry-wide relationship between the operational risk loss experience and the
aggregate level of gross income for each business line. The regulatory capital charge is computed as the three-
year average of the result obtained by multiplying each of the three years’ gross income per business line by the
corresponding Beta Factor, as illustrated in the table hereafter.
MCBBank BetaFactor Weighted Gross Income
LineofBusiness ß June07 June08 June09
% Rsm Rsm Rsm
Trading and Sales 18 (7) (38) (40)
Commercial Banking 15 224 313 390
Retail Banking 12 382 492 537
Agency Services 15 3 4 6
Total Yearly Weighted Gross Income 602 771 893
CapitalchargeforOperationalRisk(Bank) 755
CapitalchargeforOperationalRisk(Group) 898
Specific and Portfolio AllowancesCredit impairment allowances consist of specific and
portfolio provisions. The specific provision amount
more than adequately covers the shortfall between
the carrying amount of loans and their recoverable
amounts. On the other hand, potential losses as a
result of current economic conditions as well as general
historical patterns of losses are assigned comfortable
levels of portfolio provision allowances.
The breakdown of specific and portfolio provision by
industry is provided in Note 5 (b).
Credit Risk Mitigation In line with the Guideline on Standardised Approach
to Credit Risk, the on-balance sheet and off-balance
sheet banking book exposures of the MCB have been
adjusted for eligible collaterals including cash and
third party guarantee, using the simple approach to
credit risk mitigation, for the computation of risk-
weighted assets. Where a claim on a counterparty is
secured against eligible collateral, the secured portion
of the claim is weighted according to the risk weight
appropriate to the collateral. The unsecured portion
of the claim is weighted according to the risk weight
applicable to the original counterparty. The reduction
in the MCB Group credit exposures in the calculation
of the risk-weighted assets arising from the application
of eligible collaterals is shown below:
MCBGroup Impact
June09 Rsm
On-Balance Sheet 2,383
Off-Balance Sheet 4,604
OperationalRiskCapitalThe MCB uses the Basel II Standardised Approach in
calculating the operational risk capital charge for the
MarketRiskCapitalThe MCB has adopted the Standardised Measurement
Approach to Market Risk for regulatory capital
allocation to comply with the Basel II Market
Risk Amendment and the BoM Guideline on the
Measurement and Management of Market Risk.
The Group’s overall exposures to foreign exchange
risk and the interest rate sensitivity gap are shown
respectively in Notes 2(e) and 2(f) to the Financial
Statements. The principal methodology which the MCB
uses for the measurement of market price risk is Value-
at-Risk (VaR), defined as ‘the statistical representation
of financial risk, expressed as a number, based on
consistent modelling of past data and/or simulation of
possible future movements, applied to a particular risk
position, asset, or portfolio’.
In the conduct of its risk measurement activities,
the MCB utilises VaR-modelling based on historical
simulations, whereby current positions are measured
against historic volatilities over a given period. The
VaR model used by the Bank is based upon a 99
percent one-tailed confidence level and assumes a ten-
day holding period, with market data taken from the
previous two years.
MCB Group Annual Report 2009
114 115
management discussion and analysis
the sustainable socio-economic development of the
nation. Such painstaking strategic orientations should
reinforce the MCB’s long-standing relationships with
its shareholders, customers, staff and society at large,
thence brightening up its pre-eminent role in the
development of Mauritius as a nation.
Pierre-Guy NOEL
ChiefExecutive(Group)
Antony R. WITHERS
ChiefExecutive(Banking)
The VaR analysis for the MCB (Foreign Exchange Risk) is
shown in Note 2 (c) to the Financial Statements. Besides,
the table hereafter provides the comparative figures
for the aggregate net open foreign exchange position.
MarketRisk June08 June09
Aggregatenetopenforeignexchangeposition
Rsm Rsm
Bank 265 1,056
Group 1,091 2,075
SupervisoryReviewProcessStress Testing and Risk Appetite Stress testing is one of the key elements of a sound
Internal Capital Adequacy Assessment Process (ICAAP)
which sets the stage for the implementation of
Pillar 2 - Supervisory Review Process - of the Basel II
framework. The recent global economic crisis has
more than underscored the importance of having a
stress testing framework within the Bank with a view
to assessing the impact of possible adverse events on
capital levels and facilitating the prompt identification
of any weakness in the capital management process.
Stress tests are performed on the MCB’s risk portfolio
at least semi-annually to assess their impact on key
income statement and balance sheet ratios as well as
on the Bank’s ability to meet capital requirements at
all stages of the economic cycle.
In addition to the daily monitoring of credit, market
and country risk limits in place, a comprehensive
risk report is submitted to the Risk Committee on a
quarterly basis to assess the risk profile of the Bank
and to monitor capital consumed against risk appetite
targets set by the Board. With a view to ensuring that
the MCB has adequate capital to support current and
future activities, capital requirement under Basel II is
also calculated in relation to its strategic goals over a
three-year horizon.
ForwardTogetherAfter enhancing its already upbeat financial
soundness metrics in FY 2008/09 despite ever testing
economic conditions and an edging up of competitive
pressures, the MCB is confident that its deposit-
taking business model, combining both ambitious
undertakings and cautious behaviours, represents
the ideal pathway towards long term value creation
for stakeholders. In effect, the Group is maintaining
its unrelenting focus on high levels of customer
service and experience, operational efficiencies with
regard to people, processes and systems, and firm risk
management. The MCB is hence continuously gearing
up capabilities for bolstering sources of revenue
generation via a consolidation of its domestic banking
position, an extension of its investor coverage and a
diversification into regional markets, while exercising
adequate vigilance to the evolving operating
environment and suitably accompanying clients where
need be. Specifically, sustained product and market
diversification domestically is expected to further
shore up performance in the years to come, whereas
broader involvement in regional countries and
beyond is likely to upgrade the international profile
of the Group and shore up its resilience to possible
shocks. By and large, keeping sight of the need to
maintain healthy fundamentals – notably in respect
of capitalisation, asset quality and liquidity – the
MCB strives to widen its profitability base and invest
for the future, whilst doing its utmost to support
MCB Group Annual Report 2009
117
Nature does nothing without purpose.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
118
2009 in retrospect
Annual Report 2009
AmericanExpressAs the exclusive partner of American Express in Mauritius the MCB launched the world’s most prestigious credit cards in October 2008.
MerryChristmasBankingThe MCB Centre adopted the festive mood for the end-of-year marketing offensive, Merry Christmas Banking.
AnouKozéThe open days of the MCB allow the public to discover and learn more about the bank’s ever increasing range of product and services.
MCB Group
120 121120 121
Annual Report 2009
2009 in retrospect
CPEScholarshipThe MCB CPE Scholarships were awarded to six children who excelled at the CPE Exams and whose parents are part of the MCB staff.
GoingGreenTo mark World Environment Day 2009, a plant was given to each member staff.
FaitesunvœuMrs Dorsamy’s wish comes true thanks to the end-of-year the MCB Cards promotion.
JeuxdeRodriguesThe MCB was the main sponsor of theJeux de Rodrigues 2008.
LegalTrainingLaw Professors of the Faculté de Droit of l’Université de la Réunion deliver tailored training programmes for the Legal SBU.
MCB Group
122 123122 123
Annual Report 2009
2009 in retrospect
JudoAfricaChampionshipThe MCB sponsored the 30th Judo African Championship.
MCBFoundationScholarshipThe MCB Foundation awarded its 2009 Scholarship to Vreeti Reetoo.
MCBLiveForward together at MCB Live, event regrouping all employees of the Group.
MCBFootballAcademyThe second MCB Football Academy was officially launched in Laporte in June 2009.
StarsattheAcademyAthletics legend Wilson Kipketer and local hero Stephan Buckland show off their soccer skills with the members of the MCB Football Academy at Saint Hilaire.
MCB Group
124 125124 125
Annual Report 2009
2009 in retrospect
MauritiusGolfOpenThe MCB sponsored the MGO 2008, a prelude to the MCB Open to be held in December 2009 and which should attract the game’s biggest names.
NationalCustomerAwardThe Port Louis Main Branch won the National Customer Service Award 2008 in a competition organised by the Mauritius Quality Institute.
OVECFairThe OVEC career fair held at the Port Louis Main Branch in February 2009 was a resounding success.
RandoRaidThe MCB was the main sponsorof the Rando Raid 2009.
MCB Group
126 127126 127
Annual Report 2009
2009 in retrospect
NewBranchConceptThe MCB is revamping its branches in Mauritius by introducing a fresh look and a new approach to banking in order to serve its customers even better.
MCB Group
128 129
Annual Report 2009
2009 in retrospect
RodriguesScholarshipFreddyca Larose, the beneficiary of the MCB Rodrigues Scholarship 2008, is studying Finance at the University of Mauritius.
MCBEbèneWorks have started on the landmark building which should be open in 2011.
RodriguesYouthChampionshipThe MCB sponsored the National Youth Championship in Rodrigues.
RoyalRaidMembers of the MCB staff participated in the Royal Raid 2009 to raise cash for charity.
MCB Group
130 131
THE MAURITIUS COMMERCIAL BANK LTD. – MAURITIUS
HEADOFFICE–PORTLOUIS9-15 Sir William Newton Street – Port Louis
Postal Address: P.O. Box 52
Port Louis – Republic of Mauritius
Telephone: (230) 202 5000 – Fax: (230) 208 7054
Swift Code: MCBLMUMU
Email address: [email protected]
Website: www.mcb.mu
LOCAL SUBSIDIARIES
MCBEQUITYFUNDLTD.c/o MCB Capital Partners Ltd.
4th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5063 – Telefax: (230) 213 5961
Email address: [email protected]
Website: www.mcbcapitalpartners.com
MCBCAPITALMARKETSLTD.4th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5063 – Telefax: (230) 213 5961
Email address: [email protected]
Website: www.mcbcapitalmarkets.mu
MCBFUNDMANAGERSLTD.6th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5522 – Telefax: (230) 211 3592
Email address: [email protected]
Website: www.mcbfundmanagers.mu
MCBINVESTMENTSERVICESLTD.4th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5063 – Telefax: (230) 213 5961
Email address: [email protected]
Website: www.mcbcapitalmarkets.mu
MCBREGISTRY&SECURITIESLTD.Raymond Lamusse Building
9-11 Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5397 – Telefax: (230) 208 1167
Email address: [email protected]
Website: www.mcbcapitalmarkets.mu
MCBSTOCKBROKERSLTD.Raymond Lamusse Building
9-11 Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5427 – Telefax: (230) 208 9210
Email address: [email protected]
Website: www.mcbstockbrokers.com
MCB Group
administrative information
MCBCAPITALPARTNERSLTD.4th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5063 – Telefax: (230) 213 5961
Email address: [email protected]
Website: www.mcbcapitalpartners.com
MCBINVESTMENTMANAGEMENTCO.LTD.6th Floor Travel House
Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5515 – Telefax: (230) 210 5260
Email address: [email protected]
Website: www.mcbim.com
MCBFACTORSLTD.MCB Centre
9-15 Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 6150 – Telefax: (230) 208 5082
Email address: [email protected]
BLUEPENNYMUSEUMLe Caudan Waterfront
Port Louis – Republic of Mauritius
Telephone: (230) 210 8176 – Telefax: (230) 210 9243
Email address: [email protected]
Website: www.bluepennymuseum.com
FINCORPINVESTMENTLTD.9-11 Sir William Newton Street
Port Louis – Republic of Mauritius
Telephone: (230) 202 5000 – Telefax: (230) 208 0248
FINLEASECO.LTD.5th Floor Travel House
Corner Royal & Sir William Newton Streets
Port Louis – Republic of Mauritius
Telephone: (230) 202 5504 – Telefax: (230) 208 9056
Email address: [email protected]
INTERNATIONALCARDPROCESSINGSERVICESLTD.Anse Courtois
Pailles – Republic of Mauritius
Telephone: (230) 286 7950 – Telefax: (230) 286 0232
Email address: [email protected]
Annual Report 2009
132 133
FOREIGN BANKING SUBSIDIARIES
THEMAURITIUSCOMMERCIALBANK(SEYCHELLES)LTD.HEADOFFICE–VICTORIACaravelle House – Manglier Street
P.O. Box 122 – Victoria – Mahé – Seychelles
Telephone: (248) 284 555 – Telefax: (248) 322 676
Swift Code: MCBLSCSC
Email address: [email protected]
Website: www.mcbseychelles.com
Managing Director: Jocelyn Ah-Yu
THEMAURITIUSCOMMERCIALBANK(MOÇAMBIQUE)SAHEADOFFICE–MAPUTO400 Ave Friedrich Engels
C.P. 1568 – Maputo – Mozambique
Telephone: (258 21) 49 99 00 and (258 21) 48 19 00
Telefax: (258 21) 49 86 75
Swift Code: MCBLMZMA
Email address: [email protected]
Website: www.mcbmozambique.com
General Manager: Peter Higgins
THEMAURITIUSCOMMERCIALBANK(MADAGASCAR)SAHEADOFFICE–ANTANANARIVORue Solombavambahoaka Frantsay 77
Antsahavola – B.P. 197 – Antananarivo 101
Telephone: (261 20 22) 272 62
Telefax: (261 20 22) 322 82
Swift Code: MCBLMGMG
Email address: [email protected]
Website: www.mcbmadagascar.com
General Manager: Marc de Bollivier
LOCAL ASSOCIATES
PROMOTIONANDDEVELOPMENTLTD.8th Floor Dias Pier
Le Caudan Waterfront
Port Louis – Republic of Mauritius
Telephone: (230) 211 9430 – Telefax: (230) 211 0239
Email address: [email protected]
GHFFUTURESLTD.1st Floor HSBC Centre
Ebene Cybercity
Ebene – Republic of Mauritius
Telephone: (230) 467 0457 – Telefax: (230) 465 6446
Email address: [email protected]
Website: www.ghffutures.mu
MCB Group
administrative information
FOREIGN ASSOCIATE
BANQUEFRANÇAISECOMMERCIALEOCÉANINDIENHEADOFFICE–RÉUNION60 Rue Alexis de Villeneuve
97400 Saint Denis
Telephone: (262) 40 55 55 – Telefax: (262) 21 21 47
Swift Code: BFCORERX
Email address: [email protected]
Website: www.bfcoi.com
PARISBRANCH-FRANCE29 Boulevard Haussmann – 75009 Paris
Telephone: (33) (1) 41 45 95 95
Telefax: (33) (1) 41 45 99 88
Swift Code: BFCOFRPP
Email address: [email protected]
Website: www.bfcoi.com
MAYOTTERoute de l’Agriculture – 97600 Mamoudzou
Telephone: (269) 61 10 91 – Telefax: (269) 61 17 40
Swift Code: BFCOYTYT
Email address: [email protected]
Website: www.bfcoi.com
FOREIGN BRANCH
THEMAURITIUSCOMMERCIALBANK(MALÉBRANCH)M. Kandoogasdhoshuge Building - Orchid Magu
P.O. Box 3019 – Malé
Republic of Maldives
Telephone: (960) 330 5656 – Telefax: (960) 330 5757
Swift Code: MCBLMVMV
Email address: [email protected]
Website: www.mcbmaldives.com
General Manager: Moossa Mohammad
REPRESENTATIVE OFFICES
PARIS-FRANCE29 Boulevard Haussmann – 75009 Paris
Telephone: (33) (1) 41 45 95 95
Telefax: (33) (1) 41 45 99 88
Email address: [email protected]
JOHANNESBURG–SOUTHAFRICA123 Jan Smuts Avenue – Parkwood
Johannesburg 2193
Telephone: (27) (11) 880 8472
Email address: [email protected]
Annual Report 2009
134
Grand Bay
Mont Choisy
Goodlands
Triolet
Plaine des Papayes
Pamplemousses Rivière du Rempart
CaudanPlaine Verte
Edith CavellSSR
Port Louis
Jules Koenig
Beau BassinRéduit
Saint PierreRose Hill
Curepipe
TrianonStanley
Quatre Bornes
PhoenixPont FerCandos
La Caverne Vacoas
Curepipe RoadFloréal
Montagne Blanche
Rose Belle
Rivière Noire
Le Morne
Chemin GrenierRivière des Anguilles
Plaine Magnien
SSR International Airport
Mahebourg
Bel Air
Belle MareFlacqLalmatie
Flic en Flac
Bell Village
mauritius
Port Mathurin
rodrigues
Main Branches Satellite Branches Counters Bureaux de Change
MCB Group
local branch network
Concept and Design : CIRCUS ADVERTISING LIMITED
Printed by IPC
www.mcb.mu
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9
annual report 2009Financial Statements
A Review of the Economic Environment
1
96. A Review of the Economic Environment 96. The International Context 96. Economic Growth 98. Inflation 99. Financial Markets 102. The Regional Performance 104. The Mauritian Economy 104. Introduction 106. The Real Sector 116. The Fiscal Sector 118. The Financial Sector 120. The External Sector 124. Conclusion
2. Statement of Management’s Responsibility for Financial Reporting
4. Report of the Auditors 6. Statements of Financial Position 7. Income Statements 8. Statements of Comprehensive Income 9. Statement of Changes in Equity (Group) 10. Statement of Changes in Equity (Bank) 11. Statements of Cash Flows 12. General Information 13. Index to Notes to the Financial Statements 17. Notes to the Financial Statements
2 3
The Bank’s external auditors, BDO De Chazal Du Mée,
have full and free access to the Board of Directors and
its committees to discuss the audit and matters arising
therefrom, such as their observations on the fairness
of financial reporting and the adequacy of internal
controls.
Pierre-Guy NOEL
Chief Executive (Group)
J. Gérard HARDY
Director
Antony R. WITHERS
Chief Executive (Banking)
Bertrand DE CHAZAL
Director
Chairman Audit Committee
Annual Report 2009MCB Group
statement of management’s responsibility for financial reporting
The Group Financial Statements and the Financial
Statements for the Bank’s operations in Mauritius
presented in this annual report have been prepared
by Management, which is responsible for their
integrity, consistency, objectivity and reliability.
International Financial Reporting Standards as well
as the requirements of the Banking Act 2004 and
the guidelines issued thereunder have been applied
for the year ended 30 June 2009 and Management
has exercised its judgement and made best estimates
where deemed necessary.
The Bank has designed and maintained its accounting
systems, related internal controls and supporting
procedures to provide reasonable assurance that
financial records are complete and accurate and that
assets are safeguarded against loss from unauthorised
use or disposal. These supporting procedures include
careful selection and training of qualified staff, the
implementation of organisation and governance
structures providing a well-defined division of
responsibilities, authorisation levels and accountability
for performance, and the communication of the
Bank’s policies, procedures manuals and guidelines of
the Bank of Mauritius throughout the Bank.
The Bank’s Board of Directors, acting in part
through the Audit Committee, Conduct Review
Committee and Risk Monitoring Committee, which
comprise, principally, independent directors, oversees
Management’s responsibility for financial reporting,
internal controls, assessment and control of major risk
areas, and assessment of significant and related party
transactions.
The Bank’s Internal Auditor, who has full and free
access to the Audit Committee, conducts a well-
designed programme of internal audits in coordination
with the Bank’s external auditors. In addition, the
Bank’s compliance function maintains policies,
procedures and programmes directed at ensuring
compliance with regulatory requirements.
Pursuant to the provisions of the Banking Act 2004,
the Bank of Mauritius makes such examination and
inquiry into the operations and affairs of the Bank as
it deems necessary.
4 5
purpose of expressing an opinion on the effectiveness
of the Bank’s internal control. An audit also includes
evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements on pages 6 to
93 give a true and fair view of the financial position
of the Group and of the Bank at June 30, 2009, and
of their financial performance and their cash flows for
the year then ended in accordance with International
Financial Reporting Standards and comply with the
Companies Act 2001.
Report on Other Legal and Regulatory Requirements
Companies Act 2001
We have no relationship with, or interests in, the Bank
or any of its subsidiaries, other than in our capacity as
auditors, tax and business advisers and dealings in the
ordinary course of business.
We have obtained all information and explanations
we have required.
In our opinion, proper accounting records have
been kept by the Bank as far as it appears from our
examination of those records.
Banking Act 2004
In our opinion, the financial statements have been
prepared on a basis consistent with that of the preceding
year and are complete, fair and properly drawn up and
comply with the Banking Act 2004 and the regulations
and guidelines of the Bank of Mauritius.
The explanations or information called for or given to us
by the officers or agents of the Bank were satisfactory.
The Financial Reporting Act 2004
The directors are responsible for preparing the
Corporate Governance Report and making the
disclosures required by Section 8.4 of the Code of
Corporate Governance of Mauritius (“Code”). Our
responsibility is to report on these disclosures.
In our opinion, the disclosures in the Corporate
Governance Report are consistent with the
requirements of the Code.
BDO DE CHAZAL DU MEE
Chartered Accountants
Per M.Yacoob A.Ramtoola - FCA
29th September 2009
Port Louis
Mauritius
Annual Report 2009MCB Group
report of the auditors
To the Shareholders of the Mauritius Commercial Bank Ltd.
Independent Auditors’ Report to the Members
This report is made solely to the members of The
Mauritius Commercial Bank Ltd (the “Bank”), as a body,
in accordance with Section 205 of the Companies Act
2001. Our audit work has been undertaken so that we
might state to the Bank’s members those matters we
are required to state to them in an auditors’ report and
for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to
anyone other than the Bank and the Bank’s members
as a body, for our audit work, for this report, or for the
opinions we have formed.
Report on the Financial Statements
We have audited the financial statements of The Mauritius
Commercial Bank Ltd and its subsidiaries (the “Group”)
and the Bank’s separate financial statements on pages 6
to 93 which comprise the statements of financial positions
at June 30, 2009 and the income statements, statements
of comprehensive income, statements of changes in
equity and statements of cash flows for the year then
ended, and a summary of significant accounting policies
and other explanatory notes.
Directors’ Responsibility for the Financial Statements
The directors are responsible for keeping proper
accounting records which disclose with reasonable
accuracy at any time the financial position of the
Group and of the Bank and for the preparation and fair
presentation of these financial statements in accordance
with International Financial Reporting Standards and
in compliance with the requirements of the Companies
Act 2001 and Banking Act 2004. This responsibility
includes: designing, implementing and maintaining
internal control relevant to the preparation and fair
presentation of financial statements that are free from
material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable
in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted
our audit in accordance with International Standards on
Auditing. Those Standards require that we comply with
ethical requirements and plan and perform the audit
to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures
in the financial statements. The procedures selected
depend on the auditors’ judgement, including the
assessment of the risks of material misstatement of
the financial statements, whether due to fraud or
error. In making those risk assessments, the auditors
consider internal control relevant to the Bank’s
preparation and fair presentation of the financial
statements in order to design audit procedures that
are appropriate in the circumstances, but not for the
6 7
income statementsfor the year ended 30th June 2009
GROUP BANK2009 2008 2007 2009 2008 2007
Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000
Interest income 20 10,348,263 10,283,586 8,926,818 9,416,773 9,442,478 8,056,655 Interest expense 21 (5,312,066) (6,119,650) (5,325,676) (4,866,761) (5,777,095) (5,041,657)Net interest income 5,036,197 4,163,936 3,601,142 4,550,012 3,665,383 3,014,998
Fee and commission income 22 1,871,185 1,623,374 1,318,106 1,428,753 1,244,966 1,008,452 Fee and commission expense 23 (286,257) (262,606) (195,133) (233,984) (220,785) (168,802)Net fee and commission income 1,584,928 1,360,768 1,122,973 1,194,769 1,024,181 839,650
Other incomeProfit arising from dealing in foreign currencies 1,355,855 1,191,962 977,447 1,101,582 1,042,689 853,966 Dividend income 24 69,393 118,668 82,713 186,368 206,486 221,374 Net income from financial instruments carried at fair value 25 41,752 33,561 21,279 41,752 33,561 21,279 Net gain on sale of securities 76,211 536,448 9,903 43,648 397,191 - Other operating income 91,633 35,657 35,767 2,803 1,981 4,464
1,634,844 1,916,296 1,127,109 1,376,153 1,681,908 1,101,083 Operating income 8,255,969 7,441,000 5,851,224 7,120,934 6,371,472 4,955,731 Non-interest expenseSalaries and human resource development 26 (1,740,503) (1,581,067) (1,280,699) (1,552,114) (1,441,237) (1,166,005)Employee benefits (110,547) (13,228) (63,337) (110,547) (13,228) (63,337)Depreciation (318,317) (436,823) (303,730) (204,818) (335,961) (217,780)Amortisation of intangible assets (104,518) (104,897) (110,935) (91,169) (96,114) (106,003)Other 26 (1,204,860) (1,059,027) (1,023,457) (873,015) (780,086) (720,655)
(3,478,745) (3,195,042) (2,782,158) (2,831,663) (2,666,626) (2,273,780)Operating profit before provisions 4,777,224 4,245,958 3,069,066 4,289,271 3,704,846 2,681,951 Allowance for credit impairment 27 (371,226) (425,889) (375,928) (361,115) (408,417) (370,598)Operating profit 4,405,998 3,820,069 2,693,138 3,928,156 3,296,429 2,311,353 Share of profit of associates 527,937 640,839 414,392 - - - Profit before tax 4,933,935 4,460,908 3,107,530 3,928,156 3,296,429 2,311,353 Income tax expense 28 (887,976) (575,180) (560,822) (675,676) (395,394) (389,932)Profit for the year 4,045,959 3,885,728 2,546,708 3,252,480 2,901,035 1,921,421
Profit for the year attributable to :- Ordinary equity holders of the parent 3,964,002 3,693,734 2,460,845 3,252,480 2,901,035 1,921,421 Non-controlling interests 81,957 191,994 85,863 - - -
4,045,959 3,885,728 2,546,708 3,252,480 2,901,035 1,921,421
Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the parent (Rs) 30 16.71 15.58 9.74
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
Annual Report 2009MCB Group
statements of financial positionas at 30th June 2009
GROUP BANK
2009 2008 2007 2009 2008 2007
Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000ASSetS
Cash and cash equivalents 3 21,945,475 16,581,960 16,299,180 20,725,941 15,693,128 14,441,120
Derivative financial instruments 4 120,408 137,261 23,795 120,408 137,261 23,795
Loans and advances to banks 5 2,318,568 1,818,874 1,178,236 2,222,735 1,568,519 934,445
Loans and advances to customers 5 94,540,496 75,733,033 64,589,929 89,128,211 70,325,172 60,004,700
Investment securities 6 17,731,647 26,309,048 16,787,183 14,032,673 22,073,538 11,907,788
Investments in associates 7 6,490,699 6,022,694 5,281,108 914,593 885,586 875,530
Investments in subsidiaries 8 - - - 3,019,830 2,391,412 2,126,099
Goodwill and other intangible assets 9 360,025 284,835 288,302 275,728 202,246 229,201
Property, plant and equipment 10 3,839,527 3,371,104 3,443,069 3,008,629 2,458,313 2,449,780
Deferred tax assets 11 29,654 15,140 15,844 26,146 13,153 15,096
Other assets 12 3,099,844 2,697,712 2,236,076 1,934,679 1,606,906 1,508,461
total assets 150,476,343 132,971,661 110,142,722 135,409,573 117,355,234 94,516,015
LiABiLitieS ANd ShARehOLdeRS' eqUity
Deposits from banks 13 1,609,655 906,951 998,595 3,569,403 2,373,015 1,536,428
Deposits from customers 13 119,631,291 104,579,922 83,625,790 110,937,039 95,173,010 73,901,031
Derivative financial instruments 4 44,544 95,973 14,103 44,544 95,973 14,103
Other borrowed funds 14 2,285,933 3,346,579 5,311,877 1,579,269 3,004,756 5,124,903
Subordinated liabilities 15 1,471,555 1,237,128 1,411,108 1,471,555 1,237,128 1,411,108
Current tax liabilities 758,314 455,102 383,833 628,659 347,643 327,374
Deferred tax liabilities 11 37,365 37,044 21,732 - - -
Other liabilities 17 4,505,804 4,318,572 3,461,296 3,925,929 3,779,877 2,906,311
total liabilities 130,344,461 114,977,271 95,228,334 122,156,398 106,011,402 85,221,258
Shareholders' equity
Share capital and share premium 2,544,998 2,543,046 2,520,008 2,544,998 2,543,046 2,520,008
Retained earnings 11,611,885 8,955,759 6,765,698 7,803,419 5,837,778 4,436,959
Other components of equity 4,792,928 5,224,028 4,573,479 3,280,615 3,339,485 2,722,079
18,949,811 16,722,833 13,859,185 13,629,032 11,720,309 9,679,046
Less treasury shares (375,857) (376,477) (384,289) (375,857) (376,477) (384,289)
equity attributable to the ordinary equity holders of the parent 18,573,954 16,346,356 13,474,896 13,253,175 11,343,832 9,294,757 Non-controlling interests 1,557,928 1,648,034 1,439,492 - - -
total equity 20,131,882 17,994,390 14,914,388 13,253,175 11,343,832 9,294,757
total equity and liabilities 150,476,343 132,971,661 110,142,722 135,409,573 117,355,234 94,516,015
CONtiNGeNt LiABiLitieS
Acceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and foreign exchange contracts 27,716,854 36,460,790 25,892,067 25,833,520 34,242,458 24,663,631 Commitments 7,311,152 6,000,729 4,487,776 7,115,364 5,815,689 4,366,559
Tax assessments 278,274 220,642 201,762 278,274 220,642 201,762
Other 969,117 1,085,998 1,071,586 969,117 996,426 995,853
19 36,275,397 43,768,159 31,653,191 34,196,275 41,275,215 30,227,805
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
These financial statements were approved for issue by the Board of Directors on the 29th September 2009.
Pierre-Guy NOEL Antony R. WITHERS J. Gérard HARDY Bertrand de CHAZALChief executive (Group) Chief executive (Banking) director director President of the Board Chairman Audit Committee
8 9
statement of changes in equityfor the year ended 30th June 2009
Attributable to ordinary equity holders of the parent
Note
Share Capital
RS’000
SharePremium
RS’000
TreasuryShares
RS’000
RetainedEarnings
RS’000
CapitalReserve
RS’000
TranslationReserve
RS’000
StatutoryReserve
RS’000
General Banking ReserveRS’000
Total
RS’000
Non-controllingInterestsRS’000
TotalEquity
RS’000
GROUP
At 1st July 2006 2,821,105 - (394,080) 6,203,437 990,561 308,161 1,832,578 571,909 12,333,671 116,855 12,450,526
Prior year adjustment in the financial statements of Fincorp Group - - - 4,669 (29,145) - - - (24,476) (18,047) (42,523)
As restated 2,821,105 - (394,080) 6,208,106 961,416 308,161 1,832,578 571,909 12,309,195 98,808 12,408,003
Total comprehensive income for the year - - - 2,489,757 546,179 93,580 - - 3,129,516 38,040 3,167,556
Dividends 29 - - - (723,335) - - - - (723,335) (33,675) (757,010)
Transfer to general banking reserve - - - (622) - - - 622 - - -
Release of share value/recognition of non-controlling interests following shares bought back &
cancelled by Fincorp - - - 155,241 9,533 (499) - - 164,275 1,337,645 1,501,920
Transfer to statutory reserve - - - (250,000) - - 250,000 - - - -
Shares bought back and cancelled by the Group (317,349) - 1,250 (1,113,449) - - - - (1,429,548) (1,326) (1,430,874)
Employee share options exercised - 16,252 8,541 - - - - - 24,793 - 24,793
At 30th June 2007 2,503,756 16,252 (384,289) 6,765,698 1,517,128 401,242 2,082,578 572,531 13,474,896 1,439,492 14,914,388
Total comprehensive income for the year - - - 3,693,734 285,936 (71,130) - - 3,908,540 237,801 4,146,341
Increase in shareholding in subsidiaries - - - - - - - - - (15,576) (15,576)
Net assets disposed of by subsidiary - - - - - - - - - 11,377 11,377
Profit on deemed disposal of subsidiary - - - 11,108 - - - - 11,108 1,234 12,342
Dividends 29 - - - (1,079,038) - - - - (1,079,038) (26,294) (1,105,332)
Transfer to general banking reserve - - - (6,219) - - - 6,219 - - -
Transfer to statutory reserve - - - (429,524) - - 429,524 - - - -
Employee share options exercised - 23,038 7,812 - - - - - 30,850 - 30,850
At 30th June 2008 2,503,756 39,290 (376,477) 8,955,759 1,803,064 330,112 2,512,102 578,750 16,346,356 1,648,034 17,994,390
Total comprehensive income for the year - - - 3,964,002 (562,950) 75,504 - - 3,476,556 (17,141) 3,459,415
Increase in shareholding in subsidiary - - - (5,933) - - - - (5,933) (51,257) (57,190)
Contribution of non-controlling interests in new subsidiary - - - - - - - - - 20,000 20,000
Dividends 29 - - - (1,245,597) - - - - (1,245,597) (41,708) (1,287,305)
Transfer to general banking reserve - - - (12,634) - - - 12,634 - - -
Transfer to statutory reserve - - - (43,712) - - 43,712 - - - -
Employee share options exercised - 1,952 620 - - - - - 2,572 - 2,572
At 30th June 2009 2,503,756 41,242 (375,857) 11,611,885 1,240,114 405,616 2,555,814 591,384 18,573,954 1,557,928 20,131,882
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
Annual Report 2009
statements of comprehensive incomefor the year ended 30th June 2009
GROUP BANK2009 2008 2007 2009 2008 2007
RS'000 RS'000 RS'000 RS'000 RS'000 RS'000
Profit for the year 4,045,959 3,885,728 2,546,708 3,252,480 2,901,035 1,921,421
Other comprehensive (expense)/income:Exchange differences on translating foreign operations (87,213) (102,664) 988 - - - Transfer on disposal of available-for-sale investments (49,834) - - (49,834) - - Net fair value (loss)/gain on available-for-sale investments (413,303) 240,787 499,964 (50,278) 196,228 65,417 Share of other comprehensive income of associates (36,194) 122,490 119,896 - - - Other comprehensive (expense)/income for the year (586,544) 260,613 620,848 (100,112) 196,228 65,417 Total comprehensive income for the year 3,459,415 4,146,341 3,167,556 3,152,368 3,097,263 1,986,838
Total comprehensive income attributable to :- Ordinary equity holders of the parent 3,476,556 3,908,540 3,129,516 3,152,368 3,097,263 1,986,838 Non-controlling interests (17,141) 237,801 38,040 - - -
3,459,415 4,146,341 3,167,556 3,152,368 3,097,263 1,986,838
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
MCB Group
10 11
statements of cash flowsfor the year ended 30th June 2009
GROUP BANK2009 2008 2007 2009 2008 2007
Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000Net cash flows from trading activities 32 4,922,669 3,980,009 3,178,348 4,341,160 3,751,331 2,889,140 Net cash flows from other operating activities 33 4,930,372 (585,280) 4,525,862 5,008,301 296,893 4,106,030 Dividends received from associates 56,758 34,668 11,898 - - - Dividends paid (1,221,808) (391,057) (723,335) (1,221,808) (391,057) (723,335)Dividends paid to non-controlling interests in subsidiaries (41,708) (26,294) (33,675) - - - Income tax paid (574,675) (476,005) (431,917) (407,653) (373,182) (285,508)Net cash flows from operating activities 8,071,608 2,536,041 6,527,181 7,720,000 3,283,985 5,986,327 Investing activitiesPurchase of available-for-sale investments (847,990) (380,942) (1,017,721) (162,348) (7,103) (648,052)Proceeds from sale of available-for-sale investments 526,719 1,130,870 47,238 412,895 330,940 1,637 Proceeds from disposal of shares in subsidiaries - - - - 698,807 - Investment in subsidiaries - (21,178) - (617,605) (417,700) (318,422)Increase in shareholding of subsidiary from non-controlling interests (57,190) - (8,403) (57,190) - (11,425)Purchase of property, plant and equipment (1,005,370) (529,571) (602,000) (764,907) (352,131) (477,319)Purchase of intangible assets (174,944) (84,140) (33,471) (164,651) (70,973) (30,752)Proceeds from sale of property, plant and equipment 183,081 29,776 83,600 12,576 10,055 8,000 Proceeds from sale of intangible assets - 1,377 - - 1,377 -
(1,375,694) 146,192 (1,530,757) (1,341,230) 193,272 (1,476,333)Net cash flows before financing 6,695,914 2,682,233 4,996,424 6,378,770 3,477,257 4,509,994 FinancingContribution of non-controlling interests in new subsidiary 20,000 23,719 - - - - Employee share options exercised 2,393 28,842 22,743 2,393 28,842 22,743 Subordinated loan to subsidiary - - - - (200,647) (4,785)Refund of subordinated loan by subsidiary - - - 77,691 - - Proceeds from subordinated debt - - 1,474,126 - - 1,474,126 Share buy back - - (1,430,626) - - (1,434,444)Capital element of finance lease rental payments - - (1,835) (554) (1,773) (3,806)
22,393 52,561 64,408 79,530 (173,578) 53,834 Increase in cash and cash equivalents 6,718,307 2,734,794 5,060,832 6,458,300 3,303,679 4,563,828 Cash and cash equivalents at 1st July 2008 13,235,381 11,055,779 6,031,573 12,688,372 9,384,693 4,820,865 Effect of foreign exchange rate changes (294,146) (555,192) (36,626) - - - Cash and cash equivalents at 30th June 2009 34 19,659,542 13,235,381 11,055,779 19,146,672 12,688,372 9,384,693
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
Annual Report 2009
statement of changes in equityfor the year ended 30th June 2009
Note
Share Capital
RS’000
Share Premium
RS’000
Treasury Shares
RS’000
Retained Earnings
RS’000
Capital Reserve
RS’000
Statutory Reserve
RS’000
General Banking ReserveRS’000
Total Equity
RS’000
BANK
At 1st July 2006 2,821,105 - (392,830) 4,605,968 40,504 1,832,578 533,580 9,440,905
Total comprehensive income for the year - - - 1,921,421 65,417 - - 1,986,838
Dividends 29 - - - (723,335) - - - (723,335)
Transfer to statutory reserve - - - (250,000) - 250,000 - -
Shares bought back and cancelled by the Bank (317,349) - - (1,117,095) - - - (1,434,444)
Employee share options exercised - 16,252 8,541 - - - - 24,793
At 30th June 2007 2,503,756 16,252 (384,289) 4,436,959 105,921 2,082,578 533,580 9,294,757
Total comprehensive income for the year - - - 2,901,035 196,228 - - 3,097,263
Dividends 29 - - - (1,079,038) - - - (1,079,038)
Transfer to statutory reserve - - - (421,178) - 421,178 - -
Employee share options exercised - 23,038 7,812 - - - - 30,850
At 30th June 2008 2,503,756 39,290 (376,477) 5,837,778 302,149 2,503,756 533,580 11,343,832
Total comprehensive income for the year - - - 3,252,480 (100,112) - - 3,152,368
Dividends 29 - - - (1,245,597) - - - (1,245,597)
Transfer to statutory reserve - - - (41,242) - 41,242 - -
Employee share options exercised - 1,952 620 - - - - 2,572
At 30th June 2009 2,503,756 41,242 (375,857) 7,803,419 202,037 2,544,998 533,580 13,253,175
The notes on pages 17 to 93 form part of these financial statements.Auditors' report on pages 4 and 5.
MCB Group
12 13
index to notes to the financial statements
NOTES PAGES
1 Accounting Policies 17
(a) Basis of presentation
(b) Basis of consolidation 20
(c) Foreign currency translation 21
(d) Derivative financial instruments and hedging
(e) Offsetting financial instruments 22
(f) Interest income and expense
(g) Fees and commissions
(h) Sale and repurchase agreements
(i) Investment securities
(j) Trading securities 23
(k) Loans and provisions for loan impairment 24
(l) Goodwill
(m) Property, plant and equipment 25
(n) Computer software development costs
(o) Finance leases - where the company is the lessee 26
(p) Accounting for leases - where the company is the lessor
(q) Cash and cash equivalents
(r) Provisions
(s) Employee benefits
(t) Deferred tax 27
(u) Borrowings
(v) Acceptances
(w) Segment reporting
2 Financial Risk Management 28
(a) Strategy in using financial instruments
(b) Credit risk 28 - 29
(c) Market risk 30
(d) Price risk
(e) Currency risk 31 - 35
(f) Interest rate risk 35 - 38
(g) Liquidity risk 39 - 41
3 Cash and cash equivalents 42
4 Derivative financial instruments 43
Annual Report 2009
general information
The Mauritius Commercial Bank Limited ("the Company") is a public company incorporated by Royal Charter in 1838
and registered as limited liability company on 18th August 1955. Its registered office is situated at 9-15, Sir William
Newton Street, Port Louis, Mauritius.
The Mauritius Commercial Bank Limited was one of the first group of companies to be listed on The Stock Exchange
of Mauritius.
The main activities of the Company and those of its subsidiaries ("the Group") consist in providing a whole range of
financial services in the Indian Ocean region and beyond.
MCB Group
14 15
NOTES PAGES
16 Employee benefits assets 59 - 60
17 Other liabilities 61
18 Share capital and treasury shares
19 Contingent liabilities 62
20 Interest income 63
21 Interest expense
22 Fee and commission income
23 Fee and commission expense
24 Dividend income 64
25 Net income from financial instruments carried at fair value
26 Non-interest expense 65
(a) Salaries and human resource development
(b) Other non-interest expense
(c) Share-based payments
27 Allowance for credit impairment 66
28 Income tax expense
29 Dividends
30 Earnings per share 67
(a) Basic earnings per share
(b) Diluted earnings per share
31 Capital commitments
32 Net cash flows from trading activities 68
33 Net cash flows from other operating activities
34 Analysis of the cash and cash equivalents as shown in the
statements of cash flows
35 Segment information
Primary reporting format - geographical segments 69 - 71
Secondary reporting format - business segments 72 - 74
36 Related party transactions 75 - 76
37 Segmental Reporting - Bank 77
Statements of financial position 78
Income statements 79
Statements of comprehensive income 80
(a) Derivative financial instruments 81
(i) Fair value assets
(ii) Fair value liabilities
Annual Report 2009
NOTES PAGES
5 Loans 44
(a) (i) Loans and advances to banks
(ii) Remaining term to maturity
(iii) Allowances for credit impairment
(b) (i) Loans and advances to customers 45
(ii) Remaining term to maturity
(iii) Allowances for credit impairment 46
(iv) Allowances for credit impairment by industry sectors 47
(v) Credit concentration of risk by industry sectors 48
6 Investment securities
(a) At fair value through profit or loss
(b) (i) Held to maturity
(ii) Remaining term to maturity 49
(c) Available-for-sale
7 Investments in associates 50 - 51
8 Investments in subsidiaries 52
9 Goodwill and other intangible assets 53
(a) Goodwill
(b) Other intangible assets
10 Property, plant and equipment 54 - 56
11 Deferred tax (liabilities)/assets 56
12 Other assets
13 Deposits 57
(a) Deposits from banks
(b) Deposits from customers
(i) Retail customers
(ii) Corporate customers
(iii) Government
14 Other borrowed funds 58
(a) Other borrowed funds comprise the following
(b) Remaining term to maturity
15 Subordinated liabilities
index to notes to the financial statements continued
MCB Group
16 17
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies The principal accounting policies adopted in the preparation of these financial statements are set out below:
(a) Basis of presentation
The financial statements are prepared in accordance with International Financial Reporting Standards
(IFRS) and instructions, Guidelines and Guidance notes issued by the Bank of Mauritius, in so far as the
operations of the Bank are concerned.
Where necessary, comparative figures have been amended to conform with changes in presentation, or in
accounting policies in the current year, particularly following the implementation of the Bank of Mauritius
Guideline on Public Disclosure of Information issued in July 2008.
The financial statements have been prepared under the historical cost convention as modified by the
revaluation of certain property, plant and equipment, available-for-sale investment securities, financial
assets and liabilities held-for-trading and all derivative contracts.
Amendments to published standards and Interpretations effective in the reporting period
Amendments to IAS 39 and IFRS 7 Reclassification of Financial Assets (effective July 1, 2008) allow an entity
to reclassify non-derivatives financial assets (other than those designated at fair value through profit or
loss by the entity upon initial recognition) out of the fair value through profit or loss category in particular
circumstances. The amendments also allow an entity to transfer from the available-for-sale category to the
loans and receivables category a financial asset that would have met the definition of loans and receivables
(if the financial asset had not been designated as available-for-sale), if the entity has the intention and
ability to hold that financial asset for the foreseeable future.
IFRIC 12, ‘Service concession arrangements’ applies to contractual arrangements whereby a private sector
operator participates in the development, financing, operation and maintainance of infrastructure for
public sector services.
IFRIC 13, ‘Customer Loyalty Programmes (effective July 1,2008)’ clarifies that where goods or services
are sold together with a customer loyalty incentive (for example, loyalty points or free products), the
arrangement is a multiple element arrangement, and the consideration receivable from the customer is
allocated between the components of the arrangement using fair values.
Annual Report 2009
NOTES PAGES
37 Segmental Reporting - Bank (continued)
(b) Loans and advances to banks 81
(i) Remaining term to maturity
(ii) Allowances for credit impairment
(c) Loans and advances to customers 82
(i) Remaining term to maturity
(ii) Credit concentration of risk by industry sectors
(iii) Allowances for credit impairment 83
(iv) Allowances for credit impairment by industry sectors 84
(d) Investment securities 85
(i) At fair value through profit or loss
(ii) Held to maturity
(iii) Available-for-sale
(e) Investment in associate
(f) Investment in subsidiaries 86
(g) Property, plant and equipment 87
(h) Other assets 88
(i) Deposits from banks
(j) Deposits from customers 89
(k) Subordinated liabilities 90
(l) Other liabilities
(m) Contingent liabilities
(i) Instruments
(ii) Commitments
(iii) Tax assessments
(iv) Other
(n) Interest income 91
(o) Interest expense
(p) Fee and commission income
(q) Fee and commission expense
(r) Dividend income 92
(s) Net income from financial instruments carried at fair value
(t) Salaries and human resource development
(u) Other non-interest expenses
(v) Allowances for credit impairment 93
(w) Income tax expense
MCB Group
index to notes to the financial statements continued
18
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies (continued)
19
1. Accounting Policies (continued)
Improvements to IFRSs (issued 22 May 2008)
IAS 1 Presentation of Financial Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events after the Reporting Period
IAS 18 Revenue
IAS 16 Property, Plant and Equipment
IAS 19 Employee Benefits
IAS 20 Government Grants and Disclosure of Government Assistance
IAS 23 Borrowing Costs
IAS 27 Consolidated and Separate Financial Statements
IAS 28 Investment in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
IFRS 5 Non-current Assets Held for sale and Discontinued Operations
IFRS 7 Financial Instruments: Disclosures
Improvements to IFRSs (issued 16 April 2009)
IFRS 2 Share-based Payment
IFRS 5 Non-current Assets Held for sale and Discontinued Operations
IFRS 8 Operating Segments
IAS 1 Presentation of Financial Statements
IAS 7 Statement of Cash Flows
IAS 17 Leases
IAS 18 Revenue
IAS 36 Impairment of Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
Annual Report 2009
IFRIC 14, IAS19 - ‘The limit on a defined benefit asset, minimum funding requirements and their interaction’
provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as
an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual
minimum funding requirement.
These interpretations have no impact on the Group’s financial statements of the reporting period.
Amendments to published standards, Standards and Interpretations issued but not yet
effective
Certain standards, amendments to published standards and interpretations have been issued that are
mandatory for accounting periods beginning on or after 1 January 2009 or later periods, but which the
Group has not early adopted.
At the reporting date of these financial statements, the following were in issue but not yet
effective:
IAS 23 Borrowing Costs (Revised 2007))
IAS 27 Consolidated and Separate Financial Statements (Revised 2008)
IFRS 3 Business Combinations (Revised 2008)
IFRS 8 Operating Segments
Amendments to IAS 32 and IAS 1 Puttable financial instruments and obligations arising on liquidation
Amendments to IAS 39 Eligible hedged items
Amendments to IFRS 1 and IAS 27 Cost of an investment in a subsidiary
Amendments to IFRS 2 Vesting conditions and cancellations
Amendments to IFRS 2 Group Cash-settled Share-based Payments Transactions
Amendments to IFRS 7 Improving Disclosure about Financial Instruments
Amendments to IFRIC 9 and IAS 39 Embedded Derivatives
IFRIC 15 Agreements for the construction of real estate
IFRIC 16 Hedges of a net investment in a foreign operation (effective October 1, 2008)
IFRIC 17 Distributions of Non-cash Assets to Owners
IFRIC 18 Transfer of Assets from Customers
20
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies (continued)
21
1. Accounting Policies (continued)
guaranteed obligations in respect of the associates. The Group Income Statement reflects the Group’s share
of post-tax profits of associates.
In the separate financial statements of the Bank, the investment in associated companies is accounted at
cost (which includes transaction costs). The carrying amount is reduced to recognise any impairment in the
value of the individual companies.
(c) Foreign currency translation
The foreign subsidiaries’ Balance Sheets are translated to Mauritian Rupees using the closing rate method.
Their Income Statements and cash flows are translated at the average rate for the year. Any resulting
exchange differences are taken to the Translation Reserve. On disposal of a foreign entity, such exchange
differences are recognised in the Income Statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing rate.
Trading transactions denominated in foreign currencies are accounted for at the rate of exchange ruling at
the date of the transaction.
Monetary assets and liabilities expressed in foreign currencies are reported at the rate of exchange ruling
at the end of the reporting date. Differences arising from reporting monetary items are dealt with through
the Income Statement.
(d) Derivative financial instruments and hedging
Derivative financial instruments include foreign exchange contracts and currency swaps. These are initially
recognised in the Statement of financial position at cost (which includes transaction costs) and subsequently
remeasured at their fair value. Fair values of derivatives between two external currencies are based on
interest rate differential between the two currencies. Fair values of forwards involving Mauritian Rupees
are based on treasury bills rate or LIBOR. All derivatives are carried as assets when fair value is positive and
as liabilities when fair value is negative.
The Bank’s derivative transactions, while providing effective economic hedges under the Group’s risk
management policies, do not qualify for hedge accounting under the specific rules of IAS 39 and are
therefore treated as derivatives held for trading with fair value gains and losses reported in the Income
Statement.
The fair values of derivative financial instruments held for trading are disclosed in note 4.
Annual Report 2009
The Group is still evaluating the effect of these new or revised standards and interpretations on the
presentation of its financial statements.
Standards early adopted:
The Group has early adopted IAS 1 (Revised 2007), ‘Presentation of financial statements’ (effective from
1 January 2009). The revised standard prohibits the presentation of items of income and expenses (that
is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in
equity’ to be presented separately from owner changes in equity. All non-owner changes in equity have
been shown in the statement of comprehensive income. Comparatives have been restated accordingly.
(b) Basis of consolidation
(1) Subsidiaries
The consolidated financial statements include the Statement of financial position of the Bank and that of
its subsidiaries as at 30th June. Subsidiaries are those companies and other entities in which the Group,
directly or indirectly, has power to exercise control over financial and operating policies.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated Income
Statement from the date on which effective control is transferred to the Group, up to the date of their
disposal which is the date on which the parent ceases to have control. The purchase method of accounting
is used to account for the acquisition of subsidiaries. Intragroup balances, transactions, unrealised profits
and losses are eliminated on consolidation.
In the separate financial statements of the Bank, the investment in subsidiaries is initially recognised at cost
(which includes transaction costs). Subsequently, where the recoverable amount of the investment is less
than the carrying value, an impairment loss is immediately recognised in the Income Statement.
(2) Associates
Investments in associates are accounted for by the equity method of accounting. Associates are entities over
which the Group generally has between 20% and 50% of the voting rights, or over which the Group has
significant influence, but which it does not control. Unrealised gains on transactions between the Group
and its associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses
are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The
Group’s investment in associates includes goodwill. Equity accounting is discontinued when the carrying
amount of the investment in an associate reaches zero, unless the Group has incurred obligations or
22
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies (continued)
23
1. Accounting Policies (continued)
Investment securities are initially recognised at cost (which includes transaction costs). Available-for-sale
listed financial assets are subsequently remeasured at fair value based on quoted bid prices. Fair values for
unlisted equity securities are estimated using maintainable earnings or net assets bases refined to reflect
the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value
of securities classified as available-for-sale are recognised in statement of comprehensive income. Equity
securities for which fair values cannot be measured reliably are recognised at cost less impairment.
Financial assets at fair value through profit or loss are financial assets held for trading.
Held-to-maturity investments are carried at amortised cost using the effective yield method, less any
provision for impairment.
A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The
amount of the impairment loss for assets carried at amortised cost is calculated as the difference between
the asset’s carrying amount and the present value of expected future cash flows discounted at the financial
instruments original effective interest rate. By comparison, the recoverable amount of an instrument
measured at fair value is the present value of expected future cash flows discounted at the current market
rate of interest for a similar financial asset.
Interest earned while holding investment securities is reported as interest income. Dividends receivable are
included separately in dividend income when a dividend is declared.
All regular way purchases and sales of investment securities are recognised at trade date which is the
date that the Group commits to purchase or sell the asset. All other purchases and sales are recognised as
derivative forward transactions until settlement.
(j) Trading securities
Trading securities are securities which were either acquired for generating a profit from short-term
fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-
term profit taking exists. Trading securities are initially recognised at cost (which includes transaction costs)
and measured at subsequent reporting dates at fair value. All related realised and unrealised gains and
losses are recognised in the Income Statement for the year.
Annual Report 2009
(e) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the Statement of financial position
when there is a legally enforceable right to set off the recognised amounts and there is an intention to
settle on a net basis, or realise the asset and settle the liability simultaneously.
(f) Interest income and expense
Interest income and expense are recognised in the Income Statement for all interest bearing instruments
on an accrual basis using the effective yield method based on the actual purchase price. Interest income
includes coupons earned on fixed income investment and trading securities and accrued discount and
premium on treasury bills and other discounted instruments. When loans become doubtful of collection,
they are written down to their recoverable amounts and interest income is thereafter recognised based
on the rate of interest that was used to discount the future cash flows for the purpose of measuring the
recoverable amount.
(g) Fees and commissions
Fees and commissions are generally recognised on an accrual basis when the service has been provided.
Loan processing fees are deferred and recognised as income over the life of the loan.
(h) Sale and repurchase agreements
Securities sold subject to linked repurchase agreements (“repos”) are retained in the Statement of financial
position as Government securities and Treasury bills and the counterparty liability is included in amount
due to other banks or deposits, as appropriate.
Securities purchased under agreements to resell (“reverse repos”) are recorded as amount due from other
banks or loans and advances, as appropriate. The difference between sale and repurchase price is treated
as interest and accrued over the life of repos agreements using the effective yield method.
(i) Investment securities
The Group classifies its investment securities as fair value through profit or loss, held-to-maturity or
available-for-sale assets. Management determines the appropriate classification of its investments at the
time of the purchase. Investment securities with fixed maturity where management has both the intent
and the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to
be held for an indefinite in response to needs for liquidity or changes in interest rates, exchange rates or
equity prices are classified as period of time, which may be sold available-for-sale.
24
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies (continued)
25
1. Accounting Policies (continued)
On disposal of a subsidiary or associate, the attributable amount of goodwill is included in the determination
of the gains and losses on disposal. Goodwill is allocated to cash-generating units for the purpose of
impairment testing.
(m) Property, plant and equipment
Property, plant and equipment are carried at historical cost or at revalued amounts less accumulated
depreciation.
Revaluation surpluses are credited to reserves. Any subsequent decrease is first charged to reserves.
Thereafter, decreases are charged to the Income Statement to the extent that the decrease exceeds any
amount formerly held in reserves in respect of the same asset.
Land and buildings are revalued on a regular basis by qualified independent valuers.
Depreciation is calculated to write down the cost or amount of the valuation of such assets to their residual
values on a straight-line basis over their estimated useful lives as follows:
Buildings 50 years
Computer and other equipment 5-10 years
Other fixed assets 5-15 years
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount.
Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying
amount and are recognised as income or expense in the Income Statement.
Repairs and renewals are charged to the Income Statement when the expenditure is incurred.
(n) Computer software development costs
Costs associated with maintaining computer software programmes are recognised as an expense as
incurred. Costs that are directly associated with identifiable and unique software products controlled by
the Bank and the Group and will probably generate economic benefits exceeding costs beyond one year,
are recognised as intangible assets. Direct costs include staff costs of the software development team and
an appropriate portion of relevant overheads.
Expenditure that enhances or extends the benefits of computer software programmes beyond their
original specifications and lives is recognised as a capital improvement and added to the original cost of
the software. Computer software development costs recognised as assets are amortised using the straight-
line method over their useful lives, but not exceeding a period of five years.
Annual Report 2009
(k) Loans and provisions for loan impairment
Loans originated by the Bank by providing money directly to the borrower (at draw-down) are categorised
as loans by the Bank and are carried at amortised cost, which is defined as the fair value of cash
consideration given to originate these loans as is determinable by reference to market prices at origination
date. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of
the transaction.
All loans and advances are recognised when cash is advanced to borrowers. An allowance for loan
impairment is established if there is the objective evidence that the Bank will not be able to collect all
amounts due according to the original contractual terms of the loans. The amount of the provision is
the difference between the carrying amount and the recoverable amount, being the present value of
expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the
original effective interest rate of the loans.
The loan loss provision also covers losses where there is objective evidence that probable losses are present
in components of the loan portfolio at the end of the reporting date. These have been estimated upon the
historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting
the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off
against the related provision for impairment; subsequent recoveries are credited to the provision for loan
losses in the Income Statement.
Statutory and often regulatory loan loss reserve requirements that exceed these amounts are dealt with in
the general banking reserve as an appropriation of retained earnings.
If the amount of the impairment subsequently decreases due to an event occuring after the write-down,
the release of the provision is credited as a reduction of the provision for loan losses.
(l) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of
net assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisition of
subsidiaries is included in Intangible Assets.
Negative goodwill represents the excess of the fair value of the Group’s share of net assets acquired over
the cost of acquisition and is recognised in the Income Statement.
Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses.
26
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
1. Accounting Policies (continued)
27
1. Accounting Policies (continued)
advice of qualified actuaries using the projected unit credit method. The Group’s contributions are charged
to the Income Statement in the year to which they relate. The main assumptions made in the actuarial
valuation of the pension fund are listed in note 16 to the financial statements.
(t) Deferred tax
Deferred tax is provided for, using the liability method, on all taxable temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal
temporary differences arise from depreciation of property, plant and equipment, provisions for impairment
losses on loans and advances and provisions for employee benefits.
The rates enacted or subsequently enacted at the balance sheet date are used to determine deferred
tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
(u) Borrowings
Borrowings are recognised initially at ‘cost’, being their issue proceeds (fair value of consideration received)
net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference
between net proceeds and the redemption value is recognised in the Income Statement over the period of
the borrowings using the effective yield method.
(v) Acceptances
Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group
expects most acceptances to be settled simultaneously with the reimbursement from the customers.
Acceptances are disclosed as liabilities with corresponding contra-assets.
(w) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or
services within a particular economic environment (geographical segment) or in providing products or
services which is subject to risks and rewards that are different from those of other segments (business
segment). Segments with a majority of revenue earned from sales to external customers and whose gross
income, operating profit or assets are 10 per cent or more of all the segments are reported separately. Inter
segment services are charged at prime commercial rates.
The Group’s results and assets relate predominantly to financial services within a particular economic
environment and is mainly organised on a geographical basis.
Detailed analyses of segment reporting are shown in note 35 to the financial statements.
Annual Report 2009
(o) Finance leases - where the company is the lessee
Assets acquired under finance leases are accounted for at the present value of the minimum lease payments
and depreciated over their estimated useful lives. A corresponding liability is recorded as outstanding
lease obligations.
Lease payments are apportioned between the liability and the finance charge so as to achieve a constant
periodic rate of interest on the outstanding lease obligations.
(p) Accounting for leases - where the company is the lessor
Finance leases
When assets are sold under a finance lease, the present value of the lease payments is recognised as a
receivable, the amount being equal to the net investment in the leases after specific provision for bad and
doudtful debts in respect of all identified impaired leases in the light of periodical reviews. The difference
between the gross receivable and the present value of the receivable is recognised as unearned finance
income. Lease income is recognised over the term of the lease using the net investment method, which
reflects a constant periodic rate of return.
Operating leases
Assets leased out under operating leases are included in plant and equipment in the balance sheet. They
are depreciated over their expected useful lives on a basis consistent with similar assets. Rental income is
recognised on a straight line basis over the lease term.
(q) Cash and cash equivalents
For the purposes of the Cash Flow Statements, cash and cash equivalents comprise cash and balances with
Central Banks and amounts due to and from other banks. A further breakdown of cash and cash equivalents
is given in notes 3 and 34 to the financial statements.
(r) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate of the amount of the obligation can be made.
(s) Employee benefits
The Group operates a number of defined benefit and defined contribution plans throughout the region.
The defined benefit plan is fully funded. The assets of the funded plan are held independently and
administered by the MCB Superannuation Fund. The pension costs are assessed in accordance with the
28 29
2. Financial Risk Management (continued)
Credit quality of Loans And Advances
Group Bank
2009 2008 2007 2009 2008 2007Rs M Rs M Rs M Rs M Rs M Rs M
Neither past due nor impaired 92,300 70,234 60,340 86,988 64,758 55,578 Past due but not impaired (less than 90 days) 3,125 5,821 3,842 3,025 5,728 3,794 Impaired 4,809 4,692 4,832 4,618 4,509 4,725 Gross 100,234 80,747 69,014 94,631 74,995 64,097 Less Allowances for credit impairment (3,376) (3,196) (3,246) (3,280) (3,101) (3,158)Net 96,858 77,551 65,768 91,351 71,894 60,939 Fair Value of collaterals of past due but not impaired loans 3,118 5,821 3,842 3,025 5,728 3,794 Fair Value of collaterals of impaired loans 2,330 2,293 2,237 2,134 2,096 2,054
Loans and advances negotiatedGroup Bank
2009 2008 2007 2009 2008 2007Rs M Rs M Rs M Rs M Rs M Rs M
Loans and advances negotiated 4,557 283 583 4,454 276 515 Fair value of collaterals 4,557 283 583 4,454 276 515
Maximum exposure to credit risk before collateral and other credit risk enhancements :
Group Bank
2009 2008 2007 2009 2008 2007Rs M Rs M Rs M Rs M Rs M Rs M
Credit risk exposures relating to on - balance sheetaasets are as follows :Cash and cash equivalents 21,945 16,582 16,299 20,726 15,693 14,441 Derivatives financial instruments 120 137 24 120 137 24 Loans and advances to banks 2,318 1,819 1,178 2,223 1,568 934 Loans and advances to customers 94,540 75,733 64,590 89,128 70,325 60,005 Investment securities 17,732 26,309 16,787 14,033 22,074 11,908 Other assets 3,100 2,698 2,236 1,935 1,607 1,508 Credit risk exposures relating to off - balance sheetaasets are as follows :Financial guarantees 27,717 36,461 25,892 25,833 34,242 24,664 Loans committed and other credit related liabilities 7,311 6,001 4,488 7,115 5,816 4,366 Total 174,783 165,740 131,494 161,113 151,462 117,850
Annual Report 2009
notes to the financial statementsfor the year ended 30th June 2009
2. Financial Risk Management
(a) Strategy in using financial instruments
The use of financial instruments is a major feature of the Bank’s operations. It has been the Bank’s policy to
take deposits from customers at variable rates mostly by investing these funds in a wide range of assets.
The Bank also seeks to raise its interest margins, net of provisions, through lending to commercial and retail
borrowers with a range of credit standing. The Bank’s exposures are not restricted to just on-balance sheet
loans and advances but, also, to guarantees and other commitments such as letters of credit, performance
and other bonds.
(b) Credit risk
Credit risk arises when customers or counterparties are not able to fulfill their contractual obligations. Credit
Risk Management at the Bank is under the responsibility of the Credit Risk Business Unit (CRBU). The CRBU
has the task of reviewing the Bank’s credit policies and guidelines to ensure that best lending practices are
upheld at all times. Risk assessments are carried out to assist in portfolio management decisions including
exposure levels and the constitution of required provisions.
Credit related commitments
The main purpose of these instruments is to ensure that funds are available to a customer as required.
Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make
payments in the event that a customer cannot meet its obligations to third parties, carry the same credit
risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank to
pay a third party, on behalf of its customers up to a stipulated amount under specific terms and conditions,
are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk
than a direct borrowing.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of
loans, guarantees or letters of credit.
With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an
amount equal to the total unused commitments. However, the likely amount of loss is less than the total
unused commitments since most commitments to extend credit are contingent upon customers maintaining
specific credit standards. The Bank monitors the term to maturity of credit commitments because longer
term commitments generally have a greater degree of credit risk than shorter term commitments.
MCB Group
30
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
2. Financial Risk Management (continued)
31
2. Financial Risk Management (continued)
Group Bank
2009 2008 2007 2009 2008 2007
Rs M Rs M Rs M Rs M Rs M Rs M
Available-for-sale financial assets 170 173 177 45 59 67
(e) Currency risk
Currency Risk is defined as the risk that movements in foreign exchange rates adversely affect the value of
the Bank’s foreign currency positions.
Exposure resulting from trading activities is monitored through the use of targets and limits. Limits are
given to the individual trader and monitored by the Treasury Manager. Such limits include daily, monthly,
half-yearly and yearly stop losses. Exposure resulting from non-trading activities is managed through the
Asset Liability Management framework, with reference to guidelines and policies set and approved by
ALCO and the Board Risk Monitoring Committee.
Annual Report 2009
(c) Market risk
Market risk arises from activities undertaken in or impacted by financial markets generally. This includes
the risk of gain or loss arising from the movement in market price of a financial asset or liability as well
as ancillary risks such as liquidity and funding risk. The market risk management policies at the Bank are
set by the Risk Committee of the Board and executive management of this class of risk is delegated to
the Asset and Liability Committee (ALCO). The Market Risk Business Unit (MRBU) plays a central role in
monitoring and controlling market risk activities. It is the aim of MRBU to ensure that market risk policies
and guidelines are being effectively complied with and that limits are being observed.
A major methodology which MCB uses for the measurement of market price risk is Value-at-Risk (VaR). VaR
is the statistical representation of financial risk, expressed as a number, based on consistent modelling of
past data and/or simulation of possible future movements, applied to a particular risk position, asset, or
portfolio.
The VaR model used by the Bank is based upon a 99 percent one-tailed confidence level and assumes a ten-
day holding period, with market data taken from the previous two years.
VaR Analysis - Foreign Exchange Risk (Group)
As at 30 June Average Maximum Minimum
2009 (Rs M) (55.03) (31.66) (62.11) (6.34)
2008 (Rs M) (15.24) (13.44) (20.30) (6.45)
VaR Analysis - Foreign Exchange Risk (Bank)
As at 30 June Average Maximum Minimum
2009 (Rs M) (32.75) (21.04) (38.87) (3.05)
2008 (Rs M) (10.30) (9.57) (17.09) (2.89)
(d) Price risk
The Group and the Bank are exposed to equity securities price risk because of investments held and classified
as available-for-sale financial assets. The table below summarises the impact of increases/decreases in fair
value of the investments on the Group’s and the Bank’s equity. The analysis is based on the assumption that
the fair value had increased/decreased by 5%.
32
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
2. Financial Risk Management (continued)
33
2. Financial Risk Management (continued)
(e) Currency risk (continued)
Concentration of assets, liabilities and off-balance sheet items
BankAt June 30, 2009 EURO USD GBP MUR OThER TOTAL Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 3,772,590 5,812,232 3,719,103 5,815,712 1,606,304 20,725,941 Derivative financial instruments 68,852 14,818 10,999 5,508 20,231 120,408 Loans and advances to banks 93,360 1,912,053 - 222,559 - 2,227,972 Loans and advances to customers 7,799,265 16,800,138 443,124 66,911,803 448,688 92,403,018 Investment securities 766 393,419 - 13,638,488 - 14,032,673 Investments in associates 467,410 - - 447,183 - 914,593 Investments in subsidiaries - 162,292 - 2,857,538 - 3,019,830 Goodwill and other intangible assets - - - 275,728 - 275,728 Property, plant and equipment - - - 3,008,629 - 3,008,629 Deferred tax assets - - - 26,146 - 26,146 Other assets 35,008 135,620 19,656 1,738,356 6,039 1,934,679
12,237,251 25,230,572 4,192,882 94,947,650 2,081,262 138,689,617 Less allowances for credit impairment (3,280,044) Total assets 135,409,573
Liabilities Deposits from banks 668,253 2,155,883 332,206 151,499 261,561 3,569,403 Deposits from customers 11,369,120 17,181,956 3,526,345 77,610,148 1,249,471 110,937,039 Derivative financial instruments - - - 44,544 - 44,544 Other borrowed funds - 1,402,285 - 176,984 - 1,579,269 Subordinated liabilities - 1,471,555 - - - 1,471,555 Current tax liabilities - - - 628,659 - 628,659 Other liabilities 244,345 434,927 39,556 3,150,947 56,154 3,925,929 Total liabilities 12,281,718 22,646,606 3,898,107 81,762,781 1,567,186 122,156,398
Net on-balance sheet position (44,467) 2,583,966 294,775 13,184,869 514,076 16,533,219 Less allowances for credit impairment (3,280,044)
13,253,175
Off balance sheet net notional position 818,994 2,412,351 395,856 221,552 642,537 4,491,290 Credit commitments 6,276,788 11,428,474 108,065 10,052,507 591,760 28,457,594
Annual Report 2009
(e) Currency risk (continued)
Concentration of assets, liabilities and off-balance sheet items
GroupAt June 30, 2009 EURO USD GBP MUR OThER TOTAL Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 3,772,590 5,812,232 3,719,103 5,815,712 1,606,304 20,725,941 Derivative financial instruments 68,852 14,818 10,999 5,508 20,231 120,408 Loans and advances to banks 93,360 1,912,053 - 222,559 - 2,227,972 Loans and advances to customers 7,799,265 16,800,138 443,124 66,911,803 448,688 92,403,018 Investment securities 766 393,419 - 13,638,488 - 14,032,673 Investments in associates 3,117,302 - - 3,373,397 - 6,490,699 Goodwill and other intangible assets - - - 275,728 - 275,728 Property, plant and equipment - - - 3,008,629 - 3,008,629 Deferred tax assets - - - 26,146 - 26,146 Other assets 35,008 135,620 19,656 1,738,356 6,039 1,934,679
14,887,143 25,068,280 4,192,882 95,016,326 2,081,262 141,245,893 Less allowances for credit impairment (3,280,044)
137,965,849 Subsidiaries 12,510,494 Total assets 150,476,343
Liabilities Deposits from banks 668,253 2,155,883 332,206 151,499 261,561 3,569,403 Deposits from customers 11,369,120 17,181,956 3,526,345 77,610,148 1,249,471 110,937,039 Derivative financial instruments - - - 44,544 - 44,544 Other borrowed funds - 1,402,285 - 176,984 - 1,579,269 Subordinated liabilities - 1,471,555 - - - 1,471,555 Current tax liabilities - - - 628,659 - 628,659 Other liabilities 244,345 434,927 39,556 3,150,947 56,154 3,925,929
12,281,718 22,646,606 3,898,107 81,762,781 1,567,186 122,156,398 Subsidiaries 8,188,063 Total liabilities 130,344,461
Net on-balance sheet position 2,605,425 2,421,674 294,774 13,253,545 514,076 19,089,495 Less allowances for credit impairment (3,280,044) Subsidiaries 4,322,431
20,131,882
Off balance sheet net notional position 818,994 2,412,351 395,856 221,552 642,537 4,491,290 Credit commitments 6,276,788 11,428,474 108,065 10,052,507 591,760 28,457,594 Subsidiaries 2,079,122
35,028,006
34
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
2. Financial Risk Management (continued)
35
2. Financial Risk Management (continued)
(e) Currency risk (continued)
Concentration of assets, liabilities and off-balance sheet items
Group EURO USD GBP MUR OThER TOTAL At June 30, 2007 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 9,023,007 14,280,142 1,903,246 73,969,768 777,635 99,953,798 Total liabilities 6,646,465 12,852,217 2,435,510 62,104,298 1,182,768 85,221,258 Net on-balance sheet position 2,376,542 1,427,925 (532,264) 11,865,470 (405,133) 14,732,540 Less allowances for credit impairment (3,158,304)
11,574,236 Subsidiaries 3,340,152
14,914,388
Off balance sheet net notional position (106) 1,728 1,720 5,646 703 9,691 Credit commitments 4,777,265 12,290,251 883,476 10,020,774 1,058,424 29,030,190 Subsidiaries 1,349,653
30,379,843
Bank At June 30, 2007 Total assets 7,251,899 14,280,142 1,903,246 73,461,397 777,635 97,674,319 Total liabilities 6,646,465 12,852,217 2,435,510 62,104,298 1,182,768 85,221,258 Net on-balance sheet position 605,434 1,427,925 (532,264) 11,357,099 (405,133) 12,453,061 Less allowances for credit impairment (3,158,304)
9,294,757
Off balance sheet net notional position (106) 1,728 1,720 5,646 703 9,691 Credit commitments 4,777,265 12,290,251 883,476 10,020,774 1,058,424 29,030,190
(f) Interest rate risk
Interest rate risk refers to the potential variability in the Bank’s financial condition owing to changes in the level
of interest rates. It is the Bank’s policy to apply variable interest rates to lending and deposit taking. Fixed interest
rates are applied to deposits in foreign currencies; however maturities in this regard are only short-term.
Annual Report 2009
(e) Currency risk (continued)
Concentration of assets, liabilities and off-balance sheet items
GroupAt June 30, 2008 EURO USD GBP MUR OThER TOTAL
RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 12,212,444 18,184,607 2,452,372 89,011,259 1,341,606 123,202,288 Total liabilities 10,993,568 18,162,752 2,807,447 72,986,599 1,061,036 106,011,402 Net on-balance sheet position 1,218,876 21,855 (355,075) 16,024,660 280,570 17,190,886 Less allowances for credit impairment (3,101,358)
14,089,528 Subsidiaries 3,904,862
17,994,390
Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,262 295,026 14,217,665 Credit commitments 4,486,351 11,286,168 99,867 9,146,393 821,703 25,840,482 Subsidiaries 2,492,944
42,551,091
BankAt June 30, 2008 Total assets 10,116,552 18,454,309 2,452,372 88,091,753 1,341,606 120,456,592 Total liabilities 10,993,568 18,162,752 2,807,447 72,986,599 1,061,036 106,011,402 Net on-balance sheet position (877,016) 291,557 (355,075) 15,105,154 280,570 14,445,190 Less allowances for credit impairment (3,101,358)
11,343,832
Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,262 295,026 14,217,665 Credit commitments 4,486,351 11,286,168 99,867 9,146,393 821,703 25,840,482
36
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
37
2. Financial Risk Management (continued)
(f) Interest rate risk (continued)
Interest sensitivity of assets and liabilities - repricing analysis
Bank Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2009 1 month months months months years years bearing TotalAssets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 15,389,614 985,410 - - - - 4,350,917 20,725,941 Derivative financial instruments - - - - - - 120,408 120,408 Loans and advances to banks 661,111 885,237 681,624 - - - - 2,227,972 Loans and advances to customers 69,763,889 9,629,725 6,031,817 2,218,146 649,457 3,743,600 366,384 92,403,018 Investment securities 317,149 1,373,867 1,785,314 5,279,465 2,736,868 1,644,453 895,557 14,032,673 Investments in associates - 467,410 - - - - 447,183 914,593 Investments in subsidiaries - 162,292 - - - - 2,857,538 3,019,830 Goodwill and other intangible assets - - - - - - 275,728 275,728 Property, plant and equipment - - - - - - 3,008,629 3,008,629 Deferred tax assets - - - - - - 26,146 26,146 Other assets - - - - - - 1,934,679 1,934,679
86,131,763 13,503,941 8,498,755 7,497,611 3,386,325 5,388,053 14,283,169 138,689,617 Less allowances for credit impairment (3,280,044) Total assets 135,409,573
Liabilities Deposits from banks 2,661,812 575,537 240,178 16,229 - - 75,647 3,569,403 Deposits from customers 94,879,531 4,735,672 1,898,464 1,069,103 - 8,573 8,345,696 110,937,039 Derivative financial instruments - - - - - - 44,544 44,544 Other borrowed funds 2,021 - 1,299,108 - 72,956 101,232 103,953 1,579,269 Subordinated liabilities - - 1,471,555 - - - - 1,471,555 Current tax liabilities - - - - - - 628,659 628,659 Other liabilities 250,468 - - - - 12,577 3,662,884 3,925,929 Total liabilities 97,793,831 5,311,209 4,909,305 1,085,332 72,956 122,382 12,861,383 122,156,398
On balance sheet interest sensitivity gap (11,662,068) 8,192,732 3,589,450 6,412,279 3,313,369 5,265,671 1,421,786 16,533,219 Less allowances for credit impairment (3,280,044)
13,253,175
Annual Report 2009
2. Financial Risk Management (continued)
(f) Interest rate risk (continued)
Interest sensitivity of assets and liabilities - repricing analysis
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2009 1 month months months months years years bearing TotalAssets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 15,389,614 985,410 - - - - 4,350,917 20,725,941 Derivative financial instruments - - - - - - 120,408 120,408 Loans and advances to banks 661,111 885,237 681,624 - - - - 2,227,972 Loans and advances to customers 69,763,889 9,629,725 6,031,817 2,218,146 649,457 3,743,600 366,384 92,403,018 Investment securities 317,149 1,373,867 1,785,314 5,279,465 2,736,868 1,644,453 895,557 14,032,673 Investments in associates - 467,410 - - - - 6,023,289 6,490,699 Goodwill and other intangible assets - - - - - - 275,728 275,728 Property, plant and equipment - - - - - - 3,008,629 3,008,629 Deferred tax assets - - - - - - 26,146 26,146 Other assets - - - - - - 1,934,679 1,934,679
86,131,763 13,341,649 8,498,755 7,497,611 3,386,325 5,388,053 17,001,737 141,245,893 Less allowances for credit impairment (3,280,044)
137,965,849 Subsidiaries 12,510,494 Total assets 150,476,343
Liabilities Deposits from banks 2,661,812 575,537 240,178 16,229 - - 75,647 3,569,403 Deposits from customers 94,879,531 4,735,672 1,898,464 1,069,103 - 8,573 8,345,696 110,937,039 Derivative financial instruments - - - - - - 44,544 44,544 Other borrowed funds 2,021 - 1,299,108 - 72,956 101,232 103,953 1,579,269 Subordinated liabilities - - 1,471,555 - - - - 1,471,555 Current tax liabilities - - - - - - 628,659 628,659 Other liabilities 250,468 - - - - 12,577 3,662,884 3,925,929
97,793,831 5,311,209 4,909,305 1,085,332 72,956 122,382 12,861,383 122,156,398 Subsidiaries 8,188,063 Total liabilities 130,344,461
On balance sheet interest sensitivity gap (11,662,068) 8,030,440 3,589,450 6,412,279 3,313,369 5,265,671 4,140,354 19,089,495 Less allowances for credit impairment (3,280,044) Subsidiaries 4,322,431
20,131,882
38
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
39
2. Financial Risk Management (continued)
(g) Liquidity risk
Liquidity risk can be defined as the risk of a funding crisis, notably a lack of funds to meet immediate or short
term obligations in a cost-effective way.
There are two aspects of liquidity risk management a) cash flow management to ensure a balanced inflow and
outflow of funds on any one specific day b) the maintenance of a stock of liquid assets to ensure that the Bank
has a constantly available store of value, which can be utilised in the event of an unexpected outflow of funds.
The MCB has a documented liquidity policy compliant with the Bank of Mauritius Guideline on Liquidity. The
Bank Treasury manages liquidity in accordance with this policy, on a day-to-day basis.
Maturities of assets and liabilities
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2009 1 month months months months years years items TotalAssets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 15,267,951 985,410 - - - - 4,472,580 20,725,941 Derivative financial instruments 67,490 44,463 8,455 - - - - 120,408 Loans and advances to banks 440,278 973,749 194,750 - 619,195 - - 2,227,972 Loans and advances to customers 23,888,020 4,485,822 1,343,923 1,234,291 8,716,731 52,732,931 1,300 92,403,018 Investment securities 317,149 1,373,867 1,785,314 5,279,465 2,899,159 1,644,453 733,266 14,032,673 Investments in associates - - - - - - 6,490,699 6,490,699 Goodwill and other intangible assets - - - - - - 275,728 275,728 Property, plant and equipment - - - - - - 3,008,629 3,008,629 Deferred tax assets - - - - - - 26,146 26,146 Other assets - - - - - - 1,934,679 1,934,679
39,980,888 7,863,311 3,332,442 6,513,756 12,235,085 54,377,384 16,943,027 141,245,893 Less allowances for credit impairment (3,280,044)
137,965,849 Subsidiaries 12,510,494 Total assets 150,476,343
Liabilities Deposits from banks 2,737,459 646,946 168,769 16,229 - - - 3,569,403 Deposits from customers 79,429,290 14,451,399 3,179,394 3,932,016 6,530,492 3,414,448 - 110,937,039 Derivative financial instruments 21,523 17,360 5,661 - - - - 44,544 Other borrowed funds 105,974 - 776 - 1,371,287 101,232 - 1,579,269 Subordinated liabilities - - - - 1,471,555 - - 1,471,555 Current tax liabilities - - 628,659 - - - - 628,659 Other liabilities - - - - - - 3,925,929 3,925,929
82,294,246 15,115,705 3,983,259 3,948,245 9,373,334 3,515,680 3,925,929 122,156,398 Subsidiaries 8,188,063 Total liabilities 130,344,461
Net liquidity gap (42,313,358) (7,252,394) (650,817) 2,565,511 2,861,751 50,861,704 13,017,098 19,089,495 Less allowances for credit impairment (3,280,044) Subsidiaries 4,322,431
20,131,882
Annual Report 2009
2. Financial Risk Management (continued)
(f) Interest rate risk (continued)
Interest sensitivity of assets and liabilities - repricing analysis
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest 1 month months months months years years bearing Total
At June 30, 2008 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 69,659,096 12,993,028 7,030,820 8,918,858 3,178,655 5,314,334 16,107,497 123,202,288 Total liabilities 87,317,395 2,045,217 3,340,696 756,964 549,666 341,475 11,659,989 106,011,402 On balance sheet interest sensitivity gap (17,658,299) 10,947,811 3,690,124 8,161,894 2,628,989 4,972,859 4,447,508 17,190,886 Less allowances for credit impairment (3,101,358)
14,089,528 Subsidiaries 3,904,862
17,994,390
BankAt June 30, 2008 Total assets 69,659,096 13,201,697 7,030,820 8,918,858 3,178,655 5,314,334 13,153,132 120,456,592 Total liabilities 87,317,395 2,045,217 3,340,696 756,964 549,666 341,475 11,659,989 106,011,402 On balance sheet interest sensitivity gap (17,658,299) 11,156,480 3,690,124 8,161,894 2,628,989 4,972,859 1,493,143 14,445,190 Less allowances for credit impairment (3,101,358)
11,343,832
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest 1 month months months months years years bearing Total
At June 30, 2007 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 14,693,176 99,953,798 Total liabilities 66,997,288 5,811,957 1,690,402 211,373 736,204 265,185 9,508,849 85,221,258 On balance sheet interest sensitivity gap (6,899,595) 7,199,455 (13,688) 4,351,501 1,145,204 3,765,336 5,184,327 14,732,540 Less allowances for credit impairment (3,158,304)
11,574,236 Subsidiaries 3,340,152
14,914,388
BankAt June 30, 2007
Total assets 60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 12,413,697 97,674,319 Total liabilities 66,997,288 5,811,957 1,690,402 211,373 736,204 265,185 9,508,849 85,221,258 On balance sheet interest sensitivity gap (6,899,595) 7,199,455 (13,688) 4,351,501 1,145,204 3,765,336 2,904,848 12,453,061 Less allowances for credit impairment (3,158,304)
9,294,757
40
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
41
2. Financial Risk Management (continued)
(g) Liquidity risk (continued)
Maturities of assets and liabilities
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2008 1 month months months months years years items Total
RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 40,706,760 6,546,427 5,076,244 9,069,744 11,605,943 37,592,768 12,604,402 123,202,288 Total liabilities 81,394,574 2,853,822 1,488,223 4,292,841 8,553,455 4,240,527 3,187,960 106,011,402 Net liquidity gap (40,687,814) 3,692,605 3,588,021 4,776,903 3,052,488 33,352,241 9,416,442 17,190,886 Less allowances for credit impairment (3,101,358)
14,089,528 Subsidiaries 3,904,862
17,994,390
BankAt June 30, 2008
Total assets 40,706,760 6,546,427 5,076,244 9,069,744 11,605,943 37,801,437 9,650,037 120,456,592 Total liabilities 81,394,574 2,853,822 1,488,223 4,292,841 8,553,455 4,240,527 3,187,960 106,011,402 Net liquidity gap (40,687,814) 3,692,605 3,588,021 4,776,903 3,052,488 33,560,910 6,462,077 14,445,190 Less allowances for credit impairment (3,101,358)
11,343,832
Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2007 1 month months months months years years items Total
RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 11,633,971 99,953,798 Total liabilities 59,456,013 2,889,470 1,507,919 2,590,297 6,396,926 9,134,040 3,246,593 85,221,258 Net liquidity gap (27,202,553) 5,953,890 207,796 3,374,261 1,239,730 22,772,038 8,387,378 14,732,540 Less allowances for credit impairment (3,158,304)
11,574,236 Subsidiaries 3,340,152
14,914,388
BankAt June 30, 2007
Total assets 32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 9,354,492 97,674,319 Total liabilities 59,456,013 2,889,470 1,507,919 2,590,297 6,396,926 9,134,040 3,246,593 85,221,258 Net liquidity gap (27,202,553) 5,953,890 207,796 3,374,261 1,239,730 22,772,038 6,107,899 12,453,061 Less allowances for credit impairment (3,158,304)
9,294,757
Annual Report 2009
2. Financial Risk Management (continued)
(g) Liquidity risk (continued)
Maturities of assets and liabilities
Bank Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2009 1 month months months months years years items TotalAssets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 15,267,951 985,410 - - - - 4,472,580 20,725,941 Derivative financial instruments 67,490 44,463 8,455 - - - - 120,408 Loans and advances to banks 440,278 973,749 194,750 - 619,195 - - 2,227,972 Loans and advances to customers 23,888,020 4,485,822 1,343,923 1,234,291 8,716,731 52,732,931 1,300 92,403,018 Investment securities 317,149 1,373,867 1,785,314 5,279,465 2,899,159 1,644,453 733,266 14,032,673 Investments in associates - - - - - - 914,593 914,593 Investments in subsidiaries - - - - - 162,291 2,857,539 3,019,830 Goodwill and other intangible assets - - - - - - 275,728 275,728 Property, plant and equipment - - - - - - 3,008,629 3,008,629 Deferred tax assets - - - - - - 26,146 26,146 Other assets - - - - - - 1,934,679 1,934,679
39,980,888 7,863,311 3,332,442 6,513,756 12,235,085 54,539,675 14,224,459 138,689,617 Less allowances for credit impairment (3,280,044) Total assets 135,409,573
Liabilities Deposits from banks 2,737,459 646,946 168,769 16,229 - - - 3,569,403 Deposits from customers 79,429,290 14,451,399 3,179,394 3,932,016 6,530,492 3,414,448 - 110,937,039 Derivative financial instruments 21,523 17,360 5,661 - - - - 44,544 Other borrowed funds 105,974 - 776 - 1,371,287 101,232 - 1,579,269 Subordinated liabilities - - - - 1,471,555 - - 1,471,555 Current tax liabilities - - 628,659 - - - - 628,659 Other liabilities - - - - - - 3,925,929 3,925,929 Total liabilities 82,294,246 15,115,705 3,983,259 3,948,245 9,373,334 3,515,680 3,925,929 122,156,398
Net liquidity gap (42,313,358) (7,252,394) (650,817) 2,565,511 2,861,751 51,023,995 10,298,530 16,533,219 Less allowances for credit impairment (3,280,044)
13,253,175
42 43
4. Derivative Financial Instruments
The Group utilises the following derivative instruments to manage its exposure to foreign currency risk:
Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered
spot transactions.
Currency swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic
exchange of currencies. Except for certain currency swaps, no exchange of principal takes place. The Group’s
credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their
obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of
the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken,
the Group assesses counterparties using the same techniques as for its lending activities.
The fair values of derivative instruments held are set out below:
Contractual/ Nominal Amount
Fair value assets
Fair value liabilities
Group & Bank RS’000 RS’000 RS’000
Derivatives held-for-trading
year ended 30th June 2009
Foreign Exchange Derivatives
Currency forwards 1,348,944 53,970 40,886
Currency swaps 3,142,346 66,438 3,658
4,491,290 120,408 44,544
Year ended 30th June 2008
Foreign Exchange Derivatives
Currency forwards 5,257,531 90,847 83,070
Currency swaps 8,960,132 46,414 12,903
14,217,663 137,261 95,973
Year ended 30th June 2007
Foreign Exchange Derivatives
Currency forwards 4,424,633 11,626 14,001
Currency swaps 2,604,885 12,169 102
7,029,518 23,795 14,103
Annual Report 2009
3. Cash and Cash Equivalents
GROUP BANK
2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Cash in hand 1,407,195 1,299,199 1,515,035 1,059,888 1,125,362 1,040,172
Foreign currency notes and coin 78,058 79,877 56,457 75,458 73,966 53,648
Unrestricted balances with Central Banks 4,569,352 3,519,754 3,950,122 4,243,822 3,105,506 2,830,690
Balances due in clearing 297,896 385,420 492,184 212,001 305,132 380,818
Balances with local banks 321,236 51,322 47,802 186,236 51,322 47,802
Interbank loans 473,949 185,547 297,843 300,000 - 100,000
Money market placements 12,779,513 9,892,200 9,145,421 12,779,513 9,892,200 9,145,421
Balances with banks abroad 2,018,276 1,168,641 794,316 1,869,023 1,139,640 842,569
21,945,475 16,581,960 16,299,180 20,725,941 15,693,128 14,441,120
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
44 45
5. Loans (continued)
45
(b) Loans and advances to customers
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000(i) Retail customers:
Credit cards 497,442 421,276 424,520 497,442 421,276 424,520 Mortgages 8,303,979 7,636,156 6,436,508 8,197,017 7,506,230 6,278,950 Other retail loans 8,481,026 6,870,258 6,505,474 8,240,408 6,651,997 6,265,916 Corporate customers 68,743,178 56,650,994 48,231,933 63,726,930 51,545,435 44,087,777 Governments 1,234,266 1,247,553 1,212,898 1,195,941 1,204,078 1,086,262 Entities outside Mauritius 10,545,280 6,093,806 5,018,178 10,545,280 6,093,806 5,018,178 Others 106,726 5,656 4,899 - - -
97,911,897 78,925,699 67,834,410 92,403,018 73,422,822 63,161,603 Less:Allowances for credit impairment (3,371,401) (3,192,666) (3,244,481) (3,274,807) (3,097,650) (3,156,903)
94,540,496 75,733,033 64,589,929 89,128,211 70,325,172 60,004,700
Finance lease receivables included in Group loans amount to Rs.1,896 million as at 30th June 2009 (2008 : Rs 2,001 million, 2007 : Rs 1,850 million).
(ii) Remaining term to maturity Up to 3 months 30,016,773 31,193,390 26,259,388 28,373,842 29,627,416 24,733,562 Over 3 months and up to 6 months 1,867,020 1,525,766 181,627 1,343,923 1,313,923 591,112 Over 6 months and up to 12 months 2,004,509 2,057,240 2,964,588 1,234,291 1,228,098 2,299,621 Over 1 year and up to 5 years 21,970,196 18,439,692 16,106,450 19,820,942 15,984,413 14,089,405 Over 5 years 42,053,399 25,709,611 22,322,357 41,630,020 25,268,972 21,447,903
97,911,897 78,925,699 67,834,410 92,403,018 73,422,822 63,161,603
Annual Report 2009
44
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
5. Loans(a) Loans and advances to banks
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000(i) Loans and advances to banks
in Mauritius 220,833 304,167 387,500 220,833 304,167 387,500 outside Mauritius 2,102,972 1,518,415 792,137 2,007,139 1,268,060 548,346
2,323,805 1,822,582 1,179,637 2,227,972 1,572,227 935,846 Less:Allowance for credit impairment (5,237) (3,708) (1,401) (5,237) (3,708) (1,401)
2,318,568 1,818,874 1,178,236 2,222,735 1,568,519 934,445
(ii) Remaining term to maturity
Up to 3 months 1,160,378 134,237 4,987 1,414,027 141,864 20,030 Over 3 months and up to 6 months 194,750 - - 194,750 - - Over 1 year and up to 5 years 968,677 1,669,244 1,152,862 619,195 1,411,262 894,028 Over 5 years - 19,101 21,788 - 19,101 21,788
2,323,805 1,822,582 1,179,637 2,227,972 1,572,227 935,846
(iii) Allowances for credit impairment
GROUP & BANK
RS’000 Portfolio Provisions :At 30th June 2006 231 Provision for credit impairment for the year 1,170 At 30th June 2007 1,401 Provision for credit impairment for the year 2,307 At 30th June 2008 3,708 Provision for credit impairment for the year 1,529 At 30th June 2009 5,237
46
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
5. Loans (continued)
47
5. Loans (continued)
(iv) Allowances for credit impairment by industry sectors
2009 2008 2007Gross
amount of loans
Non performing
loans
Specific provision
Portfolio provision
Total provision
Total provision
Total provision
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000GROUPAgriculture and fishing 7,830,713 69,169 33,561 52,868 86,429 101,799 106,719 Manufacturing 9,559,020 1,089,662 489,134 71,516 560,650 620,421 528,080 of which EPZ 3,280,193 401,161 310,054 38,727 348,781 298,228 243,148 Tourism 20,627,074 90,080 38,610 49,931 88,541 54,124 118,671 Transport 1,072,746 30,710 8,033 3,666 11,699 12,430 19,334 Construction 17,031,849 983,417 412,939 130,624 543,563 433,647 493,699 Financial and business services 5,081,192 51,396 14,241 18,038 32,279 58,653 45,818 Traders 14,542,039 859,237 424,356 115,960 540,316 856,049 899,889 Personal 8,023,127 1,195,298 502,279 113,925 616,204 727,599 743,157 of which credit cards 419,454 135,850 70,707 13,800 84,507 105,174 92,510 Professional 265,975 125,963 37,041 2,643 39,684 78,807 80,833 Foreign governments 1,194,465 - - 5,970 5,970 6,020 5,431 Global Business Licence holders 4,635,282 33,604 1,638 46,017 47,655 1,987 5,779 Others 8,048,415 280,949 742,054 56,357 798,411 241,130 197,071
97,911,897 4,809,485 2,703,886 667,515 3,371,401 3,192,666 3,244,481
BANKAgriculture and fishing 7,125,045 64,349 30,232 52,100 82,332 97,322 83,131 Manufacturing 8,562,332 1,022,449 473,539 66,100 539,639 590,042 509,105 of which EPZ 3,034,927 397,900 307,469 36,900 344,369 293,692 240,542 Tourism 19,846,578 77,665 34,891 48,900 83,791 51,725 114,330 Transport 571,177 29,470 7,382 2,600 9,982 11,264 18,256 Construction 16,515,777 962,262 407,714 129,100 536,814 430,064 491,942 Financial and business services 5,911,374 47,854 12,962 17,663 30,625 56,543 42,120 Traders 12,861,198 787,797 382,925 113,300 496,225 805,954 876,559 Personal 7,877,693 1,194,464 501,730 113,200 614,930 726,691 742,037 of which credit cards 419,454 135,850 70,707 13,800 84,507 105,174 92,510 Professional 237,336 125,963 37,041 2,500 39,541 78,590 80,697 Foreign governments 1,194,465 - - 5,970 5,970 6,020 5,431 Global Business Licence holders 4,635,282 33,604 1,638 46,017 47,655 11,040 5,779 Others 7,064,761 272,391 734,690 52,613 787,303 232,395 187,516
92,403,018 4,618,268 2,624,744 650,063 3,274,807 3,097,650 3,156,903
Annual Report 2009
(iii) Allowances for credit impairment
GROUP BANK Specific Portfolio Total Specific Portfolio Total RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
At 1st July 2006 2,038,932 397,969 2,436,901 1,970,877 397,969 2,368,846 Effect of consolidating Fincorp Group as a subsidiary 4,448 13,828 18,276 - - - Translation differences in respect of subsidiaries 7,812 - 7,812 - - - Provision for credit impairment for the year 391,827 39,430 431,257 356,392 39,430 395,822 Provisions released (64,083) - (64,083) (33,978) - (33,978)Amounts written off (386,548) - (386,548) (356,781) - (356,781)At 30th June 2007 1,992,388 451,227 2,443,615 1,936,510 437,399 2,373,909 Interest suspense 800,866 - 800,866 782,994 - 782,994 Provisions and interest suspense at 30th June 2007 2,793,254 451,227 3,244,481 2,719,504 437,399 3,156,903
At 1st July 2007 1,992,388 451,227 2,443,615 1,936,510 437,399 2,373,909 Translation differences in respect of subsidiaries 3,903 - 3,903 - - - Provision for credit impairment for the year 365,571 82,688 448,259 328,170 78,693 406,863 Provisions released (46,897) - (46,897) (22,973) - (22,973)Amounts written off (285,997) - (285,997) (264,548) - (264,548)Provisions at 30th June 2008 2,028,968 533,915 2,562,883 1,977,159 516,092 2,493,251 Interest suspense 629,783 - 629,783 604,399 - 604,399 Provisions and interest suspense at 30th June 2008 2,658,751 533,915 3,192,666 2,581,558 516,092 3,097,650
At 1st July 2008 2,028,968 533,915 2,562,883 1,977,159 516,092 2,493,251 Translation differences in respect of subsidiaries 2,336 - 2,336 - - - Provision for credit impairment for the year 260,389 133,600 393,989 232,263 133,971 366,234 Provisions released (77,739) - (77,739) (60,095) - (60,095)Amounts written off (135,141) - (135,141) (135,141) - (135,141)At 30th June 2009 2,078,813 667,515 2,746,328 2,014,186 650,063 2,664,249 Interest suspense 625,073 - 625,073 610,558 - 610,558 Provisions and interest suspense at 30th June 2009 2,703,886 667,515 3,371,401 2,624,744 650,063 3,274,807
48
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
5. Loans (continued)
49
6. Investment Securities (continued)
(ii) Remaining term to maturity 2009 2008 2007
Up to 3 months
3 - 6 months
6 - 12 months
1 - 5 years
Over 5 years
Total Total Total
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000GROUPMauritius Development Loan Stocks 90,147 - 4,208 767,055 4,873 866,283 1,116,671 1,254,837 GOM bonds 643,485 428,242 1,026,983 3,012,910 785,693 5,897,313 6,729,264 5,281,557 Treasury notes - - - - - - - 967,600 Treasury bills 1,957,855 1,323,040 4,221,822 - - 7,502,717 14,992,689 5,588,710
2,691,487 1,751,282 5,253,013 3,779,965 790,566 14,266,313 22,838,624 13,092,704
BANKMauritius Development Loan Stocks - - - 712,128 - 712,128 784,207 979,104 GOM bonds 46,565 428,242 1,026,983 2,888,580 780,613 5,170,983 5,438,426 3,358,174 Treasury notes - - - - - - - 967,600 Treasury bills 1,644,451 1,323,040 4,221,822 - - 7,189,313 14,662,598 5,109,423
1,691,016 1,751,282 5,248,805 3,600,708 780,613 13,072,424 20,885,231 10,414,301
(c) Available-for-sale
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000quoted
Official list : shares 401,084 453,962 876,033 2,104 2,104 - Development and Enterprise Market/Over The Counter : shares 282,913 189,107 143,036 - - -
Unquoted
Shares 2,716,645 2,826,762 2,515,932 893,453 1,185,610 1,334,009 3,400,642 3,469,831 3,535,001 895,557 1,187,714 1,334,009
Annual Report 2009
(v) Credit concentration of risk by industry sectors
Total credit facilities including guarantees, acceptances and other similar commitments extended by the Bank to any one customer or group of closely-related customers for amounts aggregating more than 15% of its capital base, classified by industry sectors.
GROUP2009 2008 2007
RS’000 RS’000 RS’000Agriculture and fishing 3,312,950 3,122,423 2,612,091 Manufacturing 3,349,139 4,815,580 5,556,193 of which EPZ 2,560,622 2,129,926 2,700,609 Tourism 12,725,944 7,065,448 3,169,419 Transport 239,369 - 832 Construction 6,111,112 1,341,306 1,359,659 Financial and Business Services 810,487 387,335 551,019 Traders 810,827 690,304 6,647,451 Global Business Licence holders 1,006,558 159,602 989,372 Others 3,338,412 2,056,660 2,418,769
31,704,798 19,638,658 23,304,805
6. Investment Securities
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000At fair value through profit or loss 64,692 593 159,478 64,692 593 159,478 Held to maturity 14,266,313 22,838,624 13,092,704 13,072,424 20,885,231 10,414,301 Available-for-sale 3,400,642 3,469,831 3,535,001 895,557 1,187,714 1,334,009
17,731,647 26,309,048 16,787,183 14,032,673 22,073,538 11,907,788
(a) At fair value through profit or loss
Treasury bills held for trading :Up to 3 months and included in cash & cash equivalent (note 34) - - 68,476 - - 68,476 Over 3 months and up to 12 months 64,692 593 91,002 64,692 593 91,002
64,692 593 159,478 64,692 593 159,478
(b)(i) held to maturityMauritius Development Loan Stocks 866,283 1,116,671 1,254,837 712,128 784,207 979,104 GOM bonds 5,897,313 6,729,264 5,281,557 5,170,983 5,438,426 3,358,174 Treasury notes - - 967,600 - - 967,600 Treasury bills 7,502,717 14,992,689 5,588,710 7,189,313 14,662,598 5,109,423
14,266,313 22,838,624 13,092,704 13,072,424 20,885,231 10,414,301
50 51
7. Investments in Associates (continued)
Except for Banque Française Commerciale Ocean Indien which is unquoted, the other associates are quoted.
BANK2009 2008 2007
RS’000 RS’000 RS’000Cost of unquoted investment 447,184 447,184 447,184
GROUP2009 2008 2007
RS’000 RS’000 RS’000Group share of net assets 5,966,405 5,527,407 4,795,877 Goodwill 56,885 56,885 56,885 Subordinated loan to associate 467,409 438,402 428,346
6,490,699 6,022,694 5,281,108
Annual Report 2009
7. Investments in Associates
The Group’s interest in its principal associates are as follows:
BANKAssets Liabilities Non-
controlling Revenues Profit holding Cost
Country of Interest incorporation RS’000 RS’000 RS’000 RS’000 RS’000 % RS’000
year ended 30th June 2009 Direct EffectiveBanque Française Commerciale O.I. France
77,056,521
71,911,268 - 5,230,454 792,839 49.99 49.99 447,184
Promotion and Development Ltd Mauritius 9,392,269 1,287,987 1,120,341 594,194 278,090 46.43 46.43 - Caudan Development Ltd Mauritius 3,992,408 1,143,087 - 412,990 116,030 5.34 33.19 -
447,184 Subordinated loan to associate 467,409
914,593
Year ended 30th June 2008Banque Française Commerciale O.I. France
66,675,738
62,645,941 - 4,473,159 561,578 49.99 49.99 447,184
Promotion and Development Ltd Mauritius 9,363,996 1,024,865 1,091,528 440,640 696,739 46.43 46.43 - Caudan Development Ltd Mauritius 3,936,353 1,159,045 - 329,042 738,895 5.34 33.19 -
447,184 Subordinated loan to associate 438,402
885,586
Year ended 30th June 2007Banque Française Commerciale O.I. France
50,723,336
47,343,365 - 3,616,084 473,412 49.99 49.99 447,184
Promotion and Development Ltd Mauritius 7,825,557 562,354 809,698 306,321 237,930 46.43 46.43 - Caudan Development Ltd Mauritius 2,634,635 569,937 - 125,733 35,037 5.34 33.19 - Fincorp Investment Ltd Mauritius n/a n/a n/a 214,354 132,136 49.51 49.51 -
447,184 Subordinated loan to associate 428,346
875,530
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
52 53
9. Goodwill and Other Intangible Assets
(a) Goodwill
GROUP2009 2008 2007
RS’000 RS’000 RS’000At 1st July 2008 52,849 33,501 33,501 Investment in subsidiary - 19,348 - At 30th June 2009 52,849 52,849 33,501
(b) Other intangible assets
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Computer SoftwareCostAt 1st July 2008 1,201,856 1,124,987 1,075,499 1,145,374 1,079,658 1,058,616 Transfer from property, plant and equipment 4,220 - 4,421 - - - Additions 174,944 84,140 33,471 164,651 70,973 30,752 Disposals (1,698) (5,775) (9,721) (1,698) (5,257) (9,710)Exchange adjustment 415 (1,496) 1,199 - - - Effect of consolidating Fincorp Group as a subsidiary - - 20,118 - - - At 30th June 2009 1,379,737 1,201,856 1,124,987 1,308,327 1,145,374 1,079,658
AmortisationAt 1st July 2008 969,870 870,186 754,889 943,128 850,457 744,478 Transfer from property, plant and equipment 844 - 1,753 - - - Disposals adjustment (1,698) (3,961) (24) (1,698) (3,443) (24)Charge for the year 104,518 104,897 110,935 91,169 96,114 106,003 Exchange adjustment (973) (1,252) 309 - - - Effect of consolidating Fincorp Group as a subsidiary - - 2,324 - - - At 30th June 2009 1,072,561 969,870 870,186 1,032,599 943,128 850,457 Net book value 307,176 231,986 254,801 275,728 202,246 229,201 TOTAL 360,025 284,835 288,302 275,728 202,246 229,201
Annual Report 2009
8. Investments in Subsidiaries
Country of Stated Effective holding BANKincorporation/ Principal capital 2009 2008 2007 2009 2008 2007
operation activities RS’000 % % % RS’000 RS’000 RS’000MCB Equity Fund Ltd Mauritius Private Equity Fund 1,910,965 100.00 100.00 100.00 1,910,965 1,451,052 1,534,903
MCB Moçambique SA Mozambique Banking & Financial services 153,060 95.00 95.00 91.28 260,040 260,040 227,653
MCB Seychelles Ltd Seychelles Banking & Financial services 48,725 100.00 100.00 100.00 211,522 211,522 211,522
MCB Male Branch Republic of Maldives
Banking & Financial services 161,995 100.00 100.00 - 138,724 61,033 -
International Card Processing Services Ltd
Mauritius Providing card system facilities, card embossing and encoding
services
100,000 80.00 - - 80,000 - -
MCB Capital Markets Ltd
Mauritius Investment Holding Company 98,719 90.00 90.00 - 75,000 75,000 -
MCB Madagascar SA Madagascar Banking & Financial services 203,075 85.00 75.00 75.00 64,322 7,131 7,131
MCB Factors Ltd Mauritius Factoring 50,000 100.00 100.00 100.00 50,000 50,000 50,000
Fincorp Investment Ltd Mauritius Investment Company 103,355 57.56 57.56 57.56 24,735 24,735 24,735
MCB Properties Ltd Mauritius Property ownership & development
14,625 100.00 100.00 100.00 14,625 14,625 14,625
Blue Penny Museum Mauritius Philatelic museum 1,000 97.88 97.88 97.88 950 950 950
MCB Registry and Securities Ltd
Mauritius Share and Unit Registry services
- - - 100.00 - - 12,000
MCB Fund Managers Ltd
Mauritius Management of Collective Investment Schemes
- - - 100.00 - - 11,425
MCB Investment Management Co. Ltd
Mauritius Investment Advisory and Fund Management services
- - - 62.22 - - 3,000
MCB Capital Partners Ltd
Mauritius Investment Advisory and Fund Management services
- - - 100.00 - - 1,000
MCB Stockbrokers Ltd Mauritius Brokerage services - - - 100.00 - - 500 2,830,883 2,156,088 2,099,444
Subordinated loans to subsidiaries 188,947 235,324 26,655
3,019,830 2,391,412 2,126,099
Except for Fincorp Investment Ltd, which is quoted, the other above companies are unquoted.
The results and financial position of the Mauritius Commercial Bank Ltd, Male Branch, have been accounted as foreign operation, using normal consolidation procedures and in line with IAS 21 and IAS 27.
The Male Branch was incorporated in 2008 with an assigned capital of USD 5 million and a subordinated loan of USD 5 million. For the year ended June 30, 2009, the results of the Male Branch represents 0.25% of the MCB’s group results.
In line with the concept of substance over form and going forward following the change in regulation in Maldives and subject to the Bank of Mauritius approval, the foregin operations will be conducted through a duly registered incorporated company which will be a wholly owned subsidiary of the Mauritius Commercial Bank Ltd. Approval from the Maldives Monetary Authority is presently being sought.
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
54
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
55
10. Property, Plant and Equipment (continued)
Assets under Land Computer Other Totalfinance and and other fixedleases buildings equipment assetsRS’000 RS’000 RS’000 RS’000 RS’000
BANK
Cost & valuationAt 1st July 2006 17,991 1,834,904 1,415,496 400,910 3,669,301 Additions - 156,858 224,061 96,400 477,319 Disposals (67) (410) (54,429) (28,565) (83,471)Transfer (7,089) - 5,942 1,147 - At 30th June 2007 10,835 1,991,352 1,591,070 469,892 4,063,149 Additions - 123,424 169,196 59,511 352,131 Disposals (142) (4,300) (112,961) (23,132) (140,535)Transfer (7,954) - 7,954 - - At 30th June 2008 2,739 2,110,476 1,655,259 506,271 4,274,745 Additions - 424,630 245,002 95,275 764,907 Disposals - (6,102) (234,607) (124,050) (364,759)Transfer (2,739) - - 2,739 - At 30th June 2009 - 2,529,004 1,665,654 480,235 4,674,893
Accumulated depreciationAt 1st July 2006 14,726 222,789 1,014,224 223,785 1,475,524 Charge for the year 2,167 27,007 142,973 45,633 217,780 Disposal adjustment (65) (28) (53,448) (26,394) (79,935)Transfer (7,089) - 5,942 1,147 - At 30th June 2007 9,739 249,768 1,109,691 244,171 1,613,369 Charge for the year 548 28,115 206,461 100,837 335,961 Disposal adjustment (142) (343) (112,266) (20,147) (132,898)Transfer (7,954) - 7,954 - - At 30th June 2008 2,191 277,540 1,211,840 324,861 1,816,432 Charge for the year - 29,580 133,321 41,917 204,818 Disposal adjustment - (722) (234,150) (120,114) (354,986)Transfer (2,191) - - 2,191 - At 30th June 2009 - 306,398 1,111,011 248,855 1,666,264
Net book valuesAt 30th June 2009 - 2,222,606 554,643 231,380 3,008,629 At 30th June 2008 548 1,832,936 443,419 181,410 2,458,313 At 30th June 2007 1,096 1,741,584 481,379 225,721 2,449,780
Annual Report 2009
10. Property, Plant and Equipment
Assets under Land Computer Other Totalfinance and and other fixedleases buildings equipment assetsRS’000 RS’000 RS’000 RS’000 RS’000
GROUP
Cost & valuationAt 1st July 2006 18,613 2,605,861 1,549,173 478,055 4,651,702 Additions - 170,305 266,764 164,931 602,000 Disposals (67) (79,379) (54,926) (42,670) (177,042)Exchange adjustment - (25,672) (20,617) (2,877) (49,166)Effect of consolidating Fincorp Group as a subsidiary - - 5,459 315,721 321,180 Acquisition of subsidiary - - 111 - 111 Transfer to other intangible assets - - (2,848) (1,573) (4,421)Transfer (7,089) (30,470) 36,412 1,147 - At 30th June 2007 11,457 2,640,645 1,779,528 912,734 5,344,364 Additions - 144,348 189,440 195,783 529,571 Disposals (142) (4,300) (141,712) (77,379) (223,533)Exchange adjustment - (110,554) (34,508) (5,801) (150,863)Transfer (7,954) - 8,452 (498) - At 30th June 2008 3,361 2,670,139 1,801,200 1,024,839 5,499,539 Additions - 430,252 329,245 245,873 1,005,370 Disposals - (170,954) (235,072) (167,913) (573,939)Exchange adjustment - (64,364) (13,151) (3,005) (80,520)Transfer (2,739) (476) (380) (625) (4,220)At 30th June 2009 622 2,864,597 1,881,842 1,099,169 5,846,230
Accumulated depreciationAt 1st July 2006 15,029 289,404 1,059,615 251,069 1,615,117 Charge for the year 2,306 56,076 165,079 80,269 303,730 Disposal adjustment (65) (11,823) (53,828) (33,450) (99,166)Exchange adjustment - (585) (8,327) (1,648) (10,560)Effect of consolidating Fincorp Group as a subsidiary - - 4,607 89,267 93,874 Acquisition of subsidiary - - 53 - 53 Transfer to other intangible assets - - (990) (763) (1,753)Transfer (7,089) - 5,942 1,147 - At 30th June 2007 10,181 333,072 1,172,151 385,891 1,901,295 Charge for the year 591 41,631 222,543 172,058 436,823 Disposal adjustment (142) (343) (141,006) (53,514) (195,005)Exchange adjustment - (9,708) (4,260) (710) (14,678)Transfer (7,954) - 8,269 (315) - At 30th June 2008 2,676 364,652 1,257,697 503,410 2,128,435 Charge for the year 24 42,371 156,187 119,735 318,317 Disposal adjustment - (59,759) (234,517) (148,596) (442,872)Exchange adjustment - 10,469 (3,307) (3,495) 3,667 Transfer (2,191) - 1,862 (515) (844)At 30th June 2009 509 357,733 1,177,922 470,539 2,006,703
Net book valuesAt 30th June 2009 113 2,506,864 703,920 628,630 3,839,527 At 30th June 2008 685 2,305,487 543,503 521,429 3,371,104 At 30th June 2007 1,276 2,307,573 607,377 526,843 3,443,069
56
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
57
13. Deposits
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
(a) Deposits from banksOther deposits 539,453 684,259 851,253 2,341,569 2,150,323 1,246,228 Money market deposits with remaining term to maturity: Up to 3 months 1,032,064 221,419 147,342 1,042,836 221,419 290,200 Over 3 months and up to 6 months 21,909 1,273 - 168,769 1,273 - Over 6 months and up to 1 year 16,229 - - 16,229 - -
1,070,202 222,692 147,342 1,227,834 222,692 290,200 1,609,655 906,951 998,595 3,569,403 2,373,015 1,536,428
(b) Deposits from customers(i) Retail customers
Demand deposits 9,847,781 9,461,493 8,008,315 8,419,224 7,527,772 6,823,242 Savings deposits 45,244,845 39,930,316 36,376,389 44,328,183 38,617,226 34,575,582 Time deposits with remaining term to maturity: Up to 3 months 5,901,814 5,214,681 4,929,908 5,223,093 4,550,479 3,861,857 Over 3 months and up to 6 months 3,044,253 1,900,046 1,792,877 2,166,265 1,301,556 1,317,539 Over 6 months and up to 1 year 3,784,937 2,769,987 2,743,090 3,606,499 2,681,230 2,457,652 Over 1 year and up to 5 years 11,189,745 11,246,301 9,233,375 9,479,236 9,114,209 8,193,740 Over 5 years 8,870 67,020 68 8,870 61,796 -
23,929,619 21,198,035 18,699,318 20,483,963 17,709,270 15,830,788 79,022,245 70,589,844 63,084,022 73,231,370 63,854,268 57,229,612
(ii) Corporate customersDemand deposits 24,578,498 19,092,754 12,555,691 22,832,954 17,508,553 10,615,017 Savings deposits 3,793,235 3,641,685 1,912,467 3,662,533 3,554,688 1,751,935 Time deposits with remaining term to maturity: Up to 3 months 9,761,822 9,716,380 4,422,500 9,228,306 9,220,143 3,244,953 Over 3 months and up to 6 months 1,088,682 283,266 302,353 1,013,129 185,394 191,194 Over 6 months and up to 1 year 260,322 301,971 203,005 325,517 282,037 131,961 Over 1 year and up to 5 years 687,303 595,971 458,635 456,834 457,075 483,890 Over 5 years - 100 - - 100 -
11,798,129 10,897,688 5,386,493 11,023,786 10,144,749 4,051,998 40,169,862 33,632,127 19,854,651 37,519,273 31,207,990 16,418,950
(iii) GovernmentDemand deposits 256,916 107,636 318,195 27,418 45,936 229,516 Savings deposits 158,978 64,818 29,093 158,978 64,816 22,953 Time deposits with remaining term to maturity: Up to 3 months 22,325 153,805 339,829 - - - Over 3 months and up to 6 months - 30,334 - - - - Over 6 months and up to 1 year 965 - - - - - Over 1 year and up to 5 years - 1,358 - - - -
23,290 185,497 339,829 - - - 439,184 357,951 687,117 186,396 110,752 252,469
TOTAL 119,631,291 104,579,922 83,625,790 110,937,039 95,173,010 73,901,031
Annual Report 2009
10. Property, Plant and Equipment (continued)
If the land and buildings were stated on the historical basis, the amounts would be as follows :
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Cost 5,151,991 4,945,898 4,648,539 3,980,650 3,721,104 3,367,324 Accumulated depreciation (1,898,434) (2,052,892) (1,809,816) (1,557,991) (1,740,889) (1,521,890)
3,253,557 2,893,006 2,838,723 2,422,659 1,980,215 1,845,434
11. Deferred Tax (Liabilities)/Assets The movement on the deferred income tax account is as follows :-
At 1st July 2008 (21,904) (5,888) 31,364 13,153 15,096 31,647 Effect of reduction in tax rate - (5,032) (3,187) - (5,032) (3,187)Exchange adjustments in respect of foreign subsidiaries
7,502 4,121 1,129 - - -
Effect of consolidating Fincorp Group as a subsidiary
- - (10,812) - - -
Acquisition of subsidiary - - 102 - - - Income statement credit/(charge) 6,691 (15,105) (24,484) 12,993 3,089 (13,364)At 30th June 2009 (7,711) (21,904) (5,888) 26,146 13,153 15,096
Deferred tax assets :-Provisions and post retirement benefits 27,254 32,272 70,388 27,254 32,272 70,388 Provisions for credit impairment 46,561 30,840 42,781 46,561 30,840 42,781 Tax losses carried forward 1,844 1,852 296 - - - Accelerated tax depreciation (46,005) (49,824) (97,621) (47,669) (49,959) (98,073)
29,654 15,140 15,844 26,146 13,153 15,096 Deferred tax liabilities :-Accelerated tax depreciation 37,365 37,044 21,732 - - -
(7,711) (21,904) (5,888) 26,146 13,153 15,096
12. Other Assets
Mandatory balances with Central Banks 1,018,666 966,270 713,863 199,971 129,396 117,945 Accrued interest receivable 907,327 773,130 852,835 854,766 720,860 781,800 Employee benefits asset (see note 16) 343,945 327,857 230,165 343,945 327,857 230,165 Non-banking assets acquired in satisfaction of debts
42,169 44,032 43,781 42,169 44,032 43,781
Others 787,737 586,423 395,432 493,828 384,761 334,770 3,099,844 2,697,712 2,236,076 1,934,679 1,606,906 1,508,461
58
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
59
16. Employee Benefits Assets
GROUP & BANK2009 2008 2007
RS’000 RS’000 RS’000Amounts recognised in the Statements of financial position at end of year:
Present value of funded obligations 3,446,058 2,603,510 2,389,118 Fair value of plan assets (3,031,372) (3,104,721) (3,092,815)Shortfall/(Surplus) of plan assets 414,686 (501,211) (703,697)Unrecognised actuarial (loss)/gains (758,631) 173,354 473,532 Assets shown in note 12 (343,945) (327,857) (230,165)
Amounts recognised in the Income statements:
Current service cost 131,798 103,349 94,858 Interest cost 267,739 245,988 212,500 Expected return on plan assets (326,553) (325,159) (242,923)Actuarial loss/(gains) recognised 37,563 (10,950) (1,098)Total included in non-interest expense 110,547 13,228 63,337
Movements in assets recognised in Statements of financial position:
At 1st July 2008 (327,857) (230,165) (198,362)Total expense as above 110,547 13,228 63,337 Contributions and direct benefits paid (126,635) (110,920) (95,140)At 30th June 2009 (343,945) (327,857) (230,165)
Actual return on plan assets (90,535) 35,931 657,500
The principal actuarial assumptions at end of year:
% % %
Discount rate 10.00 10.50 10.50Expected return on plan assets 10.00 10.50 10.50Future salary increases * 8.50 9.00 9.00Future pension increases 5.50 6.00 6.00
* 9.0% for clerical staff and 8.5% for non-clerical staff.
Reconciliation of the present value of funded obligations
RS’000 RS’000 RS’000Present value of obligation at start of period 2,603,510 2,389,118 2,169,478 Current service cost 131,798 103,349 94,858 Interest cost 267,739 245,988 212,500 Benefits paid (109,449) (134,945) (87,718)Liability loss 552,460 - - Present value of obligation at end of period 3,446,058 2,603,510 2,389,118
Annual Report 2009
14. Other Borrowed Funds
(a) Other borrowed funds comprise the following:
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Borrowings from central banks 176,984 449,630 840,329 176,984 449,630 840,329 Borrowings from banks: in Mauritius - 50,000 - - 50,000 - abroad 2,108,949 2,846,949 4,471,548 1,402,285 2,505,126 4,284,574
2,285,933 3,346,579 5,311,877 1,579,269 3,004,756 5,124,903
(b) Remaining term to maturity:On demand or within a period not exceeding 1 year 540,078 1,161,889 1,199,900 106,750 1,081,083 1,115,876 Within a period of more than 1 year but not exceeding 2 years 1,318,855 179,676 1,479,924 1,299,364 55,593 - Within a period of more than 2 years but not exceeding 3 years 71,923 1,693,495 249,401 71,923 1,639,181 1,463,030 Within a period of more than 3 years 355,077 311,519 2,382,652 101,232 228,899 2,545,997
2,285,933 3,346,579 5,311,877 1,579,269 3,004,756 5,124,903
15. Subordinated Liabilities
Subordinated debt 1,471,555 1,237,128 1,411,108 1,471,555 1,237,128 1,411,108 Remaining term to maturity:Within a period of more than 3 years 1,471,555 1,237,128 1,411,108 1,471,555 1,237,128 1,411,108
60
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
16. Employee Benefits Assets (continued)
61
17. Other Liabilities
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Accrued interest payable 1,234,952 1,405,620 1,301,016 1,161,795 1,379,347 1,237,336 MCB Superannuation Fund 250,468 285,619 186,806 250,468 285,619 186,806 Proposed dividend 711,770 687,981 - 711,770 687,981 - Outstanding lease obligations - - - - 554 2,327 Interest suspense, impersonal & other accounts 2,933,687 2,569,135 2,774,340 2,412,454 2,030,775 2,262,836
5,130,877 4,948,355 4,262,162 4,536,487 4,384,276 3,689,305 Interest suspense shown in note 5(b)(iii) (625,073) (629,783) (800,866) (610,558) (604,399) (782,994)
4,505,804 4,318,572 3,461,296 3,925,929 3,779,877 2,906,311
Outstanding lease obligations : BANK2008 2007
RS’000 RS’000Minimum lease payments: Up to 1 year 572 1,894 Over 1 year and up to 2 years - 572
572 2,466 Less: Future finance charges (18) (139)
554 2,327
The present value of finance lease liabilities may be analysed as follows:
Up to 1 year 554 1,773 Over 1 year and up to 2 years - 554
554 2,327
18. Share Capital and Treasury Shares
Number of sharesShare Capital Treasury Shares Total
At 1st July 2006 282,110,456 (13,711,510) 268,398,946 Cancellation of shares (31,734,861) - (31,734,861)Exercise of share options - 298,102 298,102 At 30th June 2007 250,375,595 (13,413,408) 236,962,187 Exercise of share options - 272,672 272,672 At 30th June 2008 250,375,595 (13,140,736) 237,234,859 Exercise of share options - 21,642 21,642 At 30th June 2009 250,375,595 (13,119,094) 237,256,501
The nominal value of the shares is Rs 10 each.
Annual Report 2009
Reconciliation of fair value of plan assets GROUP & BANK2009 2008 2007
RS’000 RS’000 RS’000Fair value of plan assets at start of period 3,104,721 3,092,815 2,427,893 Expected return on plan assets 326,553 325,159 242,923 Employer contributions 126,635 110,920 95,140 Benefits paid (109,449) (134,945) (87,718)Asset (losses)/gain (417,088) (289,228) 414,577 Fair value of plan assets at end of period 3,031,372 3,104,721 3,092,815
Distribution of plan assets at end of year GROUP & BANK2009 2008 2007
Percentage of assets at end of year % % %Local equities 25 30 25 Local bonds 18 14 14 Property 4 4 4 Loan 3 3 3 Overseas bonds and equities 31 36 34 Other 19 13 20 Total 100 100 100
Where the plan is funded, the overall expected rate of return on plan assets is determined by reference to market yields on bonds and expected yield differences on other types of assets held.
Additional disclosure on assets issued or used by the reporting entity GROUP & BANK2009 2008 2007
Percentage of assets at end of year % % %Assets held in the entity’s own financial instruments 5 6 8 Property occupied by the entity 2 2 3 Other assets used by the entity 8 9 6
Expected employer contributions for 2010 is Rs 155.5 million.
Note: Employee benefits obligations have been provided for based on the report from Hewitt LY Ltd., Actuaries and Consultants.
62 63
20. Interest Income
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Loans and advances to banks 133,585 131,691 84,394 131,644 114,071 76,104 Loans and advances to customers 8,405,441 8,158,137 7,045,041 7,700,078 7,508,149 6,460,759 Placements with other banks 340,119 631,407 576,269 270,564 589,480 518,667 Held to maturity investments 1,469,118 1,362,351 1,221,114 1,314,487 1,230,778 1,001,125
10,348,263 10,283,586 8,926,818 9,416,773 9,442,478 8,056,655
21. Interest Expense
Deposits from banks 70,274 69,463 65,928 69,409 69,463 65,929 Deposits from customers 5,038,343 5,792,932 4,823,595 4,585,272 5,423,951 4,550,639 Other borrowed funds 135,047 168,355 365,054 143,955 196,637 354,762 Subordinated liabilities 59,312 77,747 63,870 59,312 77,747 63,870 Others 9,090 11,153 7,229 8,813 9,297 6,457
5,312,066 6,119,650 5,325,676 4,866,761 5,777,095 5,041,657
22. Fee and Commission Income
Retail banking customer fees 165,726 132,080 88,568 143,024 132,080 88,568 Corporate banking fees 179,868 213,639 141,727 142,679 171,161 129,556 Guarantees 143,347 140,680 109,450 141,205 106,001 102,450 Interbank transaction fees 27,406 50,531 39,316 27,406 25,139 18,140 Brokerage 47,631 20,464 19,711 - - - Asset management fees 56,641 57,678 50,764 - - - Rental income 121,579 136,555 77,972 2,755 1,658 2,103 Card related fees 540,322 499,366 383,701 536,893 470,826 358,096 Trade finance fees 272,002 258,027 246,641 270,296 220,887 210,571 Others 316,663 114,354 160,256 164,495 117,214 98,968
1,871,185 1,623,374 1,318,106 1,428,753 1,244,966 1,008,452
23. Fee and Commission Expense
Guarantees - 9,668 - - - - Brokerage 6,788 - - - - - Interbank transaction fees 52,650 35,915 30,350 7,165 3,762 4,019 Card related fees 214,810 215,569 164,783 214,810 215,569 164,783 Others 12,009 1,454 - 12,009 1,454 -
286,257 262,606 195,133 233,984 220,785 168,802
Annual Report 2009
19. Contingent Liabilities
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000(a) Instruments
Acceptances on account of customers 158,370 533,476 318,872 - - - Guarantees on account of customers 15,660,007 13,750,102 10,932,402 15,224,725 13,238,177 10,531,399 Letters of credit and other obligations on account of customers 4,743,560 5,331,029 7,097,324 4,055,483 4,646,053 6,707,885 Foreign exchange contracts 5,070,273 14,328,121 7,121,096 4,491,290 14,217,663 7,029,518 Other contingent items 2,084,644 2,518,062 422,373 2,062,022 2,140,565 394,829
27,716,854 36,460,790 25,892,067 25,833,520 34,242,458 24,663,631
(b) CommitmentsLoans and other facilities, including undrawn credit facilities 7,311,152 6,000,729 4,487,776 7,115,364 5,815,689 4,366,559
(c) Tax assessments * 278,274 220,642 201,762 278,274 220,642 201,762
(d) OtherInward bills held for collection 422,295 454,376 451,586 422,295 364,804 375,853 Outward bills sent for collection 546,822 631,622 620,000 546,822 631,622 620,000
969,117 1,085,998 1,071,586 969,117 996,426 995,853 36,275,397 43,768,159 31,653,191 34,196,275 41,275,215 30,227,805
* The Bank received in 2005 an income tax assessment relating to the three years ended 30th June 2003.
The Bank objected to that part of the assessment which disputed the deductibility of the loss of Rs 632 million sustained as the result of the fraud of February 2003.
The objection to that assessment has been rejected at this stage and the matter is pending in front of the Assessment Review Committee.
A further assessment was raised in June 2009 for the year ended 30th June 2004 against which the Bank has objected.
The maximum liability that could arise from these assessments amounts to Rs 278 million, including penalties.
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
64 65
26. Non - Interest Expense
(a) Salaries and human resource development
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Wages and salaries 1,350,639 1,219,820 965,494 1,204,546 1,099,334 857,064 Compulsory social security obligations 42,645 30,656 26,742 29,647 25,402 22,899 Equity settled share-based payments 192 2,229 1,886 192 2,229 1,886 Other personnel expenses 347,027 328,362 286,577 317,729 314,272 284,156
1,740,503 1,581,067 1,280,699 1,552,114 1,441,237 1,166,005 Number of employees at the end of the year 2,598 2,344 2,267 2,233 2,076 2,025
(b) Other non-interest expense
Software licensing and other information technology cost 149,608 132,367 120,342 87,852 76,753 65,605 Impairment of intangible assets - - 9,697 - - 9,686 Others 1,055,252 926,660 893,418 785,163 703,333 645,364
1,204,860 1,059,027 1,023,457 873,015 780,086 720,655
(c) Share-based payments
On 26th December 2006, at the Annual Meeting, the shareholders approved a scheme that entitles the employees of the Bank to purchase shares in the Company at a discount. A further offer on similar terms was made to these employees on the 7th November 2008.
The number and weighted average exercise price of share options are as follows:
2009 2008 2007Weighted
avgNumber of
optionsWeighted
avgNumber of
optionsWeighted
avgNumber of
optionsexercise
priceexercise
priceexercise
priceRS RS RS
Outstanding and exercisable at 1st July 2008 108.92 224,231 75.53 231,816 - - Granted during the year 150.61 496,609 109.78 455,049 76.82 529,918 Exercised during the year 117.33 (21,642) 106.24 (272,672) 77.82 (298,102)Expired during the year 109.41 (202,589) 75.07 (189,962) - - Outstanding and exercisable at 30th June 2009 496,609 224,231 231,816
The options outstanding at 30th June 2009 have an exercise price in the range of Rs 150.61 to Rs 154 and a weighted average contractual life of 3½ months (2008 : 3½ months).
The weighted average share price at the date the share options were exercised during F/Y 08/09 was Rs 151.30 (2008 : Rs 155.07, 2007 : Rs 100.92)
The fair value of services in return for share options granted is based on the fair value of the share options granted measured by the average market price of the share of the last three months, as may be adjusted by the Board of Directors of the Bank. The fair value at measurement date is Rs 154 (2008 : Rs 119, 2007 : Rs 83.50)
Annual Report 2009
24. Dividend Income
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Income from quoted investments:
Subsidiary - - - 29,745 35,694 23,796 Associate - - - - - 11,898 Others 17,333 28,916 28,660 129 118 - Income from unquoted investments:
Subsidiaries - - - 150,326 143,495 150,057 Others 52,060 89,752 54,053 6,168 27,179 35,623
69,393 118,668 82,713 186,368 206,486 221,374
25. Net Income from Financial Instruments Carried at Fair Value
Net income from derivatives 34,578 31,597 9,691 34,578 31,597 9,691 Investment securities at fair value through profit or loss 7,174 1,964 11,588 7,174 1,964 11,588
41,752 33,561 21,279 41,752 33,561 21,279
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
66 67
30. Earnings per Share
(a) Basic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, excluding the weighted average number of ordinary shares purchased by the Bank and held as treasury shares.
GROUP2009 2008 2007
RS’000 RS’000 RS’000Profit attributable to the ordinary equity holders of the parent 3,964,002 3,693,734 2,460,845 Weighted average number of ordinary shares (thousands) 237,252 237,112 252,534 Basic earnings per share (Rs) 16.71 15.58 9.74
(b) Diluted earnings per shareDiluted earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year after adjustment for the effects of all dilutive potential ordinary shares. The Bank has only one category of dilutive potential ordinary shares which is share options.
For share options, the proceeds from these instruments shall be regarded as having been received from the issue of ordinary shares at the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued and the number of ordinary shares that would have been issued at the average market price of ordinary shares during the period shall be treated as an issue of ordinary shares for no consideration.
Profit attributable to the ordinary equity holders of the parent 3,964,002 3,693,734 2,460,845 Weighted average number of ordinary shares basic (thousands) 237,252 237,112 252,534 Effect of share options in issue (thousands) 39 21 10 Weighted average number of ordinary shares diluted (thousands) at year end 237,291 237,133 252,544 Diluted earnings per share (Rs) 16.71 15.58 9.74
31. Capital Commitments
Capital Commitments at 30th June are as follows:
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Expenditure contracted for but not incurred 1,859,327 164,418 269,082 1,859,327 164,418 269,082 Expenditure approved by the Board but not contracted for 888,814 1,249,480 696,597 888,814 1,249,480 696,597
Annual Report 2009
27. Allowance for Credit Impairment
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Provisions for bad and doubtful debts: Loans and advances to banks 1,529 2,307 1,170 1,529 2,307 1,170 Loans and advances to customers 393,989 448,259 431,257 366,234 406,863 395,822 Bad debts written off for which no provisions were made 70,892 63,440 9,590 70,892 63,440 9,590 Provisions released during the year (77,739) (46,897) (64,083) (60,095) (22,973) (33,978)Recoveries of advances written off (17,445) (41,220) (2,006) (17,445) (41,220) (2,006)
371,226 425,889 375,928 361,115 408,417 370,598
28. Income Tax Expense
Income tax based on the adjusted profits 685,118 465,159 514,675 481,496 306,988 355,395 Deferred tax (6,691) 20,137 27,671 (12,993) 1,943 16,551 Special levy on banks 166,806 87,897 19,221 166,806 87,897 19,221 Under/(Over) provision in previous year 42,743 1,987 (745) 40,367 (1,434) (1,235)Charge for the year 887,976 575,180 560,822 675,676 395,394 389,932
The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows:
Profit before tax 4,933,935 4,460,908 3,107,530 3,928,156 3,296,429 2,311,353 Less profit of Associates (527,937) (640,839) (414,392) - - -
4,405,998 3,820,069 2,693,138 3,928,156 3,296,429 2,311,353 Tax calculated at a rate of 15% (2008 : 15% & 2007 : 22.5%) 660,900 573,010 605,956 589,223 494,464 520,054 Effect of different tax rates 87,488 81,170 45,964 - - - Impact of: Income not subject to tax (50,857) (199,010) (125,130) (54,445) (146,863) (142,756) Expenses not deductible for tax purposes 120,741 152,158 136,767 72,428 80,995 115,149 Tax credits (139,845) (122,032) (121,211) (138,703) (119,665) (120,501)Special levy on banks 166,806 87,897 19,221 166,806 87,897 19,221 Under/(Over) provision in previous year 42,743 1,987 (745) 40,367 (1,434) (1,235)Tax charge 887,976 575,180 560,822 675,676 395,394 389,932
29. Dividends
BANK2009 2008 2007
RS’000 RS’000 RS’000Interim paid on 22nd December 2008 at Rs 2.25 per share 533,827 391,057 308,659 Final paid on 30th July 2009 at Rs 3.00 per share 711,770 687,981 414,676
1,245,597 1,079,038 723,335
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
68 69
35. Segment Information
Primary reporting format - geographical segments
year ended 30th June 2009
Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Income:
External gross income 13,854,292 12,643,531 - 607,561 395,313 207,887
Expenses (9,077,068) (8,353,616) - (359,393) (241,194) (122,865)
Operating profit before provisions 4,777,224 4,289,915 - 248,168 154,119 85,022
Allowance for credit impairment (371,226) (372,570) - (8,666) 338 9,672
Operating profit 4,405,998 3,917,345 - 239,502 154,457 94,694
Share of profit of associates 527,937 131,597 396,340 - - -
Profit before tax 4,933,935 4,048,942 396,340 239,502 154,457 94,694
Income tax expense (887,976)
Profit for the year 4,045,959
Other segment items:
Segment assets 143,595,965 139,699,274 - 3,381,161 3,608,522 1,575,733 (4,668,725)
Investments in associates 6,490,699 3,370,124 3,120,575 - - - -
Goodwill and other intangible assets 360,025
Deferred tax assets 29,654
Total assets 150,476,343
Segment liabilities 127,365,457 123,923,632 - 3,212,917 3,075,670 1,400,325 (4,247,087)
Unallocated liabilities 2,979,004
Total liabilities 130,344,461
Capital expenditure 1,180,314 1,126,305 - 18,977 25,287 9,745
Depreciation charge 318,317 288,304 - 12,305 8,638 9,070
Amortisation 104,518 99,247 - 537 2,299 2,435
* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s main place of business.
Annual Report 2009
32. Net Cash Flows from Trading Activities
GROUP BANK2009 2008 2007 2009 2008 2007
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000Operating profit 4,405,998 3,820,069 2,693,138 3,928,156 3,296,429 2,311,353 Increase in interest receivable and other assets (406,573) (381,261) (313,992) (311,685) (753) (208,194)Increase in other liabilities 222,443 262,149 207,433 122,817 187,358 248,802 Net increase in derivatives (34,576) (31,596) (17,498) (34,576) (31,596) (17,498)(Increase)/decrease in investment securities at fair value (64,099) 90,409 (16,102) (64,099) 90,409 (16,102)Employee share option expenses 179 2,008 1,695 179 2,008 1,695 Release provision for employee benefits (16,088) (97,692) (31,803) (16,088) (97,692) (31,803)Charge for credit impairment 395,518 450,566 432,427 367,763 409,170 396,992 Release of provisions for credit impairment (77,739) (46,897) (64,083) (60,095) (22,973) (33,978)Exchange adjustment 184,819 (92,207) (121,602) 159,252 (113,932) (91,132)Depreciation 318,317 436,823 303,730 204,818 335,961 217,780 Amortisation of intangible assets 104,518 104,897 110,935 91,169 96,114 106,003 Profit on disposal of property, plant and equipment (52,014) (1,248) (5,724) (2,803) (2,418) (4,464)Loss on disposal of intangible assets - 437 - - 437 - Impairment of intangible assets - - 9,697 - - 9,686 Profit on disposal of available-for-sale investment (58,034) (536,448) (9,903) (43,648) (59,440) - Profit on disposal of shares in subsidiaries - - - - (337,751) -
4,922,669 3,980,009 3,178,348 4,341,160 3,751,331 2,889,140
33. Net Cash Flows from Other Operating Activities
Net increase in deposits 16,888,152 22,608,532 6,898,614 16,960,417 22,108,566 6,228,884 Net increase in loans and advances (19,993,798) (12,707,747) (7,186,604) (19,764,923) (11,340,743) (6,433,591)Decrease/(increase) in held to maturity investment securities 8,036,018 (10,486,065) 4,813,852 7,812,807 (10,470,930) 4,310,737
4,930,372 (585,280) 4,525,862 5,008,301 296,893 4,106,030
34. Analysis of the Cash and Cash Equivalents as shown in the Statements of Cash Flows
ASSETSCash and cash equivalents (see note 3) 21,945,475 16,581,960 16,299,180 20,725,941 15,693,128 14,441,120 Treasury bills (see note 6(a)) - - 68,476 - - 68,476 Other borrowed funds (see note 14) (2,285,933) (3,346,579) (5,311,877) (1,579,269) (3,004,756) (5,124,903)CASh AND CASh EqUIVALENTS 19,659,542 13,235,381 11,055,779 19,146,672 12,688,372 9,384,693 ChANGE IN yEAR 6,424,161 2,179,602 5,024,206 6,458,300 3,303,679 4,563,828
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
70
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
35. Segment Information (continued)
71
35. Segment Information (continued)
Primary reporting format - geographical segments
year ended 30th June 2007
Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Income:
External gross income 11,372,033 10,254,204 - 564,376 303,941 249,512
Expenses (8,302,967) (7,619,727) - (324,849) (186,709) (171,682)
Operating profit before provisions 3,069,066 2,634,477 - 239,527 117,232 77,830
Allowance for credit impairment (375,928) (370,598) - 10,557 7,771 (23,658)
Operating profit 2,693,138 2,263,879 - 250,084 125,003 54,172
Share of profit of associates 414,392 174,938 239,454 - - -
Profit before tax 3,107,530 2,438,817 239,454 250,084 125,003 54,172
Income tax expense (560,822)
Profit for the year 2,546,708
Other segment items:
Segment assets 104,557,468 97,271,884 - 6,406,387 2,286,329 1,159,800 (2,566,932)
Investments in associates 5,281,108 3,081,654 2,199,454 - - - -
Goodwill and other intangible assets 288,302
Deferred tax assets 15,844
Total assets 110,142,722
Segment liabilities 93,411,661 86,742,308 - 6,191,409 1,871,840 1,028,796 (2,422,692)
Unallocated liabilities 1,816,673
Total liabilities 95,228,334
Capital expenditure 635,471 564,394 - 27,529 26,566 16,982
Depreciation charge 303,730 253,364 - 34,092 5,068 11,206
Amortisation 110,935 108,113 - 214 1,875 733
Impairment charge 9,697
* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s main place of business.
Annual Report 2009
Primary reporting format - geographical segments
year ended 30th June 2008
Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Income:
External gross income 13,823,256 12,763,476 - 529,886 320,107 209,787
Expenses (9,577,298) (8,942,099) - (293,458) (187,159) (154,582)
Operating profit before provisions 4,245,958 3,821,377 - 236,428 132,948 55,205
Allowance for credit impairment (425,889) (418,422) - (195) 1,045 (8,317)
Operating profit 3,820,069 3,402,955 - 236,233 133,993 46,888
Share of profit of associates 640,839 360,107 280,732 - - -
Profit before tax 4,460,908 3,763,062 280,732 236,233 133,993 46,888
Income tax expense (575,180)
Profit for the year 3,885,728
Other segment items:
Segment assets 126,648,992 120,976,056 - 4,445,299 2,818,423 1,468,854 (3,059,640)
Investments in associates 6,022,694 3,488,400 2,534,294 - - - -
Goodwill and other intangible assets 284,835
Deferred tax assets 15,140
Total assets 132,971,661
Segment liabilities 112,560,016 107,381,281 - 4,247,284 2,323,498 1,367,199 (2,759,246)
Unallocated liabilities 2,417,255
Total liabilities 114,977,271
Capital expenditure 613,711 569,821 - 2,872 6,752 34,266
Depreciation charge 436,823 406,725 - 17,324 7,575 5,199
Amortisation 104,897 101,034 - 139 2,379 1,345
* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s main place of business.
72
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
35. Segment Information (continued)
73
35. Segment Information (continued)
Secondary reporting format - business segments
year ended 30th June 2008
GroupRS’000
External gross income: The Mauritius Commercial Bank Ltd 12,369,352 MCB Madagascar SA 320,107 MCB Moçambique SA 209,787 MCB Seychelles Ltd 529,886 Fincorp Investment Ltd 409,436 Others 766,118 Eliminations (781,430)
13,823,256
Group Net interest Net fee and Dividend Forex profitincome/(expense) commissions income and others
RS’000 RS’000 RS’000 RS’000 RS’000Operating income: The Mauritius Commercial Bank Ltd 6,371,472 3,665,383 1,024,181 206,486 1,475,422 MCB Madagascar SA 247,097 172,276 61,846 - 12,975 MCB Moçambique SA 159,743 105,752 22,733 - 31,258 MCB Seychelles Ltd 438,555 193,712 125,379 - 119,464 Fincorp Investment Ltd 109,931 (5,196) 91,367 5,114 18,646 Others 734,501 32,009 139,406 113,085 450,001 Eliminations (620,299) - (104,144) (206,017) (310,138)
7,441,000 4,163,936 1,360,768 118,668 1,797,628
Segment assets 115,158,072 111,688,241 3,469,831 Investments in associates 6,022,694 Goodwill and other intangible assets 284,835 Deferred tax assets 15,140 Unallocated assets 11,490,920 Total assets 132,971,661
Annual Report 2009
Secondary reporting format - business segments
year ended 30th June 2009
Group
RS’000
External gross income:
The Mauritius Commercial Bank Ltd 12,221,679
MCB Madagascar SA 395,313
MCB Moçambique SA 207,887
MCB Seychelles Ltd 607,561
Fincorp Investment Ltd 415,439
Others 466,481
Eliminations (460,068)
13,854,292
Group Net interest Net fee and Dividend Forex profit
income/(expense) commissions income and others
RS’000 RS’000 RS’000 RS’000 RS’000
Operating income:
The Mauritius Commercial Bank Ltd 7,120,934 4,550,012 1,194,769 186,368 1,189,785
MCB Madagascar SA 290,816 212,477 56,877 - 21,462
MCB Moçambique SA 180,958 106,191 26,196 - 48,571
MCB Seychelles Ltd 460,293 135,423 122,182 89 202,599
Fincorp Investment Ltd 101,509 (17,619) 102,892 2,831 13,405
Others 410,675 49,713 180,800 74,889 105,273
Eliminations (309,216) - (98,788) (194,784) (15,644)
8,255,969 5,036,197 1,584,928 69,393 1,565,451
Segment assets 130,118,993 126,718,351 3,400,642
Investments in associates 6,490,699
Goodwill and other intangible assets 360,025
Deferred tax assets 29,654
Unallocated assets 13,476,972
Total assets 150,476,343
74
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
35. Segment Information (continued)
75
36. Related Party Transactions
(a) The Group
Associated companies and entities in which the Bank holds more than a 10% interest
Directors and
Key Management Personnel
Enterprises in which Directors and Key
Management Personnel have significant interest
RS’000 RS’000 RS’000Loans and AdvancesBalances at 30th June 2008 3,333,213 74,986 104,397 Movements relating to directors and managers who retired during the year - (48,344) - Existing loans of new entities 162,291 - 187,760 Other net movements (662,491) 3,408 (104,397)Balances at 30th June 2009 2,833,013 30,050 187,760
Leases receivableBalance at year end:30th June 2007 N/A N/A 43,718 30th June 2008 N/A N/A 44,057 30th June 2009 N/A N/A 34,676
DepositsBalance at year end:30th June 2007 49,986 73,091 32,205 30th June 2008 517,272 105,773 2,431 30th June 2009 966,311 191,878 1,091,132
Off Balance sheet itemsBalance at year end:30th June 2007 6,606 500 403 30th June 2008 263,523 500 46,008 30th June 2009 1,670 500 449,961
Interest incomeFor the year ended:30th June 2007 186,168 4,670 18,770 30th June 2008 287,193 10,405 20,440 30th June 2009 235,512 2,006 27,060
Interest expenseFor the year ended:30th June 2007 2,644 5,012 2,430 30th June 2008 10,178 6,361 1,238 30th June 2009 20,299 6,665 46,710
Other incomeFor the year ended:30th June 2007 25,393 116 18,655 30th June 2008 22,784 108 583 30th June 2009 23,417 164 7,792
All the above related party transactions were carried out at least under market terms and conditions with the exception of loans to key Management Personnel who benefited from preferential rates as applicable to staff.
Annual Report 2009
Secondary reporting format - business segments
year ended 30th June 2007
Group
RS’000
External gross income:
The Mauritius Commercial Bank Ltd 10,166,190
MCB Madagascar SA 303,941
MCB Moçambique SA 249,512
MCB Seychelles Ltd 564,376
Fincorp Investment Ltd 165,947
Others 234,828
Eliminations (312,761)
11,372,033
Group Net interest Net fee and Dividend Forex profit
income commissions income and others
RS’000 RS’000 RS’000 RS’000 RS’000
Operating income:
The Mauritius Commercial Bank Ltd 4,955,731 3,014,998 839,650 221,374 879,709
MCB Madagascar SA 218,984 157,881 53,455 - 7,648
MCB Moçambique SA 194,735 131,080 27,317 - 36,338
MCB Seychelles Ltd 465,610 244,822 133,148 - 87,640
Fincorp Investment Ltd 52,493 3,844 38,214 8,875 1,560
Others 213,976 48,517 97,000 39,966 28,493
Eliminations (250,305) - (65,811) (187,502) 3,008
5,851,224 3,601,142 1,122,973 82,713 1,044,396
Segment assets 92,681,252 89,146,251 3,535,001
Investments in associates 5,281,108
Goodwill and other intangible assets 288,302
Deferred tax assets 15,844
Unallocated assets 11,876,216
Total assets 110,142,722
notes to the financial statementsfor the year ended 30th June 2009
MCB Group
76
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
36. Related party transactions (continued)
77
37. Segmental Reporting - Bank
The Bank classifies its assets and liabilities into two segments; Segment A and Segment B. Segment B activity is essentially
directed to the provision of international financial services that give rise to “foreign source income”. Segment B assets
will generally consist of placements with and advances to foreign financial institutions, notably associated companies and
overseas correspondents. Segment B liabilities will normally arise from deposits, borrowings and funds deposited by non-
residents, global business companies and residents.
Segment A activity relates to all banking business other than Segment B activity.
Expenditure incurred by the Bank but which is not directly attributable to its income derived from Mauritius or its
foreign source income is apportioned in a fair and reasonable manner.
Annual Report 2009
The figure for “other income” from Associated Companies includes an element, representing management fees charged to associated companies in respect of salaries, notional rental of office space and provision of technical, administrative and other assistance to local Group companies. It also includes an amount of Rs 10.3 M, Rs 21.5 M and Rs 21.8 M respectively for 2009, 2008 and 2007 in respect of management fees charged to BFCOI.
Additionally, the Bank has entered into management contracts with its foreign banking subsidiaries and charges management fees based on operating income. These fees represent the re-invoicing of expatriate salaries and benefits, where applicable, as well as management, administrative and technical support provided by MCB. Gross amounts claimed, net of withholding tax in the local jurisdiction, were as follows :
MCB Seychelles 5.88 % of Gross operating income Rs 27.4 MMCB Madagascar 5 % of operating income Rs 14.2 MMCB Mozambique 5% of operating income Rs 8.7 M
IT and Systems support to the above three companies is provided by BFCOI who has claimed EUR 307,000, EUR 271,000 and EUR 179,000 from MCB Seychelles, MCB Madagascar and MCB Moçambique respectively. These amounts have been charged to our subsidiaries’ income statements and consolidated in Group non-interest expense.
(b) The Bank
In addition to the amounts disclosed in (a) above, the following information relate to subsidiaries of the Bank:
(i) Balances as at 30th June : Loans and Advances
Deposits Off Balance sheet items
RS’000 RS’000 RS’000Balance at year end:30th June 2007 1,589,365 718,396 735,354 30th June 2008 1,221,417 2,039,213 795,658 30th June 2009 1,577,327 2,581,252 212,639
(ii) Income and expenses :Interest income
Interest expense
Other income
For the year ended:30th June 2007 107,835 44,944 60,044 30th June 2008 114,706 82,535 68,077 30th June 2009 112,466 79,440 60,648
(c) Key Management personnel compensationThe Group
and the Bank Remuneration and other benefits relating to key management 2009 2008 personnel, including directors, were as follows : RS’000 RS’000Salaries and short term employee benefits 118,634 95,650 Post employment benefits 7,165 6,042
125,799 101,692
78
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
37. Segmental Reporting - Bank (continued)
79
37. Segmental Reporting - Bank (continued)
Income statements for the year ended 30th June 2009
2009 2008 2007
BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
Note RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Interest income 37(n) 9,416,773 8,185,433 1,231,340 9,442,478 8,152,536 1,289,942 8,056,655 7,039,313 1,017,342
Interest expense 37(o) (4,866,761) (4,244,223) (622,538) (5,777,095) (5,012,818) (764,277) (5,041,657) (4,331,687) (709,970)
Net interest income 4,550,012 3,941,210 608,802 3,665,383 3,139,718 525,665 3,014,998 2,707,626 307,372
Fee and commission income 37(p) 1,428,753 1,040,080 388,673 1,244,966 957,471 287,495 1,008,452 819,063 189,389
Fee and commission expense 37(q) (233,984) (226,819) (7,165) (220,785) (217,023) (3,762) (168,802) (164,783) (4,019)
Net fee and commission income 1,194,769 813,261 381,508 1,024,181 740,448 283,733 839,650 654,280 185,370
Other income
Profit arising from dealing in foreign currencies 1,101,582 1,024,232 77,350 1,042,689 949,400 93,289 853,966 774,163 79,803
Dividend income 37(r) 186,368 64,886 121,482 206,486 110,194 96,292 221,374 111,422 109,952
Net income from other financial instruments
carried at fair value 37(s) 41,752 41,752 - 33,561 33,561 - 21,279 21,279 -
Net gain/(loss) on sale of securities 43,648 (12,876) 56,524 397,191 343,770 53,421 - - -
Other operating income 2,803 2,803 - 1,981 1,981 - 4,464 4,464 -
1,376,153 1,120,797 255,356 1,681,908 1,438,906 243,002 1,101,083 911,328 189,755
Operating income 7,120,934 5,875,268 1,245,666 6,371,472 5,319,072 1,052,400 4,955,731 4,273,234 682,497
Non-interest expense
Salaries and human resource development 37(t) (1,552,114) (1,466,663) (85,451) (1,441,237) (1,364,437) (76,800) (1,166,005) (1,123,709) (42,296)
Employee benefits (110,547) (102,974) (7,573) (13,228) (10,006) (3,222) (63,337) (63,337) -
Depreciation (204,818) (196,569) (8,249) (335,961) (322,610) (13,351) (217,780) (207,116) (10,664)
Amortisation of intangible assets (91,169) (82,504) (8,665) (96,114) (88,365) (7,749) (106,003) (96,527) (9,476)
Other 37(u) (873,015) (830,770) (42,245) (780,086) (739,790) (40,296) (720,655) (700,208) (20,447)
(2,831,663) (2,679,480) (152,183) (2,666,626) (2,525,208) (141,418) (2,273,780) (2,190,897) (82,883)
Operating profit before provisions 4,289,271 3,195,788 1,093,483 3,704,846 2,793,864 910,982 2,681,951 2,082,337 599,614
Allowances for credit impairment 37(v) (361,115) (296,876) (64,239) (408,417) (426,594) 18,177 (370,598) (359,419) (11,179)
Profit before tax 3,928,156 2,898,912 1,029,244 3,296,429 2,367,270 929,159 2,311,353 1,722,918 588,435
Income tax expense 37(w) (675,676) (636,259) (39,417) (395,394) (347,176) (48,218) (389,932) (363,887) (26,045)
Profit for the year 3,252,480 2,262,653 989,827 2,901,035 2,020,094 880,941 1,921,421 1,359,031 562,390
Annual Report 2009
Statements of financial position as at 30th June 2009
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
Note RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
ASSETSCash and cash equivalents 20,725,941 6,077,406 14,648,535 15,693,128 4,661,288 11,031,840 14,441,120 4,465,002 9,976,118 Derivative financial instruments 37(a) 120,408 49,355 71,053 137,261 44,020 93,241 23,795 17,011 6,784 Loans and advances to banks 37(b) 2,222,735 220,833 2,001,902 1,568,519 304,167 1,264,352 934,445 387,500 546,945 Loans and advances to customers 37(c) 89,128,211 71,217,679 17,910,532 70,325,172 58,950,412 11,374,760 60,004,700 53,867,489 6,137,211 Investment securities 37(d) 14,032,673 13,638,490 394,183 22,073,538 21,416,400 657,138 11,907,788 11,153,513 754,275 Investment in associate 37(e) 914,593 - 914,593 885,586 - 885,586 875,530 - 875,530 Investment in subsidiaries 37(f) 3,019,830 2,182,930 836,900 2,391,412 1,643,017 748,395 2,126,099 1,679,793 446,306 Goodwill and other intangible assets 275,728 275,728 - 202,246 202,246 - 229,201 229,201 - Property, plant and equipment 37(g) 3,008,629 3,008,629 - 2,458,313 2,458,313 - 2,449,780 2,449,780 - Deferred tax assets 26,146 26,146 - 13,153 13,153 - 15,096 15,096 - Other assets 37(h) 1,934,679 1,756,836 177,843 1,606,906 1,430,700 176,206 1,508,461 1,324,609 183,852 Total assets 135,409,573 98,454,032 36,955,541 117,355,234 91,123,716 26,231,518 94,516,015 75,588,994 18,927,021
LIABILITIES AND ShAREhOLDERS’ EqUITyDeposits from banks 37(i) 3,569,403 66,262 3,503,141 2,373,015 1,260 2,371,755 1,536,428 11,637 1,524,791 Deposits from customers 37(j) 110,937,039 90,068,227 20,868,812 95,173,010 80,176,738 14,996,272 73,901,031 67,162,177 6,738,854 Derivative financial instruments 37(a) 44,544 1,431 43,113 95,973 12,407 83,566 14,103 9,663 4,440 Other borrowed funds 1,579,269 176,984 1,402,285 3,004,756 504,065 2,500,691 5,124,903 897,659 4,227,244 Subordinated liabilities 37(k) 1,471,555 - 1,471,555 1,237,128 - 1,237,128 1,411,108 - 1,411,108 Current tax liabilities 628,659 628,659 - 347,643 347,643 - 327,374 327,374 - Other liabilities 37(l) 3,925,929 3,591,820 334,109 3,779,877 3,589,319 190,558 2,906,311 2,619,594 286,717 Total liabilities 122,156,398 94,533,383 27,623,015 106,011,402 84,631,432 21,379,970 85,221,258 71,028,104 14,193,154
Shareholders’ EquityShare capital and share premium 2,544,998 2,544,998 - 2,543,046 2,543,046 - 2,520,008 2,520,008 - Retained earnings 7,803,419 7,803,419 - 5,837,778 5,837,778 - 4,436,959 4,436,959 - Other components of equity 3,280,615 3,331,121 (50,506) 3,339,485 3,078,710 260,775 2,722,079 2,656,662 65,417
13,629,032 13,679,538 (50,506) 11,720,309 11,459,534 260,775 9,679,046 9,613,629 65,417 Less treasury shares (375,857) (375,857) - (376,477) (376,477) - (384,289) (384,289) - Total equity 13,253,175 13,303,681 (50,506) 11,343,832 11,083,057 260,775 9,294,757 9,229,340 65,417 Total equity and liabilities 135,409,573 107,837,064 27,572,509 117,355,234 95,714,489 21,640,745 94,516,015 80,257,444 14,258,571
CONTINGENT LIABILITIESAcceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and foreign exchange contracts 25,833,520 14,828,554 11,004,966 34,242,458 21,754,200 12,488,258 24,663,631 16,787,824 7,875,807 Commitments 7,115,364 5,591,346 1,524,018 5,815,689 4,518,069 1,297,620 4,366,559 3,193,110 1,173,449 Tax assessments 278,274 278,274 - 220,642 220,642 - 201,762 201,762 - Other 969,117 751,502 217,615 996,426 729,003 267,423 995,853 704,509 291,344
37(m) 34,196,275 21,449,676 12,746,599 41,275,215 27,221,914 14,053,301 30,227,805 20,887,205 9,340,600
80
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
81
37. Segmental Reporting - Bank (continued)
(a) Derivative financial instruments
2009 2008 2007
BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
(i) Fair value assets
Currency forwards 53,970 44,073 9,897 90,847 10,026 80,821 11,626 7,388 4,238
Currency swaps 66,438 5,282 61,156 46,414 33,994 12,420 12,169 9,623 2,546
120,408 49,355 71,053 137,261 44,020 93,241 23,795 17,011 6,784
(ii) Fair value liabilities
Currency forwards 40,886 501 40,385 83,070 1,239 81,831 14,001 9,616 4,385
Currency swaps 3,658 930 2,728 12,903 11,168 1,735 102 47 55
44,544 1,431 43,113 95,973 12,407 83,566 14,103 9,663 4,440
(b) Loans and advances to banks
Loans and advances to banks
in Mauritius 220,833 220,833 - 304,167 304,167 - 387,500 387,500 -
outside Mauritius 2,007,139 - 2,007,139 1,268,060 - 1,268,060 548,346 - 548,346
2,227,972 220,833 2,007,139 1,572,227 304,167 1,268,060 935,846 387,500 548,346
Less allowances for credit impairment (5,237) - (5,237) (3,708) - (3,708) (1,401) - (1,401)
2,222,735 220,833 2,001,902 1,568,519 304,167 1,264,352 934,445 387,500 546,945
(i) Remaining term to maturity
Up to 3 months 1,414,027 - 1,414,027 141,864 - 141,864 20,030 - 20,030
Over 3 months and up to 6 months 194,750 - 194,750 - - - - - -
Over 1 year and up to 5 years 619,195 220,833 398,362 1,411,262 304,167 1,107,095 894,028 387,500 506,528
Over 5 years - - - 19,101 - 19,101 21,788 - 21,788
2,227,972 220,833 2,007,139 1,572,227 304,167 1,268,060 935,846 387,500 548,346
(ii) Allowances for credit impairment
BANK SEGMENT B
Total Total
RS’000 RS’000
Portfolio provisions
At 1st July 2006 231 231
Provision for credit impairment for the year 1,170 1,170
At 30th June 2007 1,401 1,401
Provision for credit impairment for the year 2,307 2,307
At 30th June 2008 3,708 3,708
Provision for credit impairment for the year 1,529 1,529
At 30th June 2009 5,237 5,237
Annual Report 2009
37. Segmental Reporting - Bank (continued)
Statements of comprehensive income for the year ended 30th June 2009
2009 2008 2007
BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Profit for the year 3,252,480 2,262,653 989,827 2,901,035 2,020,094 880,941 1,921,421 1,359,031 562,390
Other comprehensive (expense)/income:
Transfer on disposal of available-for-sale investment (49,834) 12,621 (62,455) - - - - - -
Net fair value(loss)/gain on available-for-sale investment (50,278) 228 (50,506) 196,228 870 195,358 65,417 - 65,417
Total comprehensive income for the year 3,152,368 2,275,502 876,866 3,097,263 2,020,964 1,076,299 1,986,838 1,359,031 627,807
82
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
83
37. Segmental Reporting - Bank (continued)
(c) Loans and advances to customers (continued)
(iii) Allowances for credit impairment
BANK SEGMENT A SEGMENT B
Specific Portfolio Total Specific Portfolio Total Specific Portfolio Total
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
At 1st July 2006 1,970,877 397,969 2,368,846 1,961,989 362,199 2,324,188 8,888 35,770 44,658
Provision for credit impairment for the year 356,392 39,430 395,822 350,068 35,738 385,806 6,324 3,692 10,016
Provisions released (33,978) - (33,978) (33,978) - (33,978) - - -
Amounts written off (356,781) - (356,781) (356,781) - (356,781) - - -
At 30th June 2007 1,936,510 437,399 2,373,909 1,921,298 397,937 2,319,235 15,212 39,462 54,674
Interest suspense 782,994 - 782,994 782,994 - 782,994 - - -
Provisions and interest suspense at 30th June 2007 2,719,504 437,399 3,156,903 2,704,292 397,937 3,102,229 15,212 39,462 54,674
At 1st July 2007 1,936,510 437,399 2,373,909 1,921,298 397,937 2,319,235 15,212 39,462 54,674
Provision for credit impairment for the year 328,170 78,693 406,863 327,148 60,170 387,318 1,022 18,523 19,545
Provisions released (22,973) - (22,973) (22,973) - (22,973) - - -
Amounts written off (264,548) - (264,548) (263,676) - (263,676) (872) - (872)
At 30th June 2008 1,977,159 516,092 2,493,251 1,961,797 458,107 2,419,904 15,362 57,985 73,347
Interest suspense 604,399 - 604,399 604,399 - 604,399 - - -
Provisions and interest suspense at 30th June 2008 2,581,558 516,092 3,097,650 2,566,196 458,107 3,024,303 15,362 57,985 73,347
At 1st July 2008 1,977,159 516,092 2,493,251 1,961,797 458,107 2,419,904 15,362 57,985 73,347
Provision for credit impairment for the year 232,263 133,971 366,234 224,260 79,264 303,524 8,003 54,707 62,710
Provisions released (60,095) - (60,095) (60,095) - (60,095) - - -
Amounts written off (135,141) - (135,141) (135,141) - (135,141) - - -
At 30th June 2009 2,014,186 650,063 2,664,249 1,990,821 537,371 2,528,192 23,365 112,692 136,057
Interest suspense 610,558 - 610,558 608,257 - 608,257 2,301 - 2,301
Provisions and interest suspense at 30th June 2009 2,624,744 650,063 3,274,807 2,599,078 537,371 3,136,449 25,666 112,692 138,358
Annual Report 2009
37. Segmental Reporting - Bank (continued)
(c) Loans and advances to customers
2009 2008 2007
BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Retail customers:
Credit cards 497,442 497,442 - 421,276 421,276 - 424,520 424,520 -
Mortgages 8,197,017 7,028,229 1,168,788 7,506,230 6,900,311 605,919 6,278,950 6,259,613 19,337
Other retail loans 8,240,408 8,152,173 88,235 6,651,997 6,601,696 50,301 6,265,916 6,239,801 26,115
Corporate customers 63,726,930 58,674,809 5,052,121 53,753,395 48,051,432 5,701,963 45,243,665 44,045,784 1,197,881
Governments 1,195,941 1,475 1,194,466 1,204,078 - 1,204,078 1,086,262 - 1,086,262
Entities outside Mauritius 10,545,280 - 10,545,280 3,885,846 - 3,885,846 3,862,290 - 3,862,290
92,403,018 74,354,128 18,048,890 73,422,822 61,974,715 11,448,107 63,161,603 56,969,718 6,191,885
Less allowances for credit impairment (3,274,807) (3,136,449) (138,358) (3,097,650) (3,024,303) (73,347) (3,156,903) (3,102,229) (54,674)
89,128,211 71,217,679 17,910,532 70,325,172 58,950,412 11,374,760 60,004,700 53,867,489 6,137,211
(i) Remaining term to maturity
Up to 3 months 28,373,842 27,855,076 518,766 29,627,416 25,755,736 3,871,680 24,733,562 22,724,049 2,009,513
Over 3 months and up to 6 months 1,343,923 1,335,751 8,172 1,313,923 929,562 384,361 591,112 571,585 19,527
Over 6 months and up to 12 months 1,234,291 1,190,724 43,567 1,228,098 688,269 539,829 2,299,621 2,290,771 8,850
Over 1 year and up to 5 years 19,820,942 9,957,481 9,863,461 15,984,413 13,163,422 2,820,991 14,089,405 11,902,296 2,187,109
Over 5 years 41,630,020 34,015,096 7,614,924 25,268,972 21,437,726 3,831,246 21,447,903 19,481,017 1,966,886
92,403,018 74,354,128 18,048,890 73,422,822 61,974,715 11,448,107 63,161,603 56,969,718 6,191,885
(ii) Credit concentration of risk by industry sectors
Agriculture and fishing 3,312,950 3,312,950 - 3,122,423 3,122,423 - 2,612,091 2,612,091 -
Manufacturing 3,333,440 3,333,440 - 4,762,089 4,762,089 - 5,533,978 5,533,978 -
of which EPZ 2,560,622 2,560,622 - 2,129,926 2,129,926 - 2,700,609 2,700,609 -
Tourism 12,725,757 8,681,120 4,044,637 6,501,857 5,747,904 753,953 2,679,985 2,387,410 292,575
Transport 239,369 239,369 - - - - 832 832 -
Construction 6,111,112 6,111,112 - 1,341,306 1,341,306 - 1,359,659 1,359,659 -
Financial and business services 810,487 810,487 - 387,335 387,335 - 551,019 551,019 -
Traders 810,827 810,827 - 690,304 690,304 - 6,647,451 6,647,451 -
Global business licence holders 1,006,558 - 1,006,558 159,602 - 159,602 976,900 - 976,900
Others 3,320,329 2,861,839 458,490 2,030,453 2,030,453 - 2,302,408 2,302,408 -
31,670,829 26,161,144 5,509,685 18,995,369 18,081,814 913,555 22,664,323 21,394,848 1,269,475
84
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
85
37. Segmental Reporting - Bank (continued)
(d) Investment securities
2009 2008 2007
BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
At fair value through profit or loss 64,692 64,692 - 593 593 - 159,478 159,478 -
Held to maturity 13,072,424 13,072,424 - 20,885,231 20,885,231 - 10,414,301 10,414,301 -
Available-for-sale 895,557 501,374 394,183 1,187,714 530,576 657,138 1,334,009 579,734 754,275
14,032,673 13,638,490 394,183 22,073,538 21,416,400 657,138 11,907,788 11,153,513 754,275
(i) At fair value through profit or loss
Treasury bills held for trading:
Up to 3 months and included in cash and cash equivalent - - - - - - 68,476 68,476 -
Over 3 months and up to 12 months 64,692 64,692 - 593 593 - 91,002 91,002 -
64,692 64,692 - 593 593 - 159,478 159,478 -
(ii) held to maturity
Mauritius Development Loan Stocks 712,128 712,128 - 784,207 784,207 - 979,104 979,104 -
Gom bonds 5,170,983 5,170,983 - 5,438,426 5,438,426 - 3,358,174 3,358,174 -
Treasury notes - - - - - - 967,600 967,600 -
Treasury bills 7,189,313 7,189,313 - 14,662,598 14,662,598 - 5,109,423 5,109,423 -
13,072,424 13,072,424 - 20,885,231 20,885,231 - 10,414,301 10,414,301 -
(iii) Available-for-sale
quoted
Official list: shares 2,104 2,104 - 2,104 2,104 - - - -
Unquoted
Shares 893,453 499,270 394,183 1,185,610 528,472 657,138 1,334,009 579,734 754,275
895,557 501,374 394,183 1,187,714 530,576 657,138 1,334,009 579,734 754,275
(e) Investment in associate
2009 2008 2007 Country Effective BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B
of holding incorporation % RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Banque Française Commerciale O.I. France 49.99 447,184 - 447,184 447,184 - 447,184 447,184 - 447,184Subordinated loan to associate 467,409 - 467,409 438,402 - 438,402 428,346 - 428,346
914,593 - 914,593 885,586 - 885,586 875,530 - 875,530
Annual Report 2009
37. Segmental Reporting - Bank (continued)
(c) Loans and advances to customers (continued)
(iv) Allowances for credit impairment by industry sectors
2009 2008 2007 Gross
amount of loans
Non performing
loans
Specific provision
Portfolio provision
Total provision
Total provision
Total provision
RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000BANKAgriculture and fishing 7,125,045 64,349 30,232 52,100 82,332 97,322 83,131 Manufacturing 8,562,332 1,022,449 473,539 66,100 539,639 590,042 509,105 of which EPZ 3,034,927 397,900 307,469 36,900 344,369 293,692 240,542 Tourism 19,846,578 77,665 34,891 48,900 83,791 51,725 114,330 Transport 571,177 29,470 7,382 2,600 9,982 11,264 18,256 Construction 16,515,777 962,262 407,714 129,100 536,814 430,064 491,942 Financial and business services 5,911,374 47,854 12,962 17,663 30,625 56,543 42,120 Traders 12,861,198 787,797 382,925 113,300 496,225 805,954 876,559 Personal 7,877,693 1,194,464 501,730 113,200 614,930 726,691 742,037 of which credit cards 419,454 135,850 70,707 13,800 84,507 105,174 92,510 Professional 237,336 125,963 37,041 2,500 39,541 78,590 80,697 Foreign governments 1,194,465 - - 5,970 5,970 6,020 5,431 Global Business Licence holders 4,635,282 33,604 1,638 46,017 47,655 11,040 5,779 Others 7,064,761 272,391 734,690 52,613 787,303 232,395 187,516
92,403,018 4,618,268 2,624,744 650,063 3,274,807 3,097,650 3,156,903
Segment AAgriculture and fishing 6,466,116 64,347 30,231 47,158 77,389 95,678 83,065 Manufacturing 8,562,202 1,022,319 473,459 66,100 539,559 590,042 509,088 of which EPZ 3,034,927 397,900 307,469 36,900 344,369 293,692 240,542 Tourism 13,406,540 77,620 34,854 32,800 67,654 46,447 111,459 Transport 376,553 28,761 6,901 1,630 8,531 10,220 17,412 Construction 15,583,989 945,239 404,225 121,415 525,640 425,670 491,432 Financial and business services 5,718,402 47,766 12,892 16,664 29,556 48,195 40,269 Traders 11,272,158 787,088 382,464 97,417 479,881 793,259 857,191 Personal 7,418,720 1,165,615 485,103 107,823 592,926 708,048 728,362 of which credit cards 419,454 135,850 70,707 13,800 84,507 105,174 92,510 Professional 236,551 125,352 36,918 2,496 39,414 78,582 80,311 Others 5,312,897 269,632 732,031 43,868 775,899 228,162 183,640
74,354,128 4,533,739 2,599,078 537,371 3,136,449 3,024,303 3,102,229
Segment BAgriculture and fishing 658,929 2 1 4,942 4,943 1,644 66 Manufacturing 130 130 80 - 80 - 17 Tourism 6,440,038 45 37 16,100 16,137 5,278 2,871 Transport 194,624 709 481 970 1,451 1,044 844 Construction 931,788 17,023 3,489 7,685 11,174 4,394 509 Financial and business services 192,972 88 70 999 1,069 8,348 1,851 Traders 1,589,040 709 461 15,883 16,344 12,695 19,368 Personal 458,973 28,849 16,627 5,377 22,004 18,643 13,675 Professional 785 611 123 4 127 8 386 Foreign governments 1,194,465 - - 5,970 5,970 6,020 5,431 Global Business Licence holders 4,635,282 33,604 1,638 46,017 47,655 11,040 5,779 Others 1,751,864 2,759 2,659 8,745 11,404 4,233 3,876
18,048,890 84,529 25,666 112,692 138,358 73,347 54,674
86
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
87
37. Segmental Reporting - Bank (continued)
(g) Property, plant and equipment
Assets under Land Computer Other Totalfinance and and other fixedleases buildings equipment assetsRS’000 RS’000 RS’000 RS’000 RS’000
Cost & ValuationAt 1st July 2006 17,991 1,834,904 1,415,496 400,910 3,669,301 Additions - 156,858 224,061 96,400 477,319 Disposals (67) (410) (54,429) (28,565) (83,471)Transfer (7,089) - 5,942 1,147 - At 30th June 2007 10,835 1,991,352 1,591,070 469,892 4,063,149 Additions - 123,424 169,196 59,511 352,131 Disposals (142) (4,300) (112,961) (23,132) (140,535)Transfer (7,954) - 7,954 - - At 30th June 2008 2,739 2,110,476 1,655,259 506,271 4,274,745 Additions - 424,630 245,002 95,275 764,907 Disposals - (6,102) (234,607) (124,050) (364,759)Transfer (2,739) - - 2,739 - At 30th June 2009 - 2,529,004 1,665,654 480,235 4,674,893
Accumulated depreciationAt 1st July 2006 14,726 222,789 1,014,224 223,785 1,475,524 Charge for the year 2,167 27,007 142,973 45,633 217,780 Disposal adjustment (65) (28) (53,448) (26,394) (79,935)Transfer (7,089) - 5,942 1,147 - At 30th June 2007 9,739 249,768 1,109,691 244,171 1,613,369 Charge for the year 548 28,115 206,461 100,837 335,961 Disposal adjustment (142) (343) (112,266) (20,147) (132,898)Transfer (7,954) - 7,954 - - At 30th June 2008 2,191 277,540 1,211,840 324,861 1,816,432 Charge for the year - 29,580 133,321 41,917 204,818 Disposal adjustment - (722) (234,150) (120,114) (354,986)Transfer (2,191) - - 2,191 - At 30th June 2009 - 306,398 1,111,011 248,855 1,666,264
Net book values - Segment AAt 30th June 2009 - 2,222,606 554,643 231,380 3,008,629 At 30th June 2008 548 1,832,936 443,419 181,410 2,458,313 At 30th June 2007 1,096 1,741,584 481,379 225,721 2,449,780
Annual Report 2009
37. Segmental Reporting - Bank (continued)
(f) Investment in subsidiaries2009
Country of Principal activities Stated Effective BANK Segment A Segment Bincorporation/ Capital holding
operation RS’000 % RS’000 RS’000 RS’000MCB Equity Fund Ltd Mauritius Private Equity Fund 1,910,965 100.00 1,910,965 1,910,965 - MCB Moçambique SA Mozambique Banking & Financial services 153,060 95.00 260,040 - 260,040 MCB Seychelles Ltd Seychelles Banking & Financial services 48,725 100.00 211,522 - 211,522
MCB Male Branch Republic of
Maldives Banking & Financial services 161,995 100.00 138,724 - 138,724 International Card Processing
Mauritius Providing card system facilities, card
Services Ltd embossing & encoding services 100,000 80.00 80,000 80,000 - MCB Capital Markets Ltd Mauritius Investment Holding Company 98,719 90.00 75,000 75,000 - MCB Madagascar SA Madagascar Banking & Financial services 203,075 85.00 64,322 - 64,322 MCB Factors Ltd Mauritius Factoring 50,000 100.00 50,000 50,000 - Fincorp Investment Ltd Mauritius Investment Company 103,355 57.56 24,735 24,735 - MCB Properties Ltd Mauritius Property ownership and development 14,625 100.00 14,625 14,625 - Blue Penny Museum Mauritius Philatelic museum 1,000 97.88 950 950 -
2,830,883 2,156,275 674,608 Subordinated loans to subsidiaries 188,947 26,655 162,292
3,019,830 2,182,930 836,900
2008 Country of Principal activities Effective BANK Segment A Segment B
incorporation/ holding operation % RS’000 RS’000 RS’000
MCB Equity Fund Ltd Mauritius Private Equity Fund 100.00 1,451,052 1,451,052 - MCB Moçambique SA Mozambique Banking & Financial services 95.00 260,040 - 260,040 MCB Seychelles Ltd Seychelles Banking & Financial services 100.00 211,522 - 211,522 MCB Capital Markets Ltd Mauritius Investment holding company 90.00 75,000 75,000 -
MCB Male Branch Republic of
Maldives Banking & Financial services 100.00 61,033 - 61,033 MCB Factors Ltd Mauritius Factoring 100.00 50,000 50,000 - Fincorp Investment Ltd Mauritius Investment company 57.56 24,735 24,735 - MCB Properties Ltd Mauritius Property ownership and development 100.00 14,625 14,625 - MCB Madagascar SA Madagascar Banking & Financial services 75.00 7,131 - 7,131 Blue Penny Museum Mauritius Philatelic museum 97.88 950 950 -
2,156,088 1,616,362 539,726 Subordinated loans to subsidiaries 235,324 26,655 208,669
2,391,412 1,643,017 748,395
2007 Country of Principal activities Effective BANK Segment A Segment B
incorporation/ holding operation % RS’000 RS’000 RS’000
MCB Equity Fund Ltd Mauritius Private Equity Fund 100.00 1,534,903 1,534,903 - MCB Moçambique SA Mozambique Banking & Financial services 91.28 227,653 - 227,653 MCB Seychelles Ltd Seychelles Banking & Financial services 100.00 211,522 - 211,522 MCB Factors Ltd Mauritius Factoring 100.00 50,000 50,000 - Fincorp Investment Ltd Mauritius Investment company 57.56 24,735 24,735 - MCB Properties Ltd Mauritius Property ownership and development 100.00 14,625 14,625 - MCB Registry and Securities Ltd Mauritius Share and Unit Registry services 100.00 12,000 12,000 - MCB Fund Managers Ltd Mauritius Management of collective investment schemes 100.00 11,425 11,425 - MCB Madagascar SA Madagascar Banking & Financial services 75.00 7,131 - 7,131 MCB Investment Management Co. Ltd Mauritius Investment advisory and management services 62.22 3,000 3,000 - MCB Capital Partners Ltd Mauritius Investment advisory and management services 100.00 1,000 1,000 - Blue Penny Museum Mauritius Philatelic museum 97.88 950 950 - MCB Stockbrokers Ltd Mauritius Brokerage services 100.00 500 500 -
2,099,444 1,653,138 446,306 Subordinated loan to subsidiary 26,655 26,655 -
2,126,099 1,679,793 446,306
88
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
37. Segmental Reporting - Bank (continued)
89
37. Segmental Reporting - Bank (continued)
(j) Deposits from customers
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Retail customersDemand deposits 8,419,223 5,473,001 2,946,222 7,527,772 5,227,287 2,300,485 6,823,242 5,289,080 1,534,162 Savings deposits 44,328,183 41,877,966 2,450,217 38,617,226 36,804,841 1,812,385 34,575,582 33,236,662 1,338,920 Time deposits with remaining term to maturity: Up to 3 months 5,223,093 4,074,235 1,148,858 4,550,479 3,753,754 796,725 3,861,857 3,394,781 467,076 Over 3 months and up to 6 months 2,166,265 1,689,779 476,486 1,301,556 1,073,672 227,884 1,317,539 1,158,188 159,351 Over 6 months and up to 1 year 3,606,499 2,813,223 793,276 2,681,230 2,211,784 469,446 2,457,652 2,160,409 297,243 Over 1 year and up to 5 years 9,479,236 7,394,208 2,085,028 9,114,209 7,518,438 1,595,771 8,193,740 7,202,740 991,000 Over 5 years 8,870 6,919 1,951 61,796 50,977 10,819 - - -
20,483,963 15,978,364 4,505,599 17,709,270 14,608,625 3,100,645 15,830,788 13,916,118 1,914,670 73,231,369 63,329,331 9,902,038 63,854,268 56,640,753 7,213,515 57,229,612 52,441,860 4,787,752
Corporate customersDemand deposits 22,832,954 16,537,231 6,295,723 17,508,553 14,085,867 3,422,686 10,615,017 9,071,074 1,543,943 Savings deposits 3,662,534 3,621,221 41,313 3,554,688 3,542,942 11,746 1,751,935 1,747,505 4,430 Time deposits with remaining term to maturity: Up to 3 months 9,228,306 5,352,629 3,875,677 9,220,143 5,268,087 3,952,056 3,244,953 2,922,437 322,516 Over 3 months and up to 6 months 1,013,129 587,638 425,491 185,394 105,929 79,465 191,194 172,191 19,003 Over 6 months and up to 1 year 325,517 188,807 136,710 282,037 161,148 120,889 131,961 118,845 13,116 Over 1 year and up to 5 years 456,834 264,974 191,860 457,075 261,160 195,915 483,890 435,796 48,094 Over 5 years - - - 100 100 - - - -
11,023,786 6,394,048 4,629,738 10,144,749 5,796,424 4,348,325 4,051,998 3,649,269 402,729 37,519,274 26,552,500 10,966,774 31,207,990 23,425,233 7,782,757 16,418,950 14,467,848 1,951,102
GovernmentDemand deposits 27,418 27,418 - 45,936 45,936 - 229,516 229,516 - Savings deposits 158,978 158,978 - 64,816 64,816 - 22,953 22,953 -
186,396 186,396 - 110,752 110,752 - 252,469 252,469 -
Total 110,937,039 90,068,227 20,868,812 95,173,010 80,176,738 14,996,272 73,901,031 67,162,177 6,738,854
Annual Report 2009
(h) Other assets
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Mandatory balances with Bank of Mauritius 199,971 199,971 - 129,396 129,396 - 117,945 117,945 - Accrued interest receivable 854,766 744,372 110,394 720,860 629,796 91,064 781,800 689,588 92,212 Employee benefits asset 343,945 343,945 - 327,857 327,857 - 230,165 230,165 - Non-banking assets acquired in satisfaction of debts 42,169 42,169 - 44,032 44,032 - 43,781 43,781 - Others 493,828 426,379 67,449 384,761 299,619 85,142 334,770 243,130 91,640
1,934,679 1,756,836 177,843 1,606,906 1,430,700 176,206 1,508,461 1,324,609 183,852
(i) Deposits from banks
Other deposits 2,341,569 1,344 2,340,225 2,150,323 - 2,150,323 1,246,228 11,637 1,234,591 Money market deposits with remaining term to maturity: Up to 3 months 1,042,836 64,918 977,918 221,419 1,260 220,159 290,200 - 290,200 Over 3 months and up to 6 months 168,769 - 168,769 1,273 - 1,273 - - - Over 6 months and up to 1 year 16,229 - 16,229 - - - - - -
1,227,834 64,918 1,162,916 222,692 1,260 221,432 290,200 - 290,200 3,569,403 66,262 3,503,141 2,373,015 1,260 2,371,755 1,536,428 11,637 1,524,791
90
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
91
37. Segmental Reporting - Bank (continued)
(n) Interest income
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Loans and advances to banks 131,644 26,365 105,279 114,071 50,180 63,891 76,104 50,090 26,014 Loans and advances to customers 7,700,078 6,844,628 855,450 7,508,149 6,865,633 642,516 6,460,759 5,967,412 493,347 Placements with other banks 270,564 1,084 269,480 589,480 26,984 562,496 518,667 21,333 497,334 Held to maturity investments 1,314,487 1,313,356 1,131 1,230,778 1,209,739 21,039 1,001,125 1,000,478 647
9,416,773 8,185,433 1,231,340 9,442,478 8,152,536 1,289,942 8,056,655 7,039,313 1,017,342
(o) Interest expense
Deposits from banks 69,409 3,338 66,071 69,463 52 69,411 65,929 80 65,849 Deposits from customers 4,585,272 4,145,936 439,336 5,423,951 4,962,125 461,826 4,550,639 4,233,376 317,263 Other borrowed funds 143,955 86,136 57,819 196,637 41,344 155,293 354,762 91,774 262,988 Subordinated liabilities 59,312 - 59,312 77,747 - 77,747 63,870 - 63,870 Other 8,813 8,813 - 9,297 9,297 - 6,457 6,457 -
4,866,761 4,244,223 622,538 5,777,095 5,012,818 764,277 5,041,657 4,331,687 709,970
(p) Fee and commission income
Retail banking customer fees 143,024 105,331 37,693 132,080 98,829 33,251 88,568 78,240 10,328 Corporate banking credit related fees 142,679 90,133 52,546 171,161 128,079 43,082 129,556 114,445 15,111 Guarantees 141,205 107,618 33,587 106,001 83,818 22,183 102,450 77,554 24,896 Interbank transaction fees 27,406 - 27,406 25,139 - 25,139 18,140 - 18,140 Rental income 2,755 2,755 - 1,658 1,658 - 2,103 2,103 - Card related fees 536,893 498,294 38,599 470,826 443,766 27,060 358,096 326,490 31,606 Trade finance fees 270,296 120,123 150,173 220,887 140,792 80,095 210,571 172,648 37,923 Others 164,495 115,826 48,669 117,214 60,529 56,685 98,968 47,583 51,385
1,428,753 1,040,080 388,673 1,244,966 957,471 287,495 1,008,452 819,063 189,389
(q) Fee and commission expense
Interbank transaction fees 7,165 - 7,165 3,762 - 3,762 4,019 - 4,019 Card related fees 214,810 214,810 - 215,569 215,569 - 164,783 164,783 - Others 12,009 12,009 - 1,454 1,454 - - - -
233,984 226,819 7,165 220,785 217,023 3,762 168,802 164,783 4,019
Annual Report 2009
37. Segmental Reporting - Bank (continued)
(k) Subordinated liabilities
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Subordinated debt 1,471,555 - 1,471,555 1,237,128 - 1,237,128 1,411,108 - 1,411,108 Remaining term to maturity:Within a period of more than 3 years 1,471,555 - 1,471,555 1,237,128 - 1,237,128 1,411,108 - 1,411,108
(l) Other liabilities
Accrued interest payable 1,161,796 1,040,933 120,863 1,379,347 1,275,960 103,387 1,237,336 1,125,839 111,497 MCB Superannuation Fund 250,468 250,468 - 285,619 285,619 - 186,806 186,806 - Proposed dividend 711,770 711,770 - 687,981 687,981 - - - - Outstanding lease obligation - - - 554 554 - 2,327 2,327 - Interest suspense, impersonal & other accounts 2,412,454 2,196,907 215,547 2,030,775 1,943,604 87,171 2,262,836 2,087,616 175,220
4,536,488 4,200,078 336,410 4,384,276 4,193,718 190,558 3,689,305 3,402,588 286,717 Interest suspense (610,558) (608,257) (2,301) (604,399) (604,399) - (782,994) (782,994) -
3,925,930 3,591,821 334,109 3,779,877 3,589,319 190,558 2,906,311 2,619,594 286,717
(m) Contingent liabilities
(i) InstrumentsGuarantees on account of customers 15,224,725 10,707,059 4,517,666 13,238,177 10,208,514 3,029,663 10,531,399 7,967,194 2,564,205 Letters of credit and other obligations on account of customers 4,055,483 2,602,352 1,453,131 4,646,053 2,841,676 1,804,377 6,707,885 5,817,784 890,101 Foreign exchange contracts 4,491,290 1,494,841 2,996,449 14,217,663 8,687,373 5,530,290 7,029,518 2,956,820 4,072,698 Other contingent items 2,062,022 24,302 2,037,720 2,140,565 16,637 2,123,928 394,829 46,026 348,803
25,833,520 14,828,554 11,004,966 34,242,458 21,754,200 12,488,258 24,663,631 16,787,824 7,875,807
(ii) CommitmentsLoans and other facilities, including undrawn credit facilities 7,115,364 5,591,346 1,524,018 5,815,689 4,518,069 1,297,620 4,366,559 3,193,110 1,173,449 (iii) Tax assessments 278,274 278,274 - 220,642 220,642 - 201,762 201,762 -
(iv) OtherInward bills held for collection 422,295 318,493 103,802 364,804 268,391 96,413 375,853 298,352 77,501 Outward bills sent for collection 546,822 433,009 113,813 631,622 460,612 171,010 620,000 406,157 213,843
969,117 751,502 217,615 996,426 729,003 267,423 995,853 704,509 291,344 34,196,275 21,449,676 12,746,599 41,275,215 27,221,914 14,053,301 30,227,805 20,887,205 9,340,600
92
MCB Group
notes to the financial statementsfor the year ended 30th June 2009
93
37. Segmental Reporting - Bank (continued)
(v) Allowances for credit impairment
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Loans and advances to banks 1,529 - 1,529 2,307 - 2,307 1,170 - 1,170 Loans and advances to customers 359,586 296,876 62,710 406,110 426,594 (20,484) 369,428 359,419 10,009
361,115 296,876 64,239 408,417 426,594 (18,177) 370,598 359,419 11,179
(w) Income tax expense
Current tax expenseCurrent year 648,302 608,885 39,417 394,885 346,667 48,218 374,616 348,572 26,044 Adjustment for prior years 40,367 40,367 - (1,434) (1,434) - (1,235) (1,235) -
688,669 649,252 39,417 393,451 345,233 48,218 373,381 347,337 26,044 Deferred tax (12,993) (12,993) - 1,943 1,943 - 16,551 16,551 - Total income tax expense 675,676 636,259 39,417 395,394 347,176 48,218 389,932 363,888 26,044
The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows:
Profit before tax 3,928,156 2,898,912 1,029,244 3,296,429 2,367,270 929,159 2,311,353 1,722,918 588,435 Tax calculated at a rate of 15% (2008: 15% & 2007: 22.5%) 589,223 434,836 154,387 494,464 355,090 139,374 520,054 387,657 132,397 Impact of:Income not subject to tax (54,445) (44,505) (9,940) (146,863) (137,074) (9,789) (142,756) (139,175) (3,581)Expenses not deductible for tax purposes 72,428 48,360 24,068 80,995 64,204 16,791 115,149 101,445 13,704 Tax credits (138,703) (116) (138,587) (119,665) (78) (119,587) (120,501) - (120,501)Special levy on banks 166,806 157,317 9,489 87,897 66,468 21,429 19,221 15,196 4,025 Under/(Over) provision in previous years 40,367 40,367 - (1,434) (1,434) - (1,235) (1,235) - Tax charge 675,676 636,259 39,417 395,394 347,176 48,218 389,932 363,888 26,044
Annual Report 2009
37. Segmental Reporting - Bank (continued)
(r) Dividend income
2009 2008 2007 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment BRS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000
Available for sale securities 6,297 5,140 1,157 27,297 24,500 2,797 35,623 28,647 6,976 Others 180,071 59,746 120,325 179,189 85,694 93,495 185,751 82,775 102,976
186,368 64,886 121,482 206,486 110,194 96,292 221,374 111,422 109,952
(s) Net income from financial instruments carried at fair value Net income from derivatives 34,578 34,578 - 31,597 31,597 - 9,691 9,691 - Investment securities at fair value through profit or loss 7,174 7,174 - 1,964 1,964 - 11,588 11,588 -
41,752 41,752 - 33,561 33,561 - 21,279 21,279 -
(t) Salaries and human resource development
Wages and salaries 1,204,546 1,140,462 64,084 1,099,334 1,043,885 55,449 857,064 826,161 30,903 Compulsory social security obligations 29,647 28,021 1,626 25,402 24,274 1,128 22,899 22,055 844 Equity-settled share based payments 192 187 5 2,229 1,800 429 1,886 1,886 - Other personnel expenses 317,729 297,993 19,736 314,272 294,478 19,794 284,156 273,607 10,549
1,552,114 1,466,663 85,451 1,441,237 1,364,437 76,800 1,166,005 1,123,709 42,296
(u) Other non-interest expenses
Software licensing and other information technology cost 87,852 83,956 3,896 76,753 72,786 3,967 65,605 62,076 3,529 Impairment loss on software - - - - - - 9,686 9,686 - Others 785,163 746,814 38,349 703,333 667,004 36,329 645,364 628,446 16,918
873,015 830,770 42,245 780,086 739,790 40,296 720,655 700,208 20,447
94
97
We do not inherit the Earth from our Ancestors,we borrow it from our Children.
Each of our actions impacts our environment.
Let us ensure it is only for the better.
96 97
In 2009, with financial sector health still under
surveillance and demand seriously impaired, the
global economy is forecast to contract by 1.4%
according to the update of the IMF World Economic
Outlook in July last. On the other hand, world growth
is anticipated to somewhat recover in 2010, with the
prevailing outlook even representing an upgrade
of 60 basis points compared to prior expectations,
thus reflecting the fact that financial conditions
have started to exhibit some signs of improvement
and that the world economy is beginning to pull
out of recession in response to significant fiscal and
monetary loosening. As an example, the recent
evolution of several macroeconomic indicators,
notably consumer spending and housing prices, has
pointed to an easing of the pace of contraction of
the US economy. Moreover, the French and German
economies lately brought an end to their recessionary
period, with both growing by 0.3% during the April –
June 2009 period compared to the previous quarter
on account of recovering export activity, enhanced
consumer spending and fiscal easing, while Japan
expanded by 0.9% for the corresponding period,
buoyed by unprecedented policy stimulus. Despite
these reassuring developments, the stabilisation of the
world economy is anticipated to be rather sluggish in
the short run at least, particularly given that advanced
economies are not expected to display a sustained pick-
up in activity until the second half of 2010 according
to the IMF. In fact, despite the adoption of measures
like interest rate cuts, liquidity building, credit easing
and bank recapitalisation, several countries are still
characterised by weak housing sectors and troubled
financial markets. Moreover, the present build-up of
macroeconomic imbalances in terms of large fiscal
and external deficits as well as rising unemployment
rates could eventually represent non-negligible drags
on productive activity worldwide if not appropriately
tackled. All in all, to ensure that the recovery
momentum gains further dynamism, it is argued
that Government policy should lay due emphasis on
restoring financial sector stability and stimulating
demand, with extensive levels of public intervention
required to be maintained for some time and to be
gradually unwound when signs of a firm recovery
become well rooted.
At country level, the US economy is projected to
contract by 2.6% in 2009 despite indications of a
diminishing rate of deterioration in the second half
and beyond as the expansionary fiscal stance shores
up consumer demand and the rate of inventory
adjustment eases. Regarding the euro area, though
real GDP is forecast to drop by more than 4% this year
on the back of tempered private expenditure and the
still-ailing banking sector, there are recent indications
that the upturn in activity might emerge earlier and be
stronger than projected, thereby leading to a better-
than-expected performance for the year. For its part,
the recession is quite severe in the UK which has been
hit by the end of the boom in real estate and financial
activity last year, while the economy continued to
decline in the second quarter of 2009. On the other
hand, developing Asia is expected to register a notable,
albeit weakening, growth achievement this year,
expanding by 5.5%. Specifically, despite the restraining
impact of exogenous shocks on activity, China and
India should uphold their noteworthy expansion path,
benefiting from substantial macroeconomic stimuli and
a faster-than-expected turnaround in capital flows.
Annual Report 2009MCB Group
a review of the economic environment
The International Context
Economic GrowthBeset by severe financial strains, weakened demand
and heightened uncertainty, the world economy
expanded at a dampened pace in 2008 at the tail-
end of the full-blown materialisation of the global
financial and economic crisis in the second half of the
year. In fact, several countries fell into recession last
year, notably advanced economies which experienced
an unprecedented contraction of 7.5% in real GDP
in the fourth quarter, thereby contributing to a
negative global growth of 6.25% during the period.
For the year, despite positive upshots represented by
appreciable achievements of emerging and developing
economies, the world economy grew by a subdued
3.1%. Specifically, while the US economy suffered
from worsening financial upheavals and the cooling
of the housing sector, Western Europe and advanced
Asia were affected by dimmed external trade as well
as rising financial complications of their own. For their
part, the performances of emerging countries have
been spoiled via both financial and trade channels.
For instance, considering their deep reliance on
manufacturing exports, East Asian economies faced
intensifying external pressures, though India and
China expanded at fairly resilient rates particularly on
the strength of their prominent domestic demand.
IMF World Economic OutlookAnnual percent change
2006 2007 2008(e) 2009(f) 2010(f)
World output 5.1 5.1 3.1 -1.4 2.5
Advanced economies 3.0 2.7 0.8 -3.8 0.6
United States 2.8 2.0 1.1 -2.6 0.8
Euro area 2.9 2.7 0.8 -4.8 -0.3
Germany 3.0 2.5 1.3 -6.2 -0.6
France 2.4 2.3 0.3 -3.0 0.4
Italy 2.0 1.6 -1.0 -5.1 -0.1
Spain 3.9 3.7 1.2 -4.0 -0.8
Japan 2.0 2.3 -0.7 -6.0 1.7
United Kingdom 2.8 2.6 0.7 -4.2 0.2
Emerging and developing economies 8.0 8.3 6.0 1.5 4.7
Sub-Saharan Africa 6.6 6.9 5.5 1.5 4.1
Russia 7.7 8.1 5.6 -6.5 1.5
Developing Asia 9.8 10.6 7.6 5.5 7.0
China 11.6 13.0 9.0 7.5 8.5
India 9.8 9.4 7.3 5.4 6.5
Consumer prices
Advanced economies 2.1 2.2 3.4 0.1 0.9
Emerging and developing economies 5.4 6.4 9.3 5.3 4.6
(e) estimates (f) forecasts
Source: IMF World Economic Outlook - April 2009 and July 2009 Update
98 99
more balanced conditions. In advanced economies,
even though gradually recuperating commodity
prices and improving demand have recently led to a
marginal marking up of relevant forecasts, inflation is
anticipated to reach close to 0% in 2009 and to remain
subdued in 2010, given that excess capacity, amongst
others, should exert downward pressures on consumer
prices. Still, risks for deflation and its possible role in
exacerbating the already weak economic activity are
deemed to be rather low given that core inflation as
well as inflation expectations in most major economies
are anticipated to be contained in positive territories
for the short term according to the IMF.
Financial MarketsThe financial crisis that originated in the US was
accompanied by the spread-out of disturbances
across different layers of financial systems as well as
their international contagion via various channels. In
particular, the global financial crisis has been marked
by the collapse of key international institutions with
relatively weak financial soundness positions. As a
consequence, warded off by alarming degrees of
counterparty risks and depleting liquidity levels,
major international financial institutions materially
reduced their lending to different economic agents,
thereby triggering fears of a credit crunch. At other
levels, markets lost appetite for securitised assets
whose attractiveness and prices plunged precariously,
while wholesale markets became thinner and more
expensive. Other repercussions of the financial
crisis include (i) dysfunctional interbank markets, (ii)
volatile bond spreads, and (iii) massive falls in equity
prices worldwide towards the end of last year and the
beginning of 2009.
During the second quarter of 2009, signs of a reduced
pace of contraction of economic activity in advanced
Annual Report 2009
Evolution of global stock market indices
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110
Jul-07 Sep-07Nov-07Jan-08 Mar-08May-08Jul-08 Sep-08Nov-08Jan-09 Mar-09May-09
Jul-09 Sep-09
Index: 2 July 07 =
Dow JonesNikkeiFTSECAC40DAX
Ind
ex: 2
Ju
ly 0
7 =
100
Jul2007
Sep2007
Nov2007
Jan2008
Mar2008
May2008
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
MCB Group
a review of the economic environment
InflationAfter edging up to worrisome levels principally
due to sustained increases in commodity prices,
headline inflation in advanced as well as emerging
and developing countries started to ease during
the second semester of 2008. This has been mainly
attributed to (i) the rapid cooling of global activity
and widening excess capacity which led to an abrupt
end to the commodity price boom of the past few
years, (ii) a pronounced fall in house and equity prices,
and (iii) restrained wage increases and eroded profit
margins linked to rising economic slack. In particular,
after peaking to an all-time high of close to USD 145
a barrel in July 2008, oil prices collapsed to just above
USD 30 at around the end of December last, largely
due to sharply decelerating demand in high income
countries, mainly in the United States and Japan,
and to relatively slow supply response. For advanced
economies, these trends have led to an annual decline
of more than 4% in consumer prices during the fourth
quarter of 2008.
During the first half of 2009, inflationary pressures
continued to subside on account of weak economic
prospects as well as persistent declines in food and
fuel prices. Indeed, year-on-year inflation on the
worldwide scene moderated to around 1.7% in May
last compared to around 6% one year earlier. Strikingly,
headline inflation in advanced economies dropped
below 0% during that month, while falling below
4.5% in emerging economies where depreciating
local currencies have in some instances held back the
downward momentum. In recent months, a gradual
rally in commodity prices has been observed following
improved market sentiment and the general weakening
of the US dollar. In particular, prices in oil markets
have responded to growing perceptions that market
dynamics are shifting from significant oversupply to
Jun2007
Aug2007
Oct2007
Dec2007
Feb2008
Apr2008
Jun2008
Aug2008
Oct2008
Dec2008
Feb2009
Apr2009
Jun2009
Aug2009
Ind
ex: J
un
e 07
=10
0
FoodMetals
Energy
Notes:
(i) Energy includes petroleum, natural gas and coal
(ii) Food includes mainly cereals, vegetable oils, meat and seafood
Source: IMF
Primary commodity prices
40
70
100
130
160
190
220
Jun 07Aug 07Oct 07Dec 07Feb 08Apr 08Jun 08Aug 08Oct 08Dec 08Feb-09Apr-09Jun-09Aug-09
Index: Jun 07=100
100 101
to subdued economic conditions and plummeting
inflation, the Fed funds rate has been slashed thrice
from 2% in April 2008 to a historical low target range
of 0-0.25% in December last before being kept on hold.
With difficult economic conditions expected to prevail
despite signs of recovery, hikes in the unemployment
rate and subdued inflation, stumpy interest rates
are likely to persist for an extended period, the
more so that the Federal Open Market Committee is
diversifying the use of its monetary policy tools. In fact,
to support mortgage lending and housing markets
besides improving overall conditions in private credit
markets, the Federal Reserve intends to purchase a
total of USD 1.25 trillion of agency mortgage-backed
securities and up to USD 200 billion of agency debt by
the end of the year as well as to buy USD 300 billion
of Treasury securities. Regarding the eurozone, the
interest rate on the main refinancing operations was
subject to repeated cuts amounting to 325 basis points
as from July last year, bringing the official rate to a
historical low of 1% as at May 2009. With soft economic
conditions prevailing in various member countries, low
interest rates might well be maintained in the near
future, while a further loosening of monetary policy
is not currently on the cards in view of an upturn in
economic activity being registered and commodity
prices picking up. Similarly, after successive cuts in its
repo rate since April 2008 to 0.5% as at March last, the
Bank of England is expected to uphold the current level
for the foreseeable future amidst a fragile economic
environment, moderated inflationary pressures and a
switch of attention to asset purchases.
With respect to exchange rates, in the wake of the
global financial and economic crisis, the US dollar
strengthened at a sustained pace against other majors
in the closing months of 2008. Indeed, following the
quest for safe haven assets like US treasury bills in a
context of economic uncertainty, troubled financial
sectors in various parts of the world and depleted
wealth, the greenback reinforced its status as a
currency of choice when the global crisis was at its
peak. However, as from May 2009, the US dollar
weakened against the euro in particular as a result
of a pick-up in risk appetite internationally following
indications of economic upturn, rising commodity
prices and extensive quantitative easing activities.
Looking forward, in spite of sporadic volatilities,
the general downtrend of the US dollar against the
euro is likely to persist for the near term, though this
relationship could be somewhat reversed over the
medium term given that the former currency could,
for instance, benefit from any build-up of speculation
that a tightening monetary policy would occur at an
earlier stage in the US compared to the euro area
following a likely faster rate of improvement in
economic conditions. For its part, the pound sterling
entered into a prolonged depreciating trend last
year, with lifetime lows registered against the euro
as well as multi-year lows against the US dollar and
the yen. Yet, at the beginning of 2009, the currency
Annual Report 2009
Exchange rates on world marketsValue as at Annual average
30-Jun-08 30-Jun-09 FY 2007/08 FY 2008/09
USD/GBP 1.9906 1.6452 2.0041 1.6158
USD/EUR 1.5748 1.4020 1.4713 1.3742
JPY/USD 106.17 96.42 110.23 98.81
ZAR/USD 7.8035 7.7300 7.2929 9.0052
MCB Group
a review of the economic environment
countries have triggered hopes that the worst of the
financial crisis is over and somewhat ignited a rebound
in risk appetite among investors. In effect, a relative
stabilisation in financial conditions emerged as gauged
by the following: (i) bank debt and interbank markets
have sparked up again, albeit with major public
sector involvement; (ii) apprehensions in relation to
liquidity and counterparty risks in the banking sector
have declined; (iii) commodity prices have somewhat
bounced back, reflecting improved market sentiment;
(iv) corporate bond markets have behaved better
than before; (v) major equity markets have picked
up, punctuated only sporadically by momentary
periods of doubt or specific negative news; and (vi)
emerging market equities have improved, outpacing
mature equity markets on average. Nevertheless,
with economic recovery projected to be sluggish,
dysfunctional financial systems in several advanced
economies are anticipated to remain generally
distressed for a rather lengthy period. For instance,
while significant headway has been achieved in
restoring bank solvency, it still does not appear strong
enough to halt the ongoing financial deleveraging
process. Besides, in the US, although major banks have
posted appreciable profitability levels for the first
semester of 2009 and have been able to raise capital to
repay debts, downside risks still prevail in the industry.
According to the IMF, sustained efforts to restore
financial sector health are warranted and should be
deployed in a multilaterally consistent way in order to
strengthen improvements in financial conditions and
bolster the economic recovery momentum.
With regard to monetary policy, central banks
worldwide have cut interest rates aggressively in an
attempt to counteract the liquidity crisis, improve
financial conditions and stimulate aggregate demand
so as to restore high and sustainable economic growth.
Over time, with key policy rates approaching zero in
several countries, the authorities have to some extent
shifted their focus to quantitative easing measures
to revitalise the economy, including expanded credit
easing actions and purchases of large quantities of
Government bonds. With regard to the US, owing
Evolution of key interest rates
Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08
Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09
%
Bank of England repo rateECB rate
Federal funds rate
%
FED rate at 0% - 0.25% (effective 16 Dec 08)
0
1
2
3
4
5
6
7
Jul2007
Sep2007
Nov2007
Jan2008
Mar2008
May2008
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
102 103
would enter negative territory given dampened
external demand, political upheavals and drying up of
capital flows. As for the Seychelles, after registering
a marginal growth in 2008 against the backdrop of a
balance of payments and debt crisis as well as a sharp
decline in tourism earnings in the fourth quarter, it is
now projected to experience a decline of close to 10%
in 2009. In fact, besides being affected by dampened
tourist arrivals and a major drop in construction,
activity is being to some extent restrained by a
tightening of macroeconomic policies, with the latter
expected to reap positive dividends in the medium
Annual Report 2009
on account mainly of significant public sector spending
to spur economic activity and dwindling commodity-
based revenues.
With regard to the performance of Indian Ocean
countries, notwithstanding a slowdown in exports and
a sharp increase in imports of equipment for mining
projects, Madagascar achieved a rather strong growth
in 2008, owing to public and private investment
particularly in large extractive industry projects. For
2009, despite support from mining activity, agricultural
production and private investments, real GDP growth
Regional Economic Outlook Annual percent change
Real GDP Growth Consumer Price Inflation
2007(e) 2008(e) 2009(f) 2007(e) 2008(e) 2009(f)
Sub-Saharan Africa
Angola 20.3 14.8 -3.6 12.2 12.5 12.1
Botswana 4.4 2.9 -10.4 7.1 12.6 8.1
Ghana 6.1 7.2 4.5 10.7 16.5 14.6
Kenya 7.0 2.0 3.0 9.8 13.1 8.4
Madagascar 6.2 5.0 -0.2 10.4 9.2 9.4
Malawi 8.6 9.7 6.9 7.9 8.7 10.1
Mauritius 5.5 5.3 2.5 8.8 9.7 3.1
Mozambique 7.0 6.2 4.3 8.2 10.3 5.4
Namibia 4.1 2.9 -0.7 6.7 10.3 9.1
Nigeria 6.4 5.3 2.9 5.5 11.2 14.2
Senegal 4.7 2.5 3.1 5.9 5.8 1.1
Seychelles 7.3 0.1 -9.6 5.3 37.0 39.2
South Africa 5.1 3.1 -0.3 7.1 11.5 6.1
Tanzania 7.1 7.5 5.0 7.0 10.3 10.9
Uganda 8.6 9.5 6.2 6.8 7.3 13.7
Zambia 6.3 6.0 4.0 10.7 12.4 12.2
Maldives 7.2 5.7 -1.3 7.4 12.3 3.7
(e) estimates (f) forecasts
Sources: CSO and MCB staff estimates for MauritiusIMF World Economic Outlook - April 2009
MCB Group
a review of the economic environment
recuperated against other majors on the basis of
resurging investor appetite and hints that the UK
economy is progressively getting out of recession.
However, there has recently been a correction in the
sterling’s upside momentum, implying that possible
upward pressures on the currency might be rather
restrained over the short to medium term on account
of continuingly weak economic activity.
The Regional Performance
On the strength of relatively sound policy measures,
debt relief and strong commodity demand for part
of the year, the sub-Saharan region expanded by an
appreciable 5.5% in 2008. Nevertheless, considering its
increasing involvement with real sectors of advanced
economies, the area was not spared by the global
financial and economic crisis towards year-end as
demand for exports was hampered and commodity
export prices dropped. Besides, stiff global credit and
heightened investor risk aversion triggered a reversal
of portfolio inflows and impaired foreign direct
investment in some cases, while a notable decline
in remittances has been observed amidst monetary
strains and heightened uncertainty. Subsequently,
growth started to decelerate and pressures on external
balances mounted. It is worthwhile to add that,
although financial systems in the sub-Saharan region
have been generally resilient to the global crisis, the
economic slowdown has negatively impacted on credit
risk and non-performing loans, while weakening
the balance sheets of several financial institutions.
Overall, notwithstanding the fact that exogenous
shocks are putting at risk commendable gains pulled
off by the region in the recent past, it can be noted
that appreciable macroeconomic progress achieved by
different countries has somewhat mitigated the after-
effects of the delicate external environment last year.
Economic growth in sub-Saharan Africa is anticipated
to decelerate to 1.5% in 2009 and to recover in 2010
upon a settling of the financial and economic crisis in
advanced economies. In fact, economic activity in the
region is being buffeted through several vulnerability
channels. Firstly, worsening external growth is reducing
demand for exports and curtailing migrant workers’
remittances. Secondly, the tightening of global credit
conditions and fiscal difficulties by Governments in
advanced countries are negatively impacting on private
capital and official flows, especially to emerging and
frontier markets like Ghana, Kenya, Nigeria and South
Africa. Finally, the acute decline in commodity prices
is hitting resource-rich countries. In particular, while
posting annualised contractions of 6.4% and 3.0%
for the first and second quarters of the current year,
South Africa is anticipated to contract by about 0.25%
in 2009, its lowest growth rate in a decade, as capital
outflows are forcing a sharp adjustment in asset prices
and real activity. The impact of the financial crisis has
quickly spilled over to neighbouring countries like
Namibia, Lesotho and Swaziland, whereas a major
decline in demand for diamonds amongst others has
resulted in a sharp activity slowdown in Botswana. For
its part, after increasing markedly in 2008, headline
inflation for the sub-Saharan region is projected to
decline, albeit marginally, to 10.5% in 2009 and further
down to 7.1% in 2010, reflecting the relative slump
in global demand and commodity prices. However,
fiscal and external balances for various countries are
expected to deteriorate substantially in the near term
104 105
Main economic indicators
Indicators Unit 2000 2001 2002 2003 2004 2005 2006 2007 2008(1) 2009(2)
Population mid-year, '000 1,187 1,200 1,210 1,223 1,233 1,243 1,253 1,260 1,269 1,275
GDP at market prices Rs bn 120 132 142 157 176 185 206 236 265 277
Real GDP growth % 9.7 5.2 1.8 4.4 4.8 2.3 5.1 5.5 5.3 2.5
Real GDP growth (excl. sugar)
% 7.9 4.9 3.3 4.5 4.6 2.8 5.4 6.3 5.3 2.3
GDP per capita USD 3,860 3,795 3,938 4,578 5,182 5,101 5,286 5,963 7,363 6,760
GDS % GDP 25.6 26.6 25.2 24.7 22.0 16.5 15.3 16.6 12.6 10.3
GDFCF % GDP 22.9 22.7 21.8 22.6 21.6 21.4 24.3 25.1 24.6 25.3
Budget deficit FY, % GDP 3.8 6.7 6.1 6.2 5.4 5.0 5.3 4.3 2.7 3.9
Broad money(a) end June, % GDP 78.0 78.1 80.6 92.2 98.6 102.7 101.4 98.4 100.2 104.7
Broad money growth end June, % 10.9 9.9 13.0 11.7 18.3 13.6 6.7 8.6 17.1 12.5
Bank rate end June, % 10.65 11.14 10.01 8.26 4.74 6.13 7.30 10.98 7.45 4.76
CPI inflation FY, % 5.3 4.4 6.3 5.1 3.9 5.6 5.1 10.7 8.8 6.9
CPI inflation CY, % 4.2 5.4 6.4 3.9 4.7 4.9 8.9 8.8 9.7 3.1
Unemployment rate(b) CY, % 6.5 6.8 7.2 7.7 8.4 9.6 9.1 8.5 7.2 8.1
Balance of visible trade Rs bn -14.0 -10.4 -10.7 -12.9 -21.5 -30.1 -41.5 -51.3 -64.2 -57.6
Current account balance % GDP -0.7 +6.1 +5.2 +1.7 -1.8 -5.2 -9.4 -5.6 -10.4 -10.3
Overall BOP Rs bn +6.4 -1.3 +10.2 +6.2 -0.9 -4.9 -4.6 +13.9 +4.6 +2.3
Net International Reserves(a) end June, USD m 966 1,091 1,356 1,729 1,957 2,262 2,126 2,654 3,096 3,023
Import cover end June, weeks 18.2 21.0 25.3 30.4 31.1 31.0 25.7 27.7 24.9 30.5
External debt service ratio
FY, % exports 7.7 9.7 8.5 8.0 6.5 6.5 8.4 7.1 4.0 4.7
Exchange rate (Rs/USD)annual avg.,
mid-rate26.25 29.01 29.89 28.11 27.47 29.22 31.15 31.36 28.36 32.15
(1) revised estimates (2) MCB forecasts as at mid-September 2009
Notes:(a) Data for end June 2003 and beyond is based on the new methodology of the IMF's Depository Corporations Survey framework. Data prior to 2003 is based on the previous manual 'IMF guide to Money and Banking Statistics 1984'(b) As from 2004, a new method of calculation has been adopted for measuring unemployment on a quarterly basis using results of the Continuous Multi-Purpose Household Survey. Figures for 2000 to 2003 have been reworked on the basis of results obtained in the 2004 survey.
Sources: CSO, MoF, BoM and MCB staff estimates
Annual Report 2009MCB Group
a review of the economic environment
term, the more so that there are suggestions that the
country could in due course obtain non-negligible
bilateral and multilateral support to underpin
economic restructuring. As regards Mozambique, the
economy registered a notable growth in 2008, driven
by an improvement in the business environment.
In 2009, pinned down by fewer exports, dampened
capital inflows and spill-over effects of the projected
economic contraction in South Africa, real GDP
growth for Mozambique is expected to drop to 4.3%.
This performance however appears fairly satisfactory
in current circumstances, indicating that the global
financial crisis is having a limited impact on the country.
Finally, after performing well in 2008, Maldives is
projected to experience a contraction of 1.3% in real
GDP in 2009, with offshoots of the worsened external
environment on the country being compounded by
high dependence on tourism and fishing. However,
the external competitiveness of the economy is being
supported by favourable currency dynamics, while the
authorities have displayed adequate commitment to
tackle prevailing macroeconomic instability.
The Mauritian Economy
IntroductionThe advent of the unparalleled global economic crisis
came as an important setback to domestic endeavours
geared towards transforming the sprouting
nationwide recovery momentum into a self-sustaining
and high growth pattern. Indeed, the appreciable
economic expansion path adopted by Mauritius in
recent years was disrupted in late 2008 primarily due to
curtailed external demand and the negative impact of
heightened uncertainty on activity levels. Nevertheless,
the economy posted a circumstantially satisfactory
performance overall, underpinned by commendable
gains achieved in shoring up macroeconomic potential
in the recent past and policy responses to the
degenerating global landscape in the form of stimulus
packages and significant monetary loosening. Amidst
difficult conditions, even if the high current account
deficit on the balance of payments remains a cause
for concern, other indicators like foreign exchange
reserves and unemployment fared appreciably, while
public finances have been kept under check in spite of
pressures associated with reform measures. Moreover,
largely benefiting from international economic
downturns, inflationary pressures domestically have
materially subsided. For the near term, in spite of
non-negligible policy support and budding signs of
recovery in some developed countries, the outlook for
Mauritius is marred by the delicate external situation
in addition to lingering domestic imbalances in part
linked to public sector dynamics. This underscores
the significance of strict monitoring of policy design
and execution aimed at a judicious management
of downside risks and reinforcing internal capacity
to effectively confront the downturn and sharpen
competitiveness in anticipation of a potential
turnaround in worldwide activity.
106 107
slowed down by likely major contractions of the textile
and tourism industries, although noticeable assistance
would stem from other sectors, notably financial and
business services, communications, and seafood in line
with their recent growth impetus. Nevertheless, the
growth outlook reflects an adequate resistance by the
economy to external shocks on the basis of significant
fiscal and monetary easing as well as harnessed intrinsic
capabilities like a diversified economic base and a
generally favourable business framework. Indeed,
Mauritius recently registered a commendable upgrade
of its world ranking to reach the 17th position (out of
183 countries) with respect to the World Bank’s Doing
Business 2010. Further support to domestic activity
could stem from the present progressive pick-up in
the worldwide economic environment, particularly
with several of our key markets gradually pulling out
of recession. Until now, on several fronts, Mauritius
appears to be holding up fairly well to the inimical
external climate as evidenced by indications that
the country is gradually pulling through the major
slowdown observed during the opening months of
the year, which augurs well for appreciable year-round
achievement of the economy provided the burgeoning
upturn in the global environment is sustained.
Nonetheless, diligent caution should be exercised,
considering that the outlook is still marred by a
relatively elevated, albeit receding, uncertainty level.
This is linked to assumptions that global economic
recovery is likely to be sluggish and that rounds of
turbulences associated with worsening fiscal and
external imbalances as well as rising unemployment
rates worldwide might represent downside risks for
the local economy in the near future.
Sector ActivitySugar
Sugar production expanded by a moderate 3.7% to
reach 452,062 tonnes in 2008, weighed down by a
reduction in area harvested to 62,024 hectares and
adverse climatic conditions as gauged by relatively
excessive rainfall. For 2009, output should largely
benefit from gratifying weather conditions observed
during the closing months of 2008 until March
last according to the Crop Estimate Coordinating
Committee. As such, on the basis of a likely expansion
in cane output to above 4.6 million tonnes, sugar
production is forecast to exceed 480,000 tonnes,
Annual Report 2009
Sugar output and price
200
300
400
500
600
700
2004/05 2005/06 2006/07 2007/08 2008/09
crop year
'000 tonnes
10
12
14
16
18
20
Rs '000 per tonne
‘000
to
nn
es
Rs‘
000
per
to
nn
e
Sugar productionPrice (right scale)
MCB Group
a review of the economic environment
The Real SectorEconomic GrowthMajor headway in bolstering macroeconomic
fundamentals underpinned a notable performance
for the Mauritian economy last year, but activity was
weakened to below par level by various factors, such
as generally elevated inflationary pressures as well as
rupee strength on average and adverse repercussions
of the global financial and economic crisis during the
second semester. As such, real GDP growth for 2008 is
estimated at 5.3%, mainly supported by a praiseworthy
first semester achievement, but weighed down by
subdued activity in the fourth quarter during which
output rose by 4.2% year-on-year. Economic growth
for the year was upheld by impressive expansion of the
construction (11.1%), information and communication
technologies (ICT) (12.6%), seafood (7.5%), as well as
financial and business services (10.4%) sectors, while
being tempered by dampened growth rates for the
textile and tourism industries. From an expenditure
viewpoint, growth was buttressed by commendable
real increases of household expenditure and private
investment.
Sector contribution to GDP (Year 2008)
Social & general public services 14.1%
Others6.2%
Sugar2.4%
Non-sugar agriculture2.5%
Food manufacturing (excl. sugar) 7.1%
Textile5.4%
Other manufacturing7.0%
Construction6.9%
Wholesale & retail trade11.6%
Hotels & restaurants8.6%
Transport, storage & communications 11.1%
Insurance2.7%
Banking6.9%
Other financial and business services 7.5%
Rs 234 bn
For 2009, in spite of the moderating support of wide-
ranging reform programmes implemented over
time and as a response to recent external shocks,
the degenerating international economic climate is
permeating to varying degrees into different echelons
of the real, fiscal, financial and external sectors of the
economy. By and large, damage inflicted by the global
economic crisis on Mauritius is grounded in (i) weaker
exports to advanced economies, (ii) a retrenchment
of gross private capital flows to emerging and
developing countries, and (iii) drag-down effects of
amplified economic uncertainty on activity levels of
domestic investors and consumers. At another level,
domestic imbalances should take their toll on output,
examples being public infrastructure deficiencies
notwithstanding recently unclenched measures to
remedy the situation, and structural limitations at the
level of parastatal bodies. Considering these realities,
the nascent recovery momentum observed in recent
years is anticipated to be derailed. In fact, GDP growth
is projected to be relatively dampened this year at some
2.5%, with the prognosis attaining 2.3% on excluding
the expansion in sugar production. Owing to withered
external demand, nationwide output will be mainly
108 109
shocks, the textile sector may still be facing some latent
inherent competitive inadequacies given that, after
posting a year-on-year growth in the first quarter of
2008, output contracted for all remaining periods, as
reflected by an overall annualised decline of 1.7% in
value added for the April to December period.
This year, even though established players could take
advantage of competitive strengths to adequately
confront difficulties, the textile industry should
contract as a result of a major cutback in external
demand by advanced nations suffering from economic
downturns. However, signs of economic recovery
internationally have raised hopes for a moderated
dip in activity, while sustained rupee depreciation
against the euro could provide some relief to earnings.
With regard to the seafood sector, it is forecast to
expand at a commendable pace this year on the
strength of its established competitiveness amongst
others, though growth-inhibiting factors could be
represented by declining fish stocks, emergence of
pirate activity in regional waters that could result in
a decrease in the number of operating tuna boats,
and strict rules-of-origin criteria imposed by the EU
on goods entering its territory. At another level, the
domestic oriented industry is anticipated to sustain
its dimmed expansion path this year, with its long-
standing competitive limitations amidst the trade
liberalisation process being only partly compensated
for by Government support to enterprises affected
by external shocks. Overall, from a policy viewpoint,
enhanced institutional support is warranted to enable
vulnerable operators of the manufacturing industry to
improve their productivity and market positioning in
the challenging environment.
Tourism
With an aggregate of 930,456 arrivals, the tourism
sector expanded at a decelerated pace of 2.6% in
2008, weighed down by year-on-year contractions of
2.4% and 6.1% in activity in November and December
respectively in line with economic downturns
characterising key and established markets. With
regard to the European market, an overall expansion
of 2.1% in arrivals was posted, supported by a notable
increase with respect to France (+8.3%) despite
contractions registered for Italy (-4.4%) and Germany
(-5.6%). Noticeably, despite a moderate growth
Annual Report 2009
Tourist arrivals and receipts
0
200
400
600
800
1,000
2004 2005 2006 2007 2008
0
10
20
30
40
50
Tourist arrivalsReceipts (right scale)
‘000
Rs
bn
MCB Group
a review of the economic environment
representing an annual rise of around 8%. Additionally,
it is worthwhile noting that real value added in the
sugar sector will this year be duly supported by the
large-scale manufacture of white sugar for export by
new refineries. Nevertheless, producers will have to
bear the brunt of the impact of a cumulative price cut
of 36% on exports to European market as from October
2009, though the extent of shortfalls in receipts could
be mitigated if (i) a major proportion of earmarked
exports are expedited before this reference date, and
(ii) the euro strengthens against the rupee.
Looking forward, the sugar industry should face
heightened competitive threats on its principal
markets due to forthcoming quota-free and duty-free
access of cost-effective least developed countries as
well as to an end to the application of guaranteed
or reference export prices. Comfortingly, in order to
foster the long term viability and sustainability of
the industry, noticeable progress has been made on
the centralisation front, with Mauritius gradually
embracing the ‘diversification within sugar’ approach
for contriving a cane cluster producing refined sugar,
ethanol and electricity amongst others. Nonetheless,
the definition and execution of the national energy
policy still sometimes appear to be characterised by
mixed signals in some respects, thereby somewhat
impeding the planning and implementation of large-
scale electricity-generation and ethanol production
projects. Hence, pending reform issues should be
quickly resolved to foster the creation of a resilient
cane industry and to contribute towards the ‘Maurice
Ile Durable’ vision.
Manufacturing
Despite being supported by a notable expansion of
7.5% in real value added in the seafood sector, activity
in the manufacturing sector was relatively contained
in 2008 as evidenced by a rise of only 3.2% in overall
output. This performance was prompted by a subdued
growth of around 3% in the domestic oriented sector
and a flat rate for the textile industry. The latter’s
outcome was undermined by both rupee strength
and a sharp slowdown of export orders particularly in
the second half of the year in line with the worsening
international economic climate. As such, domestic
exports of apparel and clothing accessories declined
by more than 11% in 2008. In addition to exogenous
Export oriented enterprises - employment & exports
0
20
40
60
80
100
2004 2005 2006 2007 2008
15
20
25
30
35
40
Mauritian workersExpatriatesExports (right scale)
Emp
loym
ent
as a
t D
ec; '
000
Rs
bn
110 111
mitigate the downturn in demand. To support the
long term development of the tourism industry, it
appears essential that a diversified and flexible growth
strategy be adopted in view of the industry’s multiple
vulnerabilities, without discarding diligent efforts for
preserving and enhancing the ‘exclusivity’ eminence
of the Mauritian destination.
Business and Financial Services
On the basis of competitive advances and supporting
economic activity, the business and financial services
sector pursued its notable growth momentum last year
with an expansion rate of 10.4%. Key contributors to
this performance consisted of the banking industry
and business activities which grew by 12.9% and
10.8% respectively in 2008. In fact, the business and
financial services sector in Mauritius has been relatively
shielded from financial upheavals abroad. Stability in
the financial system prevailed owing to an absence
of exposure by operators to toxic assets having led
to distresses abroad, backed by the adoption of
healthy principles by domestic players as well as
the existence of a sound regulatory and supervisory
framework. Indeed, the local banking industry
displayed commendable soundness indicators last year
– with for instance capital adequacy and the gross
non-performing loans to gross loans ratio standing
at 15.3% and 2.1% respectively – while maintaining
gratifying profitability levels. As regards 2009, on
account of its growth momentum and creditable
competitiveness, the business and financial services
sector should uphold a healthy growth rate which
would nonetheless be lower than recent trends as a
result of the budding after-effects of a deceleration in
sector activity domestically and economic downturns
internationally. The global business segment should for
instance bear the brunt of a reduction in client activity
linked to economic difficulties faced by advanced
nations as well as a cutback of private capital flows to
emerging economies, whereas additional strains might
result from the uncertainty surrounding the double
taxation avoidance treaty signed by Mauritius with
India linked to the planned review of direct tax codes
therein. Regarding the banking sector, the operating
environment appears rather challenging given
heightened competitive pressures and a slowdown in
real activity. However, whilst proper vigilance should
be maintained, risks threatening financial stability are
deemed relatively low due to harnessed capabilities
both at the level of operators and the regulatory body.
Interestingly, to bolster financial sector health, further
support could emanate over time from the planned
setting up of the Financial Stability Committee to
ensure and regularly review the soundness and
stability of the local financial system.
Other Main Sectors
The construction sector sustained its double-digit growth
path last year, with real value added rising by 11.1%
mainly due to investment in commercial and office
buildings, hotels, projects under the Integrated Resort
Scheme (IRS), and a significant annual growth rate of
19.3% in residential building. For 2009, the industry is
likely to expand at a relatively modest rate on the back
of a subdued growth of private sector investment in part
owing to a strong base effect. Indeed, despite staying at
a fairly appreciable level chiefly due to already rolled-
out projects, private capital outlays associated with the
initiation and development of multiple undertakings
will probably under-perform the previous year’s
Annual Report 2009MCB Group
a review of the economic environment
of 2.2% with respect to India, the mainstay of the
segment, arrivals from the Asian market increased by
6.3% on account of notable performances with regard
to China and the United Arab Emirates.
For 2009, tourist arrivals fell by 9.3% in the first
semester compared to the corresponding period
last year, while gross receipts declined by 17.7%.
Even though the leading market, France, posted a
resilient growth of 2.0%, the performances of other
principal and emerging markets were relatively
unfavourable, with contractions registered with
respect to the United Kingdom (-6.9%), Germany
(-19.1%), Italy (-14.3%) and India (-19.8%) for the six-
month period. Reflecting on recent trends, year-round
tourism arrivals in Mauritius are expected to post a
sharp decline to reach close to 835,000 this year, with
ensuing multiplier effects impacting on real activity in
various other sectors of the economy. According to the
World Tourism Organisation Barometer of June 2009,
“international tourism is now expected to decline by
between 6% and 4% in 2009. There are possibilities
of a moderate recovery, but much will depend on the
evolving economic conditions and of the restoration
of consumer and business confidence”. As such, even
though promotional campaigns being undertaken
to stimulate nationals to venture towards hotels and
expanded cruising to Mauritius should support real
value added in the hospitality industry this year, the
latter will be hit by waning international tourism
movements as well as increased holidaying preferences
for short-haul and inland destinations. Besides,
market uncertainty is being triggered by the influenza
A(H1N1) outbreak and its ambiguous progression.
On the supply side, a fall in flight frequency of the
national airline carrier might weigh down in the
balance, although greater capacity could be offered
by various airlines to exploit a relative growth in
demand during the end-of-year peak season. For its
part, in spite of potential euro gains, gross tourism
receipts will suffer from declining arrivals this year, the
more so given hints of a drop in the average length of
stay and spending per capita.
It is essential to note that, in spite of facing up to
growth obstacles, the tourism industry is still expected
to offer an appropriate level of resistance to external
challenges this year and beyond owing to its upbeat
reputational attributes, while a sustained revival in
international economic activity should help steadily
Tourist arrivals by origin (Year 2008)
France 28.0%
UK 11.6%
Italy 7.1%Germany 6.6%
Other European 12.1%
Europe65.4%
South Africa9.1%
Reunion Island10.3%
Other African3.6%
Others 3.8%
Asia7.8%
Euro
pe930,456
112 113
Real consumption expenditure picked up in 2008 by
posting an expansion rate of 6%, underpinned by an
appreciable economic activity level and significant
injection of liquidity in the monetary system following
the PRB awards. This contributed to a notable drop
in the gross domestic savings to GDP ratio to 12.6%.
This year, despite a relatively subdued deflator
effect on the nominal growth of final consumption
expenditure, the latter movement would somewhat
exceed the expansion in GDP following a likely non-
negligible growth in real household spending, thus
contributing to a further decline in the savings ratio
to 10.3% and subsequently to a widening of the
resource gap. While being somewhat comprehensible
in current circumstances, the latter ratio remains a
cause for concern and necessitates judicious measures
for boosting domestic savings through widened
nationwide income generation.
InflationAfter edging up at the beginning of FY 2008/09,
headline inflation set off a lingering downward
movement as from the end of last year following drops
in international commodity prices down from their
peak since the latter part of 2008 and declines in the
prices of some basic items subsequent to the stimulus
package of December last as well as a significant
fall in mortgage interest rates amidst economic
uncertainty and falling communication costs amongst
others. These factors thus contributed to a prolonged
reduction in year-on-year inflation over time, leading
to a decline in headline inflation to 9.7% in December
2008 and to 6.9% in June 2009. Interestingly, inflation
has stirred towards more comfortable levels even on
excluding items subject to volatility as depicted by the
evolution of core inflation measures. Latest figures
reveal that the consumer price index has moved into
even more favourable territory, with year-on-year
Annual Report 2009
Movement in CPI
Description Weight in CPI basket% Change (Fy 2008/09)
Average Point-to-point
Food and non-alcoholic beverages 286 11.2 4.8
Alcoholic beverages and tobacco 92 6.2 5.6
Clothing and footwear 51 4.8 6.1
Housing, water, electricity, gas and other fuels 131 2.0 -4.7
Furnishings, household equipment & routine household maintenance
64 5.5 5.6
Health 30 6.4 7.3
Transport 147 8.3 3.8
Communication 36 -3.6 -1.6
Recreation and culture 48 0.2 0.7
Education 32 4.3 3.7
Restaurants and hotels 43 10.7 4.7
Miscellaneous goods and services 40 5.6 5.1
TOTAL 1,000 6.9 3.3
MCB Group
a review of the economic environment
accomplishment given that operators are displaying
a wait-and-see attitude triggered by heightened
risk aversion and considering cash flow difficulties.
Moreover, notwithstanding efforts for accelerating the
implementation of public infrastructure projects, delays
are still being noted with respect to their take-off. At
the level of the ICT industry, the impressive performance
of recent years should be maintained this year, with the
telecommunications and business process outsourcing
fields upholding their noteworthy expansion drive, the
latter sector apparently benefiting from greater cost
reduction endeavours of enterprises confronted by
economic difficulties. Conversely, the transport industry
should suffer from financial problems being faced
by the national carrier and some local road transport
companies. For its part, after expanding by 4.5% in
2008, the trade sector is projected to register a subdued
growth this year as a result of a slowdown in economic
activity, with freeport activity on course to contract.
Savings and InvestmentWhile being mitigated by a significant decline of
nearly 18% in public sector investment in line with
delays to implement earmarked infrastructure
projects, gross domestic fixed capital formation
rose by around 4% in 2008 on account of a major
expansion of 10% in private expenditure. Indeed, on
the basis of a generally favourable business climate,
various property development projects materialised
at residential and commercial levels. Overall, even
though it posted a decline of 50 basis points to reach
24.6% of GDP last year, the investment ratio, when
excluding the purchase of aircraft and marine vessel,
expanded appreciably from 24.0% in 2007 to 24.4% in
2008. For 2009, the movement in total investment will
be somewhat inhibited largely due to the impact of
heightened risk aversion linked to difficult economic
conditions on private sector investment. On the other
hand, the planned acquisition of aircraft should
be a determining factor in shoring up public sector
investment, with some additional support expected
to stem from the implementation of infrastructure
projects in line with targeted fiscal stimulus initiatives
in spite of outlays thereof likely to be sub-optimal due
to decision and implementation lags.
GDSGDFCFGDFCF (excluding aircraft & marine vessel)
(f) MCB forecasts
Sources: CSO & MCB staff estimates
% o
f G
DP
Savings and investment ratios
5
10
15
20
25
30
2005 2006 2007 2008 2009(f)
% of GDP
114 115
the setting up of a small enterprise. Moreover, the
Employment Rights Act 2008 and the Employment
Relations Act 2008 came into effect in February 2009 to
foster greater flexibility and more effective collective
bargaining in the labour market. A key measure of the
Employment Rights Act 2008 is a Workfare Programme
which provides assistance to laid-off workers through
the payment of a transitional unemployment benefit
and active support either to find a new job, be trained
for greater employability or start a small business. As
for the National Budget 2009, prominent measures
announced include (i) a Rs 3 billion Saving Jobs and
Recovery Fund to help save jobs in various sectors, and
(ii) a ‘Work cum Training’ scheme to enable companies
in manufacturing and tourism sectors facing turnover
reduction to send their employees on training instead
of laying them off. While these measures should play
a non-negligible role in supporting job creation if
appropriately implemented, the joblessness rate is
likely to increase in 2009 on account of weakened job
creation willingness or capacity of employers, with
employment figures being subject to the extent to
which economic conditions improve over time.
Annual Report 2009
production and tried to reduce costs against the
backdrop of declining revenues.
Given that unemployment globally would continue to
rise in the short term as a result of sluggish economic
recovery, the IMF stated that endeavours to combat
joblessness should revolve around the promotion of
employment through structural policies, active labour
market strategies, and training and education. In
the case of Mauritius, though further measures are
deemed necessary to tackle inherent rigidities on the
employment front, the Government has designed and
implemented targeted measures for supporting the
viability of enterprises and boosting the employability
of workers following heightened difficulties faced by
various operators. Actually, the additional stimulus
package of December 2008 included measures to
underprop the labour market through company
bail-out initiatives as well as an emphasis on human
capacity building. For instance, initiatives for the
reskilling of workers losing their jobs for placement
in other sectors have been devised, while the ‘Cité des
Métiers’ programme is meant to provide counselling
on job hunting, career guidance and training, and
Sectoral breakdown of employment (Year 2008)
Others7.3%
Sugar3.2%
Non-sugar agriculture5.7%
Food manufacturing (excl. sugar) 2.2%
Textile11.8%
Other manufacturing8.2%
Construction9.7%
Trade14.9%
Hotels & restaurants6.6%
Transport, storage & communications 7.2%
Business & financial services and real estate 7.5%
Social & general public services15.7%
543,000
MCB Group
a review of the economic environment
Labour MarketIn 2008, reflecting generally favourable economic
activity, employment of Mauritians rose by around
17,000 to reach some 519,000. In concurrence
with a less important rise in the labour force, total
unemployment fell by 6,400, leading to a notable
drop in the average joblessness rate to 7.2% last year
compared to 8.5% in 2007. Preliminary estimates for
2009 reveal that Mauritius has broadly withstood the
challenges represented by a deceleration of economic
activity for the labour market, particularly at the level
of the manufacturing and tourism industries. In fact,
on the basis of a healthy increase in employment
creation partly associated with reform measures, the
unemployment figure for the first quarter of 2009
stood at 8.0%, a drop of 20 basis points compared to
the performance posted during the corresponding
period in 2008. While there are indications that the
joblessness rate has edged up recently, the overall
situation has hitherto remained satisfactory as
compared to the trend in various countries where
labour markets have faced daunting challenges in a
context where faltering companies have cut down
inflation posting an impressive rate of 1% in August
2009 and headline inflation consequently shifting
further down to 5.2% in that month.
Looking ahead, notwithstanding upward pressures
emanating from sporadic increases in prices of basic
items, inflation is expected to pursue its downtrend
until December 2009, mainly due to positive base effects
associated with the relative stabilisation of commodity
prices in comparison to highs registered during the
first half of 2008. For next year, an upward drift in
headline inflation is likely to be resumed as hitherto
positive statistical effects erode and commodity
prices recover, though the rate is expected to remain
within manageable levels. In fact, developments on
the inflation front will be closely linked to the extent
to which prices of fuel and food items evolve in
concurrence with convalescing worldwide economic
activity, with the odds that the latter will not register
a robust upturn in the short to medium term likely to
prevent any brisk upward movement in international
prices of key Mauritian imports.
Jul2008
Aug2008
Sep2008
Oct2008
Nov2008
Dec2008
Jan2009
Feb2009
Mar2009
Apr2009
May2009
Jun2009
Aug2009
HeadlineCore 1 Core 2
Core 1: excludes 'Food, Beverages and Tobacco' components and mortgage interest on housing loan from headline inflationCore 2: excludes Food, Beverages, Tobacco, mortgage interest, energy prices and administered prices from headline inflation
%
Inflation
3
5
7
9
11
Jul-08Aug-08Sep-08Oct-08Nov-08
116 117
being more than offset by lower than budgeted
foreign grants and indirect taxes in line with dampened
activity and a curtailed import bill. Consequently, the
budget deficit as a percentage of GDP in FY 2008/09
overshot the approved estimate by some 60 basis
points to stand at 3.9%. Reflecting increased pressures
on public finance and a shift in the primary balance to
a marginal deficit, the level of public sector debt rose
from 56.6% of GDP as at June 2008 to 59.2% of GDP
as at June last. External public sector debt remains
manageable at some 10% of GDP.
Fiscal imbalances are expected to widen in the short
term when considering the operation of automatic
stabilisers with tax revenue likely to be impaired by the
relatively sluggish conditions as well as the expected
high expenditure tempo to support activity. The latter
stance is evidenced by the action plan enunciated in the
July-December 2009 Budget which appropriates funds
for the six months ending December next, after which
the fiscal year is set to be matched with the calendar
year. In fact, extending the scope and intensifying the
implementation of the additional stimulus package,
the Budget is grounded on the three priorities of
saving jobs, protecting people and preparing for
recovery. Hence, it is projected that the budget deficit
will increase to 4.8% of GDP for the six months ending
December 2009 before reaching 5.0% for fiscal year
Annual Report 2009
Others3.1%
Corporate tax16.9%
Individual income tax8.1%
Taxes on property7.8%
Value Added Tax37.0%
Excise duties17.3%
Taxes on services4.2%
Customs duties2.9%
Licence fees2.7%
Breakdown of tax revenue (FY 2008/09)
Rs 50.2 bn
Budget deficitBudget deficit (% GDP)
Rs
bn
% G
DP
Budget deficit
0
2
4
6
8
10
12
2004/05 2005/06 2006/07 2007/08 2008/09
Rs bn
0
1
2
3
4
5
6
% GDP
MCB Group
a review of the economic environment
Regarding wages, a general upward movement was
noted in the quarterly wage rate index across the
first three quarters of 2008, while a moderate decline
was registered in the fourth quarter. As such, the
average wage rate index for 2008 moved up by 13.9%
compared to the figure posted a year before, supported
by an uptrend in respect of the following areas: (i)
public administration and defence; (ii) compulsory
social security; (iii) education, (iv) manufacturing,
mining and quarrying; and (v) transport, storage and
communications. The wage rate index for the General
Government sector in particular increased significantly
by 18.1% in 2008 compared to 2007 in line with the
implementation of the PRB report.
The Fiscal SectorIn concordance with the mounting prominence of
discretionary fiscal policy on the international scene in
the wake of the global economic crisis, the Government
adopted an expansionary budgetary stance since
last year in order to buttress economic activity in
response to heightened challenges posed by rapidly
deteriorating conditions. Accordingly, in addition to
measures announced in the 2008/09 National Budget
whereby six funds were created for spearheading
ambitious economic development initiatives,
an additional stimulus package was launched in
December 2008 to buoy up resilience to exogenous
forces. The package mainly intended to (i) fast-track
and frontload ongoing and newly-identified public
infrastructure projects, (ii) create a more propitious
environment for private sector investment, (iii) enable
the medium to long term development of human
resource capacities through institutional development
and training, and (iv) improve the technical capacity
and boost up the competitiveness of sectors like
manufacturing, tourism, sugar, construction, financial
services, freeport and ICT.
Against this background, notwithstanding efforts to
control recurrent expenditure growth and a fall in
debt servicing due to dwindling interest rates, public
spending in FY 2008/09 exceeded the initial target to
stand at some Rs 64.7 billion, to a large extent due
to higher grant allocation partly linked to financing
of capital projects. For its part, Government revenue
registered a shortfall of around Rs 1 billion with a
superior performance recorded with respect to direct
taxes – highlighting good corporate performance as
well as enhanced revenue collection effectiveness –
Mauritian employedMauritian unemployedExpatriatesUnemployment rate (right scale)
Labour force and unemployment
350
400
450
500
550
600
2004 2005 2006 2007 2008
'000
2
4
6
8
10
12
%
‘000 %
118 119
upheld by generally lower interest rates within the
market. The increase in broad money was backed by
a rise of 16.2% in net foreign assets and of 6.4% in
domestic credit mainly due to a 10% hike in net claims
on the private sector. As a result, broad money supply
reached Rs 283.8 billion as at June 2009, representing
104.7% of GDP.
In view of the decline in headline inflation and the
prolonged soft economic conditions in our main export
markets despite nascent recovery signs, the domestic
reference interest rate should remain relatively low in
the near future so as to complement fiscal measures
meant to enhance domestic resilience to non-abating
global economic hazards. Further comfort to this
approach comes from the fact that foreign interest rate
differentials have remained generally favourable to
Mauritius lately. A shift in the monetary stance could,
however, be contemplated over the medium term
in the event of firm indications that both the global
and local economies resume a robust and sustained
growth pattern – thereby posing potential upside
risks to inflation – particularly in a context where the
country is characterised by low level of savings.
Stock ExchangeThe domestic stock market contracted on a prolonged
basis since the beginning of FY 2008/09 until February
2009, reflecting pronounced risk aversion by investors
in the context of the global economic turmoil and
intensified challenges facing key economic sectors.
The declining trends on local stock market indices were
thereafter reversed and progressively gained strength
as a result of a rebound in global risk appetite among
investors as well as various signs that the local economy
is adequately resisting to exogenous shocks. Overall,
the SEMDEX fell by some 23% on a point-to-point
basis over FY 2008/09, while the SEMTRI experienced
a decrease of around 20% in rupee terms over the
period. The Stock Exchange of Mauritius is expected
to fare reasonably well in the short to medium term
in line with the gradual upturn in economic activity
worldwide, but likely upward bias in local indices is
always open to be restrained by the absence of clear
signs that world and domestic economies are moving
towards high and sustainable growth.
Annual Report 2009
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
Ind
ex: 5
Ju
ly 1
989=
100
Daily evolution of SEMTRI (in rupee terms)
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09
Aug-09Sep-09
Index: 5 July 1989=100
MCB Group
a review of the economic environment
2010. Whilst understandable and, to some extent,
desired in current circumstances, the worsening of
public finances necessitates close monitoring given
that any fiscal slippages – particularly in view of the
run-up to the General Elections – can quickly wipe out
their expected positive effects on economic activity.
From a general viewpoint, various commendable
measures announced with regard inter alia to saving
jobs and boosting competitiveness, notably through an
upgrade in public infrastructure and capacity-building,
need to be scrupulously monitored throughout
their implementation, bearing in mind the expected
detrimental effects of their delayed, incomplete and/
or misaligned execution.
The Financial SectorMonetary FrontAfter tightening monetary conditions at the outset of
the last financial year through a rise of 25 basis points
in the key Repo rate and an increase in the cash reserve
ratio from 4% to 6% amidst apprehensions regarding
the inflation outlook at that time, the Bank of
Mauritius tilted its stance to an easing bias in October
2008 when the reference rate was cut by 50 basis
points in anticipation of the affliction of the domestic
economy by the global slump. As a result of growing
fears of a significant downturn prompted by the highly
delicate and uncertain international environment, the
monetary loosening cycle was reinforced during the
year with a relatively favourable inflation outlook and
worldwide monetary policy orientations providing
ample scope for such a move. Actually, the domestic
benchmark rate was slashed by 1 percentage point in
both December 2008 and March 2009 before being
kept unchanged at 5.75% ever since, while the cash
reserve ratio was brought down by 100 and 50 basis
points in November and December 2008 respectively.
Reflecting monetary policy easing, the Bank rate fell
to 7.34% on an annual average basis in FY 2008/09
as compared to 8.96% in the preceding financial year
while, on a point-to-point basis, it declined by 2.69
percentage points to reach 4.76% as at end-June
2009. Although growth in money supply registered a
slowdown during FY 2008/09 in line with dampened
economic activity, it remained notable at 12.5%, partly
Jul2007
Sep2007
Nov2007
Jan2008
Mar2008
May2008
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
Evolution of Repo rate, Bank rate and MCB Prime Lending & Savings rate
0
2
4
6
8
10
12
14
Jul-07Aug-07Sep-07Oct-07Nov-07Dec-07Jan-08Feb-08Mar-08Apr-08May-08Jun-08Jul-08
Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09Mar-09Apr-09May-09Jun-09Jul-09Aug-09Sep-09
%
Bank rateMCB Prime Lending rateRepo rateMCB Savings rate
%
120 121
particularly high impact of adverse external conditions
on exports. For the whole year, notwithstanding a
steady turnaround in global economic activity in
the latter half, foreign exchange earnings will bear
the brunt of subdued external demand and possible
ensuing downward pressures on prices. These factors
are expected to be at play in the textile sector in
particular, though support could emanate from a
possible depreciation of the rupee against the euro
on average. For its part, revenue in the seafood sector
is depicting a fair degree of resilience whilst being
moderated by subdued global demand and supply-
side constraints as well as the overall weakness of
the pound sterling in which a notable proportion
of these products are denominated. With regard to
sugar receipts, they should be hit by the significant
cut in the guaranteed prices, but the effect thereof
will be mitigated by the tactical move to expedite
sales before October 2009 when the price cut becomes
effective, increased value addition linked to refined
sugar, higher production and the strength of the single
currency. On the other hand, the import bill is likely to
fall this year, even though its downtrend is likely to be
curtailed in the second semester by (i) a slight revival
in economic activity, (ii) FDI-related expenditure, (iii)
the planned purchase of aircraft, and (iv) waning base
Annual Report 2009
UK34.1%
France13.4%
Italy4.6%
Other European15.9%
USA6.7%
Reunion3.4%
South Africa3.6%
Madagascar5.9%
Others12.4%
Exports by country of destination (Year 2008)
Rs 59 bn
France7.7%
Germany2.2%
USA2.3%
South Africa8.1%
UK2.3%
Other European6.8%
Italy2.5%
Others8.8%
Australia2.4%
Asia54.1%
Spain2.8%
Asi
a
India 24.0%China 11.6%Japan 3.9%Malaysia 2.6%Thailand 2.4%Indonesia 2.3%Other Asian 7.3%
Imports by country of origin (Year 2008)
Rs 132 bn
MCB Group
a review of the economic environment
The External SectorExternal TradeDomestic exports declined by 8.0% in 2008 on the
back of average rupee strength and weak external
demand amidst the testing international environment
in the second semester. This performance was mainly
pinned down by a reduction of some 11% in exports of
articles of apparel and clothing as well as dampened
sugar receipts partly due to a 12% price cut on the
European market. Regarding imports, despite a decline
of some 9% in spending on machinery and transport
equipment since no aircraft was purchased in 2008 as
compared to 2007, total outlays soared by 9.2% as a
result of a sizeable expansion of 26.7% in expenditure
on refined petroleum products following the surge
of oil prices to significantly high levels, though some
retreat therein was observed in the second half of the
year. Consequently, the balance of trade deteriorated
significantly from Rs 51.3 billion in 2007 to reach
Rs 64.2 billion in 2008.
During the first semester of 2009, in line with a year-
on-year decline of 14.1% in the import bill grounded in
receding commodity prices and weakening economic
activity, the trade deficit fell by 23.7% as compared
to the corresponding period last year despite the
Balance of trade
-80-60-40-20
020406080
100120140
2004 2005 2006 2007 2008
Rs bn
Exports (f.o.b)
Imports (c.i.f)
Balance of trade
Rs
bn
Export price index
Import price index
Terms of trade
Terms of trade
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008
Index: 2004 = 100
Ind
ex: 2
004
= 1
00
122 123
appreciable support from unrecorded flows and the
requisition of funds available from official foreign
institutions. The latter factor in particular should give
a further boost to the net international reserves of
the country which currently stand close to the Rs 100
billion mark.
External DebtAfter pursuing a declining trend in recent years to
reach 8.9% of GDP in June 2008, the external debt
ratio attained 10.6% as at June this year. This upward
movement was mainly attributable to the fact that the
external debt accruing to the Government, consisting
of above 62% of the total external debt stock as
at June 2009, registered an expansion of around
45% over the past year following major financing
requirements to support fiscal stimulus initiatives
as well as the strategic move to rebalance the debt
structure. According to official projections, the ratio
is likely to uphold its rise to reach 12.3% of GDP as at
December 2009.
Exchange RateDuring the initial months of 2008, the rupee generally
appreciated against major international currencies.
While being to some extent supported by significant
capital flows, the local currency was also boosted by
the intrinsic weaknesses of the US dollar and the pound
sterling. In the second half of last year, the rupee firmed
up at a pronounced rate against the pound sterling
highlighting intensifying economic difficulties in the
UK, while weakening markedly against the greenback
as from August 2008 reflecting trends in international
markets with the US dollar being perceived as a refuge
currency amidst rising international risk aversion. In
early 2009 however, the evolution of the rupee against
these two currencies was somewhat reversed, partly
prompted by a waning of the US currency against
key international counterparts following receding
worldwide economic challenges. As for the euro, while
remaining quite volatile, it has generally depreciated
against the local currency over the last financial year
with receding export revenues for Mauritius weighing
in the balance. Echoing its movement against the
Annual Report 2009
Jul2008
Sep2008
Nov2008
Jan2009
Mar2009
May2009
Jul2009
Sep2009
Evolution of main currencies versus the rupee
70
80
90
100
110
120
130
Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09 Feb-09Mar-09Apr-09May-09Jun-09Jul-09
Aug-09Sep-09
1 July 2008 = 100
USD
Euro
GBP
1 Ju
ly 2
008
= 1
00
MCB Group
a review of the economic environment
Current account
-30
-24
-18
-12
-6
0
6
2004 2005 2006 2007 2008
Balance (Rs bn)
% GDP
Balance of payments and import cover
-6
-3
0
3
6
9
12
15
2004 2005 2006 2007 2008
BOP (Rs bn)
Import cover (months)
effects. On the whole, the trade deficit is expected to
decline in 2009, albeit remaining delicate.
Balance of PaymentsWith the worsening of the merchandise account as
well as a reduced surplus on the services account, the
current account deficit widened significantly, from
Rs 13.2 billion in 2007 to Rs 27.6 billion in 2008, the
latter representing 10.4% of GDP. The dampened
performance on the services account was mainly
due to a marginal increase in gross tourism receipts.
Moreover, while the surplus on ‘current transfers’
widened in line with the receipt of grants, the positive
balance at the income level deteriorated. It is worth
noting that the current account imbalance was more
than compensated for because of appreciable, albeit
slowing, capital and financial flows, causing the
balance of payments to post a surplus of Rs 4.6 billion
in 2008. Accordingly, the level of net international
reserves increased by 5.0% over the year to reach
Rs 90.2 billion as at December last, corresponding to
an import cover of 6 months, based on imports of
goods and services for 2008. During the first half of
2009, despite inferior investment inflows and a still
high current account deficit, the balance of payments
recorded a significant positive balance, underpinned
by substantial unrecorded flows.
For the whole of the current year, in spite of some
respite emanating from grants linked to domestic
reform programmes and a restrained import bill,
the current account deficit as a percentage of GDP is
expected to remain high owing mainly to dampened
exports of goods on the merchandise account, a
fall in the income account surplus and a relatively
unfavourable performance on the services account
due to a major decline in gross tourism receipts and
difficulties faced by the national carrier. Although this
situation, coupled with slowing capital and financial
flows in the wake of global economic uncertainties,
is likely to exert downward pressures on the balance
of payments, its overall position could be upheld by
124
SOURCES
Bank of Mauritius, Annual Report, Various Publications
Central Statistics Office, Economic and Social Indicators and Reports
Energy Information Administration
International Monetary Fund, World Economic Outlook, Data and Statistics
Internet and Newspaper Articles
Mauritius Chamber of Agriculture, Various Statistics
Ministry of Finance and Economic Empowerment, Budget Speech, Programme-Based Budget Estimates
2009 (July-December), Various Publications and Pronouncements
Stock Exchange of Mauritius, Various Publications
World Tourism Organisation, June 2009 Barometer
World Bank, Doing Business 2010
MCB Strategy, Research and Development SBU, Staff Estimates
ABBREVIATIONS
BOP Balance of Payments
CPI Consumer Price Index
FDI Foreign Direct Investment
GDFCF Gross Domestic Fixed Capital Formation
GDP Gross Domestic Product
GDS Gross Domestic Saving
ICT Information and Communication Technologies
IMF International Monetary Fund
IRS Integrated Resort Scheme
MERI Mauritius Exchange Rate Index
PRB Pay Research Bureau
SEMDEX Stock Exchange of Mauritius Price Index
SEMTRI Stock Exchange of Mauritius Total Return Index
Annual Report 2009
125
MCB Group
a review of the economic environment
dollar, the effective rate of rupee pursued a downward
trend until March last before regaining some vitality,
to some extent supported by an appreciable balance
of payments position particularly in the second quarter
of 2009 despite external difficulties.
Selling rates of main currencies vis-à-vis the rupee
Value as at Annual average
30-Jun-08 30-Jun-09 Fy 2007/08 Fy 2008/09
USD 27.70 33.10 29.55 31.83
GBP 55.34 55.04 59.19 51.29
EUR 43.82 46.56 43.26 43.73
JPY(100) 26.15 34.77 26.84 32.66
ZAR 3.53 4.28 4.13 3.60
ConclusionWhile Mauritius has hitherto exhibited encouraging
signs of resistance against exogenous shocks in terms
of output growth and expansion of foreign exchange
reserves notably, it is important to note that the global
economic crisis is not over despite budding signs of
recovery. As such, adequate vigilance should be exerted
by the authorities with a view to ensuring that the
socio-economic fabric is constantly guarded against
exogenous shocks that could materially hamper efforts
to achieve high and sustainable growth. By and large,
the adoption of a multifaceted and widely endorsed
reform agenda by Mauritius has become ever more
primordial to fend off threats and exploit openings
for advancement. Commendably, the authorities have
reacted to the ruthlessness of the economic juncture
on a rather timely basis via both monetary and fiscal
easing. Nevertheless, further progress is warranted
on several fronts to address long-standing structural
inefficiencies. Conspicuously, worrisome bottlenecks
that hamper the implementation of earmarked
public infrastructure projects should be adequately
tackled, while an efficiency-seeking reengineering
of parastatal bodies and organisations in which the
Government has a major stake is imperative so as to
prop up domestic capacity. As such, on the basis of
strengthened policy implementation capacity and
proper communication, macroeconomic reforms
should be sustained and bolstered. In truth, it appears
to be an ideal point in time – explicitly when seeds
are being sown for retrieving a high growth path
over time – for contemplating and crafting out a
sensible economic development paradigm. The latter
could preferably be championed by an unequivocal
formulation of the still nascent ‘Maurice Ile Durable’
vision bestowed with ambitious, but realisable,
nationwide aims of equitable social empowerment,
conscientious natural environment safeguard, energy
efficiency, cultural vibrancy, higher levels of ethics
and standards in our institutions, and rewardingly
sustainable living standards.
MCB Strategy, Research and Development
22 September 2009
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