annual report 2009 - MCB annual report_tcm55-27856.pdf · MCB Group Annual Report 2009 group financial summary 2009 2008 2007 2006 2005 Income ... - - 79 - Profit after tax 4,046

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

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Jun 05 Jun 06 Jun 07 Jun 08 Jun 09

Gross loans

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(right scale)

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RsProfit

Earnings per share

(right scale)

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Pre-provision profit

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power (right scale)

Recurring Earning Power = Pre-provision profit excluding net income

from financial instruments and sale of securities to average assets

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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


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 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


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


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


15

Take not to felling all that grows.Let it run its course, watch it mellow and mature,

and learn from its discourse.



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


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.



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



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.



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.


corporate governance report

26 2726 27

Annual Report 2009


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


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


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.



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



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.



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.



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.



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


Raoul GUFFLET

E. Jean MAMET

Pierre-Guy NOEL

MCBINTERNATIONALSERVICESLTD.

Jocelyn AH-YU


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


Thierry Maurice JAUFFRET

Shivraj RANGASAMI (appointed in Sep. 08)

Bernard YEN

MCBINVESTMENTSERVICESLTD.


Marc LAGESSE

Vimal ORI

Akesh UMANEE

MCBREGISTRY&SECURITIESLTD.

F. Jacques HAREL (Chairperson)


Marivonne OXENHAM

MCBSTOCKBROKERSLTD.

F. Jacques HAREL (Chairperson)


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


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.


Philippe A. FORGET

Pierre-Guy NOEL

FINCORPINVESTMENTLTD.

Jean Pierre MONTOCCHIO (Chairperson)

Herbert COUACAUD, c.m.g.

Bashirali Abdulla CURRIMJEE, g.o.s.k.


Michel DOGER DE SPEVILLE, c.b.e.

Bruno MARGEOT

FINLEASECO.LTD.

Jocelyn DE CHASTEAUNEUF (Chairperson)


Jean Michel FELIX

Philippe A. FORGET

Alain LAW MIN

E. Jean MAMET

Bruno MARGEOT

Jean Pierre MONTOCCHIO

Jean-Michel NG TSEUNG

INTERNATIONALCARDPROCESSINGSERVICESLTD.


Angelo LETIMIER

Mohamed HORANI

BLUEPENNYMUSEUM


Philippe A. FORGET

J. Gérard HARDY

Pierre-Guy NOEL



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



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.



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



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



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


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


CompanySecretary


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).


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.



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


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



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


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


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


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

%


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


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


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


Banking sector: credit to the economy (q.o.q. growth)

0

2

4

6

8

10

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

%


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



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.



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


Automated transactions as a % of total transactions

82

84

86

88

90

92

June 05 June 06 June 07 June 08 June 09

%

%


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



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



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



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.



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.



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.



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,


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


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


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


92 93


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.


94 95


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


%

BankGroup

% %

Net NPLs to net loans

2.0

2.5

3.0

3.5

4.0


%

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


96 97


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


Rs bn

Bank

Group

Rs

bn

Shareholders' funds

0

4

8

12

16

20


Rs bn


98 99


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


100 101


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


102 103


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


104 105


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


106 107


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.


108 109


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


110 111


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.


112 113


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.


114 115


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


117

Nature does nothing without purpose.



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


Telephone: (230) 202 5063 – Telefax: (230) 213 5961


Website: www.mcbcapitalpartners.com

MCBCAPITALMARKETSLTD.4th Floor Travel House





Website: www.mcbcapitalmarkets.mu

MCBFUNDMANAGERSLTD.6th Floor Travel House





Website: www.mcbfundmanagers.mu

MCBINVESTMENTSERVICESLTD.4th Floor Travel House






MCBREGISTRY&SECURITIESLTD.Raymond Lamusse Building

9-11 Sir William Newton Street





MCBSTOCKBROKERSLTD.Raymond Lamusse Building





Website: www.mcbstockbrokers.com

MCB Group

administrative information

MCBCAPITALPARTNERSLTD.4th Floor Travel House





Website: www.mcbcapitalpartners.com

MCBINVESTMENTMANAGEMENTCO.LTD.6th Floor Travel House





Website: www.mcbim.com

MCBFACTORSLTD.MCB Centre





BLUEPENNYMUSEUMLe Caudan Waterfront




Website: www.bluepennymuseum.com

FINCORPINVESTMENTLTD.9-11 Sir William Newton Street



FINLEASECO.LTD.5th Floor Travel House

Corner Royal & Sir William Newton Streets




INTERNATIONALCARDPROCESSINGSERVICESLTD.Anse Courtois

Pailles – Republic of Mauritius



Annual Report 2009

132 133

FOREIGN BANKING SUBSIDIARIES

THEMAURITIUSCOMMERCIALBANK(SEYCHELLES)LTD.HEADOFFICE–VICTORIACaravelle House – Manglier Street

P.O. Box 122 – Victoria – Mahé – Seychelles


Swift Code: MCBLSCSC


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


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


Website: www.mcbmadagascar.com

General Manager: Marc de Bollivier

LOCAL ASSOCIATES

PROMOTIONANDDEVELOPMENTLTD.8th Floor Dias Pier

Le Caudan Waterfront




GHFFUTURESLTD.1st Floor HSBC Centre

Ebene Cybercity

Ebene – Republic of Mauritius



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


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



MAYOTTERoute de l’Agriculture – 97600 Mamoudzou

Telephone: (269) 61 10 91 – Telefax: (269) 61 17 40

Swift Code: BFCOYTYT



FOREIGN BRANCH

THEMAURITIUSCOMMERCIALBANK(MALÉBRANCH)M. Kandoogasdhoshuge Building - Orchid Magu

P.O. Box 3019 – Malé

Republic of Maldives


Swift Code: MCBLMVMV


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


JOHANNESBURG–SOUTHAFRICA123 Jan Smuts Avenue – Parkwood

Johannesburg 2193

Telephone: (27) (11) 880 8472


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

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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


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.


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


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 - - -


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 - - -


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


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


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


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)


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)


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


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


(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


(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


1. Accounting Policies (continued)

19


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



21


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



23


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



25


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



27


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


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


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


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



31


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



33


(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



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



35




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



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


37


(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




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)


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


39


(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)


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




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


41


(g) Liquidity risk (continued)


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


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


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


(g) Liquidity risk (continued)


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



Currency swaps 8,960,132 46,414 12,903

14,217,663 137,261 95,973

Year ended 30th June 2007



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


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


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


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


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



47


(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


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



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 -


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 -


875,530


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.


MCB Group

54

MCB Group


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


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


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


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


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.


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


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


MCB Group

68 69

35. Segment Information

Primary reporting format - geographical segments


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


MCB Group

70

MCB Group


35. Segment Information (continued)

71





RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000

Income:


Expenses (8,302,967) (7,619,727) - (324,849) (186,709) (171,682)


Allowance for credit impairment (375,928) (370,598) - 10,557 7,771 (23,658)







Segment assets 104,557,468 97,271,884 - 6,406,387 2,286,329 1,159,800 (2,566,932)








Capital expenditure 635,471 564,394 - 27,529 26,566 16,982


Amortisation 110,935 108,113 - 214 1,875 733

Impairment charge 9,697


Annual Report 2009




RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000

Income:


Expenses (9,577,298) (8,942,099) - (293,458) (187,159) (154,582)


Allowance for credit impairment (425,889) (418,422) - (195) 1,045 (8,317)







Segment assets 126,648,992 120,976,056 - 4,445,299 2,818,423 1,468,854 (3,059,640)








Capital expenditure 613,711 569,821 - 2,872 6,752 34,266


Amortisation 104,897 101,034 - 139 2,379 1,345


72

MCB Group



73


Secondary reporting format - business segments


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



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



Unallocated assets 13,476,972


74

MCB Group



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



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



Unallocated assets 11,876,216



MCB Group

76

MCB Group


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


37. Segmental Reporting - Bank (continued)

79


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


81


(a) Derivative financial instruments

2009 2008 2007


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


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


At 30th June 2008 3,708 3,708


At 30th June 2009 5,237 5,237

Annual Report 2009


Statements of comprehensive income for the year ended 30th June 2009

2009 2008 2007



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


83


(c) Loans and advances to customers (continued)


BANK SEGMENT A SEGMENT B

Specific Portfolio Total Specific Portfolio Total Specific Portfolio Total


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



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 - - -


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



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


Annual Report 2009


(c) Loans and advances to customers

2009 2008 2007



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


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


85


(d) Investment securities

2009 2008 2007



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


(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


87


(g) Property, plant and equipment


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


(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



89


(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


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


91


(n) Interest income


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


(k) Subordinated liabilities


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


93


(v) Allowances for credit impairment


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


(r) Dividend income


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.



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.


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

30

40

50

60

70

80

90

100

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


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


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


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



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


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


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



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


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


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


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


Aug-09Sep-09

Index: 5 July 1989=100

MCB Group


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


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


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


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


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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annual report 2009 - MCB annual report_tcm55-27856.pdf · MCB Group Annual Report 2009 group financial summary 2009 2008 2007 2006 2005 Income ... - - 79 - Profit after tax 4,046