annual report 2010 © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann

The futures of mankind and nature are interwoven on a planet where everything and everyone is connected. When the environment, the economy and society work harmoniously, meeting the needs of the present without compromising the ability of future generation to meet theirs becomes an achievable goal. Through Initiative 175, the MCB Group is motivating all its stakeholders to look forward together by following its commitment to sustainable development. Inspiration is not far, as witnessed from above by Yann Arthus-Bertrand, the world-famous photographer, in an exclusive series for the MCB.

226 THE 234 INTRODUCTION 252 THE FINANCIAL 2010 129 STATEMENT OF INTERNATIONAL 236 THE REAL SECTOR SECTOR IN RETROSPECT CHANGES IN CONTEXT 251 THE FISCAL 255 THE EXTERNAL EQUITY (GROUP) 231 THE REGIONAL SECTOR SECTOR ADMINISTRATIVE GROUP CORPORATE MCB CORPORATE MANAGEMENT STATEMENT OF REPORT OF STATEMENTS STATEMENTS OF 130 STATEMENT OF GENERAL INDEX TO NOTES A REVIEW OF THE MAURITIAN REPORT OF INCOME PERFORMANCE 260 CONCLUSION INFORMATION FINANCIAL PROFILE BOARD AND THE DIRECTORS GOVERNANCE DISCUSSION MANAGEMENT’S THE AUDITORS OF STATEMENTS COMPREHENSIVE CHANGES IN INFORMATION TO THE FINANCIAL THE ECONOMIC ECONOMY ENVIRONMENT LOCAL SUMMARY MANAGEMENT REPORT AND ANALYSIS RESPONSIBILITY FINANCIAL INCOME EQUITY (BANK) STATEMENTS FOR FINANCIAL POSITION 131 STATEMENTS OF 137 NOTES TO THE BRANCH NETWORK REPORTING CASH FLOWS FINANCIAL STATEMENTS

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. MCB Group Annual Report 2010

group financial summary

2010 2009 2008 2007 2006 Income Statement (Rs m) The MCB Group: Confidently facing up to testing challenges Operating profit 3,817 4,406 3,820 2,693 2,052 Profit after tax 3,420 4,046 3,886 2,547 2,013 Profit attributable to shareholders 3,413 3,964 3,694 2,461 1,986 Profitability levels have been impacted by the difficult environment, though remaining contextually resilient … Statements of Financial Position (Rs m) Total assets 162,739 150,476 132,972 110,143 99,410 Profit attributable to shareholders Recurring earning power Total loans (net) 109,442 96,859 77,552 65,768 58,026 5 25 5 3.5 % Total deposits 132,484 121,241 105,487 84,624 76,736 Rs bn Rs bn 4 20 4 3.0 % Shareholders' funds 20,319 18,574 16,346 13,475 12,334 Rs bn Tier 1 Capital 18,851 17,517 14,704 *11,913 *10,139 3 15 3 2.5 Profit Risk-weighted assets 146,928 135,222 110,301 91,965 78,471 2 10 2 2.0 Rs bn Rs Earnings per share - Performance Ratios (%) 1 5 (Rs - right scale) 1 1.5 Pre-provision profit % Return on average total assets 2.2 2.8 3.0 2.3 2.2 0 0 Return on equity - 0 Rs bn 1.0 Recurring earning Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 (% - right scale) Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 power (right scale) Return on average equity 17.6 22.7 24.8 19.1 17.6

Return on average Tier 1 capital 18.8 24.6 27.8 22.3 21.1 Recurring Earning Power = Pre-provision profit excluding net income Non-interest income to operating income 35.6 39.0 44.0 38.5 34.6 from sale of securities and financial instruments to average assets Loans to deposits ratio 84.9 82.7 76.5 81.6 80.0 Cost to income ratio 46.5 42.1 42.9 47.5 49.8 Amidst sustained balance sheet growth, supported by healthy funding and liquidity positions … Capital Adequacy Ratios (%) Capital & reserves/Total assets 12.5 12.3 12.3 12.2 12.4 Loans and assets Liquid assets to deposits BIS risk adjusted ratio 14.9 15.1 16.9 *17.2 *15.2 of which Tier 1 12.8 13.0 13.3 *13.0 *12.9 200 150 50 % Asset Quality Rs bn Rs bn 120 40 Non-performing loans (Rs m) 4,336 4,809 4,692 4,833 4,750 150 Rs90 bn %30 NPL ratio (%) 3.9 4.8 5.8 7.0 7.7 100 60 20 Allowance for loan impairment losses (Rs m) 3,054 3,377 3,196 3,246 3,359 Deposits 50 30 10 Provision coverage ratio (%) 70.4 70.2 68.1 67.2 70.7 Borrowings 2 Investor Data 0 Gross loans 0 0 Liquid assets ratio 3 Earnings per share (Rs) 14.38 16.71 15.58 9.74 7.40 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Total assets Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 (right scale) Earnings yield (%) 10.1 13.3 9.1 9.5 13.2 Price earnings ratio (times) 9.9 7.5 11.0 10.6 7.6 Net assets value per share (Rs) 85.61 78.29 68.90 56.87 45.95 While financial soundness metrics with regard to capitalisation and asset quality remain at comfortable levels Dividends per share (Rs) 5.25 5.25 4.55 2.90 2.12 Capital adequacy NPLs to loans Dividend yield (%) 3.7 4.2 2.6 2.8 3.8

24 24 % % 10 Dividend cover (times) 2.7 3.2 3.4 3.4 3.5 Rs bn Market Data 20 20 8 Market capitalisation (Rs m) 35,553 31,547 43,065 25,789 15,798 16 16 % 6 Market price per share (Rs) :- 12 Rs bn 12 High 151.00 172.00 195.00 109.00 58.00 4 8 8 Low 119.00 82.00 101.00 56.00 40.30 4 4 2 Closing (Year end) 142.00 126.00 172.00 103.00 56.00 Shareholders' funds 0 0 Tier 1 ratio (right scale) 0 NPLs to gross loans * Comparatives have been reinstated with a view to ensuring comparability except for Risk-weighted assets. Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 BIS ratio (right scale) Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Net NPLs to net loans Strength and power

So strong, so magnificent, so powerful. It’s so easy to forget that nature’s survival is actually in our hands and vice-versa. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

corporate profle

About the MCB Group Awards and recognition

Anchored on a 172-year history of accomplishments, the Commercial Bank Limited (MCB) is firmly established as the leading bank in Mauritius and a key financial services institution in sub-Saharan Africa. Besides playing an influential role in the in terms of capital and profits socio-economic development of the country, the MCB relied on its sound business model to successfully embark on a sensible 1ST BANK African Business diversification strategy alongside consolidating its domestic banking operations. Apart from tapping into the potential of non- IN bank financial and investment services, the Group has established a widening foothold beyond local shores, notably in regional markets. Reflective of its corporate philosophy, the MCB remains intent on providing ever-improving levels of customer experience as well as state-of-the-art financial solutions to individual and corporate clients on the strength of dedicated business segments BANK OF THE 2009 award and extensive delivery channels. Epitomising its prominent brand, the MCB keeps on building long-lasting relationships with its The Banker shareholders, customers, staff and the society at large. YEAR Our core values QUALITY for high straight-through Integrity Our Vision RECOGNITION processing rate for payments and transfers Customer Care To be the obvious choice for financial services AWARDS Citibank and Commerzbank Teamwork in the region and beyond Innovation ACCOLADES FOR overall winner Knowledge ANNUAL REPORT best SEM-7 company Key facts and figures • Highest market capitalisation of around USD 1.2 billion on best website Excellence the local stock exchange, representing a share of some 22% 2009 PricewaterhouseCoopers A rich tradition and strong track record • Extensive network of 40 branches, 150 ATMs (representing 39% Corporate Reporting Awards 6 • Established since 1838 of the local ATM park) and above 4,300 point of sale terminals 7 • Initiation of regional expansion in the early 1990s • Diversified and entrenched participation in non-bank • Listed on the Stock Exchange of Mauritius, a member financial services like leasing and factoring as well as of the World Federation of Exchanges (WFE), since 1989 a comprehensive range of investor services Unmatched domestic franchise Increasingly prominent player regionally and beyond Global Rankings (The Banker - July 2010) Moody’s ratings • Only Mauritian bank in The Banker’s Top 1000 Banks • Presence in 8 countries through subsidiaries, associates and • 743rd among the Top 1000 Banks; 25th in sub-Saharan Africa • Foreign Currency Deposits Baa2/P-2 • Market shares of around 40% in respect of bank credit representative offices • 134th worldwide in terms of soundness • Foreign Currency Issuer Baa1 to the economy & local currency deposits and of over 50% of • Bolstered regional market presence via participation • 42nd – Return on assets • Global Local Currency Deposit Baa1/P-2 cards issued in Mauritius in major deals and agreements as well as reinforced business • 116th – Profits on average capital • Financial Strength D+ • Widespread involvement with approximately 750,000 relationships • NSR Senior Unsecured individual and institutional customers, over 18,000 local and • Enhanced grasp of global business opportunities, supported MTN-Domestic Currency Aa3.za foreign shareholders, and some 2,600 employees by a dedicated desk • NSR Subordinate MTN-Domestic Currency Aa3.za MCB Group Annual Report 2010

corporate profle Business segments catering for diversified client needs MCB group structure Retail Corporate Cards International Global Business Non-bank financial operations services Representative Offices Banque Française Commerciale With its wide-ranging Supporting the By means of its Leveraging on its Taking full advantage The MCB Capital distribution channels, growth-oriented needs advanced technology, network of inter- of Mauritius as a Markets Group has Océan Indien Johannesburg the MCB caters for the of established and global partnerships national correspon- competent Global the suitable insight MCB Group MCB MCB Moçambique MCB Réunion, & day-to-day needs of emerging sectors of and extensive dents, access to global Business jurisdiction, and experience to different categories of the economy, the MCB merchant network, the desk offers a Paris finance and state- accompany clients 100% 85% 95% 99.99% 49.99% individual customers provides them with the MCB acts as a of-the-art techno- palette of solutions through investments as well as small and flexible and innovative one-stop-shop for all logy, the MCB offers to meet the needs over a lifetime by medium enterprises, financial solutions cards related needs of custom-made financial of clients worldwide, providing fast, with a due focus on and advice, thus clients, duly anchored solutions, including notably offshore efficient and flexible the requirements of helping to transform on the expertise of its financing, payments companies, funds and solutions through Foreign entities high net worth clients opportunities into business and technical services and treasury trusts speciality-driven winning strategies specialists products subsidiaries

Tailored and innovative financial solutions

MCB Bank Individuals Corporate & Institutions Corporate Banking Retail Banking Cards International Operations Global Business Treasury Operations Custody Services Financing Solutions Short and Long-term Financing - Bridging Loans - Overdraft - Debentures - Factoring

Investment & Securities Services Advisory Services - Brokerage Services - Investment Products - Non-bank activities Financing Solutions Everyday Banking Management Services - Securities Services Housing Loans - Personal Loans - Education Loans Current Account - Savings International Services Account - Fixed Deposit - Foreign Currency Account - Syndicated Loans MCB Capital MCB Equity MCB International Card MCB Fincorp Blue Penny Credit Guarantee MCB Global Business Payment Services Safe Deposit Lockers - Cross Border Markets Ltd. Fund Ltd. Factors Ltd. Processing Properties Ltd. Investment Museum Insurance Co. Ltd. Forward Project Financing International Custody Services Ltd. Ltd. Foundation Standing Instructions - Direct Debits - Bank Drafts - Forex Transactions Transfers 8 Book Transfers - Local Bank Transfers - SWIFT Member Multi-Currency 9 90% 100% 100% 80% 100% 57.56% 97.88% 40% 100% Credit Facilities Accounts Traveller's Cheques - International Money Transfers Card Products Concentrator Debit and Credit Cards - E-Commerce Standard & Structured Secondary MCB Investment Services Ltd. 90% 3-D Secure Trade & Commodities Assets Trading Payments Financing Wealth Management & Investment MCB Stockbrokers Ltd. 90% Remote Banking Cards Business L/C Re-issuance/ MCB Fund Management - Advisory Services - Outsourcing Internet Banking - SMS Refill - Confirmation MCB Investment Management Co. Ltd. 66.21% Finlease Company Ltd. 57.56% Brokerage Services - MCB Education Plan ATM Trade Finance MCB Registry & Securities Ltd. 90% Financing - Import - Export - Promotion & Development Ltd. 27.31% Credit Protection - Bank Guarantees Financing Solutions Cards Services MCB Fund Managers Ltd. 90% Point of Sale/Acquiring Services - Leasing: Operating & Caudan Development Ltd. 20.38% Specialised Services E-Commerce MCB Capital Partners Ltd. 90% Finance Leases Business Services Junior Savings Account - Pack 18:25 - Custodian Services - Checking Facilities - Payroll Services - GHF Futures Ltd. 45% Personal Banking - Private Banking Secretarial Services - Registry Services - Confidential Reports

Subsidiaries Foreign Exchange Services Currency Swaps - Spot & Foward Deals - Figures refer to effective holding of MCB Ltd. Associates International Transfers & Remittances MCB Group Annual Report 2010

board of directors committees of the board

President Supervisory and Monitoring Committee J. Gérard HARDY (Independent) Members J. Gérard HARDY (Chairperson) E. Jean MAMET Vice President Philippe A. FORGET Pierre-Guy NOEL E. Jean MAMET (Independent) Antony R. WITHERS Secretary Jean-François DESVAUX DE MARIGNY Members Herbert COUACAUD, c.m.g. Audit Committee Anil C. CURRIMJEE Members Bertrand DE CHAZAL (Chairperson) Bertrand DE CHAZAL (Independent) Anil C. CURRIMJEE E. Jean MAMET Philippe A. FORGET (Executive) Margaret WONG PING LUN Sanjiv GOBURDHUN (Independent) Secretary Jean-François DESVAUX DE MARIGNY Navin HOOLOOMANN, c.s.k. (Independent) Jean Pierre MONTOCCHIO (Independent) Risk Monitoring Committee Pierre-Guy NOEL (Executive) Members E. Jean MAMET (Chairperson) Antony R. WITHERS (Executive) Sanjiv GOBURDHUN Jean Pierre MONTOCCHIO Margaret WONG PING LUN (Independent) Pierre-Guy NOEL Antony R. WITHERS Secretary to the Board Alternate Philippe A. FORGET (to Pierre-Guy Noël or Antony R. Withers) Jean-François DESVAUX DE MARIGNY Secretary Denis MOTET 10 Nomination and Remuneration Committee 11 Members J. Gérard HARDY (Chairperson) Herbert COUACAUD, c.m.g. Navin HOOLOOMANN, c.s.k. Pierre-Guy NOEL Jean Pierre MONTOCCHIO (also acts as Secretary)

Conduct Review Committee Members Margaret WONG PING LUN (Chairperson) Bertrand DE CHAZAL J. Gérard HARDY Secretary Jean-François DESVAUX DE MARIGNY MCB Group Annual Report 2010

general management

Chief Executive (Group) Managers Jocelyn AH-YU Managing Director - MCB Seychelles Pierre-Guy NOEL Koomaren CUNNOOSAMY Team Leader - Corporate Chief Executive (Banking) Hemandra Kumar HAZAREESING Team Leader - Corporate Vinoba Devi LALLAH Head - Banking Products Antony R. WITHERS Group Inhouse Lawyer / Head - Legal / Roselyne LEBRASSE-RIVET Money Laundering Reporting Officer Deputy Chief Executive (Banking) Steve LEUNG SOCK PING Head - Marketing Philippe A. FORGET Bhavish NAECK Head - Financial Management Chief Managers André WONG TING FOOK Head - Accountancy Jean-François DESVAUX DE MARIGNY Head - Group Finance and Company Secretary Advisers Gilbert GNANY Group Chief Strategy Officer and Advisor to the Board Angelo LETIMIER Cards Eddy JOLICOEUR Head - Group Human Resources Jacques TENNANT Property, Premises & Equipment Marc LAGESSE Head - Group 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-Michel FELIX Head - Group Internal Audit 12 Raoul GUFFLET Head - International 13 Denis MOTET Head - Group Risk We must preserve our heritage. Not as a sentinel of the past, but as a beacon that will light our path into the future. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

report of the directors

The Directors of the Overview locally and abroad, and sub-optimal conditions in The MCB’s commitment to the well being of all domestic money and foreign exchange markets. Despite Mauritians, notably through the exercise of its Mauritius Commercial Bank Ltd. (MCB) After the global recession of 2009, the world economy is slowly recovering and is expected to expand by more the impact of dampened external demand and rupee Corporate Social Responsibility (CSR) initiatives, has are pleased to submit to than 4% this year. However, it is worth noting that this strength on the implementation of major investment reached another milestone with the creation of MCB the shareholders the Annual Report growth will be principally led by emerging economies projects by operators, the Group managed to limit the Forward Foundation in January 2010. This Foundation with China and at the fore while economies of contraction of its operating income to 3.2%. This was will enable a more effective and efficient management of the Group and of the Bank the US and Europe are expected to register a below- made possible by a resilient performance in respect of of the Group’s related activities. It will be funded by the for the year ended 30 June 2010. par, albeit improving, performance. Indeed, a number foreign sourced activities which now account for some contribution of 2% from the qualifying profits of the of challenges still prevail in our main export markets, 45% of Group profits. MCB Ltd. and of its local subsidiaries and will rely on including subdued evolution of private expenditure, slow our extensive branch network to identify and respond employment growth and tight credit conditions. Against In line with the trend observed on international promptly to the social needs of different regions. this background, the forecast economic performance of exchanges, the SEMDEX pursued a noteworthy ascending the Mauritian economy in 2010 has been downgraded path in the first few months of FY 2009/10 until mid- The MCB’s contribution to the community goes beyond in view of the adverse impact of the euro zone crisis on October 2009. Since then, however, a comparatively those approved by the National CSR Committee, and a key sectors like tourism, textile and the sugar industry, subdued performance has been registered on account number of other social, educational and environmental with the difficult environment likely to dampen private of persisting economic uncertainties. Nonetheless, the projects were promoted and funded by the Group, such spending and increase risks of worsening unemployment. market grew by an appreciable 16.7% on a point to as the MCB Foundation Scholarship and Initiative 175 point basis over FY 2009/10. Following a rather similar including the exhibition by renowned environmentalist The Bank achieved profits of Rs 3,104 million for the year trend, the MCB share price increased from Rs 126 as and photographer Yann Arthus-Bertrand. During the ended 30 June 2010, down 4.6% on the previous year while at 30 June 2009 to Rs 142 as at 30 June 2010 (+12.7%) financial year ended 30 June 2010, an amount of Rs 61 Group results, which include a charge of Rs 190 million for with a peak of Rs 150 achieved in October 2009. As at million was devoted to CSR projects and activities. 16 impairment of an investment, decreased by 13.9% to stand 17 29 September 2010, the MCB share price stood at Rs 144, at Rs 3,413 million, with earnings per share dropping to representing a market capitalisation of USD 1.2 billion, Activities and Results Rs 14.38 for the year to 30 June 2010 (Rs 16.71 for the year the largest on the local bourse. Further underscoring its Whilst being adversely impacted by activity slowdown, to 30 June 2009). In fact, the MCB was, during the year, confronted by a highly testing operating environment, overall standing, the MCB was the only Mauritian Bank competitive pressures and atypically low yields on characterised by prolonged economic uncertainties both to feature in the Top 1,000 World Banks of The Banker, Treasury Bills, Group net interest income posted a ranking 743rd in terms of Tier 1 capital. positive growth of 2.2%, while that of the Bank MCB Group Annual Report 2010

report of the directors

increased by 3.0%, supported by our efforts to broaden Allowance for credit impairment pursued its downward A detailed review of this year’s achievements and results Prospects our market base and enhance our product offerings. trend to decrease by some 27% on account of consistently is provided in the ‘Management Discussion and Analysis’ Notwithstanding recent policy responses to enable improving asset quality as gauged by a notable drop in on pages 56. enterprises impacted by external demand setbacks Net fee and commission income rose by a satisfactory non-performing loans ratios which stood at 1.9% in net and rupee strength to improve their performance and 12.0% at Bank level and by 7.1% at Group level, on the terms for both the Group and the Bank. Dividends and Capital Resources competitiveness, the Mauritian economy is characterised strength of appreciable performances with respect to In spite of the below par performance, the Board by a below-par expansion and non-negligible downside regional trade financing and card business. A significant However, a non-recurrent impairment charge of Rs 190 has decided to maintain the same level of dividend risks, which could hold back private investment patterns drop of some Rs 380 million was, however, registered in million was incurred on an equity investment in a regional as last year. An interim dividend of Rs 2.25 per share and the demand for credit for some time yet. In fact, profits derived from foreign exchange transactions asa cable network project which is presently under legal was declared and paid in December 2009 while a final the strength of the recovery process will depend not result of dampened trade volumes and heightened rupee administration. dividend of Rs 3.00 per share was declared by the Board only on external developments, but also on the timely volatility. in June 2010 and paid in July. Total dividends paid implementation and pragmatic execution of structural On the whole, Group attributable profit dropped by 13.9% during the year under review thus amounted to Rs 1,246 reforms to promote high and sustainable growth. On Consequently, operating income fell marginally by to Rs 3,413 million (9.1% on excluding the non-recurrent million, with undistributed profits of Rs 2,167 million the whole, activities of the MCB in the current financial 3.2% and 1.9% for the Group and the Bank to stand investment impairment charge of Rs 190 million) with carried to reserves. Capitalisation levels remained year would continue to be weighed down by the delicate at Rs 7,994 million and Rs 6,985 million respectively. earnings per share falling to Rs 14.38 from Rs 16.71 last strong, with Group shareholders’ funds increasing economic climate and enduring uncertainty levels linked year. A more resilient performance was recorded at Bank by 9.4% to reach Rs 20.3 billion as at 30 June 2010. to the absence of perceptible evidence of sustained Though being fuelled by ongoing initiatives to reinforce level, with profits declining by a lower 4.6% to reach As at that date, the risk-adjusted capital adequacy ratio, nationwide activity growth. However, backed by sound internal capacity, growth in operating expenses was Rs 3,104 million. computed as per Basel II definitions, stood at 14.9% for fundamentals and sensible diversification initiatives, the contained to 6.8% for the Group and 9.1% at Bank level. the MCB Group. MCB is confident to post a resilient performance, buoyed Total assets of the Group increased to Rs 162.7 billion as by increasing prominence of foreign-sourced activities, Net income from associates, after taking into at 30 June 2010 as compared to Rs 150.5 billion one year Code of Conduct even though operating expenses should experience 18 consideration minority interests, dropped by some Rs 160 earlier. Financial soundness indicators remained healthy The MCB Group is committed to the highest standards the full impact of charges associated with substantial 19 million as a result of the losses posted by Promotion and as gauged by an ample liquidity level and a comfortably of integrity and ethical conduct in dealings with all investments realised in the past two years. Indeed, Group Development Group and lower profits realised by Banque high capital adequacy ratio. its stakeholders. The MCB’s Code of Conduct is based profit for FY 2010/11 is set to recover from the current Française Commerciale Océan Indien whose contribution on the model code of the Joint Economic Council as level, with the MCB remaining well-geared to tap into the has further been undermined by euro weakness. adapted to meet the specific needs of the MCB Group. openings associated with an eventual economic upturn. MCB Group Annual Report 2010

report of the directors

Statement of Directors’ Responsibilities International Financial Reporting Standards as well as the Auditors APPROVED BY THE BOARD OF DIRECTORS AND SIGNED Company law requires the Directors to prepare Financial requirements of the Banking Act 2004 and the guidelines The Auditors, BDO & Co, have expressed their willingness ON ITS BEHALF Statements for each financial year, which give a true issued there under. Directors are also responsible for to continue in office and a resolution proposing their re- and fair view of the state of affairs of the Bank and of safeguarding the assets of the Group and of the Bank and appointment will be submitted to the Annual Meeting. the Group. In preparing those Financial Statements, the hence for taking reasonable steps for the prevention and Directors are required to: ensure that adequate accounting detection of fraud and other irregularities. Other main Acknowledgements records and an effective system of internal controls and responsibilities of the Directors include assessment of the On behalf of The Board and on our own, we wish to risk management have been maintained; select suitable General Management’s performance relative to corporate express our appreciation to the Group’s Management accounting policies and then apply them consistently; objectives, overseeing the implementation and upholding and staff for their continued dedication and hard work J. Gérard HARDY make judgements and estimates that are reasonable and of the Code of Corporate Governance and ensuring timely in the current difficult economic environment and President prudent; state whether applicable accounting standards and comprehensive communication to all stakeholders on most challenging times, and for achieving results which have been followed, subject to any material departures events significant to the Group. reflect the Group’s resilience. disclosed and explained in the Financial Statements; and prepare the Financial Statements on the going concern The Board of the MCB, recognising that the MCB Group, We would also like to place on record our thanks to basis unless it is inappropriate to presume that the Bank as a financial organisation, encounters risk in every aspect our fellow members of the Board for their support and Pierre-Guy NOEL will continue in business. The Directors confirm that they of its business, has put in place the necessary committees contribution. Chief Executive (Group) have complied with these requirements in preparing the to manage such risks, as required by Basel II. The Board, Financial Statements. The external auditors are responsible whilst approving risk strategy, appetite and policies, has for reporting on whether the Financial Statements are delegated the formulation thereof and the monitoring of fairly presented. The Directors are responsible for keeping their implementation to the Risk Monitoring Committee. proper accounting records which disclose with reasonable 20 accuracy, at any time, the financial position of the Group The structures, processes and methods through which the 21 and of the Bank while ensuring that: the Financial Board gains assurance that risk is effectively managed, Statements fairly present the state of affairs of the Group are fully described in the ‘Management Discussion and and of the Bank, as at the financial year end, and the results Analysis’ section of this report. of its operations and cash flow for that period; and they have been prepared in accordance with and comply with While agriculture is a marvel of man’s cooperation with nature, it is nothing compared to what nature still has to teach us. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

corporate governance report

Statement on Corporate Governance • the composition of the Board with preferably a majority Conduct Review Committee, the Nomination and submit its Internal Capital Adequacy Assessment Process Corporate governance involves a set of relationships of independent non-executive directors; Remuneration Committee and the Risk Monitoring (ICAAP) document to the Bank of Mauritius well before between a company’s management, its board, its • the requirement that the Chairperson of the Board must Committee. the regulatory deadline of November 2011, as required shareholders and other stakeholders. Effective corporate be an independent non-executive director; under the Guideline on Supervisory Review Process governance practices are essential to achieving and • the creation of Board Committees; Each committee has its own charter which has been issued in April 2010. The Bank has also adopted a formal maintaining high levels of public trust and confidence in • a corporate code of conduct addressing, inter alia, issues approved by the Board. Through the deliberations and disclosure policy as defined in the Basel II framework. the banking system. relating to conflicts of interests; reporting of its various committees, the Board ensures • the establishment of strategic objectives; that Management’s daily actions are in line with the Besides optimising shareholder value, the Bank, being The Board of the MCB is fully committed to attaining and • the appointment and remuneration policy of members Board’s objectives and regulatory requirements. particularly conscious of its responsibilities as a dominant sustaining the highest standards of corporate governance of the General Management; player in the local market, has always supported the with the aim of maximising long-term value creation • the existence of clear lines of responsibility and The Board and Senior Management of the MCB are generally higher risk businesses associated with new for the shareholders. This is ensured through bankwide accountability throughout the organisation; required by the Bank of Mauritius (BoM), the Financial economic initiatives and start-ups whilst contributing to awareness of its operating ethics and the stewardship • the provision to the shareholders of timely and Services Commission and corporate governance best the well-being of the community through an extensive and close supervision of the management of the Bank by transparent information relating to material events; and practices to demonstrate, inter alia, to the satisfaction involvement in social actions (humanitarian, education, the Board of Directors. Indeed, as part of the established • the timely communication to the shareholders and the of the regulatory authorities, a clear structure of policy environmental and cultural). practice and given the fact that the challenging economic public of accurate financial results. and systems of control emanating directly from the and business environment underscores ever more Board, which manifestly identify and manage the risks The Bank is committed to the highest standards of the need for observing high levels of transparency, Approval of the Board is specifically required for, amongst inherent to the businesses of the MCB. To this end, the business integrity, transparency and professionalism and accountability and integrity, the Board is dedicated to other important matters, modifying the Company’s Board has approved the Group Risk Policy relating to ensures that all its activities are managed responsibly continuously foster a corporate culture that emphasises constitution, issuing fresh capital or buying back its credit risk, operational risk and market risk. and ethically whilst seeking to enhance business value good corporate governance. own shares, declaring dividends, acquiring or divesting for all stakeholders. In line with this objective, the sizeable stakes in subsidiaries or associated companies, In line with such requirements, there is a clear separation Bank issued a Code of Conduct in February 2002, based 24 The Company’s constitution provides that the minimum and establishing the remuneration of directors and between the executive role of day-to-day decisions on the model code of the Joint Economic Council, as 25 number of directors shall be twelve and the maximum members of Management. relating to credit and the Board’s role of setting out appropriately adapted to meet its own specific needs. number eighteen. In accordance with the constitution, the credit policy and ensuring that the business is The Bank adheres to the Mauritius Bankers Association the Board has all the powers necessary for managing, The Board presently comprises 12 directors; 3 executives effectively run in accordance with such policy through Code of Banking Practice issued in 2007 and subscribes directing and supervising the management of the business and 9 non-executives, of whom 7 are independent. The an adequate organisational structure and proper control to the Code of Corporate Governance for Mauritius, and affairs of the Company. The Board is ultimately President and Vice President of the Board are independent and reporting systems. which was issued in October 2003. responsible for the affairs of the Company. The methods non-executive directors. through which the Board exercises its powers and Regarding risk management in particular, the Bank is The directors continuously review the implications of discharges its responsibilities are set out in the MCB Board The Board has created five Board Committees to help it in compliant with Basel II Standardised Approach. Since corporate governance best practices and are of the Charter which provides, among others, for the following: carrying out its duties and responsibilities : the Supervisory 2009, the Bank has been proactively working on Pillar opinion that the Bank complies with the requirements of and Monitoring Committee, the Audit Committee, the 2 of the Basel II framework to ensure that it is ready to the Code of Corporate Governance in all material aspects. MCB Group Annual Report 2010

corporate governance report

Directorate and Management Board structure and composition Herbert COUACAUD, c.m.g. - Age 62 Directorship in other listed companies Holds a BSc in Economics and Mathematics Fincorp Investment Ltd. Others 17% (2) from the University of Cape Town (1971), New Mauritius Hotels Ltd. Board of Directors he has actively contributed to the Rogers & Co. Ltd. Directors’ Profile development of the tourism industry in The Board is composed of 12 members Executive Mauritius and is the Chief Executive Officer 25% (3) who have a proven track record in of the New Mauritius Hotels Group. various fields, with the average age of Independent 58% (7) He was first appointed to the Board in 2002. the directors standing at 57 years. He is a member of the Nomination and Remuneration Committee. The profiles of the directors are provided hereafter. Herbert COUACAUD, c.m.g.

J. Gérard HARDY - Age 66 In July 2003, at the request of the Board, After spending 4 years in London having he chaired the Bank’s Management qualified as Certified Accountant, he moved Committee until its dissolution at the to Paris in 1969 where he qualified as beginning of 2005. He is currently President an ‘Expert Comptable’. He worked 8 years of the Board, Chairperson of the Supervisory with KPMG, 17 years with the IP Group and and Monitoring Committee and of the thereafter set up his own consultancy firm. Nomination and Remuneration Committee Anil C. CURRIMJEE - Age 48 He is a former Chairperson of the Mauritius He returned to Mauritius in 2001. while being a member of the Conduct Holds a BA in Liberal Arts from Williams Chamber of Commerce and Industry. Review Committee. College USA (1983) and an MBA from He was first appointed to the Board at the London Business School (1988). He was first appointed to the Board in 2002. the shareholders’ meeting of October 2002 He is a director of a number of companies He is a member of the Audit Committee. and was elected Vice President. within the Currimjee Group, whose activities J. Gérard HARDY are organised through six main clusters, 26 namely telecommunications, media & IT, 27 real estate, hospitality & tourism, energy, commercial & financial services and E. Jean MAMET - Age 67 Directorship in other listed companies manufacturing, marketing and distribution. Certified Accountant since 1975, he has United Basalt Products Ltd. worked for 40 years in the field of auditing, Anil C. CURRIMJEE 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. E. Jean MAMET MCB Group Annual Report 2010

corporate governance report

Bertrand DE CHAZAL - Age 69 He is Chairperson of the Audit Committee Navin HOOLOOMANN, c.s.k. - Age 51 He is the founder and Managing Director Fellow member of the Institute of Chartered and a member of the Conduct Review Holds a First Class Honours degree in of Hooloomann & Associates Ltd., a Accountants in England and Wales and Committee. Surveying from the University of the West construction project management and cost a “Commissaire aux Comptes”. After a career of England and is a Fellow of the Royal management consultancy firm with offices in with the accounting firm Touche Ross in Paris Directorship in other listed companies Institution of Chartered Surveyors, UK, since Mauritius, Seychelles, Maldives and India. and then in West Africa, he joined the World Caudan Development Ltd. 1992. He has some 23 years of experience in Bank in Washington in 1986 from which Promotion and Development Ltd. the construction industry in Mauritius. He was first appointed to the Board at the he retired as Senior Financial Analyst in 2003. shareholders’ meeting of October 2002. He is a member of the Nomination and He was first appointed to the Board at Remuneration Committee. the shareholders’ meeting of October 2004.

Bertrand DE CHAZAL Navin HOOLOOMANN, c.s.k.

Philippe A. FORGET - Age 60 He is a board member of several companies Holds a BSc (First Class Honours) of the MCB Group. in Computational and Statistical Science from the University of Liverpool and an MSc He was first appointed to the Board (with distinction) in Management & at the shareholders’ meeting of December Operational Research from the Imperial 2005. He is a member of the Supervisory College of Science and Technology, London. and Monitoring Committee and also acts Jean Pierre MONTOCCHIO - Age 47 Directorship in other listed companies After working as an economist for 2 years at as alternate to the Chief Executive (Group) Notary Public since 1990, he drew up the new Caudan Development Ltd. (Chairperson) the Food & Allied Group, he joined the Bank or Chief Executive (Banking) on the Risk constitution of the Bank and has participated Fincorp Investment Ltd. (Chairperson) in 1978. He was appointed Assistant General Monitoring Committee. on the National Committee on Corporate Promotion and Development Ltd. (Chairperson) Manager in 1996 and Deputy Chief Executive Governance. New Mauritius Hotels Ltd. (Banking) in April 2006. Rogers & Co. Ltd. Philippe A. FORGET He was first appointed to the Board in 2001. 28 He is a member of the Nomination and 29 Remuneration Committee and of the Risk Monitoring Committee. Sanjiv GOBURDHUN - Age 45 He has been a member of the National Member of the Institute of Directors in UK. Committee on Corporate Governance. He joined Rose Hill Transport Limited in Jean Pierre MONTOCCHIO 1990 and was appointed Managing Director He was first appointed to the Board in 2001. in 1995. After the restructuring of Rose- He is a member of the Risk Monitoring Hill Transport Ltd. (now RHT Holding Ltd.) Committee. into different and diversified clusters, he became Chairman in all of the ensuing seven subsidiaries. He is currently a director of several companies involved in transport, IT, media, real estate development, investments & the insurance sector. Sanjiv GOBURDHUN MCB Group Annual Report 2010

corporate governance report

Pierre-Guy NOEL - Age 54 He is a board member of several Margaret WONG PING LUN - Age 56 She is a member of the Listing Executive Holds a BSc (Honours) in Economics from the companies of the MCB Group acting either Holds a BA (Honours) in Business Studies Committee of the Stock Exchange London School of Economics and Political as Chairperson or Director of Banque (UK) and is a fellow member of the Institute of Mauritius. Science and is an Associate of the Institute Française Commerciale Océan Indien, MCB of Chartered Accountants in England and of Chartered Accountants in England and Moçambique, MCB Madagascar, MCB Wales. Prior to joining the University of She was first appointed to the Board at the Wales. From 1981 to 1991, he worked at Seychelles, MCB Maldives and MCB Capital Mauritius in 1991 where she is a lecturer shareholders’ meeting of October 2004. De Chazal Du Mée & Co. where he became Markets Ltd. amongst others. in Accounting and Finance, she was a She is currently Chairperson of the Conduct a partner in financial consultancy. He Senior Manager at De Chazal du Mée’s Review Committee and is a member of the joined the MCB in 1992 as Planning and He was first appointed to the Board at the Consultancy Department. Audit Committee. Development Consultant before being shareholders’ meeting of December 2005. appointed General Manager of the Bank in He is a member of the Supervisory and 1996. In July 2005, he was appointed Chief Monitoring Committee, the Nomination and Executive (Group). Pierre-Guy NOEL Remuneration Committee and of the Risk Margaret WONG PING LUN Monitoring Committee.

Secretary to the Board

Antony R. WITHERS - Age 56 He was appointed Chief Executive (Banking) Jean-François DESVAUX DE MARIGNY - He is presently responsible for the Group’s Holds an MA in Economics from Christ’s in April 2006. He acted as Chairman of the Age 56 finances and also acts as secretary to the College, Cambridge and was also awarded Mauritius Bankers Association between Fellow member of the Institute of Board of Directors, the Audit Committee, an MBA by IMD, in Lausanne, Switzerland. November 2006 and May 2010. Chartered Accountants in England the Conduct Review Committee and the He has accumulated wide-ranging experience and Wales. Following several years of Supervisory and Monitoring Committee. in the banking sector shouldering an array He was first appointed to the Board at experience as an auditor in Europe, he 30 of high level responsibilities in a number of the shareholders’ meeting of December joined the MCB in 1986. He was involved 31 institutions. These include Citibank, Bank 2006. He is a member of the Supervisory in the launching of the Stock Exchange of Montreal, S.G Warburg & Co. Ltd., UBS and Monitoring Committee and of the Risk of Mauritius in 1989. He has strongly Securities Ltd., Commerzbank A.G and, Monitoring Committee. participated in the development of the Lloyds TSB Bank plc where he was Director MCB’s regional network and is a director of and Global Head of Financial Institutions & a number of subsidiaries and associates of International Trade Finance. Antony R. WITHERS the Group. Jean-François DESVAUX DE MARIGNY MCB Group Annual Report 2010

corporate governance report

Committees of the Board of Directors • ensuring that adequate succession planning exists at In carrying out its responsibilities, the committee meets while performing regular stress tests thereon in view The composition of the committees of the Board of senior executive level; regularly with the Executive Management of the Bank of the ICAAP implementation; Directors appears on page 11 of the Annual Report. • liaising with all the Board Committees; and receives regular reports from both internal and • ensure that the Group’s security structure is adequate • reviewing the yearly budget, the quarterly results and external auditors. Separate sessions are held with both and that appropriate levels of protection for people Supervisory and Monitoring Committee yearly financial statements to be submitted to the Board; sets of auditors at least four times a year, without and the Bank’s assets are established; The committee is, subject to any decision which the Board • proposing the dividend policy; Management being present. The committee has fulfilled • ensure that the confidentiality, integrity, availability may take from time to time, competent to exercise all or any • monitoring strategic alliances and major litigation its responsibilities for the year in compliance with its and protection of the Group’s information assets powers, authorities and discretions vested in or exercisable issues; and terms of reference. are under constant review and that its information by the Board other than those set out in the Seventh • ensuring that the Board is permanently informed of the systems software and hardware devices that relate to Schedule of the Companies Act 2001 and those relating to running of the affairs of the Group. Risk Monitoring Committee and support them are adequate and effective; the appointment of senior officers who, when appointed, The committee, which meets at least quarterly, consists • ascertain that adequate measures are taken to ensure shall form part of the General Management of the Bank. Audit Committee of the Chief Executive (Group), the Chief Executive compliance with all relevant laws, regulations, codes The Audit Committee of the Bank consists of four non- (Banking) and a minimum of two and a maximum of of conduct and standards of good governance; and The committee is chaired by the President of the Board executive directors, three of whom are independent. three non-executive directors appointed by the Board. • monitor the country exposure limits once these of Directors. The other members are: the Board Vice It meets at least four times a year corresponding to The committee is chaired by an independent non- have been approved by the Board following the President, the Chief Executive (Group), the Chief Executive the Bank’s reporting cycle and its principal function is executive director. The Head of Group Risk acts as recommendations of the Country Risk Committee. (Banking) and the Deputy Chief Executive (Banking). The to oversee the Bank’s financial control and financial secretary and the Deputy Chief Executive (Banking) acts Company Secretary is the secretary of the committee reporting processes. In particular, it reviews the quarterly as an alternate to the Chief Executive (Group) or to the The Risk Monitoring Committee receives regular reports which meets weekly. results and annual financial statements before these are Chief Executive (Banking) in their absence. and recommendations from the Group Risk SBU, the approved by the Board. Executive Credit Committee, the Assets and Liability The principal responsibilities of the Risk Monitoring The committee’s roles and responsibilities include: Committee, the Operational Risk and Compliance Com- Committee are to: • submitting to the Board the development strategy of The activities of the Audit Committee include, inter alia, mittee, the Security BU and the Country Risk Committee. • monitor the credit risk and market risk portfolios of the Group; regular reviews and monitoring of the following: 32 the Bank, set against the agreed risk appetites as well Through its chairperson, the committee reports to the 33 • setting out the corporate values and principal policies, • the effectiveness of the Bank’s internal financial control as the operational risk tolerance in compliance with Board in a timely manner on all risk issues that could have including the credit policy, in respect of the conduct of and risk management systems; the Basel II Accord; an impact on the operations or reputation of the Bank. the business; • the effectiveness of the internal audit function; • oversee the concentration of risk, in respect to the • ensuring that the organisation structure is best suited to • the independence of the external auditors and the related guideline issued by BoM in 2009; Nomination and Remuneration Committee the implementation and realisation of such policies and assessment of the external auditors’ performance; • monitor the quality of assets by segment and by product; The committee’s charter provides that the committee strategy while providing for clear lines of responsibility • the remuneration of the external auditors and their • scrutinise the risk profile of large exposures; shall consist of four to five members, the majority and accountability; supply of non-audit services; and • monitor the utilisation of capital to make sure that of which shall be independent non-executive directors. • delegating authority to the Chief Executives and • the Bank’s procedures for ensuring compliance with the Bank has, at any time, a capital adequacy ratio Presently, the committee consists of 5 members: the supervising the delegation of authority by the Chief laws and regulations relevant to financial reporting and corresponding to at least the regulatory minimum Chief Executive (Group), and four non-executive Executives to the members of the General Management; with its internal code of business conduct. directors, three of whom are independent. MCB Group Annual Report 2010

corporate governance report

The committee is responsible for making recommenda- • undertaking the selection and making recommendations Board and Committee Attendance tions to the Board on the appointment of directors and in respect of new Board members and the composition The following table gives the record of attendance at meetings of the MCB Board and its committees for FY 2009/10. senior executives. This responsibility includes: of the Board Committees; and • ascertaining whether candidates are fit and proper • re viewing the proposals received for the subsidiaries’ boards Board Committees Board persons, have the required skills and expertise and are and making recommendations thereon/ratifying them. of Supervisory Nomination and Risk and Conduct free from material conflicts of interest; Directors Monitoring Audit Monitoring Remuneration Review • reviewing the Board structure, size and composition Conduct Review Committee Number of meetings held 10 41 4 4 6 4 (including balance between independent/non-executive/ The committee, chaired by a non-executive director, executive); and currently comprises two other non-executive directors. Meetings attended • reviewing the composition of the Board Committees, The Company Secretary acts as secretary to the committee. J. Gérard HARDY 10 35 - - 6 4 including those of wholly-owned subsidiaries. The committee meets four times a year and is responsible E. Jean MAMET 10 37 4 4 - -

for monitoring and reviewing related party transactions, Herbert COUACAUD, c.m.g. (as from Jan. 2010) 5 - - - 2 - The committee is also responsible for making recommen- their terms and conditions, and ensuring the effectiveness Anil C. CURRIMJEE (as from Jan. 2010) 5 - 1 - - - dations on the level of the directors’ fees, including the of established procedures and compliance with the Bank Bertrand DE CHAZAL 8 - 4 - - 4 remuneration of the Board committee members, to be of Mauritius Guidelines. Philippe A. FORGET 9 34 - 4 - - submitted at the shareholders’ meeting as well as the Sanjiv GOBURDHUN 10 - - 4 - - remuneration policy for senior executives and members The mandate of the committee includes: of Management. • ensuring that policies and procedures have been Navin HOOLOOMANN, c.s.k. 8 - - - 5 - established by Management to comply with the require- Edgar JULLIENNE (until Dec. 2009) 4 - - - 2 - The Nomination and Remuneration Committee meets at ments of the Guidelines; Thierry KOENIG (until Dec. 2009) 3 - - 1 - - least twice a year and on an ad-hoc basis when required. • periodically reviewing the existing procedures to ensure Jean Pierre MONTOCCHIO 9 - - 3 6 - To fulfil its responsibilities during the financial year ended their continuing adequacy; in particular, ascertaining Pierre-Guy NOEL 8 23 - - 5 - 30 June 2010, the committee met six times with respect to: that they are sufficient to identify any transactions with 34 Antony R. WITHERS 7 32 - 3 - - 35 • reviewing the Company’s remuneration policies for related parties that may have a material effect on the Margaret WONG PING LUN 9 - 4 - - 4 directors, senior executives and managers; stability and solvency of the Bank and ensuring that • determining and submitting, for Board ratification, in- such transactions are properly dealt with; dividual remunerations for directors, senior executives • reviewing and approving credit exposures to related and managers in line with the aforementioned policies; parties and ensuring that market terms and conditions • reviewing individual promotion proposals by senior are applied to all related party transactions; and executives to and within General Management and • reporting on a quarterly basis to the Board of Directors making recommendations to the Board thereon; on matters reviewed by it. MCB Group Annual Report 2010

corporate governance report

Directors’ Interests and Dealings in Shares With regard to directors’ dealings in the shares of Interests in MCB shares as at Number of shares Directors’ Remuneration 30 June 2010 Direct Indirect their own company, the directors confirm that they Remuneration and benefits received by directors during the financial year were as follows: have followed the absolute prohibition principles and J. Gérard HARDY 4,000 - E. Jean MAMET 149,000 68,523 notification requirements of the model code on securities From the Holding transactions by directors as detailed in Appendix 6 of the Herbert COUACAUD, c.m.g. 24,483 223,781 Directors Company From Subsidiaries Total Stock Exchange of Mauritius Listing Rules. Anil C. CURRIMJEE 5,025 - Rs ‘000 Rs ‘000 Rs ‘000 Bertrand DE CHAZAL 500 16,000 J. Gérard HARDY 2,646 - 2,646 The Company Secretary maintains a Register of Interests Philippe A. FORGET 41,238 20,700 E. Jean MAMET 2,022 180 2,202 which is updated with every transaction entered into Sanjiv GOBURDHUN 1,000 3,073,190 Herbert COUACAUD, c.m.g. (as from Jan. 2010) 264 33 297 by directors and their closely related parties. Such Navin HOOLOOMANN, c.s.k. 55,910 871,029 Anil C. CURRIMJEE (as from Jan. 2010) 285 - 285 transactions, which have to take place exclusively outside Jean Pierre MONTOCCHIO 1,000 18,197 Bertrand DE CHAZAL 864 135 999 the close periods prescribed by the Stock Exchange Pierre-Guy NOEL 1,039,468 28,302 Sanjiv GOBURDHUN 540 - 540 Regulations, require the written authorisation of the Antony R. WITHERS 40,000 - Navin HOOLOOMANN, c.s.k. 528 - 528 Board of Directors, through the delegation given to the Margaret WONG PING LUN 500 9,900 Edgar JULLIENNE (until Dec. 2009) 264 - 264 Supervisory and Monitoring Committee. Thierry KOENIG (until Dec. 2009) 270 - 270 Jean Pierre MONTOCCHIO 633 156 789 All new directors are required to notify in writing to the Number Margaret WONG PING LUN 780 15 795 Transactions in MCB shares of shares Number of Company Secretary their holdings in MCB shares as well Total Non-executive 9,096 519 9,615 during the year purchased shares sold as those in related corporations. This is entered in the Philippe A. FORGET 18,822 - 18,822 Sanjiv GOBURDHUN - 44,500 Register of Interests, which is subsequently updated with Pierre-Guy NOEL 20,945 - 20,945 Pierre-Guy NOEL 17,336 - all relevant movements. The minimum holding of MCB Antony R. WITHERS 19,094 - 19,094 36 shares required from the directors by the constitution of Total Executive 58,861 - 58,861 37 the Bank is 500. Interests in Number of shares Total (Non-executive and Executive) 67,957 519 68,476 Fincorp Investment Ltd. Direct Indirect The following tables give the interests of the directors E. Jean MAMET 15,000 - Net fees from companies where executive directors serve as representatives of the MCB Ltd. are reimbursed to the Bank. in the share capital of the Bank and Fincorp Investment Herbert COUACAUD, c.m.g. 41,587 55,075 Ltd. as well as transactions in MCB shares by directors who Navin HOOLOOMANN, c.s.k. - 362,200 have served during the year. None of the directors had Jean Pierre MONTOCCHIO - 9,370 any interest in the equity of subsidiaries of the Bank other Pierre-Guy NOEL 750,166 32,250 than Fincorp Investment Ltd.

MCB Group Annual Report 2010

corporate governance report

Additionally, directors of subsidiaries, who did not sit on Senior Management Profile until he joined the Bank in August 2008 as Head of the Business Process Re-engineering exercise initiated the MCB’s Board during the year, received the following The profiles of Pierre-Guy NOEL, Antony R. WITHERS, Human Resources. with Accenture. Before joining the Bank, he was Senior remuneration and benefits: Philippe A. FORGET and Jean-François DESVAUX DE Manager at De Chazal Du Mée’s consulting division. MARIGNY appear in the Directors’ Profiles section. Marc LAGESSE – Age 47 2010 2009 Holds a BSc (Honours) in Statistics and Economics from the Jean-Michel NG TSEUNG – Age 42 Rs ‘000 Rs ‘000 Gilbert GNANY – Age 48 University College London (UCL) and an MBA from the Graduated with a First Class Honours in Mathematics Executive (Full-time) 46,397 40,245 Holds a Masters in Econometrics from the University of London Business School. After graduating from UCL, he at the Imperial College of Science and Technology, Non-executive 697 775 Toulouse and a ‘DESS’ in Management/Micro-Economics spent twelve years on the London International Financial London. He qualified as a Chartered Accountant out 47,094 41,020 from Paris-X. He is currently the Chief Strategy Officer Futures Exchange, the last eight of those as an own of the London office of Arthur Andersen in 1990 and of the MCB Group while acting as Advisor to the Board account trader in interest rate derivatives. He returned was made a partner of its local representative office

of Directors. Previously, he had a two-year stint as Senior to Mauritius in 1996 to manage the Mauritius Fund Ltd., in Mauritius in 1997, acting during his last 4 years with Advisor on the World Bank Group’s Executive Board where a London listed closed-end country fund. From 1998 to the firm as Head of the Audit and Business Advisory Directors’ Service Contracts he was responsible for issues relating mainly to the IFC 2006, he was Managing Director of MCB Investment division. He joined the MCB in July 2003, coming from There were no service contracts between the Bank and its and to the private and financial sectors. Prior to joining Management Co. Ltd. He is currently responsible for Ernst & Young and is currently Head of Corporate. directors during the year. the World Bank, he was the MCB Group Chief Economist the MCB Capital Markets Ltd., a subsidiary of the MCB after having been the Economic Advisor to the Minister Group which encompasses the entities involved in the Executive Management of Finance. During his career, he has been involved in investment business - namely MCB Fund Managers Ltd., Management Committees various high-profile boards/committees. Amongst others, MCB Investment Services Ltd., MCB Registry & Securities The conduct of business is entrusted to the Management he chaired the Stock Exchange of Mauritius and the Ltd., MCB Stockbrokers Ltd., MCB Capital Partners Ltd. team of the Group which has the responsibility to operate Statistics Advisory Council, and has been a member of the and MCB Investment Management Co. Ltd. - while within the strategic framework, risk appetites and Board of Governors of the Mauritius Offshore Business having a stake in GHF Futures Ltd. policies set by the Board while adhering to regulatory Activities Authority. Furthermore, he is currently a member 38 requirements. To this effect, committees involving the of the IMF Advisory Group for sub-Saharan Africa. Alain LAW MIN – Age 51 39 Bank’s senior management have been set up to deliberate Graduated in Economics with a BA (Honours) and is on key issues for informed decision making. In particular, Eddy JOLICOEUR – Age 53 an Associate member of the Institute of Chartered oversight and monitoring of the various risk areas within Holds a BA (Honours) in Economics and Social Policy & Accountants in England and Wales. He also holds an the business are exercised through dedicated standing Administration from the University of Kent and an MSc MBA from Cranfield University. He is responsible for committees, namely the Executive Credit Committee, the in Human Resources Management from the University the Retail SBU which, inter alia, consists of the branch Operational Risk and Compliance Committee, and the of Surrey, he has known a fulsome career spanning the network, the Private Banking BU, the Business Banking Asset and Liability Committee. breadth of the sugar industry namely Deep River-Beau BU and the Remote Banking BU that manages the Bank’s Champ (1983-1990), Mon Desert Alma (1990-1999) and remote delivery channels. Prior to his current position, Medine (1999-2000). He joined Rogers & Co. Ltd. in 2000 he launched the leasing, factoring and private banking where he had been the Chief Human Resources Executive services of MCB. He also acted as Project Director for MCB Group Annual Report 2010

corporate governance report

Interests in Shares The Guideline classifies exposures to related parties into Aggregate exposure of related parties, excluding The interests of Senior Management in the share capital of the Bank and its subsidiaries at the end of the financial year are given below: three categories: exposure of the Bank to subsidiary companies, 1. Directors, their close family members and any entity amounted to Rs 3,787 million (on-balance sheet) and MCB Ltd. Fincorp Investment Ltd. MCB Capital Markets Ltd. where any of them holds more than a 10% interest; Rs 191 million (off-balance sheet), which represented Number of shares as at 30 June 2010 Direct Indirect Direct Indirect Direct Indirect Shareholders owning more than 10% of the financial respectively 3.4% and 0.6% of Group loans and Group Jean-François DESVAUX DE MARIGNY 271,543 274,538 - 133,225 - - institution’s capital; contingent liabilities as at 30 June 2010. Gilbert GNANY 87,504 - - - - - Directors of any controlling shareholder; and Marc LAGESSE 7,830 - - - 83,334 - Entities (excluding subsidiaries) where the financial Exposure of the Bank’s top six related parties as at Alain LAW MIN 108,452 595 51,070 - - - institution holds more than a 10% interest. 30 June 2010 were Rs 852 million, Rs 801 million, Rs 778 Jean-Michel NG TSEUNG 7,885 - - - - - 2. Senior Management, their close family members and million, Rs 507 million, Rs 422 million and Rs 392 million. any entity where any of them holds more than a 10% These balances represented 6.6%, 6.2%, 6.0%, 3.9%, interest; 3.3% and 3.0% respectively of the Bank’s Tier 1 Capital. Senior Management of any controlling shareholder; Related Party Transactions • the definition of basic rules for monitoring and and Subsidiaries of the financial institution. None of the loans granted to related parties was non- For the purposes of these Financial Statements, parties regulatory reporting of related party transactions and 3. Senior Management, provided their exposures are performing as at 30 June 2010. are considered to be related to the Group if they have their disclosure in the Annual Report. within the terms and conditions of their employment the ability, directly or indirectly, to control the Group or contract. exercise significant influence over the Group in making In fact, the Guideline is more stringent than the applicable financial and operating decisions, or vice versa, orif International Accounting Standard (IAS 24) in that a Category 3 above, as well as exposures representing less they and the Group are subject to common control. person holding directly or indirectly 10% or more of than 2% of the institution’s Tier 1 Capital, are excluded Related parties may be individuals or other entities. The the capital or of the voting rights of the Bank also falls from regulatory limits which are set, in aggregate, at current Bank of Mauritius Guideline on Related Party within the definition of related party. As a general rule, 60% of Tier 1 Capital for Category 1 and 150% thereof Transactions, issued in January 2009 is articulated around all transactions with a related party must be carried out for the total of Categories 1 and 2. 40 3 main elements: on terms and conditions that are at least as favourable to 41 • the role of the Board of Directors of a financial the Bank as market terms and conditions. The Bank’s policy on related party transactions sets out institution, its Conduct Review Committee and that of its the rules governing the identification of related parties, Senior Management in establishing and implementing Related party transactions include: the terms and conditions applicable to transactions appropriate policies on related party transactions and • loans, finance leases and service agreements; entered into with them and reporting procedures to the administering the process for handling the transactions; • giving a guarantee on behalf of a related party; Conduct Review Committee. Note 36 to the Financial • the definition of the different types of related party • making an investment in any securities of a related party; Statements sets out on- and off- balance sheet exposures transactions and the setting out of regulatory limits on • deposits and placements; and to related parties as at 30 June 2010. credit exposures to related parties; and • professional service contracts. MCB Group Annual Report 2010

corporate governance report

Directors of MCB Subsidiaries MCB SEYCHELLES MCB FUND MANAGERS LTD. MCB CAPITAL PARTNERS LTD. FINCORP INVESTMENT LTD. INTERNATIONAL CARD PROCESSING The board composition of the Bank’s Pierre-Guy NOEL Bashirali Abdulla CURRIMJEE, g.o.s.k. Marc LAGESSE Jean Pierre MONTOCCHIO SERVICES LTD. subsidiaries during FY 2009/10 (unless Jocelyn AH-YU Bernard D’HOTMAN DE VILLIERS Ziyad BUNDHUN Herbert COUACAUD, c.m.g. Pierre-Guy NOEL

otherwise stated) is given hereafter, with Jean-François DESVAUX DE MARIGNY Jocelyn DE CHASTEAUNEUF Gilbert GNANY (as from Dec. 2009) Bashirali Abdulla CURRIMJEE, g.o.s.k. Mohamed HORANI the names of corresponding chairpersons Gilbert GNANY (as from Jan. 2010) Thierry Maurice JAUFFRET Raoul GUFFLET Jocelyn DE CHASTEAUNEUF Angelo LETIMIER

as at 30 June 2010 being highlighted. Raoul GUFFLET Marc LAGESSE (as from Jul. 2009) Thierry KOENIG (until Dec. 2009) Michel DOGER DE SPEVILLE, c.b.e. Alternates: E. Jean MAMET Shivraj RANGASAMI Garry SHARP Bruno MARGEOT Philippe A. FORGET (to Pierre-Guy Noël) MCB MADAGASCAR Bernard YEN Bernard YEN (deceased in Jan. 2010) Jean-François DESVAUX DE MARIGNY Jean-François DESVAUX DE MARIGNY MCB INTERNATIONAL SERVICES LTD. (to Angelo Letimier) Marc DE BOLLIVIER Jean-François DESVAUX DE MARIGNY MCB INVESTMENT SERVICES LTD. MCB INVESTMENT MANAGEMENT CO. LTD. FINLEASE CO. LTD. Raoul GUFFLET Jocelyn AH-YU Pierre-Guy NOEL Pierre-Guy NOEL (as from Jul. 2009) Jocelyn DE CHASTEAUNEUF BLUE PENNY MUSEUM E. Jean MAMET Marc LAGESSE Jean-François DESVAUX DE MARIGNY Jean-François DESVAUX DE MARIGNY Philippe A. FORGET Pierre-Guy NOEL MASCAREIGNES PROPERTIES LTD. Vimal ORI Philippe A. FORGET Jean-Michel FELIX Jean-François DESVAUX DE MARIGNY Michel PICHON Pierre-Guy NOEL Akesh UMANEE Marc LAGESSE Philippe A. FORGET J. Gérard HARDY Patrick RAZAFINDRAFITO Jocelyn AH-YU Alternate: Michaël NAAMEH (as from Jul. 2009) Alain LAW MIN Pierre-Guy NOEL Raoul GUFFLET Gilbert GNANY (to Pierre-Guy Noël) Jeremy PAULSON-ELLIS (as from Jul. 2009) E. Jean MAMET MCB MOÇAMBIQUE E. Jean MAMET Jean Pierre MONTOCCHIO MCB FORWARD FOUNDATION Pierre-Guy NOEL MCB REGISTRY & SECURITIES LTD. MCB FACTORS LTD. Jean-Michel NG TSEUNG J. Gérard HARDY Jean-François DESVAUX DE MARIGNY MCB EQUITY FUND LTD. Marc LAGESSE (as from Jul. 2009) E. Jean MAMET Bruno MARGEOT Jean-François DESVAUX DE MARIGNY Jorge FERRAZ Bertrand DE CHAZAL Jean-François DESVAUX DE MARIGNY Alain LAW MIN (deceased in Jan. 2010) Philippe A. FORGET Philippe A. FORGET Jocelyn DE CHASTEAUNEUF Marivonne OXENHAM Jean-Michel NG TSEUNG Gilbert GNANY 42 Raoul GUFFLET F. Jacques HAREL Margaret WONG PING LUN Madeleine de MARASSE ENOUF 43 E. Jean MAMET MCB STOCKBROKERS LTD. Pierre-Guy NOEL MCB MALDIVES (INCORPORATED IN SEP. 2010) Marc LAGESSE (as from Jul. 2009) MCB PROPERTIES LTD. Pierre-Guy NOEL MCB CAPITAL MARKETS LTD. Jeremy PAULSON-ELLIS (as from Jul. 2009) Jean-François DESVAUX DE MARIGNY Jean-François DESVAUX DE MARIGNY Pierre-Guy NOEL Raj TAPESAR Philippe A. FORGET Gilbert GNANY Bertrand DE CHAZAL Pierre-Guy NOEL Raoul GUFFLET Gilbert GNANY (as from Dec. 2009) E. Jean MAMET Marc LAGESSE Laila MANIK E. Jean MAMET Moossa MOHAMMAD Jeremy PAULSON-ELLIS MCB Group Annual Report 2010

corporate governance report

Shareholder Relations and Communication Material Clauses of the Constitution The Board aims to properly understand the information There are no clauses of the constitution deemed material Largest shareholders Number of shares owned % Holding needs of all shareholders and places great importance enough for special disclosure. The Anglo-Mauritius Assurance Society Ltd. 7,281,710 2.91 on an open and meaningful dialogue with all those State Street Bank and Trust Co. (A/C The Africa Emerging Markets Fund) 5,885,701 2.35 involved with the Company. It ensures that shareholders Shareholders Agreements Promotion and Development Ltd. 5,000,000 2.00 are kept informed on matters affecting the MCB. Besides There is currently no shareholders agreement affecting SSLN c/o SSB Boston Old Mutual Life Assurance Co. () Ltd. 4,346,535 1.74 official press communiqués and occasional letters to the governance of the Company by the Board. POLICY Ltd. 3,940,278 1.57 shareholders where appropriate, the Bank’s website is National Pensions Fund 3,832,731 1.53 used to disseminate relevant information. As part of Shareholding Profile Pictet et Cie. (A/C Blakeney LP) 3,475,264 1.39 its continuous quest to promote timely and effective Ownership of ordinary share capital by size of shareholding La Prudence Mauricienne Assurances Limitée 3,297,597 1.32 communication, the MCB is currently revisiting its website and by type, and the ten largest shareholders as at Rose Hill Transport Investments Ltd. 3,070,790 1.23 to provide an adapted and comprehensive self-service 30 June 2010 are illustrated hereafter: Société Les Camphriers 2,712,251 1.08 interface for shareholders and other key stakeholders while launching the ‘Group Management Statement’ in Foreign investors (18%) when the trend in Group profitability is more firmly May 2010, a publication to highlight the key features of the Dividend Policy established, and paid towards the end of July. Key organisation’s performance when results are made public. The MCB aims to supply its shareholders with ongoing dividend ratios as well as an analysis of the annualised Overall, open lines of communication are maintained returns in the form of a stable and relatively predictable return on investment in MCB shares compared to to ensure transparency and optimal disclosure. All Board dividend path. Interim dividends are declared in Treasury Bills and the SEMTRI over the past five years members are requested to attend the Annual Meeting, November, based on best estimates of half-yearly results are depicted in the following illustrations. to which all shareholders are invited. to 31 December while the final dividends are announced Local investors (82%) by the Board just before the end of the financial year,

Key dividend ratios Comparative annualised rate of return 44 Size of shareholding Number of shareholders Number of shares owned % Holding 6 (5-year period) 45 1-500 shares 11,930 1,415,838 0.57 5 % 35 501-1,000 shares 1,528 1,134,935 0.45 30 4 1,001-5,000 shares 2,421 5,822,141 2.33 25 3 20 5,001-10,000 shares 754 5,383,152 2.15 15 10,001-50,000 shares 1,191 27,686,069 11.06 2 10 5 50,001-100,000 shares 293 21,189,538 8.46 1 0 Above 100,000 shares 385 174,717,273 69.78 0 Treasury bills* SEMTRI** MCB share** FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 The MCB Ltd. (Treasury shares) 1 13,026,649 5.20 Total 18,503 250,375,595 100.00 Dividend per share (Rs) ** 91-day T-bills rate compounded over a 5-year period Dividend cover (number of times) ** Based on total return which combines both capital Dividend yield (%) gains / losses and dividends that are assumed to be re-invested MCB Group Annual Report 2010

corporate governance report

Performance of MCB share price vis-à-vis the market Shareholders’ Diary

130 November 2010 Declaration of interim dividend and release of first quarter results to 30 September 2010

120 December 2010 Annual Meeting of Shareholders December 2010 Payment of interim dividend 110 1 July 2009 = 100 February 2011 Release of half-year results 100 May 2011 Release of results for the 9-month period to 31 March 2011

90 June 2011 Declaration of final dividend July 2011 Payment of final dividend 80 September 2011 Release of full-year results to 30 June 2011 MCB share price index 70 SEM-7 (rebased) Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010 2010 SEMDEX (rebased) Statement of Remuneration Philosophy • full protection is provided against rise in cost of living The Company’s remuneration philosophy concerning at the lower end of the income ladder; Share Information remains subject to significant pressures as gauged by the directors, proposed by the Nomination and Remuneration • fairness is promoted throughout the organisation; and After sustaining a notable upward trend during the market volatility displayed lately in view of the impairing Committee and approved by the Board provides that: • opportunity is given to all employees to benefit from first few months of FY 2009/10 amidst nascent signs of effect of the delicate economic climate in the main export • there should be a retainer fee for each individual the financial results and development of the Group. global economic recovery and the relative resilience of markets and of the relative strength of the local currency director reflecting the workload, the size and the Indeed, all staff members of the Bank receive an annual the Mauritian economy, the domestic stock market has on the country’s economic resilience. complexity (national/international) of the business bonus based on the performance of the Company been characterised by a generally bearish mood since as well as the responsibility involved. This retainer and Group as well as their own rated contribution late 2009 till June 2010 reflecting the impact of lingering fee is, however, not meant to differentiate between thereto. Since 2006, all staff members have the added possibility to be incentivised further through a share international uncertainties on investor confidence, Value of shares traded executive and non executive directorships; further exacerbated by the euro crisis. On the whole, the • the President and Vice President, having wider option scheme. 14 35 46 47 SEMDEX increased by some 16% over the financial year Rs bn responsibilities and being present on a weekly basis at 12 30 to close at 1,654 while the SEMTRI, the total return index, the Bank, should have consequential remunerations; Generally, the finalisation of remuneration packages is 10 25 experienced a growth of around 20% in rupee terms. • there should be committee fees for non-executive anchored on a range of factors including qualifications,

8 20 End of period; % Though somewhat underperforming the overall index, the directors with the fees differing in accordance with skills scarcity, past performance, personal potential, 6 15 MCB share price generally mirrored the market trend and the time required for preparation, the frequency and market norms, responsibilities shouldered, matching 4 10 edged up by around 12%, a performance which compares the duration of meetings. Chairpersons of committees belief sets and experience. 2 5 favourably with the relatively subdued rise of 3.8% in should be paid a higher remuneration than members; 0 0 the average price of local blue chips as depicted by the FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 and With a view to attaining appropriate remuneration SEM-7 linked to mounting pressures on tourism operators • no share option or bonus should be granted to non- levels, the Bank is guided by the following considerations: MCB • general market conditions are regularly surveyed in particular. Notwithstanding episodes of an upward drift Other shares executive directors. observed in the early part of FY 2010/11, the local bourse % Market capitalisation of MCB (right scale) The remuneration philosophy for Management and in order to ensure that remuneration packages are staff is based on meritocracy and ensures that: motivating and competitive; MCB Group Annual Report 2010

corporate governance report

• superior team and group performance is stimulated and fostering a systematic approach towards aligning individual Auditors’ Fees and Fees for Other Services rewarded with strong incentives; and performance to business strategy and goals. Group Bank • remuneration practices are regularly reviewed 2010 2009 2010 2009 and restructured where necessary, providing clear Employee Share Option Scheme Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000 differentiation between individuals’ contribution to The Bank has been operating an Employee Share Option Audit fees paid to: group performance. Scheme since 2006 with a view to further aligning BDO & Co 14,672 13,405 13,225 12,075 employees’ interests with those of the organisation Other firms 4,574 5,288 - - The Broadbanding initiative, which includes a com- and shareholders while enhancing staff motivation, Fees for other services provided by: prehensive review of the compensation structure and commitment and performance through the opportunity BDO & Co 2,207 1,839 1,870 1,569 benefits under the expert advice of Hewitt Associates and to share in the growth and prosperity of the MCB. All following the input of a wide spectrum of experienced employees of the Bank are thereby granted options, parties within the Bank, is now complete and the new exercisable through four specific time windows over religion or gender. Employment opportunities are framework, which provides higher degrees of flexibility a one-year period, to assign up to 25% of their annual Integrated Sustainability Reporting openly advertised with recruitment procedures being and efficiency, was rolled out in late January 2010. performance bonus towards the purchase of MCB shares, The MCB is committed to the highest standards of integrity fair and transparent. Cognisant of the significance of Furthermore, the Bank has developed a competency frame- with a vesting period of 3 years. The option price is and ethical conduct in dealing with all its stakeholders and having a motivated, flexible and competent workforce work describing the underpinning values and aptitudes based on the average of the MCB share price over the fosters public accountability and transparency through in sustaining its progress, the MCB places due emphasis required to uphold the culture and development path of quarter preceding the first window, to which a discount is regular and clear communication with stakeholders. Staff on the personal and career development of its staff the organisation. By signalling the behaviours that will applied. Of the 660,330 options granted in October 2009, at all levels adhere to the Bank’s Code of Conduct and alongside promoting meritocracy. be recognised and eventually rewarded, the framework only 97,174 options have hitherto been exercised to some the national Code of Banking Practice while epitomising seeks to provide clear focus in terms of human resource extent due to the perceived volatility of the stock market. our core values in their daily activities, thereby upholding In December 2007, the MCB signed the United Nations development for the delivery of best possible services while the organisation’s unique culture. Reasonable grievances and disciplinary procedures are in place to enable Global Compact, the world’s largest voluntary corporate enforcement of the codes. citizenship initiative, which requires companies to 48 embrace, support and enact within their sphere of 49

Other The Bank has developed and implemented social, health influence, a set of core values in the areas of human Management employees TOTAL and environmental policies and practices that in all rights, labour standards, environment and anti- Number of options granted in October 2009 142,610 517,720 660,330 material respects comply with existing legislative and corruption. The MCB fully supports the ten principles of Initial option price (Rs) 137 123 - regulatory frameworks. The health and safety of staff the Global Compact and is committed to incorporating Number of options exercised to date 27,008 70,166 97,174 and visitors are of paramount importance to us and all them in its strategy, culture and day-to-day operations. Value (Rs ‘000) 3,700 8,657 12,357 appropriate measures are taken to ensure a sound and In December 2009, the MCB, for the first time, reported Percentage exercised 18.9 13.6 14.7 healthy working environment. on the various actions undertaken towards meeting the Number of employees 4 198 202 different principles of the Global Compact initiative. Available for the 4th window and expiring in mid-October 2010 115,602 447,554 563,156 The MCB is an equal opportunity employer and does Generally, as part of its drive to promote sustainable not discriminate in any way with regard to race, development, the MCB continues to explore the MCB Group Annual Report 2010

corporate governance report

pertinence of adopting advocated practices with a case in Group value-added (FY 2009/10) representing 2% of their book profit derived during sphere than endeavours approved by the National CSR point being the Equator Principles, a globally-recognised the preceding year. For FY 2009/10, the Foundation was Committee, to which the above cited amount relates, benchmark for the financial industry to manage social Employees 28% entrusted with a fund of Rs 50 million, representing the effective contribution of the MCB to community and environmental issues in project financing. the relevant contributions by the MCB Ltd. and its local development stood at a higher Rs 61.4 million. It is also Expansion and Growth subsidiaries. worth noting that no political donations were made. Specifically, with a view to promoting environmental 40% sustainability and in line with the country’s ‘Maurice As the focal point for the social involvement of the Rs ‘000 Ile Durable’ proposal, the MCB last year launched Corporate Social Education 18,109 Responsibility MCB, the Foundation aims at creating sustainable value Initiative 175, a four-year programme aimed at fostering 1% for the social, environmental and economic well-being Poverty Alleviation 20,033 environment-friendly practices through a series of of the community, through the provision of human, Environment 2,300 concerted and protracted initiatives culminating on the Government 12% logistical and financial resources to earmarked initiatives Sports 5,020 175th birthday of the MCB in 2013. In addition to the on behalf of the Group alongside developing strategic Others 1,047 successful entrenchment of initiatives introduced in favour Providers of Capital partnerships with committed stakeholders. The MCB Total 46,509 of energy saving and reduced paper waste as gauged by, 19% Forward Foundation intends to tap into the extensive inter alia, the distribution of over 45,000 economic bulbs Wealth created: Rs 6.6 billion network of 40 branches to respond in a prompt and to customers and the increasing rate of clients agreeing Some Examples of Support targeted manner to the social needs of the various to suppress printing of their statements, key emphasis is Education: regions while ensuring proximity at grassroots level. being laid on sensitising the population on the need to sustainable manner which judiciously integrates the • ‘My Words My World’ – distribution of dictionaries to act in an ecologically responsible manner. As such, after interests and ultimate benefits of its stakeholders. every Std IV school student in Mauritius As in previous years, a call for proposals was launched having financed the production of ‘Unisvert’, a series of • St. Malo Sail Training and Yatching Association – social in July 2009 to invite non-governmental organisations 26 mini-documentaries aimed at raising awareness about Corporate Social Responsibility integration of vulnerable children by learning trades (NGOs) and individuals supported by NGOs to submit the ecosystem through broadcast on prime time television A bank with a heart of the sea their projects for consideration. Once again, this 50 and distribution to secondary schools, the MCB exclusively Throughout its history, the MCB has been heavily involved • St. Andrews College – setting up of a digital language 51 sponsored the free exhibition of 120 pictures by the in promoting the interests of the community as gauged by operation generated wide-ranging interests with 162 lab to empower students with vital communication famous photographer, Yann Arthus-Bertrand, depicting its unrelenting support to worthy causes through multiple projects submitted, 53 of which were financed at a cost skills the realities of our planet and its ecological challenges. initiatives designed to contribute to the welfare of society of Rs 18.9 million. • Nicolay Government School (GS), Richelieu GS, and Building on recent milestones achieved, the MCB intends at large. Résidence Vallijee GS – support to ‘Zone d’Education to maintain the momentum in originating multiple actions Globally, an amount of around Rs 46.5 million was Prioritaire’ (ZEP) programmes in favour of the environment by articulating initiatives The MCB reached another milestone in terms of its social spent on CSR projects for the year ended 30 June 2010 pertaining to its employees, clients, shareholders, as well engagement in January 2010 with the creation of the MCB as detailed in the following table, bringing the sum Poverty Alleviation: as the public at large. Forward Foundation as a stepping stone towards more spent on related activities to nearly Rs 100 million • Rehabilitation of drug addicts – construction of hydro- effectively and efficiently managing its Corporate Social over the past three years. However, considering that ponic tunnel at La Communauté Flamboyant Solitude Overall, the MCB strives to add value by creating wealth Responsibility (CSR) activities in the wake of Government’s the Bank’s involvement as a socially responsible and • Society for Welfare of the Deaf – preparation of inter- from its operations in a conscientious, rational and measure requiring firms to set up an annual CSR Fund caring corporate organisation encompasses a broader active DVD MCB Group Annual Report 2010

corporate governance report company secretary’s certifcate

• Mauritius Mental Health Association (MMHA) – setting As aforementioned, several other social, educational and I certify that, to the best of my knowledge and belief, the company has filed with the Registrar of Companies all such returns up of an intensive stimulation unit environmental projects were funded beyond the CSR as are required of the company under the Companies Act 2001 in terms of section 166(d). • Association pour l’accompagnement, la réhabilitation, budget with a major case in point relating to endeavours et l’insertion Sociale des Enfants (ARISE) – support to undertaken as part of Initiative 175. Key actions falling in street children of Cassis and Terre-Rouge this category include: • MCB Foundation Scholarship – scholarship awarded to Environment the student ranked next in line to those eligible for the • Mauritian Wildlife Foundation – contribution to the State of Mauritius scholarships on the economics side conservation of fauna & flora on Round Island • Photo exhibition by Yann Arthus-Bertrand – 120 photo- • Lagon Bleu Project by Eco Sud – support to the scientific graphs exposed at Caudan Waterfront to sensitise the Jean-François DESVAUX DE MARIGNY research of the coast and ecosystem of Blue Bay and population about climate change and the protection of Company Secretary Pointe D’Esny the environment while kits containing posters as well as Head Office works of the renowned photographer were distributed to 9 – 15, Sir William Newton Street primary and secondary schools, and tertiary institutions. Sports It is estimated that some 400,000 people visited the • MCB Football Academy (MCBFA) – creation of an 29 September 2010 environment conducive to child development based exhibition on sports and pedagogical follow-up. More than 300 children from the regions of St. Hilaire, Poste de Flacq and Grand Bay train every Saturday conditional upon school attendance. A fourth academy was officially launched in July 2010 at Camp Levieux

52 Staff involvement Jean-François DESVAUX DE MARIGNY 53 • MCBFA – presence of MCB personnel every Saturday Company Secretary morning at St. Hilaire, Poste de Flacq, Grand Bay and Camp Levieux • Friends in Hope – participation of MCB staff in the Royal Raid 2010 to raise funds for the association • Sourire de Noël 2009 – donations, both financial and in kind, to underprivileged children and families (including those of MCBFA) Like precious jewels scattered across the world, nature’s works attract the admiration of millions. But if they are to maintain their unique and fragile beauty, these gems require everyone’s care. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

management discussion and analysis

Highlights and financial market uneasiness. Fundamentally, the Mauritian Bank for the FIFA World CupTM in association From a different perspective, various benefits have been Notwithstanding a continuous reinforcement of its impact on the revenue generation capacity of the Group with Visa to boost its range of product and service achieved at other levels with the Global Business Desk strategic and operational foundations, the MCB was was felt through the lukewarm performances of several offerings which, together with greater presence in media establishing itself as a full-fledged revenue generating confronted by a highly testing operating environment in key economic sectors and non-negligible slowdown in channels, spawned materially enhanced business activity unit and the recently-created Commodities Desk being the last financial year as a result of lingering vulnerabilities the range of private sector investment projects as well and widened revenue openings; and (iii) the signature directly involved in the materialisation of major trade- and uncertainties. Consequently, attributable earnings for as through overall unfavourable dynamics in the capital, of an agreement with China UnionPay, the largest card related deals. Overall, much ground has been covered the Bank declined by 4.6% to reach Rs 3,104 million during foreign exchange and money markets. Furthermore, network company in China, to allow its cardholders – regarding the involvement of the Group in an increasing FY 2009/10, largely driven by a substantial fall in profit from the fragile economic growth and country-specific currently amounting to above 2 billion worldwide – to range of regional markets in terms of direct risk-taking as foreign exchange operations. The drop in Group results circumstances in most presence countries adversely use their cards at MCB merchants when visiting Mauritius. well as side trade and project finance breakthroughs, and was more pronounced at 13.9% to Rs 3,413 million on the impacted operations of the MCB therein. As a response As regards non-bank financial services, in spite of difficult the establishment of deeper business relationships with back of a Rs 190 million non-recurring impairment charge to the difficult climate and with a view to reinforcing operating conditions, MCB Capital Markets Ltd. continued other regional banks. For their part, the Group’s foreign on a regional investment and a lower contribution from its already perceptible resilience, the Group shored up to secure new deals and increase its client base by notably subsidiaries took advantage of enhancements to existing associates amidst tough market conditions. Accordingly, its vigilance over business undertakings and its general offering a wide choice of opportunities to investors. A physical platforms and capabilities as well as from the earnings per share fell from Rs 16.71 to Rs 14.38. That positioning, alongside buttressing its inherent potential key product launched relates to the MCB Education Plan replication of some MCB products and services there. said, the MCB achieved sustained balance sheet growth for sustained revenue generation in order to help create which allows parents to save for the higher studies of over the year, while pursuing its diversification strategy as long-term value for shareholders. These endeavours their children. Furthermore, Credit Guarantee Insurance In support of its development thrust, the MCB sustained gauged by the increasing prominence of foreign-sourced were backed by measures to foster portfolio and product Co. Ltd., an associate of the MCB Group, expanded its its capacity building momentum, notably with projects activities whose contribution to Group profit rose to some diversification, a customer-centric mandate based on market reach after coming into being last year, while geared towards uplifting the physical and technological 45%. These circumstantially appreciable achievements service quality, tailored financial solutions and improving MCB Factors Ltd. innovated with export factoring and infrastructure. Particularly, the MCB pursued its drive provided further solid reassurances regarding the physical and system capabilities. non-recourse factoring services to cater for the needs of to offer a suitable, efficient and reliable range of robustness of company fundamentals built upon a time- the export markets. Beyond domestic shores, the ‘Bank remote channels with a view to fostering greater tested ‘value-adding’ business model based on little Specifically, various initiatives have been undertaken during of Banks’ initiative which positions the MCB as a regional transactional convenience for customers, with progress 56 leverage, comprehensive and clearly-defined strategic the last financial year to increase shareholder return. At platform for servicing African banks has gathered a critical made concerning, inter alia, an expansion of the ATM 57 orientations, and due discipline in managing risk. As such, the domestic level, emphasis has been laid on continuously mass in terms of product offering and technological network, including a material increase in the fleet of the financial soundness indicators of the MCB proved improving customer interactions via enhanced product support. Important milestones have thus been achieved foreign exchange ATMs. Besides, the launch of the resilient as evidenced by continuously improving asset development, improvement of the reach and convenience by the Bank with regard to its offer of a comprehensive new core banking system of the MCB, Temenos T24, quality, a robust capital position and generally appreciable of delivery channels, targeted promotional campaigns, and package of services which includes cards processing, trade is scheduled for the second quarter of FY 2010/11. At liquidity ratios. These accomplishments should contribute a refinement of the value proposition of specific customer finance, L/C issuance and confirmations, SWIFT message another level, risk management policies and practices to safe and balanced business growth over the medium segments. Noticeable illustrations relate to (i) the continued aggregation, as well as cards issuing and acquiring. In have been reinforced, while heeding the need to grow to long-term. unfolding of the Kits of Parts (KOP) initiative meant to this respect, the first international seminar hosted by the exposures and maximise earnings within appropriate overhaul the overall retail network, with nearly three MCB targeting banks in the region, which took place in prudential parameters. Thus, recently, the MCB has By and large, the activities of the MCB have been quarters of branches having been refurbished to date; (ii) November 2009 and welcomed 29 participants from 22 embarked on the implementation of a debt collection unsettled by the delicate domestic economic conditions the leveraging on the position of the MCB as the official African banks covering 11 countries, was a great success. and recovery software, namely Exodus, for enhanced MCB Group Annual Report 2010

management discussion and analysis

efficiency and cost effectiveness of related processes. For it won the Bank of the Year Award of The Banker magazine for board and senior management oversight as well as Banks are required to contribute to the Fund in the its part, the new energy-efficient MCB building in the for the second consecutive time and was acclaimed for the adoption of appropriate risk management practices, form of a special one-off contribution the tune of 0.5% Ebène region is scheduled for delivery towards mid-2011. its corporate reporting through the PwC awards. Besides, tools and policies. Additionally, against the backdrop of turnover and 1.25% of profits generated by domestic This will allow the Bank to relocate some of its services the MCB featured as the only local bank in The Banker’s of the increasing involvement of banks in cross-border operations. Nevertheless, the modalities and timing of for higher synergy levels and to envisage future growth Top 1000 World Banks and was recognised in various ways transactions, a Guideline on Country Risk Management this measure have yet to be determined. Furthermore, more serenely. Finally, with regard to staff development, as a leading banking and financial services provider in this came into being in April 2010, requiring institutions to with the intention of streamlining the licencing process, the broadbanding exercise establishing fewer grades and part of Africa. identify, measure and manage country exposures and the Banking Act 2004 was amended last year to make reviewing the compensation structure for all employees making provisions thereon, while a Guideline on the provision for the adoption of a two-stage licensing has been successfully completed, while a competency External Forces Review Fair Valuation of Financial Instruments was released in system by the BoM through the espousal of in-principle framework is being designed to facilitate human resource Legal and Institutional Environment August 2010 to pave the way for operators to uphold approval which now precludes a potential licensee from recruitment and development. During FY 2009/10, various measures were earmarked strong governance and control processes in respect of incorporating and bringing in capital as part of the and/or implemented by the authorities to bolster the financial reporting. From a different angle, the CAMEL licence application process. Apart from endorsing ambitious, yet sensible, strategic regulatory framework and enhance the institutional set- rating framework, which is used by the BoM for making options, the MCB continued to demonstrate a resolute up in the banking and overall financial services industry quarterly assessments of banking operators, has been Moreover, the BoM reinforced its collaboration with commitment to its historically-active social and community in order to shore up the supervision of operations and reviewed by identifying critical sub-parameters for each various institutions to strengthen information-sharing involvement through a comprehensive range of projects broaden the foundations for business growth. component – namely capital, asset quality, management, and support the orderly development of the banking in FY 2009/10. Importantly, a high-point was attained earnings and liquidity – and determining their relevant industry. For instance, it signed a Memorandum of through the creation of the MCB Forward Foundation as With a view to strengthening risk management practices benchmarks to cater for a more comprehensive and Understanding (MoU) with the Financial Intelligence a stepping stone towards more effectively and efficiently by operators, the Bank of Mauritius (BoM) issued and objective monitoring of the performance and soundness Unit and the Mauritius Revenue Authority towards late managing its Corporate Social Responsibility (CSR) amended several guidelines during the last financial year. of the banking sector. 2009 in a bid to promote mutual assistance and share activities. As such, key support schemes in the fields of To begin with, in line with the provisions of the Financial timely information for the detection and prevention of education, poverty alleviation, environment and sports Intelligence and Anti-Money Laundering Act 2002, a In respect of other specific developments, it is worth money laundering, terrorist financing and tax evasion. 58 were initiated. Moreover, several other projects were Second Guidance Note came into force in August 2009 noting that the banking sector has in recent times been Besides, the BoM has been admitted as a full institutional 59 funded beyond the CSR budget with a major case in in furtherance of the ambition to establish Mauritius solicited to participate in restructuring/reform measures member of the Irving Fisher Committee on Central Bank point relating to endeavours undertaken as part of as a financial centre of substance and good repute. earmarked by the authorities to enable economic sectors Statistics in February last. This is noteworthy at a time Initiative 175 which is a 4-year action plan in favour of In October 2009, the Guidelines on Capital Adequacy to withstand the difficult operating environment. when efforts are being made to improve the coverage the environment, energy savings and renewable energy Ratio for non-bank deposit-taking institutions licensed Markedly, pursuant to earlier stimulus measures, a and quality of data for effective decision-making in line initiatives. Besides acting along these lines itself, the Group under the Banking Act 2004 were issued to ensure key proposal of the official policy package unveiled with endeavours to graduate Mauritius to the Special is growingly helping create awareness on the subject and that appropriate capital reserves are kept. In the same in August last as a response to the eurozone crisis Data Dissemination Standards of the IMF. In August is providing the necessary financial support to customers month, the Guideline on Liquidity Risk Management relates to the announced introduction of the Economic last, the Central Bank also signed an MoU with the where appropriate. All in all, reflecting its overall stature was reinforced with a view to helping banks manage Restructuring and Competitiveness Programme (ERCP), Competition Commission of Mauritius in a common and accomplishments, the MCB won various awards and liquidity risk in a sound manner on the strength of a under which a new Private Equity Fund is intended to pursuit to encourage and maintain a fair, competitive accolades during the last financial year. On the local front, robust structure which makes provisions, amongst others, be set up to facilitate the deleveraging of enterprises. and sound financial environment in Mauritius. On a MCB Group Annual Report 2010

management discussion and analysis

different note, the BoM was chosen by the COMESA order to expand the scope for the local industry to market year reflecting the delicate external context. However, in declined by two percentage points to reach 3.1% in Committee of Governors of Central Banks last year to host its products internationally. Apart from these initiatives, line with a general mending of international conditions, 2009 notwithstanding notable support provided by one of the two African Technical Assistance Centres which efforts have been made to endorse Mauritius as a regional there are indications that these two economies will fare significant public investment, accommodative policies the IMF is setting up in Africa, while being called upon to platform for the incorporation of private equity funds, as better this year despite some impending threats. Tough and appreciable offshoots from past reform initiatives, assist in the establishment of Financial Stability Units in gauged by the holding of an international conference in conditions also prevailed in the regional countries where inter alia, aimed at diversifying the economy and COMESA Central Banks. For its part, in order to enhance its September last. In the same vein, Listing Rules have been the Bank’s associated company, BFCOI, has a physical bolstering the business climate. The slowdown in status and visibility at regional and broader international amended to enable the SEM to raise its profile as a listing presence as reflected by the negative growth recorded by activity has been induced by downward pressures levels and thus accelerate its integration within the global venue of choice for global and specialised funds. Réunion Island last year. On the other hand, on the external demand for the country’s goods and financial markets, the Stock Exchange of Mauritius (SEM) sustained a high growth pattern, albeit from a low base, services as well as a drop in private investment and has, in recent months, signed an agreement with the Macroeconomic Overview amidst a generally accommodative policy stance, driven reduced expansion of household expenditure brought Financial Times Ltd. to bring out its delayed and end of Hit by the particularly soft economic conditions in their mainly by large foreign investment in mineral resources about by the dampening impact of elevated uncertainty day data in its publications and websites. The SEM also major export markets in the wake of the global crisis and related services as well as a notable expansion in the levels on consumer and business confidence. Whereas concluded an agreement with I-Net Bridge – a leading and, more recently, heightened uncertainties fuelled by donor-supported agro-industry, energy and construction a relative improvement in economic conditions globally South African provider of economic and financial market difficulties in the euro area, the economies in the region sectors. is likely to contribute to a rebound in domestic activity, data and corporate market intelligence – to display market have been confronted by significant drag-down forces on there are indications that the expansion rate of the indices for both the Official Market and the Development their activity levels. Indeed, curtailed aggregate demand Despite depicting a fair level of resilience to exogenous local economy for 2010 will remain modest by historical Enterprise Market on its relevant websites. growth and dampened investor confidence combined to shocks regardless of its multiple vulnerabilities, the standards to stand at 3.9% in spite of a low base effect. engineer a marked slowdown in the economic expansion Mauritian economy had to bear the brunt of adverse This subdued forecast reflects the notable strains on As regards the non-bank financial services industry, the rate and trade flows of sub-Saharan Africa as a whole last developments last year. In fact, economic growth key sectors emanating from the still sluggish economic last financial year was characterised by efforts from the year, even though a relative recovery is being foreseen in authorities to provide for depositor protection and to 2010. Likewise, the operating environment in countries broaden investment opportunities. In the first place, the where the MCB is present has been quite challenging Banking Act 2004 was amended to give depositors of with their actual economic evolution being determined by 60 GDP growth rate 61 non-bank deposit-taking institutions the same priority idiosyncratic factors. Specifically, dire conditions continued % 6 treatment over other creditors in the event of winding to prevail in Madagascar as the country remained 5 up. Concerning the business environment, the National embroiled in a political quagmire, leading to contracting Index: 2004 = 100 4 Budget 2010 made mention of the planned introduction activity prompted to a large extent by declining investment. 3 of an innovative and competitive law to better position For its part, Maldives faced up to the realities of a quasi 2 Mauritius as a platform for wealth management as well mono-product economy to register a negative growth in 1 as succession and estate planning amongst others within 2009 whereas the Seychelles economy, on the strength of 0 the Global Business sector. Besides, it was announced that macroeconomic reforms, somewhat recovered from the 2006 2007 2008(1) 2009(1) 2010(2) the Financial Services Commission will seek recognition as 2008 slump provoked by its balance of payments crisis, (1) revised estimates (2) MCB forecasts an equivalent jurisdiction with other financial centres in although growth therein was only slightly positive last MCB Group Annual Report 2010

management discussion and analysis

landscape in the main markets amidst heightened and witnessed reductions of 6.4% and 13.4% in terms of but should remain modest given fairly soft private inherent shortcomings. The favourable evolution of pressures exerted by the drawn-out eurozone crisis as arrivals and receipts respectively, being pinned down by household expenditure patterns. On the other hand, the cane cluster highlights, if needs be, the significance well as the overall rupee strength. While it is worth taking increased travel preferences for shorter-haul and even regardless of reduced private investment in some areas of pursuing the transformation programme meant to note of the policy package unveiled by the Government intra-country visits in specific source markets as a result of such as Integrated Resort Schemes, the construction foster its long-term viability and sustainability in view of in August last aiming to enable Mauritius to face up restrained income growth, weakened purchasing powers sector performed well in 2009 to expand by 6.5% on the persisting challenges, thus calling for the maintenance to prevailing challenges, the future evolution of the and high unemployment. Whilst being still constrained strength of significant public infrastructure projects. The of an environment conducive to the execution of economy critically hinges on the ability of the country to by these sub-optimal conditions, the number of tourist unfolding of these ventures has continued to support earmarked reforms in a timely, consistent and concerted pursue its reform agenda anchored on deeper and far- arrivals is projected to pick up at a fairly appreciable the sector in early 2010 although overall growth for fashion. Profits are, unfortunately, not matching reaching growth-enhancing measures, with initiatives rate in 2010 on the back of the relative global economic the year is likely to be lower than last year’s outcome real activity growth as the strong rupee is eating off executed in a prompt and coherent manner and backed healing. Nonetheless, the progression in receipts is likely considering delays encountered in the execution of the benefits of the said reform. In the same vein, the by pragmatic macroeconomic management to cater for to be constrained by general euro and sterling weakness some Government undertakings and the ongoing judiciousness of the diversification strategy followed by contextual dynamics. In respect of the latter, the ongoing in particular as can be assessed from worsening financial dampened investor mood. the country over the years has further been underscored upward pressures on the rupee are viewed with much positions of hotel groups in recent times. On the whole, by the robust growth momentum of some emerging concern to the extent that our export competitiveness is unless unfavourable circumstances rapidly dissipate, it Interestingly, the sugar industry cluster posted a sectors. Hence, whilst facing some hindrances relating being dented within a context where, unlike the rupee, appears that the situation in the hospitality sector will significant growth of 15% with the outlook for to the rules of origin and the supply of fish, the seafood currencies of major competing countries have been remain relatively fragile for some time yet. This calls for this year remaining globally positive as it reaps the industry continued to post strong growth on the basis following a depreciating trend against the euro in recent the swift implementation of perennial measures to foster benefits of its re-engineering endeavour that has led of breakthroughs achieved in terms of market access times. Should this situation persist, it is feared that the market and product diversification with due emphasis to an increase in the production of higher value added in particular. Similarly, the ICT sector sustained its high ability and appetite for investment and job creation by being placed on an air access strategy in line with the sugars, thereby helping the industry to better withstand growth path as evidenced by a double-digit expansion export oriented operators would seriously be hampered, country’s aspirations alongside preserving the ‘exclusivity’ adverse exogenous developments and overcome its rate in 2009, underpinned by solid performances of the thereby curbing the capacity of the economy to regenerate image of the Mauritian destination. wealth over the medium term. Against this backdrop, the 62 one percent reduction in the Central Bank’s Repo rate in The ramifications of lukewarm global trends have also Selected growth rates (Year 2009) 63 late September is a late move in the right direction. been perceptible in the trade and domestic oriented Sugar industries notably by way of downward pressures on real Business activities Non-sugar agriculture From a sector perspective, the textile and apparel consumption locally, partly prompted by curtailed income Construction segment featured among those having suffered the most Banking growth. The domestic oriented industry registered a tepid Insurance from restrained private expenditure in the aftermath of expansion rate of less than 1% in 2009, while only a slight Transport, storage & communications Food manufacturing (excl. sugar) the global crisis with a notable contraction observed in improvement in growth is anticipated for 2010 in view Social & general public services 2009. Though a technical rebound is expected this year, of enduring competitive limitations. The performance Electricity, gas & water Wholesale & retail trade sector activity should be rather subdued on account of the of the trade sector is forecast to pick up from its weak Manufacturing, (excl. sugar, food & textile) Textile fragile recovery pattern in key markets and adverse rupee expansion rate of around 1% achieved last year due to Hotels & restaurants % dynamics. The tourism sector also fared poorly last year the relatively improved nationwide economic context, -6 -4 -2 +0 +2 +4 +6 +8 +10 +12 +14 +16 MCB Group Annual Report 2010

management discussion and analysis

telecommunications and business process outsourcing sector level, is considered as a major requirement to foster Within the context of a high liquidity situation, the expenditure growth, the budget deficit deteriorated segments. Developed infrastructure frameworks, a adequate and sustainable growth and, accordingly, bolster average yield on Treasury Bills pursued its downtrend to 4.1% of GDP for the second semester of 2009 and broadening range of value-added services and market the job creation capabilities of the country. In fact, the recently and hovered below the interest rate applicable is projected to worsen further to 4.5% of GDP this diversification should contribute to uphold the sector’s national unemployment rate interrupted its downward on savings deposits, which is in sharp contrast with year. Whilst the authorities seem to have taken the buoyancy for the short to medium term, though concerns movement of recent years to post a slightly higher rate of historical trends whereby the returns on securities on necessary steps to ensure that public finances do not subsist in relation to labour market imbalances, relatively 7.3% in 2009 and is expected to deteriorate by a notable average exceeded the latter rate by a notable premium. unduly deteriorate in spite of the support package high Internet tariffs and pressures on external demand margin this year in spite of measures announced as part of On another note, the BoM attempted to mop up excess announced recently, a fair degree of circumspection is originating from the current difficult context. As regards the Government support package revealed in August last. liquidity in the marketplace by conducting reverse Repo warranted for the short to medium term in view of the the business and financial services sector, some slowdown transactions and a Special Deposit Scheme with banks, still-fragile nature of the economic environment, the in activity growth has been observed lately in contrast to For its part, headline inflation maintained its descent, while raising the cash reserve ratio. likely repercussions on receipts of the planned decision the robust expansion trajectory posted in previous years. already triggered in prior periods, to reach 1.7% as to abolish some taxes and the sub-optimal dynamics in Besides persisting uncertainties in the global business at June 2010 owing mainly to the dampening impact As regards fiscal policy, an accommodative stance certain areas of the public sector. segment, this situation reflects strains being felt by the of world economic woes on the evolution of prices of has been maintained in response to heightened banking sector consequent to the ongoing and lagged imported commodities, subdued domestic activity levels challenges posed by the testing context notably The country is characterised by significant external impact of a challenging operating environment on its and the overall strength of the rupee especially in the through public infrastructure spending and other fiscal imbalances as gauged by the high trade and current activity as well as increased credit risk, compounded by latter half of 2009. The low inflation context provided stimulus measures. As a result and given that revenue account deficits. Although improving from the 2008 high liquidity in the system and potential disruptions in the ample scope for the key Repo rate to be cut further during collection has been tempered by restrained income and record heights on account of a drop in the import bill foreign exchange market. Overall though, growth in the the last financial year with such a move appearing to be business and financial services sector remains appreciable justified considering the delicate economic environment, on the strength of sound fundamentals particularly in the particularly with the advent of the eurozone crisis, sub- Mauritius Exchange Rate Index (MERI2) banking industry and continued healthy performance of optimal conditions on the employment front as well as 110

the business activities segment. the high and sometimes widened interest rate differential 105 with major countries over past periods, especially when 64 100 65 Adverse pressures on national income generation have viewed against the general strength of the local currency.

Jan-Dec 2007=100 95 further weighed down on the saving ratio, leading to the However, before reverting to an easing of monetary 90 resource gap staying at a sizeable level with the overall policy in September 2010, the Monetary Policy Committee investment ratio being propped up by considerable public maintained a no-change stance during FY 2009/10 arguing Jan-Dec85 2007 = 100 capital outlays particularly in 2009 in contrast to falling that economic activity is set to improve in spite of staying 80 Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug private investment. Prompted ‘inter alia’ by a wait-and-see below potential and in view of the low national saving 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 attitude associated with uncertain economic signals and ratio. Conversely, the Bank rate fell on an annual average Notes: the impaired revenue-generating capacity of firms, the basis by nearly three percentage points to 4.39% in FY Feb-07Apr-07Jun-07 Aug-07Oct-07 Dec-07Feb-08Apr-08Jun-08 Aug-08Oct-08 Dec-08Feb-09Apr-09Jun-09 Aug-09 (i)The MERI2, which is a weighted average of bilateral exchange rates for the Mauritian rupee, latter trend represents a major cause for concern to the 2009/10, while declining by 80 basis points on a point-to- 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 extent that a high investment path, particularly at private point basis over the year to June 2010 to reach 3.96%. Source: Bank of Mauritius MCB Group Annual Report 2010

management discussion and analysis

linked to declining commodity prices more than offsetting Overall, the level of lending by the banking sector to the reductions in export revenues, the trade deficit still economy experienced a growth of 7.8% during FY 2009/10 stood at Rs 56.5 billion, contributing to a current account to reach around Rs 217 billion as at June 2010, which Banking sector: credit to the economy (quarter-on-quarter growth)

deficit of 7.8% of GDP last year. Nevertheless, the balance represents a pronounced deceleration as compared to the % 10 of payments posted a large surplus of Rs 12.1 billion in robust expansion rate of 20.5% posted one year earlier. 8 2009, supported by notable FDI inflows and considerable This below-par performance was mainly grounded in a 6 official disbursements from bilateral and multilateral relative stagnation of credit to the economy over the first sources as well as unrecorded flows as demonstrated by semester of the last financial year, thereby contributing to 4

net errors and omissions amounting to Rs 10.4 billion. uncharacteristically low year-on-year growth rates during 2 Notwithstanding a deterioration in the current account the period. Thereafter however, in line with a relative 0 imbalance, associated with a substantial rise in the trade economic pick-up and an associated slight rise in business -2 deficit, the balance of payments again posted a surplus to confidence, the evolution of credit to the economy gained 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 the tune of Rs 1.7 billion in the first semester of 2010, once pace, as gauged by a growth of 6.0% over the last quarter more underpinned by sizeable unrecorded and investment of FY 2009/10. flows. Against this background, notable pressures have been exerted on the domestic currency as depicted by Specifically, the origins of the overall deceleration in the long spells of rupee appreciation against major currencies, growth rate of the industry loan portfolio during the last thereby bringing to the fore the recurring debate about financial year were rather broad-based across several Credit to the economy June 09 June 10 Change the real underlying worth of the local currency in view sectors. In particular, apart from a decrease of 15.6% in Sectors Rs m Rs m % of the persisting and elevated current account deficit and loan to public non-financial corporations over the year Agriculture and fishing 12,222 14,560 19.1 bearing in mind the often volatile nature of flows on the ending June 2010, noteworthy contractions to the tune Export oriented industry 7,848 6,910 (12.0) capital and financial account. of 12.0% and 4.0% were registered in respect of the Domestic oriented industry 10,194 10,757 5.5 66 export oriented and trade industries, bearing in mind the Tourism 30,134 35,311 17.2 67 Market Environment pronounced difficulties encountered by operators therein. Transport 926 2,130 130.1 Confronted by the challenging operating environment On the other hand, in spite of displaying a declining Construction 38,248 43,401 13.5 of which Housing 21,790 25,377 16.5 against the background of delicate sector growth growth rate, exposure with respect to many of the Traders 23,295 22,363 (4.0) performances, some slowdown in the execution of the other main sectors posted noticeable achievements. For Information & Comm. Technology 1,245 1,237 (0.6) investment projects and non-negligible imbalances instance, while the performance of the industry remained Financial & business services 18,928 20,471 8.1 within the money markets, the banking sector witnessed relatively weak, credit to the tourism sector recorded a Infrastructure 5,170 4,627 (10.5) a marked deceleration in its activity levels during the last notable double-digit growth during the last financial Global Business Licence Holders 18,645 19,242 3.2 financial year, but still managed to preserve its healthy year, partly boosted by the unfolding of hotel upgrade/ Personal & Professional 17,302 19,534 12.9 Public Nonfinancial Corporations 12,137 10,248 (15.6) credentials on the basis of long-standing efforts to renovation works undertaken by various establishments Others 5,032 6,268 24.5 diversify exposures and consolidate risk management. to shore up capacity in anticipation of a likely rebound Total 201,326 217,059 7.8 MCB Group Annual Report 2010

management discussion and analysis

in tourist arrivals when the global economy materially system. Strikingly, the average cash ratio held by banks As regards sources of funds, in spite of the prevalence risk management. All in all, the banking industry has picks up. Moreover, exposures to the construction reached 6.53% towards the end of FY 2009/10 as of a low interest rate environment and dampened in retrospect successfully withstood the difficulties industry grew by a prominent margin on the strength compared to 5.75% one year earlier, thereby expanding nationwide income generation, total deposits of the impacting its operation and expanded its overall balance mostly of significant increases with regard to housing the excess cash holdings from Rs 3.2 billion to Rs 4.2 banking sector observed a notable growth of 13.3% sheet on the basis of targeted market development and commercial property development projects. Besides, billion over the period. As a result, the high liquidity during FY 2009/10 as compared to a modest increase strategies locally and internationally, an enhancement in line with the major restructuring and diversification situation exerted downward pressures on the weighted of some 2% in the preceding financial year. This has of the range and quality of product offerings backed by endeavours of relevant enterprises within the cane cluster yield on Treasury Bills, with the Bank rate dropping on been spurred by a sizeable expansion of around 15% in assertive promotion campaigns as well as an upgrade of amidst the exploration of new development avenues, average from 7.34% in FY 2008/09 to 4.39% in the last foreign currency deposits, which now account for almost delivery channels, reinforced efficiency of operations, loan growth in the agriculture and fishing segment has financial year, as part of a sustained declining tendency two thirds of total deposits in the banking sector, from and capacity development. In particular, the MCB has been noteworthy. For their part, loans and advances to that led it to 3.96% as at end-June last and a low of 2.40% an overall restrained base level. This was underpinned continuously espoused these strategic principles and the personal and professional segment increased at much in early September, before rising thereafter. This situation by a remarkable performance in the second semester remains well-geared to take advantage of its multi- higher pace than in the previous year, partly reflecting wielded non-negligible pressures on the operations and of the financial year partly owing to a relative upturn pronged capabilities for long-term value creation. enhanced competitive efforts by banks to exploit the income generating ability of banks when factoring in in the activities of international banks and a rebound retail banking business. In the same vein, supported by the relatively higher average deposits rate. As such, in in funding raised from global business licence holders. Review of MCB Operations its generally appreciable prospects, credit allocation to an attempt to maintain liquidity at a reasonable level, Besides, local currency deposits grew by 10.2% over the With a view to preserving and enhancing its financial the financial and business services industry displayed a the BoM has recently intervened in the marketplace last financial year on account mainly of a significant strength against the backdrop of the demanding notable expansion, predominantly linked to exposures on through the adoption of specific measures, namely (i) a expansion of 13.5% in savings deposits in conjunction, operating environment, the MCB reinforced its efforts investment companies. cumulative rise of one and a half percentage points in to a lower extent, with good performances at the level to uphold quality market penetration during the last the cash reserve ratio to 6.0% as at September 2010, and of time and demand deposits. financial year, while applying due vigilance in terms Deposits in the banking sector (ii) the conduct of a Special Deposit Scheme and reverse of cost control and risk management. Essentially, in June 09 June 10 Change repo transactions. Nevertheless, the relevance of these Regardless of the delicate operating background, the order to buttress a dependable platform for sustained Types of deposits Rs m Rs m % initiatives for achieving declared objectives as well as the banking sector remained characterised by appreciable business growth, the measures put into place by the 68 Rupee 196,670 216,718 10.2 possible related costs of such actions need to be assessed profitability levels and overall financial soundness. different lines of business related to the continuous 69 Savings 99,171 112,553 13.5 and monitored over time. In respect of the latter, indicative of the capacity of improvement of customer experiences, the widening of Demand 25,515 28,634 12.2 operators to guard against potential shocks to balance the choice of financial solutions to clients and investors, Time 71,984 75,532 4.9 Evolution of key interest rates (%) sheets, the capital adequacy ratio of the banking further market diversification, maintained prudence Foreign currency 351,093 403,825 15.0 As at Weighted average sector remained relatively high above regulatory levels, and enhanced visibility. Towards these ends, capacity- Total 547,763 620,544 13.3 30-Jun-09 30-Jun-10 FY 09 FY 10 standing at a comfortable average rate of 16.5% as at building attempts at the level of human resources, Repo rate 5.75 5.75 7.08 5.75 March 2010. As for asset quality, even if the share of processes and technology have been strengthened. By and large, combined with a perceived undersupply of Lending rate 10.12 10.06 11.23 10.07 delinquent loans in total loans deteriorated to 3.3% in Notably, apart from the implementation of T24 as Government of Mauritius Treasury Bills, the slowdown in Deposits rate 4.78 4.57 5.86 4.61 December 2009 in line with the soft economic conditions, the new core banking system, the construction of a credit to the economy contributed to trigger relatively Bank rate 4.76 3.96 7.34 4.39 it improved as at March 2010, reflective of continuous landmark energy-efficient building is fast taking shape high liquidity levels for prolonged periods in the banking emphasis on prudent portfolio monitoring and diligent and is expected to come into being at around mid-2011. MCB Group Annual Report 2010

management discussion and analysis

MCB: Unearthing the frst energy-effcient building in Mauritius

Remarkably standing out with its atypical elliptical- shaped architecture and strategically situated on a 6.6 acre plot of land next to the St. Jean roundabout in the vicinity of the Ebene hub, the new MCB building epitomises endeavours for sustainable business growth, while essentially embodying a strong awareness of and concern for the environmwent with which we cohabitate, backed by the adoption of worldwide best Fundamentally, the latter addresses wide-ranging envi- • A Thermal Energy Storage system (TES) has been practice in sustainable design. ronmental and sustainability issues, thereby becom- provided to reduce the size of the chiller. The TES serves ing a de facto measure used to describe a building’s to absorb the peak cooling demands and to provide Basically, the 8-storey building provides open plan performance under the following headings: Manage- back-up cooling power for five hours. In addition, workspaces for 750 staff. Two state-of-the-art ment, Health & Wellbeing, Energy, Transport, Water, further savings will be possible if the Central Electricity auditoria are available with a combined capacity of Materials & Waste, Land use & Ecology, and Pollution. Board (CEB) re-introduces off-peak electricity tariffs 295. The elliptical section is supported by four legs in In keeping with the design intent, the following decisions as it will enable the chiller to be switched off during which the plant rooms and water tanks below ground were made: peak hours. 70 are located. A fully equipped kitchen and canteen 71 capable of seating 250 people is situated on the • The building was oriented East and West with the low • The air conditioning system is an All Air system which ground floor. The site caters for 265 car parking bays, thermal transmission glazing facades facing North and provides excellent air quality and ‘free cooling’ during 20 of which are covered, and additional parking space South. Overhangs have been provided to shade the winter months when outside air temperatures are for three 50 seat coaches. The philosophy behind the facades from direct sunlight. To reduce energy flow low enough. It allows the chiller to be switched off project is to create a comfortable and efficient office through the shell, the latter is cladded with 50 mm while maintaining comfortable conditions for the environment and to design an energy-conscious thick rigid insulation, an air gap of 300 mm and 8 mm occupants. Whether in summer or in winter, the air is building that – for the first time in Mauritius – would thick aluminium sandwich panels. delivered to the air conditioned spaces via the raised qualify for a BREEAM (British Research Establishment floors to ensure even air distribution while minimising Environmental Assessment Method) certification. fan energy. Additional energy saving is achieved given that, in the absence of false ceilings, the thermal mass embodied in the concrete shell radiates the ‘cold’ back into the spaces. MCB Group Annual Report 2010

management discussion and analysis

• Provision has been made to install a photovoltaic (PV) Local Banking Business Underpinned by an established internal architecture, farm that will cover some 3000 m2 facing North and Corporate MCB Corporate Banking effectively endeavoured to will generate on average 300 kW of electrical power The operations of MCB Corporate Banking in FY 2009/10 ride the waves of exogenous shocks by pursuing its which can be used to compensate for the electrical have, to a large extent, been dictated by the testing business development initiatives in line with the Bank’s power consumed by the chiller (265 kW). Alternatively, operating environment characterised by high uncertainty risk appetite, anchored on adapted product offerings, if in future the CEB agrees to purchase the electricity levels and heightened difficulties faced by key sectors. customer proximity and unparalleled service quality generated by small independent power producers at a Thus, dampened investor confidence contributed to amongst others. As such, building on diversified and rate which is higher than when importing CEB power hold back demand for credit as gauged by the non- tailored solutions ranging from standard to more for consumption, some of the PV electricity produced materialisation of a number of projects earmarked at complex structured financing, MCB Corporate Banking on site could be sold to the CEB. the beginning of the financial year. Besides, strains on continued to lay focus on ensuring that customer earnings of economic players and increased riskiness needs were being closely matched with due emphasis From a general perspective, the elliptical shape of the of projects have prompted the Bank to exercise closer on enhancing the value propositions where necessary. building is a logical solution to efficiently combine three scrutiny with respect to both the existing loan portfolio A prominent channel endorsed by MCB Corporate requirements: as well as the new loan disbursements during the year. Banking in attaining the latter objective has been to • Natural light enters the building through the full Nevertheless, MCB Corporate Banking maintained its capitalise on privileged business partnerships within height floor to floor of the vertical double glazing • The maximisation of free floor space, with a remarkable proactive stance, eventually leading to a circumstantially the Group as evidenced by headway made in the fields North and South facades and through five glass rings floor plate efficiency of 91% being expected strong performance in terms of growth in the average of credit protection and non-recourse factoring while over portholes in the elliptical shell. The facades • The need for raked seating in the auditoria loan balance which exceeded the 10% mark despite a judiciously exploiting synergistic potential notably with sunscreens prevent direct sunlight from affecting • The requirement for visual connection between spaces relatively slow take-off until March 2010. In effect, the the leasing arm of the MCB. Concurrently, the Bank has workstations, thus allowing the perforated blinds to to support a work-style that is more interactive and MCB reaffirmed its commitment to national economic been relatively active in promoting brand and product be kept up. When glare is unavoidable, the blinds drop open, which can thus significantly contribute to the development through financing of flagship projects, visibility alongside deepening customer relationships automatically. Photometric sensors switch the lights on effectiveness of the office environment and amenity including ventures in the hospitality and construction/ through participation in various major image building, 72 and off in the workspaces depending on the intensity property development sectors. Furthermore, asset networking and other commercial events and activities, 73 of the natural light available. Both up lighting and On a concluding note, it is worth noting that the building quality was maintained, with loan restructuring brought including the organisation of topical fora. task lighting are equipped with electronic ballasts on has a complex and precise shape. Thus, to build it is both about by soft economic conditions remaining well energy saving fluorescent lamps and LED lights. an uncompromising and challenging task. Moreover, within manageable levels. However, notwithstanding Geared towards fostering a fitting operational set- having been designed for efficiency, energy savings will an appreciable rise in fees and commissions, the adverse up that will help bolster customer service, constant • The supply of potable water is restricted to the kitchen, be realised the moment the building is operational i.e. at market dynamics exerted notable pressures on the efforts have been made to attune processes to market wash hand basins and showers. The used water is around mid-2011. Compared to a conventional building operating margin, considering restrained evolution exigencies over the years. Besides relying on a dedicated recycled and stored with the rain water that is harvested of the same size and use in England, it is estimated that in net interest income and, more particularly, a fall in team to continuously identify and implement efficiency- from the building roof. This grey water is reserved for this edifice should improve energy efficiency by at least profit on exchange amidst a significant drop in foreign enhancing measures, MCB Corporate Banking is reaping non-potable purposes such as landscape irrigation 30%. Hence, the carbon footprint of the building will exchange volume transacted during the year. the benefits of its segmentation strategy during these as well as the washing of the building and cars. It is be reduced and a sustainable certificate equivalent to testing times, notably in terms of reinforced interactions estimated that 3 m3 of water will be recycled daily. ‘Good’ should be achieved. MCB Group Annual Report 2010

management discussion and analysis

and relationship with customers, thereby paving the in FY 2009/10 in the face of the tough operating context As part of the game plan to deliver customised solutions while maintaining its thrust to explore technology to way for enhanced service delivery. In the same vein, characterised by dampened household consumption and to gratifyingly match the ever more sophisticated and complement and reinforce productivity gains flowing analytical capabilities have been strengthened for proper investment as well as stiffer competitive pressures in some varying needs of customers, continued emphasis has been from past initiatives. As regards human resource risk assessment. With human capacity considered as the niche markets. Indeed, an appreciable progression was laid on refining segment offerings during the year. For development, the overall approach was again centred cornerstone of unlocking business potential, significant recorded in activities with average deposits increasing by instance, MCB Business Banking has maintained its drive around encouraging a shift from a transactional to a resources have been devoted to the development of 6.5% and loans growing by nearly 14% in spite of IRS- towards enhancing the Bank’s value propositions to small relationship mindset alongside upgrading staff skills and human capital through a comprehensive programme of linked financing being severely impacted by the global and medium enterprises while notable progress in building competencies through pertinent training programmes formal generic and specialised training, as well as regular crisis. Nonetheless, the evolution in the gross operating capabilities for wealth management has been achieved by as testified by the completion of a six-month extensive hands-on coaching to foster a high performance culture. margin has been more modest, reflecting the restraining MCB Private Banking which caters for the higher end of leadership course for branch managers and their assistants Team members of MCB Corporate Banking have attributed impact of adverse foreign exchange developments the market. Furthermore, no effort has been spared in during the last financial year. prime importance to the T24 project by providing on related income, more competition and a rise in promoting take-up of products and services launched in continuous support so as to ensure that its imminent infrastructure costs. the recent past with encouraging upshots being recorded Comforted by recent accomplishments, MCB Retail seeks implementation as the new core banking system occurs in relation to the 18-25 pack, the MCB Education Plan, Forex to pursue its business growth strategy in the period in a seamless and effective manner with functionalities Featuring as a key element in the Bank’s thrust to ATMs and MoneyGram services in particular. Conspicuously, ahead by maintaining its momentum to be commercially aligned with the business strategy. promote unique customer experience primarily in terms commercial initiatives of MCB Retail were boosted by the proactive and constantly aligning service delivery to best of service excellence and nurtured relationship as well Laduma sales campaign launched in anticipation of the practices. Particular consideration will be provided to meet Whereas the ongoing delicate economic evolution as convenient and adapted access to product offerings 2010 FIFA World CupTM on the basis of promotional offers the evolving needs of its differing customer segments pinpoints to yet another challenging year on account of through multiple channels in a pleasant atmosphere, giving customers the chance to win all-inclusive packages as well as cost effectiveness. The MCB is confident that associated investor risk aversion and potential upward the Kit of Parts (KOP) project designed to overhaul the to attend the tournament, and enhanced brand visibility this stance will generate promising openings despite the pressures on the rate of stressed assets, MCB Corporate retail network gathered momentum during the year through targeted marketing and media coverage. In difficult economic environment, thereby cementing its Banking is well geared to maintain its growth momentum with nearly 75% of the branches having already been fact, MCB Retail participated enthusiastically towards foothold in this business area. on the basis of an adequate business model. Espousing revamped so far. Complemented by a tailored training upholding the Bank’s promise of instilling the spirit of the 74 sound risk management practices and endowed with programme to reinforce the service culture and the World Cup by creating a cheerful atmosphere at various Cards 75 upgraded human resource and system capabilities, it introduction of service standards across the network, the customer touch points, much to the delight of clients and The MCB Cards continued to perform well in spite of the remains intent on reinforcing its customer base by way of branch transformation initiative is clearly proving to be the public at large, while staff were mobilised to make difficult economic context. Indeed, double digit growth unique and customised value propositions, in the process conclusive as can be verified from the latest in-branch related sponsored events a roaring success. was achieved in its gross operating margin, underpinned perpetuating its role as a key player in the national customer satisfaction survey results which indicate an by targeted initiatives to boost results notably through economy. improvement in the overall performance index across the In its quest to ensure sustainable growth, the MCB additional sources of income and close management of redesigned branches on account of higher scores achieved maintained its drive to shore up internal capabilities in operating expenses. Retail on most of the attributes inspected. Of particular note is terms of human capital, systems and processes. Besides The adoption of a multifaceted strategic path basically an observed drop of 13% in the average processing time working closely with the T24 project team, MCB Retail has The high growth momentum of the MCB in the card aimed at fostering customer centricity over the years has from 2009 to 2010 with a comparable downward trend made further progress in promoting efficiency-enhancing business as observed lately is largely attributable to enabled MCB Retail to display a high degree of success noted for the mean waiting time by clients. practices notably in the field of cash management, initiatives undertaken to enrich the suite of related MCB Group Annual Report 2010

management discussion and analysis

offerings over the years. Indeed, in its endeavour to to collect associated memorabilia. To say the least, these On the whole, with recent operational gains likely to be gratifyingly serve its customers, will, in the coming year, provide customised products across its business segments, campaigns were widely successful as gauged by the deepened and broadened by ongoing and new projects inaugurate a state-of-the-art branch in Ebene. MCB Cards currently offers a comprehensive range of card strong double digit growth registered in card utilisation meant to further enhance its capabilities in the period payment solutions, comprising debit and fleet cards as as compared to the previous year. ahead, the MCB Cards is well positioned to maintain In its pursuit of popularising the use of remote channels, well as personal and corporate credit cards to meet the its growth impetus and consolidate its market leader the MCB has delivered tailored training to staff in the varying needs of customers. In this respect, the exclusive A key milestone achieved during FY 2009/10 on the position in the years to come. retail network as part of the KOP project with a view partnership with American Express (AMEX) for their Green acquiring side relates to the agreement signed between to sharpening their knowledge about the characteristics and Gold cards since October 2008 has gone a long way the MCB and China UnionPay, which allows cardholders Delivery Channels and features pertaining to alternative delivery channels. to providing premium value to high net-worth customers of the latter – currently amounting to above 2 billion During the last financial year, the MCB maintained its Furthermore, access to Internet Banking and Fidelis, on the strength of unique and innovative benefits, these worldwide – to use their cards at MCB merchants when impetus in upholding an adequate mix of convenient, which provides information on products and services being further enhanced by a new Priority Pass feature visiting Mauritius. Whilst effectively being a building efficient and reliable distribution channels, thus helping as well as support for cards operations to customers giving AMEX cardholders access to V.I.P airport lounges block towards tapping into the projected rise in business to provide seamless service to its customers with a through a call centre and email services, is available in across the world. flows between the two countries, this achievement has continued focus on promoting remote channels. all branches to better promote and integrate alternative sharpened the competitive edge of the Bank vis-à-vis delivery channels. To encourage customers to increase usage of their cards local merchants by complementing its exclusive acquirer As the KOP project nears completion with some 29 at points of sale (POS), several promotional campaigns status for American Express and Diners Club alongside branches already rolled out, considerable spin-offs Besides, the ATM park has been further expanded and were held during the year. Hence, in addition to the acceptance of the MasterCard and Visa payment franchises are emerging, be it in terms of customer service and now comprises some 150 strategically-located machines, traditional end-of-year campaign, which was themed on its POS. Also, as part of the strategy to sustain the loyalty as well as enhanced operational efficiency of which 35 are offsite. After having pioneered the ‘Win unforgettable moments’ with the opportunity for acquiring business growth on the basis of convenient and effectiveness. In fact, the new branch concept deployment of ATMs exchanging forex in Mauritius customers to win all-inclusive travel packages to renowned access, efficiency considerations and service quality with fosters greater customer proximity within a pleasant during the preceding financial year, more of these destinations, the MCB Cards leveraged the position of the respect to merchants, new POS terminals were rolled atmosphere whilst promoting ease and convenience of machines have been added to the ATM web in FY MCB as the official Mauritius Bank for the FIFA World out during the year while the related communication access to the Bank’s offerings through dedicated areas 2009/10, bringing the number to 10 as at June last. As it 76 CupTM in association with Visa. Alongside the launch of the technology has undergone a notable upgrade. for specific services, the posting of greeters to guide stands, the introduction of these devices has been highly 77 exclusive, limited edition Visa cards featuring the World incoming clients and self-service lobbies to promote successful as evidenced by elevated usage levels and Cup trophy, customers had the chance to win all-inclusive Capitalising on its secure payment gateway and alternative delivery channels. Furthermore, the solicitation rate on the back of their 24/7 operating basis, packages offered by the MCB for a once-in-a-lifetime dedicated e-commerce business development team, the deployment of Teller Cash Recyclers has gone a long way whilst enabling customers to avoid queuing up at forex experience at the tournament while benefiting from a MCB has made significant strides in positioning itself as towards enhancing security and improving productivity counters. Notwithstanding these positive developments, number of special offers and discounts on international the acquiring bank of choice for Mauritius e-commerce by way of minimum cash handling and reduced waiting the volume of ATM transactions fell slightly during the brands. In parallel, MCB Cards initiated and contributed start-up merchants, allowing them to take advantage time. The Bank has, in parallel, reassessed the profile last financial year as compared to FY 2008/09 largely actively to a series of World Cup-linked events organised of the numerous benefits of doing business on-line. of some of the branches, leading to a rationalisation of attributable to the decision to discourage printing of by the Bank throughout Mauritius to bring the football The e-commerce acquiring business continued to evolve the network via the closure of two branches and two statements under Initiative 175. As regards Internet finals closer to the people of the island by way of soccer- positively to above anticipated volumes in line with an counters, thus optimising the use of available resources. Banking, ongoing targeted sensitisation programmes related games and competitions with the opportunity uptrend in related spending. On a similar note, the MCB, as part of its drive to have helped to sustain a significant growth in the number MCB Group Annual Report 2010

management discussion and analysis

In furtherance of its strategic pursuits, the Group has In respect of our direct presence in the region, key Automated transactions as a % of total transactions stepped up its promotional and market development developments which contributed to extend the % endeavours with a particular focus on its ‘Bank of Banks’ franchise of the MCB comprised (i) the opening of a 92 strategy. The aim, in short, is to become a regional hub new counter as well as the roll-out of MoneyGram in 90 for trade finance, payments and cards operations to Seychelles; (ii) inroads into niche markets achieved by 88 counterparts in the region. Prominent amongst these MCB Moçambique coupled with the enlargement of its

86 initiatives has been the recent Africa Forward Together products and services line-up, and (iii) trade finance and seminar, a pioneer initiative targeting financial card-related operations undertaken by MCB Maldives 84 institutions in the region. The event was attended by with local and international operators especially in the 82 June 06 June 07 June 08 June 09 June 10 some 29 delegates from 22 banks located in 11 African tourism sector. Foreign subsidiaries have also increased countries. Professionals from diverse business lines their market exposure resulting from the MCB Group of the MCB collaborated to showcase the inherent being the “Official Mauritius Bank in association with of registered customers which reached 69,439 as at 30 June International Operations capabilities present in the Group during what was a Visa” for the FIFA World CupTM. Consequently, several 2010 as compared to 41,454 one year earlier. Besides, Fidelis Notwithstanding the delicate global economic recovery distinctive occasion for regional networking among initiatives were undertaken by the subsidiaries; for is being geared up to become one of the main vehicles for and adverse socio-political conditions in some presence distinguished regional and international banking peers. instance in the Seychelles where a limited edition of our customers to address their queries and concerns. All in and non-presence markets, the last financial year was The interest elicited by the seminar has translated into debit cards bearing the FIFA/Visa logo was launched and all, the proportion of electronic transactions maintained its marked by notable achievements at the level of the MCB an appreciable increase in solicitations from foreign TV clips and radio messages were broadcast. upward trend to exceed the 90% mark. Group’s International operations, overseas subsidiaries counterparts for, inter alia, syndication transactions and outbound entities. Basically, noteworthy deals and partaking into cross-border initiatives. Other As regards the operational processes of the subsidiaries, Volume of transactions ('000) pertaining to direct risks taken by the Group in existing promotional endeavours worth highlighting were the major headway pertaining namely to credit assessment FY 2007/08 FY 2008/09 FY 2009/10 and emerging markets, an upsurge in trade-related participation by the representatives of the International and reporting processes, has been achieved during the Automated Teller 32,696 33,367 33,140 revenues and new income sourced from activities linked to Strategic Business Unit in roadshows in Europe, where year. Furthermore, existing platforms and capabilities, Machines the Group’s ‘Bank of Banks’ value proposition have been correspondent institutions were targeted, and in Africa particularly in terms of the cards infrastructure, have 78 Merchant Point 79 7,495 8,381 8,946 of Sale among the key milestones of the year under review. In to present the MCB’s services to prominent players undergone enhancements. Management Information Internet Banking 374 419 584 respect of syndications and participations, the initiatives mainly engaged in the commodities sector. The MCB System tools have, for example, been upgraded with undertaken during past periods have matured into also hosted a stand at the May 2010 SWIFT Regional a view to helping the subsidiaries to better monitor appreciable revenue streams. At the level of structured Conference in Johannesburg where it showcased the and subsequently boost their cards activities. Another Anchored on the advocated business strategies notably trade and commodities financing, a non-negligible services offered as a Member Concentrator to both achievement pertains to the introduction of Cards in the retail segment, the Bank will continuously aim increase in the volume of transactions across the value counterparts and corporate entities. In support of Acquiring services and the deployment of POS at optimising its distribution model to ensure access chain of the commodities financed has been registered, business development initiatives, it is worth noting that terminals by MCB Madagascar, while the infrastructure convenience, user-friendliness and cost efficiency of underpinned notably by the diversification of the Group’s market intelligence was also carried out in presence has also been supplemented by multi-currency related services with the adoption of fitting promotion exposure beyond oil-related business. countries earlier during the financial year with a view functionalities in the Seychelles. In addition, wireless and pricing schemes to further boost the utilisation level to reinforcing the revenue-generation potential. terminals making use of GPRS networks have been of remote channels. MCB Group Annual Report 2010

management discussion and analysis

introduced in both the Seychelles and Mozambique. Global Business Desk to their requirements and activities. Going forward, political turmoil which has affected Madagascar since Other technological upgrades relate, inter alia, to the The performance of the Group’s Global Business Desk the deepening of relationships in the form of win-win early 2009. The events which involved the overthrow implementation of a complete payroll management suite for the last financial year has exceeded expectations partnerships with targeted industry players and other of the government and the setting up of a transitional in Seychelles and a series of enhancements brought to the despite the challenging international economic scene, stakeholders will be amongst the strategic avenues to Council caused a major slowdown of economic activity telecommunications capabilities for more optimal use of with revenue more than doubling on a year-on-year basis. be explored by the Group towards further developing in the country, which was further exacerbated by the Head Office applications by affiliates. Overall, since its launch, back in June 2008, the desk has its potential for capturing business opportunities in the international financial crisis. Although there had been built up an appreciable customer base, while broadening global business sector. initial signs that, amidst pressure from international In relation to staff development and competency and deepening relationships with stakeholders. In fact, the organisations, a political solution would be promptly enhancements, a series of topical training sessions Group is being increasingly viewed as a privileged partner International Card Processing found, all attempts at putting Madagascar back on in relation to compliance issues and human resource for global business transactions by clients worldwide Services Ltd. (ICPS) the democratic path have so far resulted in a complete systems has been dispensed via teleconference facilities as evidenced by solicitations for the financing of major Operational since November 2008, ICPS is a joint venture stalemate. This has led to sanctions being imposed upon to personnel in overseas subsidiaries. In addition, the deals in sub-Saharan Africa and India, with financial between the MCB (80%) and Hightech Payment Services the country by several international bodies and trade success of last year’s exchange programme involving the solutions proposed including for instance structured (20%) based in Morocco. ICPS has positioned itself as a organisations, thus holding back any possible economic movement of staff members of the overseas subsidiaries advances mostly on short and medium term tenors, trade one-stop shop by offering an array of services ranging recovery even more. and the Head Office has been very successful. From a finance, international transfers/payments, e-commerce, from card personalisation for private label and branded more general perspective, the management teams of custody services, and multi-currency accounts. As such, cards (magnetic stripe / chip card) to full issuer and In this very uncertain environment, MCB Madagascar’s foreign subsidiaries availed themselves fully to the annual the Global Business Desk has more than doubled its client acquirer services, inclusive of POS and ATMs driving as level of profitability was significantly reduced for the ‘Subsidiaries’ Day which provided them with a platform base over the last financial year and made inroads into well as transactions switching to banks in Mauritius and calendar year 2009. While there was minimal balance to discuss their strategic priorities during facilitated new business territories with high growth potentials Africa. This allows banks to achieve economies of scale sheet growth and much lower fee income due to the work sessions with the heads of key functions within the by building on (i) the MCB Group’s swift and efficient in outsourcing their card processing needs. This year was decrease in trade activity, credit impairment was also on Group. These consultations strengthened synergies across decision-making capability as a distinctive feature of its a fruitful one for ICPS, whereby four banks went live the rise. Profits were down by 34% to MGA 4.9 billion. the MCB, thus further paving the way for the successful value proposition; (ii) the expertise garnered over the past on its Card processing platform. With a view to further 80 realisation of the strategies of its international operations. years in structuring multifaceted deals; (iii) the positive consolidating its presence on the African continent, the There have been timid signs of recovery for certain sectors 81 offshoots of promotional endeavours; and (iv) credentials company has doubled its staffing. Overall, as a result of the economy in early 2010 and it would seem that On a concluding note, with regard to portfolio of Mauritius as a tax-efficient offshore jurisdiction of of the substantial growth in business, it registered elections will be held in the coming months, potentially diversification and the risk management framework, it can good repute that acts as a gateway for investment and a substantial increase in its turnover during the last putting an end to international sanctions and facilitating be noted that the Group continues to prospect for business trade within and across Africa and Asia. financial year as compared to that of the preceding the return to a more normal business environment. opportunities in its presence countries and beyond, whilst period to reach Rs 26 million, with the market outlook ensuring due diligence in terms of risk considerations and In addition to notable progress made to position the remaining promising. Results for the six months to 30 June 2010 were slightly mitigation through customer segmentation, structured MCB as the privileged banking partner of Global Business more encouraging for MCB Madagascar, which realised country screening and analyses, in adherence to MCB’s Licensed companies, the desk has established over time a MCB Madagascar a profit of MGA 3.4 billion. Contribution to Group risk management framework. solid network with local and international management The results of this subsidiary, in which the MCB has an 85% profits for FY 2009/10 was Rs 71 million, substantially companies, whilst providing best-in-class services tailored stake, have continued to be impacted by the on-going down from the Rs 93 million recorded in FY 2008/09. MCB Group Annual Report 2010

management discussion and analysis

MCB Moçambique again after a year of transition, with most economic MCB Maldives has progressed very satisfactorily over this overall level of economic activity in Réunion Island is The Mozambican economy, which is essentially fuelled fundamentals showing encouraging positive signs of troubled period, with total assets and loans growing by still relatively depressed. BFCOI’s balance sheet has not by large foreign investments in mineral resources and recovery and the local currency stabilising after having 58% and 73% respectively over the 12-month period to grown in the six months to 30 June 2010 and operating services, was affected by the global crisis in 2009 with a been left to float on the market in late 2008. 30 June 2010. Our subsidiary is developing synergies income has been marginally down on the previous year. drop in exports alongside falling commodity prices on with the Cross-border desk of the MCB’s International With credit impairment charges still relatively high, net the international markets. Being underpinned by strong The results of our Seychelles operations were much SBU to provide a full range of services to local hotels results have decreased by 35% to EUR 5.7 million. As a donor support, growth was still positive, though starting affected by the movement in the parity of the local and businesses, with the MCB generally providing result, contributions to consolidated results of the MCB from a very low base. currency. The strong foreign currency position of MCB term financing and MCB Maldives granting short-term were down to Rs 317 million, from just under Rs 400 Seychelles has meant that it made healthy profits when facilities, trade finance lines and card acquiring services. million in FY 2008/09. In this difficult context, also characterised by a stringent the Seychelles Rupee devalued in 2008, while incurring local regulatory framework, MCB Moçambique has seen losses when the currency recovered in 2009. Consequently, Profits of MCB Maldives reached MVR 16.7 million for Non-Bank Activities a rebound in its activities, with the loan book growing profits for the calendar year 2009 were substantially the year ended 30 June 2010 while contribution to MCB Capital Markets Ltd. by more than 30% over calendar year 2009 and trade down to SCR 16 million from the peak of SCR 54 million Group profits was Rs 36 million, a more than three-fold MCB Capital Markets Ltd. (MCBCM) is the holding finance operations picking up strongly. Results for that realised in 2008. The current year should show a more increase from the previous year. company for all the subsidiaries of the MCB Group involved year nearly doubled when compared to 2008 to reach stable performance with results for the 6 months to 30 in the investment business. The last financial year was MZN 58 million. June 2010 reaching SCR 26.7 million. Banque Française Commerciale characterised by notable developments within the capital Océan Indien (BFCOI) markets subsidiaries against a backdrop of continuing Balance sheet growth was more subdued in 2010 but Overall, the contribution of MCB Seychelles’ operations to This associate, a joint venture with Société Générale, volatility and uncertainty in international markets. In fact, our subsidiary managed to increase non-interest income Group profits was down 31% to Rs 80 million for the year which had, in the three years to December 2008, nearly both institutional and retail investors on the global scale through fee-based transactions and treasury operations. ended 30 June 2010. doubled its loan portfolio and net profits, had a more have demonstrated a marked reduction in risk appetite Contribution to Group results grew by a very satisfactory subdued performance for the year ended 31 December during the year, thus resulting in a rally towards sovereign 58% to reach Rs 98 million for FY 2009/10. MCB Maldives 2009. While balance sheet and loan growth were still bonds in spite of the sizeable scale of Government debt 82 The MCB’s branch in the Maldives, which opened in 2008, at a respectable 8% and operating income was up 13% in advanced economies. In the prevailing circumstances, 83 MCB Seychelles has recently been converted into a fully-owned subsidiary. over 2008, net profits were affected by much increased the fact that all but one of the subsidiaries of the capital The Seychelles economy, which sought IMF support The Maldivian economy, which is largely dependent on credit impairment charges. Réunion Island, where BFCOI markets group increased their revenues during the year through a Structural Adjustment Program following tourism, bore the brunt of the global recession in 2009 carries out the essential part of its operations, has an is a noteworthy achievement and gives the group a solid turbulent times recently, seems to have found a degree when GDP fell by around 3% and many new hotel projects economy which relies heavily on public infrastructure foundation to build future growth. of relative stability. Agreements have been reached had to be delayed. Local businesses appear to have projects and property-linked activities. These sectors with international creditors for the restructuring of the withstood the strong fiscal adjustments which have been were affected by the recession, with a sharp rise noted With regard to market development initiatives, the country’s foreign currency debt. The economy, which imposed to counteract the economic downturn and 2010 in delinquencies from mortgage loans. year under review saw the successful launch of the MCB contracted by some 2% in 2008 as a result of the tough has witnessed a recovery in tourism arrivals and receipts Education Plan. This product, built around the collective measures put in place by the government in the wake of with the country back on a positive growth path amidst a Although the negative trend impacting the retail investment schemes managed by MCB Fund Managers the global and local crises, would seem to be growing much more stable macro-economic environment. portfolio seems to have stabilised in early 2010, the Ltd., is the first investment-based retail product to be MCB Group Annual Report 2010

management discussion and analysis

successfully distributed throughout the branch network and throughout the year benefited from open and fact- market witnessed a positive pick up in activity, with conservative, while a reputable insurance company picks of the MCB. As such, it marks the beginning of greater based collaboration with the fund management houses it overall market turnover increasing by about 33.3% up the burden of contributions in the case of death or synergy between the different business segments of represents. Several major initiatives have been earmarked in FY 2009/10. However, almost a quarter of total total permanent disability of the customer. The product the MCB, with MCBCM tapping into the extensive retail during FY 2010/11, including the introduction of a new market turnover resulted from large exceptional deals ultimately provides eligibility to loans under the MCB network to market its products. Other realisations relate portfolio management system to assist in the improvement arising from major restructuring of some of the bigger Campus at a preferential rate. to key investments in IT systems and platforms designed of overall service efficiency. Another major undertaking corporate entities. Bearing in mind the challenging to facilitate the servicing of the growing client base of the relates to the further development of in-house investment context, the operating results of MCB Stockbrokers Notwithstanding a significant increase of 31% in turn- various subsidiaries. In fact, during such testing times, client capabilities which will allow the company to better adapt Ltd. (MCBSB) were appreciable as gauged by a rise of over to Rs 7.4 million in FY 2009/10, MCBFM recorded focus and servicing have become ever more important. investment strategies to the needs of clients. These 12.5% in turnover to Rs 15.2 million. As such, profit in a net loss of Rs 0.8 million for the year under review, initiatives are expected to yield long term operational the last financial year attained Rs 2.8 million, while the attributable mainly to the cost of the advertising and On a consolidated basis, MCBCM incurred a net loss of gains and improve the resilience of MCBIM. company continued to expand its local client base and communication campaign incurred for the launch of Rs 1.3 million in FY 2009/10 (2009: Profit after tax of maintained its leading position with a notable market the MCB Education Plan. The latter should, over time, Rs 18.4 million) with total income amounting to Rs 108.5 MCB Registry & Securities Ltd. share of some 30% of overall CDS accounts opened contribute significantly to the growth in assets of the million (2009: Rs 112.5 million). A major improvement MCB Registry & Securities Ltd. (MCBRS) has over the years in Mauritius. An innovative service launched last year, five underlying funds, with the early take-up of 1,486 is expected in FY 2010/11 as the investments in GHF built a solid professional reputation and acquired mandates whereby MCBSB provides a gateway through which plans registered since its launch acting as a testimony Futures Ltd. and MCB Fund Managers Ltd. begin to bear from well recognised groups, which has led to a systematic clients can invest on more than 50 international markets, to its appeal and potential. Significant effort is also fruit. In fact, notwithstanding the delicate international increase in revenue. With a view to enhancing the services was well received by clients and turnover posted from being made to grow assets under management through climate and inherent uncertainties therein leading to offered, MCBRS is in the final phase of the implementation this segment exceeded expectations. Looking ahead, enhancing capacity as well as increasing the current persisting volatility in the investment markets, the outlook of its new IT system which aims to improve and offer despite the uncertain market conditions ahead, client base and promoting the existing products and for MCBCM remains optimistic, with revenues from cost effective services to its customers. The company has MCBSB will continue to diversify its product offerings, services of the company. new markets and products expected to grow notably as recorded a satisfactory performance during FY 2009/10, strengthen capacity and promote its services with a view a result of the versatility and adaptability displayed by with a turnover of Rs 16.9 million representing an increase to consolidating its position in the market. MCB Capital Partners Ltd. 84 the subsidiary. of 20.4% as compared to the previous year. Despite costs MCB Capital Partners Ltd. (MCBCP) manages the 85 incurred in relation to the new IT system, profit after tax MCB Fund Managers Ltd. unlisted investments of the MCB Equity Fund Ltd. MCB Investment Management Co. Ltd. stood at Rs 2.2 million. This performance was underpinned Building on the success of the major re-branding of Revenues in FY 2009/10 were up by 15.4% (2009: 31.2%) The last financial year saw a rise of 11.6% in profit after by the successful completion of a wide array of corporate the different MCB Funds and the launching of the to Rs 22.2 million (2009: Rs 19.2 million), prompted by tax to Rs 19.8 million, with funds under management events including bonus issues as well as dividend in species MCB Overseas Fund in 2009, MCB Fund Managers Ltd. new investments worth Rs 164.0 million made by the rising from Rs 8.0 billion to Rs 8.8 billion on the strength of and amalgamations which were carried out for existing (MCBFM) launched the MCB Education Plan during FY Equity Fund, with funds under management standing at market recovery and net funds inflows. Overall, the MCB customers. Going forward, new avenues are being sought 2009/10. It is a composite product designed mainly for Rs 1,720 million (2009: Rs 1,766 million) on a fair value Investment Management Co. Ltd. (MCBIM) continued to further improve revenue streams. parents who wish to invest in the tertiary education basis. The administration costs for FY 2009/10 increased on its path of operational improvement with its focus of their children as early as possible. It consists of to Rs 16.5 million as compared to Rs 13.7 million a year squarely on excellence in client servicing. The company MCB Stockbrokers Ltd. monthly contributions in the MCB Funds based on the before. The increase is attributable principally to salaries also stepped up efforts in carrying out market research Recovering from the global financial crisis, the local stock risk profile of the client, i.e. adventurous, balanced and and professional fees, in line with the upgrading of MCB Group Annual Report 2010

management discussion and analysis

available human resources capacity. Overall, profit for the to significant operational and salary costs at a time when assignment of trade receivables as well as full sales ledger gradually reversing, with a pick-up observed in the lease year increased by an appreciable 12% to move from Rs 4.7 new traders are learning their trade. While losses are administration of the debtors book. Both recourse and portfolio, coupled with a lower overall cost of funding as million to Rs 5.3 million. expected in the coming year, the financial performance non-recourse factoring are offered, the latter implying older deposits mature. Operating income and financial is expected to somewhat improve as compared to that of protection against debtors’ insolvency. The year under leases outstanding, which had decreased during FY MCB Investment Services Ltd. FY 2009/10, with further enhancement being anticipated review has seen an appreciable growth in assignment 2008/09, grew by 5.2% and 6.8% respectively over MCB Investment Services Ltd. (MCBIS) acts as a shared services over time on the basis of improving capacity, with the of invoices to the company, with profit reaching Rs 31 the year to 30 June 2010. Net results, however, were company for the MCBCM group subsidiaries, in the process profits from the more experienced traders somewhat million. Pursuant to the difficult economic environment, affected by increased impairment charges and loss on providing legal, finance, IT and strategic management mitigating the costs of the recruitment and training of notable emphasis has been placed on keeping costs disposal of assets, which essentially reflected one specific services. MCBIS also has an Investment Adviser (Restricted) the new batches. under control, enhancing risk management, improving failed lease contract as opposed to a systemic increase in licence to enable it to provide transaction advisory and the quality of customer service, and diversifying delinquency rate. Profit for the year was down 45% to other related services to third parties. Total income for the MCB Equity Fund Ltd. markets. In the latter respect, the product offerings of Rs 16 million but the next financial year should see the last financial year stood at Rs 9.9 million, with revenues The Fund recorded a net loss of Rs 175.8 million (2009: MCB Factors Ltd. are to be widened during the current return to much better levels of performance. consisting mostly of shared service fees, while expenses and Net profit of Rs 63.3 million) in the last financial year. This financial year with the provision of International salaries fell by a notable 16.3% to reach Rs 16.4 million. decline was principally due to the full impairment of one Factoring services. PAD did not fare very well during the year. In common As such, MCBIS incurred a loss of Rs 5.6 million during the of the Fund’s investments in the media sector. Specifically, with most investment companies, operating results, FY 2009/10 compared to a profit after tax of Rs 9.7 million total income for FY 2009/10 dropped to Rs 40.7 million Fincorp Investment Ltd. which depend to a large extent on dividends receivable, made in the previous year (which included transaction compared to Rs 84.6 million realised in the previous This subsidiary, a quoted company on the Stock Exchange have been affected by falling corporate profits and advisory fees of Rs 19.8 million). financial year, mostly attributable to (i) a decrease in of Mauritius, in which the MCB has a 57.6% stake, has decreased by about 17% to Rs 148 million. Additionally, dividend income to Rs 39.4 million (2009: Rs 59.0 million) on its books two strategic investments: Finlease, the Group results were impacted by a Rs 71 million charge GHF Futures Ltd. and (ii) a loss on foreign exchange of Rs 4.6 million (2009: leasing arm of the MCB Group, which is a fully owned attributable to impairment of financial assets, while GHF Futures Ltd., a 50/50 joint venture with GHF Holdings Gain on Foreign Exchange Rs 14.9 million). For its part, subsidiary, and Promotion and Development Ltd. (PAD), there was no adjustment this year in respect of fair Ltd., currently employs 12 traders, 8 of whom are management fees increased to Rs 24.5 million (2009: Rs another quoted company having diversified interests, value of investment properties, which contributed 86 currently dealing in short term European interest rate 20.2 million) during the year. Capital calls for FY 2009/10 including a majority stake in Caudan Development Ltd. approximately Rs 100 million to PAD’s net profits in FY 87 futures (Euribor) and 4 in Brent Crude Oil futures on the aggregated Rs 164.0 million (2009: Rs 459.9 million) with (Caudan), a property company that owns and manages 2008/09. International Petroleum Exchange. Capacity building no redemptions recorded for this year. The fair value the waterfront real estate development in Port Louis, remains the main focus of activity, with numerous reserves of the Fund rose marginally from Rs 171.7 million and a holding of about 30% in Medine Ltd. Caudan saw its activities curtailed by the slowdown recruitment sessions being held at the various tertiary at the close of FY 2008/09 to Rs 177.2 million at the end in economic activity. Rental of office and commercial education establishments in Mauritius as well as at the of FY 2009/10, reflecting some improvement in market Finlease had a relatively more stable year operationally. space, following the coming on stream of the second office in Ebène. The company recruited an additional conditions. The fair value of the portfolio dropped in Results of the early part of the financial year continued phase of its development during the previous year, was 14 traders during the year, while further sessions are aggregate by 3.3% to Rs 2.2 billion over the year. to be affected by the company’s balance sheet structure more difficult to achieve. Allied to increased finance scheduled over the coming periods to meet the target which implied the refinancing of fixed price leases in costs, this has led to a drop of 50% in its Group profits. of 45 full-time traders by 2012. GHF Futures Ltd. incurred MCB Factors Ltd. a falling interest rate environment through existing, losses totalling Rs 31.4 million for FY 2009/10, mainly due MCB Factors Ltd. provides funding to clients against relatively expensive, term deposits. This trend has been MCB Group Annual Report 2010

management discussion and analysis

Contributions from associates of PAD, and in particular, MCB Forward Foundation Financial Review Médine Ltd., were negative this year, down from a profit Set up in January last and officially launched in September Performance Against Objectives of Rs 121 million in FY 2008/09, leading to overall net 2010, the company aims to more efficiently serve the local

results of the PAD Group to post a loss of Rs 36 million for communities amidst which the MCB operates. Basically, its OBJECTIVES FOR FY 2009/10 PERFORMANCE IN FY 2009/10 OBJECTIVES FOR FY 2010/11 the year, compared to last year’s profit of Rs 269 million. vision is to be instrumental in the creation of sustainable Return on average equity (ROE) value for the social, environmental and economic well- On prudent estimates, ROE will probably Reflecting the decline in results essentially With difficult economic conditions persisting As a result of the under-par performance of its two being of the society through the provision of human, decrease by over 2 percentage points provoked by enduring soft conditions in the during the coming year, ROE is not expected main investments, Fincorp’s overall contribution to logistical and financial resources in support of dedicated (FY 2008/09: 24.6%). operating environment, ROE, based on Tier to materially recover, although it is hoped 1 capital, dropped below the targeted level that the trend is bottoming out. consolidated results of the MCB was negative for the year, initiatives. The MCB Group contributes 2% of its book to stand at 18.8%, though this performance as represented by a loss of Rs 21 million, compared to a profits derived from the preceding year to the MCB has been weighed down by non-recurrent impairment charges on investments. profit of Rs 68 million in FY 2008/09, though the latter Forward Foundation on an annual basis, representing a

figure included a fair value adjustment of Rs 27 million to sum of Rs 50 million for FY 2009/10. Return on average assets (ROA) investment property. Net asset value of the Fincorp share In view of current trends in balance sheet As expected, ROA fell from the previous ROA expected to increase marginally. stood at Rs 32.35 at 30 June 2010, which is about twice the growth, ROA will be slightly lower than in FY year’s level but remained at a circumstantially 2008/09 (2.8%). appreciable level of 2.2%. value at which it has been trading on the Stock Exchange in recent months. Operating income The impact of difficult market conditions, Whilst being adversely impacted by While customer generated interest income coupled with a drop in Treasury Bills yields, will heightened economic uncertainties and lower growth will reflect the projected increase in MCB Properties Ltd. restrict net interest income growth to below the yields on Treasury Bills, net interest income still average loan portfolio, net interest income will This company owns a number of properties housing 15% level. Non-interest income will be affected posted a positive growth of 2.2% at Group be affected by the abnormally low yields on by the slowdown in local and international level. On the other hand, despite a satisfactory banking premises of the MCB Group. Standing at Rs 2 Government securities and is forecast to grow trade flows and will grow at a much lower rate growth of 7.1% in fees and commissions, at a low pace of close to 5 %. million for FY 2009/10, the results are in line with the than that achieved last year. non-interest income fell by some 11.5% mainly net rentals receivable from properties and are marginally due to a sharp decline in profit from foreign Although profits from foreign currency currency dealings reflecting adverse market dealings are likely to remain under pressure, 88 lower when compared to profits from FY 2008/09 after dynamics. owing to sub-optimal market conditions, 89 accounting for the exceptional profit achieved resulting fees and commissions, more particularly from international and card operations, are from the sale of its largest property in Réunion Island last expected to boost non-interest income, which year. could show a growth rate of up to 20% for the year.

Blue Penny Museum Ltd. Operating expenses While employee costs will not rise by more Tight cost control and efficiency gains from The coming year will bear the full impact of This company, which runs the museum located in the than 10%, operating expenses will be ongoing initiatives have contributed to depreciation and maintenance charges linked Caudan Waterfront, represents one of the contributions heavily impacted by depreciation and other contain growth in Group operating expenses to the substantial investments realised in costs relating to investments in systems and to 6.8% in spite of a notable rise in the past two years. Consequently, operating of the MCB Group towards the promotion of arts and infrastructure, in the course of being rolled depreciation charges, whilst some of the expenses are anticipated to grow by about culture and, more generally, the protection of the out, leading to an overall expected increase expected costs relating to investment in 15%. National Heritage of Mauritius. of more than 15% in Group operating systems and infrastructure have not yet expenses. accrued and will be borne in the next financial year instead. MCB Group Annual Report 2010

management discussion and analysis

Performance Against Objectives by Lines of Business – MCB (Bank)

OBJECTIVES FOR FY 2009/10 PERFORMANCE IN FY 2009/10 OBJECTIVES FOR FY 2010/11 OBJECTIVES FOR FY 2009/10 PERFORMANCE IN FY 2009/10 OBJECTIVES FOR FY 2010/11

Cost to income ratio Retail In view of the heavy investment programmes Largely due to the contextual decline in In view of the rise in operating costs, cost to Average retail loans for FY 2009/10 are Reaping the benefits of its diligent multi- Supported by endless efforts to align product being currently rolled out, cost to income ratio operating income, cost to income ratio income ratio of the Bank is forecast to slightly expected to grow by around 15% on the pronged growth strategy, the retail segment and service delivery to market realities, is expected to edge up to around 43% next increased to 46.5% for the Group and 44.2% deteriorate in the next year, before reversing basis of continued emphasis on exploiting posted a resilient performance in the face of average loans are projected to rise further by year, before reverting to a decreasing trend for the Bank. the trend as from the following period. opportunities in established and budding economic difficulties and strong competition around 15% in spite of the subdued economic thereafter. market segments as well as fostering long- to register an appreciable, albeit reduced, trend. As such, net interest income on advances lasting client relationships. Accordingly, net growth of 13.7% in average loans, thus is forecast to grow by some 13%. Loans and advances growth interest income is forecast to rise by a similar contributing to associated net interest percentage. income going up by 7.8%. The slowdown in economic activity will have Although decelerating as compared to the With the drying up of international inter-bank adverse effects on balance sheet expansion. high expansion of the preceding year, growth markets, disbursements of foreign currency Nonetheless, the average loan book is in the average loan book of the Bank stood loans are expected to slow down. However, expected to increase by more than 15%, with at a noticeable 11.6% with the rise in foreign with some large projects from our corporate Corporate foreign currency loans once again being the currency loans being somewhat higher. As such, customers materialising, loans and advances Even though economic conditions would Difficult conditions in some key sectors Whilst high market uncertainty levels should major catalyst of growth. the Group loan balances recorded an increase are expected to grow by about 12%. remain sub-optimal, the Bank aims to achieve weighed down on activity as gauged by a continue to hold back activity, the Bank of 12.2% over the year ended 30 June 2010. an expansion of some 15% in its average dampened credit evolution in the early part seeks to increase average corporate loan corporate loan portfolio for FY 2009/10 of the financial year. Nonetheless, the average portfolio by 12% on the strength of projected Deposits growth on account of careful market positioning, lotan portfolio still managed to increase by disbursements and a proactive stance, backed Average customer deposits to grow by about Within the context of a more tepid demand The current liquidity situation, which is not provided that the foreseen upturn in activity 10.6%, with significant financing going to by sound risk management and customised 15% during the year. for loan funds and excess liquidity in the conducive to the mobilisation of deposits, is materialises. Net interest income for the the hospitality and construction/property offerings. Accordingly, related net interest system, the average deposits of the Bank not expected to change in the short term. corresponding period is thus expected to development sectors. As a result, net interest income is expected to post an increase of 15%. maintained a noteworthy growth path to Consequently, deposit growth for the year is increase by around 10%. income on loans grew at a rate of 7.4%, which rise by 8.8%, mainly driven by rupee deposits not forecast to exceed 10%. is markedly lower than the achievement in the despite the restrained national income growth preceding financial year. and relatively low interest rates. At Group level, deposits increased by 9.3% during International tthe year ended June 2010. While upholding its vigilance in the current Notwithstanding the delicate global economic Backed by continued efforts of the Bank 90 Asset quality challenging environment, an expansion of 20% environment, average loan balances with to broaden its market base and enhance 91 It is expected that recent trends in asset quality Group NPL ratios largely outperformed the The quality of the loan portfolio having shown is targeted by the MCB with respect to credit regard to this segment rose by 13.8% during its product offerings, average advances are will persist, albeit at a slower pace, with the set objectives, declining by some 90 basis spectacular progress over the last few years, to entities outside Mauritius on account of FY 2009/10 in line with stepped up medium expected to expand by around 15% with gross non-performing loans (NPL) ratio edging points in gross terms to reach 3.9% while NPL ratios have now reached international enhanced product and market diversification, and long-term loans to foreign clients as recuperating international capital and trade below 4.5%. standing at 1.9% on a net basis in line with standards. with a better exploitation of regional trade and well as an enhanced grasp of global business flows potentially providing further support. continued efforts to bolster risk management. business flows amongst others. A rise of around opportunities. Lumped disbursements coupled Therefore, a rise of around 12% is forecast in The Bank will pursue its efforts to follow 30% is hence expected in net interest income. with premiums set on exposures in a relatively net interest income. stringent risk management practices, which illiquid international market, contributed to should ensure that NPL ratios are kept at or a sizeable increase of nearly 40% in net below current levels. interest income. Capital management The capital adequacy ratios are expected to The BIS capital adequacy ratio for the Group The MCB Group believes in the necessity to be maintained at around current levels, while remained at a comfortable 14.9%, with Tier 1 keep relatively high levels of capital to not continuing to support growth initiatives. ratio standing at 12.8%. only support growth but guard against any operating or regulatory requirements. Capital adequacy ratios will thus be maintained around current levels, which are far beyond even Basel III requirements. MCB Group Annual Report 2010

management discussion and analysis

Review by Financial Priority Area also weighed down on the operations of BFCOI leading to Adverse market developments have translated into a regional cable network project which is now under Analysis of Results a significant reduction in its attributable earnings with its operating income falling by 1.9% to Rs 6,985 million legal administration, hopefully temporarily. As a result, Results of the MCB in FY 2009/10 bore the brunt of contribution to Group profit being further undermined for the Bank and by 3.2% to Rs 7,994 million for the profit before tax of the Bank went down by 6.4% to Rs drag-down effects of the highly demanding economic by rupee strength against the euro. Reassuringly, the Group. Although increases in non-interest expenses 3,677 million while, on a consolidated basis, it dropped environment and sub-optimal money and foreign contribution of overseas subsidiaries fared relatively have been contained to fairly moderate levels on the at a higher rate of 16.7% to Rs 4,112 million, being exchange market conditions, further exacerbated by non- well on account of headway made in Mozambique and strength of closer scrutiny on expenditure and some compounded by a substantial fall of 44.2% in share of recurring impairment charges on investments. Indeed, Maldives, albeit from a low base, compensating for the material efficiency gains, corresponding operating profit of associates. Partly triggered by lower turnover Group profit to the owners of the parent dropped by ramifications of specific difficulties in the other presence profit before provisions decreased by 9.2% and and profit levels, the tax charge inclusive of the special 13.9% to reach Rs 3,413 million. On the other hand, countries. All in all, the declining path of the results was 10.4% at Bank and Group level respectively. Hence, levy applicable to banks operating in Mauritius fell by supported by more prominent foreign-sourced activities, perceptible at the outset and largely predictable in view recurring earning power, defined as the ratio of pre- a significant margin to reach Rs 572 million and Rs 692 the performance at Bank level was somewhat more of ongoing circumstances. Still, the final outcome for the provision profit excluding net income from financial million at Bank and Group level respectively. resilient as gauged by a more modest decline of 4.6% in year is considered to be satisfactory given the multiplicity instruments and sale of securities to average assets, the corresponding figure to Rs 3,104 million in spite of a of constraining factors faced and reflects the judiciousness stood at around 2.8%, which is deemed appreciable by In spite of the unfavourable profitability evolution, the substantial drop in profits from foreign currency dealings of the Group’s expansion and diversification strategy in international standards. Besides, reflecting a further MCB remains characterised by healthy fundamentals, and pressures on margins. In fact, the contraction in furthering the sustained growth of the balance sheet. improvement in asset quality in line with a fitting risk backed by sound practices in its operations. In addition to Group profitability level was, to a notable extent, Of particular note, profit from foreign sources held up management framework and a sensible development having an adequate liquidity position as demonstrated induced by below-par results of non-bank services which, appreciably in the last financial year considering the strategy, allowances for credit impairment of the Group by a liquid asset to deposit ratio exceeding 27%, the in addition to the impairment charge, were seriously hit delicate context, thereby prompting a significant increase fell by 26.7% following a sharp decline of 39.1% at MCB Group continues to enjoy a comfortable capital by losses posted by PAD Group on the back of the weak in its share of overall profit to some 45%. Bank level. Conversely, impairment charges to the cushion with a capital adequacy ratio of 14.9% while business climate and dampened activities faced by MCB tune of Rs 190 million have been provided for at the the incessant efforts to improve asset quality are paying Capital Markets Ltd. Moreover, the challenging context Group level with respect to an equity investment in off in terms of a sustained downtrend in the non-

92 93

Profit attributable to shareholders Share of foreign-sourced profit Operating profit before provisions

4 50 5 Rs bn Rs bn 40 4 3

30 Rs bn 3 2 Rs bn % of Group Profit 20 2

1 10 1

0 Bank 0 0 Bank FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Group Jun Jun Jun Jun Jun FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Group 2006 2007 2008 2009 2010 MCB Group Annual Report 2010

management discussion and analysis

performing loans ratios. Building on these achievements, accommodative monetary stance after the significant For its part, revenues from placements overseas also to promote such revenues to progress by 12.0% for the the MCB is intent on maintaining its thrust to strengthen cuts in the key Repo rate observed during the preceding experienced a sharp contraction against the backdrop Bank and 7.1% for the Group. Notable performances its revenue base whilst striving for efficiency gains financial year. Indeed, lower lending rates on average of the generally subdued international interest rates. were recorded in respect of regional trade financing, flowing from sensible investment on various fronts, even have driven down related receipts on customer loans the card business and bank guarantees amongst if the short term outlook remains significantly marred by and advances although they benefited from an overall In parallel, interest expense decreased by a considerable others. Nevertheless, non-interest income of the Bank abnormally high levels of uncertainty. increase in exposure for the period under review. Income 22.5% to reach Rs 3,774 million despite an appreciable witnessed a drop of 10.6% to Rs 2,298 million on from securities was particularly affected by an atypically expansion in deposit balances. Accordingly, net account of lower dividend income and, more particularly, Revenue Growth low Bank rate, especially in the latter part of the year, and interest income at Bank level posted a circumstantially a reduction of 24.4% in profit from foreign exchange Net Interest Income dropped substantially by 25.9% amidst a high liquidity resilient growth of 3.0% to reach Rs 4,687 million dealings linked to adverse market conditions in terms Interest income of the Bank declined by 10.2% to situation in the banking system consequent to a relative with a particularly notable performance in Segment B of dampened trade volumes and heightened volatility. Rs 8,461 million in the FY 2009/10 reflecting a somewhat slowdown in credit and an undersupply of Treasury Bills. operations, thus contributing to a rise of 2.2% at Group Consequently, non-interest income at Group level level to Rs 5,145 million. Yet, reflecting the testing declined to Rs 2,849 million in the last financial year as market conditions and competitive pressures, the net compared Rs 3,220 million in FY 2008/09. Net interest income - Bank interest margin declined by 35 and 40 basis points to 10 200 3.82% and 3.96% at Bank and Group level respectively. Cost Control Rs bn 8 180 Similarly, the corresponding ratios for net interest On the back of effective cost monitoring, non-interest income to average assets fell to 3.32% and 3.29%. expense rose at reasonable rates of 9.1% and 6.8% to 6 160 Rs bn

FY 2005/06 = 100 reach Rs 3,089 million and Rs 3,714 million at Bank and 4 FY 1402004/05 = 100 Non-interest income Group level respectively in spite of ongoing initiatives to 2 120 Interest income Notwithstanding downward pressures relating to bolster internal capacity. Indeed, an important increase 0 100 Interest expense financing-related receipts, net fees and commissions was registered in costs associated with infrastructure FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Growth index - NII (right scale) upheld their growth propensity in line with the endeavour as well as system and communication upgrades while 94 95

Net interest income - Group Breakdown of non-interest income - Group 12 180 3.5 Rs bn Rs bn 3.0 9 160 2.5 2.0 Rs bn 6 Rs bn 140 FY 2005/06 = 100

FY 2004/05 = 100 1.5

3 120 1.0 0.5 Interest income Fee income and commissions 0 100 Interest expense 0.0 Profit from dealing in foreign currencies FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Growth index - NII (right scale) FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Others

Note: Figures for FY 2007/08 exclude a non-recurring item of Rs 425m MCB Group Annual Report 2010

management discussion and analysis

Cost to income ratio June 2010 Total loans Non-performing loans (NPLs) Allowances for credit impairment MCB Bank Rs m Y.o.y growth (%) Rs m % of loans Rs m % of loans % of NPLs % 55 Segment A 82,770 11.0 3,883 4.7 2,698 3.3 69.5 Segment B 23,839 18.9 228 1.0 221 0.9 96.7 50% Total 106,609 12.7 4,111 3.9 2,919 2.7 71.0

45

40 June 2010 Loans to customers Non-performing loans (NPLs) Allowances for credit impairment MCB Group Rs m Y.o.y growth (%) Rs m % of loans Rs m % of loans % of NPLs 35 Group FY 2005/06 FY 2006/07 FY 2007/08 FY 2008/09 FY 2009/10 Bank Agriculture and fishing 8,482 8.3 48 0.6 84 1.0 174.7 Manufacturing 9,984 4.4 751 7.5 424 4.2 56.4 of which EPZ 3,308 0.8 115 3.5 131 4.0 114.5 related professional fees recorded a noteworthy hike. the second half of FY 2009/10, buoyed by the strategic Tourism 24,656 19.5 88 0.4 103 0.4 116.3 Further pressures, inter alia, emanated from a doubling positioning of the MCB in various business segments. This Construction 19,621 15.2 1,063 5.4 665 3.4 62.6 of Corporate Social Responsibility expenses and higher performance was upheld by a growth of 12.7% to Rs 106.6 Traders 14,189 (2.4) 656 4.6 563 4.0 85.7 marketing and product costs partly linked to the Laduma billion at the Bank level, with appreciable contributions Financial and business 9,634 89.6 290 3.0 128 1.3 44.2 promotional campaign and the picture exhibition by from both domestic oriented activities and foreign- services famous nature photographer, Yann Arthus-Bertrand as sourced business. Indeed, loans to Segment A customers Personal and professional 8,838 6.6 1,090 12.3 742 8.4 68.1 part of Initiative 175. On the other hand, staff expenses increased by 11.0% to stand at Rs 82.8 billion with notable of which credit cards 443 5.6 99 22.4 85 19.1 85.4 went up at a moderate pace despite continued investment dynamism being provided by credit on the retail front Global Business Licence 6,199 33.7 5 0.1 64 1.0 1,270.5 in human capital and outlays linked to the introduction while Segment B advances recorded a rise of 18.9%, holders of the new broadband structure, partly due to some T24 highlighting the Bank’s efforts to broaden its revenue base. Others 8,998 (12.8) 344 3.8 274 3.0 79.8 staff costs being capitalised within the project. Notwithstanding the pronounced deceleration during the Total 110,600 13.0 4,336 3.9 3,047 2.8 70.3 96 first half for FY 2009/10, an analysis by sector reveals that 97 Rising costs within a context of falling revenues have a solid expansion was recorded in credit to tourism and inevitably brought the resolute downward trend in the construction as well as the business and financial services After declining by a substantial margin in FY 2008/09, cost to income ratio to a halt with the indicator rising to sector in line with their economic potential. Moreover, to the shorter end. Accordingly, the liquid assets to investment in Government securities reverted to an 44.2% at Bank level and 46.5% for the Group. further headway was made in tapping opportunities in the deposits ratio stood at 25.9% and 27.1% at Bank and upward trend during the year under review reflecting global business sector as gauged by a robust rise in related Group level respectively. It is also worth noting that the a slowdown in credit growth. However, the rise therein Credit Exposure loans whereas an appreciable performance was registered Bank’s investment in its subsidiaries edged up by 7.0% has been relatively restrained at 8.7% for the Bank and Although being held back by an overall subdued operating in respect of agriculture. Conversely, credit to the trade explained mainly by an increase in capital of Rs 209 10.4% for the Group taking into account the perceived environment, gross loans and advances progressed sector declined and advances to the manufacturing sector million for MCB Maldives which has been converted to undersupply of Treasury Bills especially towards the satisfactorily by 12.2% to Rs 112.5 billion at consolidated posted a weak growth reflecting mounting economic a fully-owned subsidiary and by capital calls of Rs 164 end of the year with their average tenure being tilted level following a relative upturn in credit growth in challenges faced by them. million by MCB Equity Fund Ltd. MCB Group Annual Report 2010

management discussion and analysis

Group credit exposures as at 30 June 2008 2009 2010 Credit Quality marked deterioration in delinquency levels, a sign that the risk policies and framework implemented by the On-Balance Sheet Rs m Rs m Rs m Reflecting the continued improvement in asset quality in recent years, non-performing loans of the MCB MCB have brought about tighter credit discipline and led Lending 80,748 100,236 112,496 represented 3.9% of its loan portfolio as at 30 June to a much healthier and better secured loan portfolio. Loans to customers 78,926 97,912 110,600 2010, down by around one percentage point compared Loans to banks 1,823 2,324 1,896 to the preceding year. NPLs net of provisions, now represent around 1.9% of Trading 3,470 3,401 3,350 net loans both at Bank and Group level, down from In spite of the challenging economic environment 2.2% a year ago and the percentage cover of NPLs by Investments 28,862 20,822 22,142 prompted by the global recession, there has been no specific provisions is slightly down to 53%, on account 113,080 124,458 137,988

Provisioning and asset quality Group Bank Movement in allowances for credit impairment (Rs m) 2008 2009 2010 2008 2009 2010 Provisions at start 3,246 3,196 3,377 3,158 3,101 3,280 Off-Balance Sheet Rs m Rs m Rs m Provisions made during the year 283 393 263 231 374 191 of which specific charge 341 236 190 327 226 139 Acceptances, guarantees, letters of credit, endorsements and 22,133 22,647 26,796 other obligations on account of customers Provisions released during the year (47) (78) (116) (23) (60) (89) Amounts written off (286) (135) (471) (265) (135) (457) Commitments 6,300 7,473 6,450 Provisions at end 3,196 3,377 3,054 3,101 3,280 2,925 Other 1,307 1,247 1,097 Key ratios (%) Contingent liabilities 29,739 31,367 34,344 Income Statement charge (specific) to total loans 0.4 0.2 0.2 0.4 0.2 0.1 Total provision to non-performing loans 68.1 70.2 70.4 68.8 71.0 71.2 Total provision to total loans 4.0 3.4 2.7 4.1 3.5 2.7 98 99

NPLs to gross loans Net NPLs to net loans % 4.0 Assets mix (MCB Group) % 9

8 3.5

% 7 3.0

6 % Rs 163 bn 2.5 5 Loans Cash and cash equivalents 67.3% 9.4% 4 2.0 Securities and other investments Others 15.7% 7.7% 3 Bank 1.5 June 06 June 07 June 08 June 09 June 10 Group June 06 June 07 June 08 June 09 June 10 MCB Group Annual Report 2010

management discussion and analysis

of a sizeable write off against provisions of around Funding Capital resources Rs 548 million of irrecoverable loans. The uncovered Deposits and borrowings Although contracting by a notable margin, the still appreciable profitability level upheld a strong rise of 18.6% in Group portion of the NPL portfolio is, however, catered for by Regardless of restrained national income growth and the retained earnings in the last financial year despite the dividend pay-out being maintained at the preceding year’s level of a more than suitable level of collateral, written down low interest rate environment, total deposits of the Bank Rs 1.2 billion. This highlights the MCB’s commitment to fund future growth and expansion in a sustainable, sensible and in value, when necessary, to reflect current market rose appreciably by 9.1% to attain Rs 124.9 billion as at responsible manner. As a result, after notably accounting for a downward movement in the translation reserve, the Group conditions and recovery time. 30 June 2010, mainly driven by rupee deposits. Expansion shareholders’ funds edged up by 9.4% to reach Rs 20.3 billion as at 30 June of this year, contributing to the net asset value per in the latter was relatively broad-based even though an share increasing from Rs 78.29 to reach Rs 85.61. Hence, the share price continues to trade at a significant premium, at least Additionally, the Bank, in conformity with the Bank of increase in savings deposits remained the main contributor partly reflecting the perceived potential of the Group to create value for its shareholders on a sustained basis. On the whole, Mauritius Guideline on Credit Impairment Measurement by virtue of its share of over 60% of the total. As regards the capitalisation level remained at comfortable levels providing ample cushion against possible adverse shocks. Indeed, the and Income Recognition, gives due weight to the varying FCY deposits, average deposit maturity shortened namely equity to assets ratio stood at 12.5% at the end of FY 2009/10 while the risk-weighted capital adequacy ratio as per Basel II degrees of risk attached to the different components through a noticeable growth in demand balances, definitions stood at 14.9%, that is, considerably above the 10% BoM requirement and 8% current Basel norm. of its loan portfolio. Loans are thus analysed by sector, partly linked to increased banking activities in the global each sector having similar characteristics, and a statistical business segment. Mirroring the evolution at Bank level, Shareholders’ funds provision is assigned to each sector based on past loss total deposits of the Group went up by 9.3% to reach 24 experience and current attributes and outlook. The

Rs 132.5 billion at the end of FY 2009/10. On the other hand, Rs bn 20 Group portfolio provision increased by Rs 81 million as at borrowings experienced a substantial reduction of 33.4% 30 June 2010. at the consolidated level during the last financial year 16 Rs bn following the scheduled reimbursement of USD 20 million 12

The net impairment charge was Rs 139 million for the representing the part repayment of the syndicated loan 8 Bank and Rs 190 million for the Group, down by 38% and arranged by ING Bank N.V and Sumitomo Mitsui Banking 4 20% respectively from FY 2008/09 numbers. Corporation Europe Ltd. 0 Bank June 06 June 07 June 08 June 09 June 10 Group 100 101

Deposits MCB share price v/s Net asset value

150 Rs 180 Rs bn 130 150

110 120

Rs bn 90 90

Rs bn 70 60

50 30

30 Bank 0 MCB share price (closing) June 06 June 07 June 08 June 09 June 10 Group June 06 June 07 June 08 June 09 June 10 Net assets value per share MCB Group Annual Report 2010

management discussion and analysis

Risk Report risks through adequate internal control mechanisms, up- integrated risk framework and sets risk limits/tolerance the Bank against the agreed risk appetite as well as the The mission of the risk management function is to identify, to-date and comprehensive risk policies, adherence to levels to guide risk-taking within the Group. The Group Bank’s operational risk tolerance at least on a quarterly assess and manage the credit, operational, market and legal and regulatory requirements and reliable decision- Risk structure, as illustrated in the chart, focuses on credit basis. In this respect, the RMC monitors the utilisation information risks to which the MCB Group is exposed, making support. risk, operational risk, market risk and information risk of capital, as well as the current capital adequacy ratio, with a view to improving the risk-return profile of its management with a setup that facilitates the ongoing recommends changes to the agreed risk appetite and activities while upholding an environment conducive to Group Risk Structure refinements in capital allocation among these main risk tolerance levels as may be appropriate in the light of attracting and promoting business opportunities. The goal The Board of the MCB, through the Risk Monitoring categories, in line with the Basel II framework. Besides, changing circumstances, and highlights to the Board the is to enhance stakeholders’ confidence with respect to the Committee (RMC), oversees the establishment of risk independent teams oversee the internal audit function, key risks faced by the Bank. Bank’s management of current and potential sources of management policies and processes under the MCB’s the compliance with all applicable laws, regulations, codes of conduct and standards of good practice, the physical The RMC also reviews reports from the Group Risk SBU security and the legal function across the MCB Group. as well as from the Physical Security, Compliance and Legal functions in respect of strategic and business With effect from 1st March 2010, changes have been risks and determines actions to be taken as deemed brought to the organisational structure with the appropriate. Besides, country limits, approved by the BOARD Compliance BU and the Anti-Money Laundering/ Board, are monitored quarterly by the RMC. Fraud Prevention BU reporting to the Head of Group Internal Audit SBU. For obvious reasons, it has, Credit Risk simultaneously been decided to maintain a direct line Credit risk is defined within the MCB as per international of reporting between the newly appointed Compliance norms as ‘the risk of loss arising from the non- Supervisory and Risk Monitoring Committee Audit Committee Manager and the RMC. For coherence purposes, the performance by a customer, client or counterparty in Monitoring Committee purely legal interpretation aspect of the Compliance any of its obligations towards a bank’. function has been migrated to the Legal SBU and the 102 responsibility to act as the Money Laundering Reporting Credit Risk Governance 103 Officer, previously shouldered by the former Head of The Board of the MCB has ultimate control and oversight Compliance, has been entrusted to the Head of the Legal of credit risk management as well as credit risk policies Group Risk SBU General Management Group Internal Audit SBU SBU thus ensuring the strict independence required for and their deployment through the Supervisory and this position. Monitoring Committee (SMC) and the Executive Credit Committee (ECC). In particular, the SMC, in consultation Risk Monitoring Committee with line management, is accountable to the Board Credit Management Physical Security Anti-Money Laundering/ The RMC comprises three independent non-executive through the normal chain of operational command and Credit Risk Fraud Prevention directors, two executive directors and the Head of control for setting out the credit policy as well as ensuring Operational Risk Legal Market Risk Compliance Group Risk as secretary with its principal responsibility the proper and prudential segregation of duties within Information Risk Management being to monitor the credit and market risk portfolios of the credit risk management architecture of the MCB. MCB Group Annual Report 2010

management discussion and analysis

Besides, through the RMC, the Board has access to expert maintaining adequate capital to sustain its growth and to Credit Risk Concentration any one customer or group of closely-related customers analysis and reporting on the key risks confronted by the support a reasonable measure of unexpected losses. The mitigation and avoidance of adverse concentrations classified by sector amounting to more than 15% of Bank from areas functionally independent from the risk- of risk associated with large exposures, representing its capital base. The Group has also set a prudential taking business units. The credit risk measurement consists of appraising the credit risk concentration through large advances to guideline which specifies that the aggregate large track record of customers as appropriate in order to groups of connected clients, is an important element of credit exposures to all customers and groups of closely Credit Risk Management predict the likely future behaviour of existing accounts for the management of risk exposure. The Bank is compliant related customers shall not exceed 600% of the Bank’s The goal of credit risk management at the MCB is to ongoing credit risk management. The frequency of review with the amended Guideline on Credit Concentration capital base without the due notification to the SMC. maximise the return on capital by maintaining credit is increased in accordance with the size and likelihood Risk whereby banks are required to report on a stand- risk exposure within the Bank’s risk appetite, with due of potential credit losses to ensure the timely detection alone basis as well as on a banking group basis. Country Risk consideration being given to the long-term success of of possible problem loans. Performing exposures are The country exposure limits for presence and non- the organisation through the effective identification, reviewed on a regular basis, with all corporate exposures The regulatory limits as proposed by the Guideline are presence countries are based on (i) the Bank’s areas of measurement, monitoring and control of the credit risk being examined at least annually. Deteriorating higher- given below: expertise; (ii) its intimate knowledge and perceived risk inherent in the entire portfolio. risk exposures are referred to a dedicated team for a. credit exposure to any single customer shall not of the local economy and; (iii) its strategy to increase its closer scrutiny where appropriate. The Bank’s disciplined exceed 25% of the Group’s capital base; regional presence, with the maximum risk limit being Effective credit risk management relies on the Bank’s well- approach to provisioning and loan loss assessment is based b. credit exposure to any group of closely-related determined by the risk appetite of the Bank. Country established dual control structure, sound credit processes on the Guideline on Credit Impairment Measurement and customers shall not exceed 40% of the Group’s capital limits are approved annually by the Board and monitored and clear delegation of decision-making authority Income Recognition issued by the BoM. base; and quarterly by the RMC and include, where necessary, (commensurate with the size and risk of exposures and in c. aggregate large credit exposures (i.e. exposures over sub-limits relating to short term trading operations in accordance with comprehensive credit policies) to manage Ultimately, the Bank assesses whether the individual 15% of the financial institution’s capital base) to all strategic commodities. The monitoring and limitation the approval of loans depending on how well the loan business areas provide sufficient contribution to the customers and groups of closely related customers of the concentration of exposures in certain risk classes fits into the target market criteria set by the Bank and on targeted risk-return profile in order to determine the shall not exceed 800% of the Group’s capital base. are crucial in detecting and limiting the impact of the whether it is in line with the intended risk-return profile. capital allocation that yields the optimum return achieved deterioration of the portfolio in a timely manner. 104 by channelling risk capital away from low-return to high- It is the policy of the MCB to limit credit risk exposures 105 Credit Risk Measurement return business areas. and concentrations within the constraints of the Bank’s The Group is stepping up its efforts to reinforce its The Bank measures the credit risk capital requirements capital base, with the Bank regularly monitoring the Country Risk Management framework to meet the by applying the appropriate risk weights to on-balance Credit Risk Mitigation credit risk concentration above 15% of its capital base. minimum requirements of the Guideline on Country sheet and off-balance sheet exposures in line with the Several appropriate forms of risk mitigation are used by It is also worth noting that the MCB’s credit portfolio Risk Management which was issued by the BoM in April Guideline on Standardised Approach to Credit Risk issued the MCB to reduce or transform risk exposures. The credit is diversified by industry and the exposure by sector is 2010. The Management Information System has been by the BoM, and as per the Basel II framework. The capital risk mitigation techniques used within the MCB include monitored against the prudential limits set by the Board, upgraded accordingly to generate regular detailed adequacy and return on capital levels for the individual risk security/collateral, netting, guarantees and political risk driven by the Bank’ risk appetite and its risk-bearing reports, thus enabling the appropriate and timely categories of the Bank’s portfolio are regularly monitored covers, all of which contribute to a reduction in the MCB’s capacity. Note 5b (v) to the Financial Statements gives monitoring of country risk exposures. by the RMC against the overall risk-bearing capacity of credit risk for exposures where such instruments are total credit facilities including guarantees, acceptances the Bank, in order to ensure that the Group is, at all times, available and deemed required. and other similar commitments extended by the Bank to MCB Group Annual Report 2010

management discussion and analysis

Operational Risk operational risk responsibilities. Besides, the Operational areas that require fixing. The business continuity culture is to ensure that the overall asset/liability and market Operational risk is defined within the MCB as per interna- Risk BU further supports the framework through its advisory is fostered through awareness sessions conducted by risk mix within the MCB is constantly maintained within tional norms as ‘the risk of loss resulting from inadequate role to the business units on operational risk and business the Operational Risk BU. limits and targets set by the GMRP, as well as within or failed internal processes, people and systems or from continuity matters, together with regular reporting to the the guidelines laid down by the BoM. Furthermore, its external events. Operational risk includes legal risk, but RMC and the ORCC. The oversight of the effectiveness of Market Risk purpose is to identify new areas of risk taken to either excludes strategic and reputational risk’. It is inherent in operational risk management and operating policies is Market risk is defined within the MCB as per inter- exploit such risks for profit, or manage their potential most aspects of banks’ activities and comprises a large exercised by the Internal Audit on behalf of the Board. national norms as: ‘the risk of gain or loss arising from negative impact on the business. It is responsible for number of disparate risks. activities undertaken in, or impacted by, financial initiating action to update or amend existing risk Monitoring and Mitigation markets generally. This includes both market price risk policies as a result of the identification of new sources of Governance and Structure Operational risk is managed by adopting specific policies, as well as ancillary risk such as liquidity and funding market risk. The ALCO is chaired by the Chief Executive The Group Operational Risk Policy articulates a framework procedures and controls. Basically, the Operational Risk BU (liability) risk’. (Banking) and is convened monthly with attendance by which is founded on sound corporate governance, has set up a bank-wide operational risk incident reporting key members of senior management. internal controls, policies and procedures and adapted tool for the recognition, capture, root cause analysis, and Market risk activities are undertaken within the overall contingency plans. The framework aims at setting the timely reporting of operational risk events including ‘near framework set by the Group Market Risk Policy (GMRP), Against the backdrop of the delicate global economic comprehensive, systematic and consistent management misses’. This process helps to identify process and control which is a Board-approved sub-policy of the Group Risk climate, ALCO has continued to exercise vigilance in the of operational risks in all material products, activities, requirements with a view to reducing the recurrence of Policy. The main purpose of the GMRP is to articulate a extension of foreign currency credit. The credit approval processes and systems, including new ones. risk events and losses. The risk events are in fact loaded comprehensive and cogent framework of policies with process is buttressed with forward-looking liquidity onto a central database and are reported on a timely basis which all participants in market risk activities within the projections which are subject to conservative loan-to- The Board of Directors, through the RMC, has the overall to the RMC and the ORCC. Furthermore, the Operational MCB must comply. deposit target ratios. Mismatch analysis is regularly responsibility for, and the oversight of, the framework Risk BU contributes to instil operational risk awareness reviewed whilst stress scenarios are conducted to detect within which operational risk is managed throughout the across the Bank through the training of all new recruits Market Risk BU potential vulnerabilities which are then addressed. Group. The responsibility to ensure that the framework, amongst others. The core function of the Market Risk BU (MRBU) is Adequate liquid assets are maintained on a cautionary 106 approved by the Board, is implemented consistently to exercise overall control and monitoring of market basis, taking into account the behaviour and profile of 107 throughout the organisation is entrusted to senior Business Continuity risk (including credit and operational risk arising from the deposit base. Money market lines are also regularly management with the Operational Risk and Compliance Business Continuity Management is an integral component market risk activities) within the MCB. MRBU also plays tested in the normal course of business to gauge access Committee (ORCC), chaired by the Chief Executive of the operational risk management framework and is a an important role in assisting with the provision of to funding sources. (Banking), exercising effective ongoing monitoring of the key activity within the Operational Risk BU. Contingency balance sheet and market risk analysis to ALCO as well entire operational risk cycle. and recovery plans, in line with best practices for core as in collating market-risk related information from Interest Rate Risk services together with key systems and priority business overseas subsidiaries and non-bank financial services Interest rate risk is defined within the MCB, as per The ownership of operational risk management resides processes, are developed and revisited to minimise the activities of the Group for regulatory reporting. international norms, as ‘the risk arising from changes with the relevant business areas, whereby line managers impact of disruptive events on business operations and in interest rates, or the prices of interest-rate related attribute the required authority to specific functions customer service. Regular simulations are conducted to Asset and Liability Committee securities and derivatives’. A major source of interest within their respective business units for the execution of assess the readiness to respond to disruptions and identify The purpose of the Asset/Liability Committee (ALCO) rate risk results from the timing differences between the MCB Group Annual Report 2010

management discussion and analysis

rate reset dates of bank assets, liabilities and off-balance the normal course of business and maintains an adequate contributed to reinforce the level of quality control all issues to the Executive Directors on a monthly basis sheet positions. The MCB uses re-pricing gap analysis stock of highly liquid assets to cater for unexpected over an assortment of its operational aspects as well as for discussion if need be. Quarterly or more frequent techniques to assess and manage interest rate risk in the funding needs at short notice. This policy requires the information security related areas within the Bank. meetings are scheduled with the Audit Committee. The trading and non-trading books (i.e. across the wholesale establishment and maintenance of three mutually annual audit plan, identified issues, progress regarding balance sheet). The interest rate risk exposure arising in the supportive ‘lines of defence’ namely: Moving forward, IRM plans to further streamline its logical implementation thereof, and resource requirements are balance sheet is monitored by MRBU and the consolidated • cash flow management – where the MCB creates a access and technical security monitoring operations in typical items on the agenda. information reported to ALCO on an ongoing basis. continuously maturing stream of assets and liabilities order to raise the level of readiness for compliance with through time; upcoming policies around data protection and critical The Institute of Internal Auditors (IIA) currently requires Foreign Exchange Risk • maintenance of a portfolio of liquid assets; and information infrastructure protection. each internal audit function to have an external quality Foreign exchange risk (FX risk) is defined within the MCB • maintenance of a diversified liability base. assessment conducted at least once every five years. as per international norms as ‘the risk arising from the Internal Audit This exercise was carried out last financial year for the movement in exchange rates between one currency and Information Risk Management The Group Internal Audit SBU – whose Head reports MCB by an internationally recognised auditing firm another’. FX risk may be borne (or may be embedded) The core activity of the Information Risk Management directly to the Audit Committee for direction and which has confirmed the Group’s full compliance with in on-balance sheet positions and/or off-balance sheet BU (IRM) is to provide recommendations towards accountability and to the Executive Directors for the International Standards for the Professional Practice positions, that is, in the form of derivatives such as foreign adequately enhancing security levels surrounding the administrative interface and support – ensures that the of Internal Audit issued by the above mentioned exchange forwards. data assets of the Bank. This is performed by carrying quality of internal audit services of the MCB is aligned institute. Obviously, our current business model ensures out operational activities pertaining to highly sensitive with recognised best practices. Over the past few years, it a continual and strict adherence to the expected Overall exposure to FX risk is monitored against both the and critical information, performing risk impact analysis has conscientiously and scrupulously geared up its efforts standards and approved processes. official regulatory guideline and an internal target, and is in respect of information confidentiality, integrity and towards implementing a risk centric model without reported to ALCO by MRBU on a regular basis. availability, as well as triggering improvements to existing challenging the need for a purely compliance approach Mindful of the increased expectations of different information risk mitigating measures, where appropriate. for some carefully identified business areas. A systematic internal and external stakeholders and capitalising on Liquidity Risk Additionally, IRM monitors and addresses the security of and disciplined approach, notably through the use of its current achievements, the Group Internal Audit SBU 108 Liquidity risk is defined within the MCB as per international the Bank’s technical infrastructure in collaboration with Mauritius Qualifications Authority approved control will strive ‘doing more of the same’, while providing the 109 norms as ‘the risk that, at any time, the bank does not other business units. In a bid towards being perceived self assessments, computer aided audit techniques necessary audit and risk insights towards furthering the have sufficient realisable financial assets to meet its as a business partner, IRM has further aligned itself with (CAAT) and an audit software provides the necessary strategic orientations of the Group, including the Bank financial obligations as they fall due’. business activities, initiatives and strategies, in line with platform to evaluate and improve the effectiveness of of Banks project. international best practices and industry standards. risk management control and governance processes. The management of liquidity risk at the MCB is undertaken Compliance under the framework issued by the BoM in its Guideline The year under review has seen the collaboration of The outcomes of the different audit assignments, Compliance risk is defined by the MCB as ‘the risk on Liquidity. IRM in providing its expert advice in the evaluation and including a risk-based grading of the relevant issues, arising from failure by companies of the Group to recommendation of the security features of various are periodically presented to functional heads, line comply with laws, regulations, codes of conduct, and The liquidity policy of the MCB seeks to ensure that the projects and new systems in the organisation. Besides, the managers and Executive Directors. The Group Audit SBU standards of good practice relevant to their respective Bank can meet its financial obligations as they fall due in creation of new supporting roles within the IRM function communicates a summarised implementation status of business environment in the countries in which they MCB Group Annual Report 2010

management discussion and analysis

operate’. It is a composite risk made up of the likelihood coherent global compliance function across all subsidiaries Physical Security No major incident was reported at the MCB over the of regulatory sanctions, financial loss, litigation and loss of the MCB Group in their respective jurisdictions. The The increasingly risky environment calls for multiple year under review. of reputation. These risks, which may be inter-related for key areas covered by Group Compliance are laws and interconnecting measures in terms of physical security financial services institutions, are of concern to the MCB, regulations, codes of conduct, standards of best practice, with a view to detecting, deterring and promptly Legal particularly reputational risk. key business ethics and values, and reputational risk. responding to related threats. In its commitment The Legal SBU continues to be driven by the aspiration to promoting a secure banking experience on top to capitalise on its distinct specialty and capabilities to The MCB Group’s approach to compliance risk is fourfold: With regard to the AML/CFT obligations of the Bank, of outstanding service quality, the Physical Security provide timely and appropriate in-house legal services 1. Review of changes in laws and regulations in order to the Compliance function is duty-bound to ensure that BU pursued its unrelenting efforts in enhancing and to the MCB Group, thus acting as a central advisory ensure that the Group addresses the risks arising from adequate processes have been put in place, processes enforcing related standards to protect its employees, unit. As a result, this thrust has crafted the intended such changes; are being effectively executed, and adequate training is customers and other assets. development path of the SBU with all ‘legal-connotated’ 2. Monitoring of compliance with existing rules and provided to staff. functions now regrouped under one roof, thereby regulations while mitigating the effects of any Regular review of practical safety and security measures providing stakeholders with improved and polyvalent unintentional non-compliance; The Anti-Money Laundering/Fraud Prevention BU is has enabled the Bank to act proactively in reducing legal support in terms of adapted legal solutions, on- 3. Management of productive dialogue with regulators in involved in designing and implementing appropriate security risk and minimising the frequency of occurrence the-spot advice and counseling, legal representation order to ensure effective two-way communication; and training programmes to raise staff awareness on fraud and severity thereof. In addition, appropriate training and advocacy, and legal vetting of contract and security 4. Assisting management in promoting a culture of risks, securing improved integrity standards, as well as given to the security staff facilitated the optimum use documentation amongst others. In line with the MCB’s integrity, including initiating actions to raise staff performing enquiries with respect to cases of suspected of state-of-the-art electronic security equipment. In line objective of being the ‘first mover’ in its achievements, awareness on fraud prevention and Anti-Money fraud, breach of policies and procedures, inappropriate with the emergency planning programmes carried out the Legal SBU has embarked upon and is presently Laundering and Combating the Financing of Terrorism conduct by Bank personnel, and unresolved customer throughout the Bank, health and safety training has working in collaboration with high calibre legal partners (AML/CFT). complaints. The function also assists the MLRO – now the been provided to staff with respect to First Aid and fire from ‘La Faculté de Droit de l’Université de la Réunion’ Group In-House Lawyer – in investigating into suspicious fighting techniques. With the intention of guarding on the publication of a banking law manual from the The Board of Directors bears final responsibility for transaction reports received, namely from within the Bank. against potential risk and hazard, Bank officials in ‘practiciens du juridique des banques’, designed to be a 110 compliance even if it delegates authority to line collaboration with the Mauritius Police Force and the comprehensive legal tool on banking. Overall, the Legal 111 management through the Board Risk Monitoring The regrouping of these 3 control units (Group Internal Mauritius Bankers Association have engaged in a crime SBU spares no effort to fulfill its mission to uphold, Committee and the General Management. Audit, Compliance BU and Anti-Money Laundering/Fraud prevention awareness program through a series of secure and defend the supreme interest of the MCB Prevention BU) under the same head has already brought meetings across the island. Group and its constituents from a legal standpoint. The Compliance function facilitates the management some significant efficiency gains coupled with a better of compliance risk by establishing the necessary policies focus of each control unit but may well evolve again Furthermore, physical security practices and procedures, Basel II and standards; providing an independent reporting once the more immediate goals of this regroupment are documented in the Physical Security Manual, are The MCB continues to make headways in implementing mechanism to the Board; patrticipating in the review and durably bedded. continually re-assessed in light of changing conditions, the Basel II framework and strengthening its risk approval of new business initiatives, products, services and updated accordingly while security audits are management culture while ensuring that the Group and systems; fostering good relations with regulators; carried out on a quarterly basis to ensure compliance to engages in business growth across different segments and assisting in the establishment of a homogeneous and security policies. and markets with the appropriate risk management MCB Group Annual Report 2010

management discussion and analysis

discipline, practices and processes. Whilst the Bank Pillar 1: minimum capital requirements – The Basel II frame- framework, given the increased reliance on internal at all levels of the organisation and to align its capital adheres to the Standardised Approach in measuring work provides for the general requirement for banks to methodologies giving banks more discretion in assessing requirements more closely to specific risks. Capital credit, operational and market risk, it has been using the hold total capital equivalent to at least 8% of their risk- their capital requirements. allocation has, as a result, become more sensitive to risk Moody’s Risk Advisor Tool to risk rate its largest customers weighted assets, entailing risk-sensitive capital require- and reflects a better assessment of return against risk, in its progress towards the implementation of the Basel II ments that are both conceptually sound and adaptable Reflecting its commitment to ensure a good risk thus enhancing the strategic decision-making process. Internal Ratings Based Approach. The risk ratings of these to the existing supervisory and accounting systems in indi- management framework, the MCB has, since April customers are monitored on a quarterly basis to ensure vidual member countries. Modifications to the definition of 2007, adhered to the Basel II Standardised Approach The table hereafter shows the components of Tier 1 that their risk profiles remain within the risk appetite risk-weighted assets have two primary elements: substan- to credit risk, operational risk and market risk. This has and Tier 2 capital for the MCB and the resulting capital of the Bank. In the same vein, the Bank’s policies and tive changes to the treatment of credit risk relative to the enabled the Bank to promote enhanced risk awareness adequacy ratios calculated as per Basel II requirements. procedures have been altered to ensure that internal 1988 Accord and the introduction of an explicit treatment ratings are integral to the Group’s credit decision and of operational risk that leads to a measure of this category MCB Bank June 08 June 09 June 10 management process. of risk being included in the denominator of the calculation CAPITAL BASE Rs m Rs m Rs m of the capital ratio. Another major feature of Basel II is that Paid up or assigned capital 2,504 2,504 2,504 Share premium 39 41 51 Capital Structure it enables a greater use of internal risk assessment by banks. Statutory reserve 2,504 2,545 2,555 The BoM sets the regulatory requirements with respect to Other disclosed free reserves including undistributed balance in Income Statement 4,016 5,797 7,793 banks’ capital structure in Mauritius and has exercised its Pillar 2: supervisory review process sets out the key principles Current year's retained profit 1,822 2,007 1,859 discretion in fixing the minimum capital adequacy ratio at for supervisory review of an institution’s risk management Other intangible assets (202) (276) (611) 10%, above the 8% norm of the Basel Committee. The MCB framework and, ultimately, its capital adequacy. It sets Deferred tax (13) (26) (9) maintains its capital structure within prudential and supervisory out specific oversight responsibilities for the Board and Treasury shares (376) (376) (373) limits, whilst ensuring it has sufficient capacity for its future senior management, thus reinforcing principles of internal Core capital 10,293 12,216 13,768 50% of investments in unconsolidated banking and financial subsidiary companies (374) (418) (442) development after serving a remuneration to its shareholders. control and other corporate governance practices. 50% of investments in capital of other banks and financial institutions (443) (457) (431) Net core capital (A) 9,476 11,340 12,895 112 The purpose of Basel II is to create an international standard Pillar 3: market discipline is intended to complement General banking reserve 534 534 534 113 for use by banking regulators in determining how much the minimum capital requirements (Pillar 1) and the Portfolio provision 520 650 736 capital banks need to put aside to guard against risks. supervisory review process (Pillar 2) through the alignment Reserves on revaluation of securities not held for trading 610 543 508 It also emphasises the measurement and management of supervisory disclosures to international and domestic Subordinated debt 1,237 1,472 1,455 of key banking risks including credit risk, market risk accounting standards. Basel II endeavours to foster market Supplementary capital 2,901 3,198 3,232 50% of investments in unconsolidated banking and financial subsidiary companies (374) (418) (442) and operational risk. As such, the risk management discipline by developing a set of disclosure requirements 50% of investments in capital of other banks and financial institutions (443) (457) (431) framework proposed in Basel II seeks to ensure that the which will allow market participants to assess key pieces Net supplementary capital (B) 2,084 2,322 2,358 strategies formulated by a bank are clearly linked to its of information on the scope of application, capital, risk Capital base (A + B) 11,560 13,662 15,253 appetite for risk, so that its capital resources are managed exposures, risk assessment processes and, hence, the Total Risk Weighted Assets 94,148 121,881 133,494 at an optimum level to support both its risk and strategic capital adequacy of the institution. It is deemed that such objectives. Basel II is anchored on three pillars, namely: disclosures have particular relevance under the revised CAPITAL ADEQUACY RATIOS (%) BIS risk adjusted ratio 12.3 11.2 11.4 of which Tier 1 10.1 9.3 9.7 MCB Group Annual Report 2010

management discussion and analysis

MCB Group June 08 June 09 June 10 The BoM Guideline on the Scope of Application of Basel II requires a home banking group – one whose centre of economic CAPITAL BASE Rs m Rs m Rs m interest is in Mauritius – to adhere to capital adequacy requirements on a consolidated basis for the Group and on a stand-alone Tier 1 Capital 14,704 17,517 18,851 basis for each majority owned entity as the different entities existing within the Group may impact on the overall risk profile. Tier 2 Capital 3,981 2,858 3,028 In this respect, majority owned entities within the MCB Group namely MCB Moçambique, MCB Seychelles, MCB Madagascar, Capital Base 18,685 20,375 21,878 MCB Maldives, Finlease Co. Ltd. and MCB Factors Ltd. have been fully consolidated. Additionally, the Group’s overseas banking Total Risk Weighted Assets 110,301 135,222 146,928 subsidiaries have also complied with the capital requirements of their host country regulators.

CAPITAL ADEQUACY RATIOS (%) BIS risk adjusted ratio 16.9 15.1 14.9 Risk Weighted Assets of which Tier 1 13.3 13.0 12.8 June 2010 June 2009 Weighted Weighted MCB Bank Amount Weight Assets Assets Credit Risk Capital Risk Weighted On-Balance Sheet Assets Rs m % Rs m Rs m As specified in the BoM Guideline on Scope of Application of Basel II and the Guideline on Standardised Approach to Credit Risk, Cash items 1,637 0 - 20 44 42 the regulatory credit risk capital requirements with respect to the MCB Group are determined by applying the appropriate risk Claims on sovereigns 15,396 0 - 100 1,771 1,792 weights based on the asset class and ratings assigned by External Credit Assessment Institutions (ECAI) as approved by the BoM. Claims on central banks 4,154 0 - 100 0 0 The three international ECAIs used by the Bank are Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. Claims on banks 14,962 20 - 100 5,529 5,956 Claims on non-central government public sector entities 34 0 - 100 34 904

As an example, the following table indicates the risk weights applicable for each asset class, based on credit ratings assigned by Claims on corporates 79,041 100 78,704 68,660 Moody’s Investors Services. Claims on retail segment 9,368 75 6,279 5,566 Claims secured by residential property 8,026 35 - 100 2,942 2,467 Other exposures are assigned standard Basel II risk-weights as follows: claims of up to Rs 5 million secured by residential property Fixed assets/other assets 7,979 100 7,979 7,188 are risk-weighted at 35% subject to a loan-to-value ratio not exceeding 80%; each individual retail exposure not exceeding Rs 12 Past due claims 6,153 50 - 150 7,761 8,290 114 million are assigned a risk weight of 75%; all claims on corporate exposures are attributed a risk-weight of 100%; and claims that On-balance sheet total 111,045 100,865 115 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- and off-balance sheet exposures according June 2010 June 2009 Credit Credit to their perceived level of risk. Nominal Weighted Weighted MCB Bank Conversion Equivalent Weight Amount Amount Amount Factor Amount Aaa A1 Baa1 Ba1 B1 Below Type of Claim Unrated Risk Weighted Off-Balance Sheet Assets Rs m % Rs m % Rs m Rs m to Aa3 to A3 to Baa3 to Ba3 to B3 B3 Direct credit substitutes 2,035 100 1,989 0 - 100 2,005 701 1 Sovereign & Central Banks * 0% 20% 50% 100% 100% 150% 100% Transaction-related contingent items 14,971 50 7,485 0 - 100 7,079 7,197 2 Multilateral Development Banks 20% 50% 50% 100% 100% 150% 50% Trade related contingencies 8,620 20 1,719 0 - 100 1,391 820 3 Banks - for long-term claims 20% 50% 50% 100% 100% 150% 50% Outstanding loans commitment 6,240 20 - 50 3,062 100 3,062 3,558 4 Banks - for short-term claims 20% 20% 20% 50% 50% 150% 20% Foreign exchange contracts 4,197 1 81 20 - 100 74 131 Off-balance sheet total 13,612 12,406 * Claims on the Government of Mauritius and the BoM denominated and funded in Mauritian rupees are assigned a preferential risk weight of 0%. MCB Group Annual Report 2010

management discussion and analysis

June 2010 June 2009 Thus, the Standardised Approach takes into account the Operational Risk Capital Weighted Weighted credit rating of the borrower assigned by external rating The capital charge for operational risk is evaluated MCB Group Amount Weight Assets Assets agencies and additional risk mitigating collaterals. The according to the Basel II Standardised Approach. Risk Weighted Assets Rs m % Rs m Rs m MCB applies a conservative approach in its calculation Following this methodology, activities of the bank are On-balance sheet 162,739 0 - 150 121,123 111,129 as it does not take into account all credit risk mitigation mapped into prescribed business lines. The operational Off-balance sheet 37,499 0 - 100 14,509 13,035 techniques referred to in part III of the BoM Guideline risk capital charge is measured as the summation of Total Group Risk Weighted Assets 135,632 124,163 on Standardised Approach to Credit Risk. The MCB has a fixed percentage of gross income for each of these decided to consider only cash pledged and guarantees business lines, averaged over a three year period, as as eligible credit risk mitigation in its calculation. The illustrated in the table below. The fixed percentage Exposures of the MCB are assigned appropriate capital levels to mitigate exposure to risk. Overall, the Group’s capital base reduction in the MCB Group credit exposures in the serves as a proxy for the likely level of operational risk provides ample cushion to effectively withstand potential shocks not covered under Pillar 1. Indeed, the BIS capital adequacy ratio calculation of the risk-weighted assets arising from the exposure within the business line. at Group level was maintained at a comfortable ratio of 14.9% as at 30 June 2010, exceeding the regulatory limit of 10% and the application of eligible collaterals is shown below: 8% international norm. For its part, the Tier 1 ratio stood at a prominent 12.8% as at June last. The management and measurement of operational risk MCB Group June 2010 at the MCB level follow the requirements of the Basel Geographical Distribution of Exposures Impact Rs m II Standardised Approach at Bank level, and the Basel II The table below shows the distribution of exposures by country of operation to which exposures have been booked. The cross border On-Balance Sheet 1,977 Basic Indicator Approach for its subsidiaries. operations of the Group accounted for 31% of total credit exposures as at 30 June 2010. Off-Balance Sheet 71

MCB Group Local Operations Overseas Operations June 10 (Rs m) Bank Non-Bank Total Madagascar Seychelles Mozambique Maldives Total Segment A Segment B On-Balance Sheet 115,280 31,469 5,399 152,148 3,419 1,513 4,249 1,409 10,591 MCB Bank Beta Factor Weighted Gross Income Off-Balance Sheet 17,493 18,569 0 36,062 583 401 323 131 1,437 Line of Business ß June 08 June 09 June 10 116 Total Exposures 132,774 50,038 5,399 188,211 4,002 1,914 4,572 1,540 12,028 % Rs m Rs m Rs m 117 Trading and Sales 18 (38) (40) (122) Commercial Banking 15 313 390 457 Specific and Portfolio Allowances The breakdown of specific and portfolio provision by Retail Banking 12 492 537 519 Credit impairment allowances consist of specific and industry is provided in Note 5 (b). Agency Services 15 4 6 8 portfolio provisions. The amount for specific provision more Total Yearly Weighted Gross Income 771 893 862 than adequately covers the shortfall between the carrying Credit Risk Mitigation value of loans and their recoverable amounts. On the other The Standardised Approach to Basel II increases the Capital charge for Operational Risk (Bank) 755 842 hand, comfortable levels of portfolio provision allowances risk sensitivity of the capital framework by recognising Capital charge for Operational Risk (Group) 898 1,009 are made for potential losses as a result of general historical different counterparties within the same loan category patterns of losses and current economic conditions. as presenting different risks to the lending institution. MCB Group Annual Report 2010

management discussion and analysis

Market Risk Capital Market Risk June 09 June 10 Principle 4 – Supervisors should seek to intervene at an of past and ongoing orientations, the Group is perfectly The MCB has adopted the Standardised Measurement Aggregate net open foreign early stage to prevent capital from falling below the conscious that the current difficult context, which Rs m Rs m Approach to Market Risk for regulatory capital allocation exchange position minimum levels required to support the risk characteristics transcends standard business cycles, is exerting an ever to comply with the Basel II Market Risk Amendment and Bank 1,056 416 of a particular bank and should require rapid remedial more meaningful mark on its operating activities. It is the BoM Guideline on the Measurement and Management Group 2,075 1,206 action if capital is not maintained or restored. thus dedicatedly stepping up efforts and sharpening of Market Risk. its focus to better match new market exigencies, while The ICAAP programme at the MCB which is being driven ensuring continued as well as orderly balance sheet and Supervisory Review Process The Group’s overall exposures to FX risk and the interest by the Group Risk SBU will be henceforth implemented as revenue growth over time. Propped up by the three Internal Capital Adequacy Assessment Process rate sensitivity gap are shown respectively in Notes per the BoM Guideline. pillars of excellent customer service which are people, The Internal Capital Adequacy Assessment Process 2(e) and 2(f) to the Financial Statements. The principal processes and technology, the MCB is hence confident (ICAAP) sets the stage for the implementation of Pillar 2 methodology which the MCB uses for the measurement of Stress Testing that the consolidation of its banking operations as well - Supervisory Review Process - of the Basel II framework. market price risk is Value-at-Risk (VaR), which is defined as Stress testing is one of the key elements of a sound as market diversification beyond domestic shores and in The BoM Guideline on Supervisory Review Process is ‘the statistical representation of financial risk, expressed ICAAP. With the view to assessing the impact of possible non-bank spheres should provide ample cushion against intended to ensure that banks assess and manage their as a number, based on consistent modelling of past data adverse events on capital levels and facilitate the prompt potential shocks and generate real and sustainable value internal capital adequacy in relation to their internal risks. and/or simulation of possible future movements, applied identification of any weakness in the capital management for shareholders, in the process buttressing its prime role Essentially, the Supervisory Review process rests on the to a particular risk position, asset, or portfolio’. process, stress tests are performed on the MCB’s risk in promoting the socio-economic prosperity of Mauritius. following four principles: portfolio at least semi-annually to assess their impact on In conducting its risk measurement activities, the MCB key income statement and balance sheet ratios as well Principle 1 – Banks should have a process for assessing utilises VaR-modelling based on historical simulations, as on the Bank’s ability to meet capital requirements at their overall capital adequacy in relation to their risk whereby current positions are measured against historic distinct stages of the economic cycle. profile and a strategy for maintaining their capital levels. volatilities over a given period. The VaR model used by the Bank is based upon a 99 percent one-tailed confidence Forward Together Pierre-Guy NOEL Principle 2 – Supervisors should review and evaluate banks’ level and assumes a ten-day holding period, with market At a time when the operating environment is facing up to Chief Executive (Group) 118 internal capital adequacy assessments and strategies, 119 data taken from the previous two years. chronic and entrenched challenges across most business as well as their ability to monitor and ensure their lines, the MCB continues to be true to its philosophy of compliance with regulatory capital ratios. Supervisors The VaR analysis for the MCB (FX risk) is shown in Note 2 (c) striking a suitable balance between the risk and return should take appropriate supervisory action if they are not to the Financial Statements. Besides, the table hereafter profiles of its activities, thereby embracing decisions that satisfied with the result of this process. provides comparative figures for the aggregate net open are closest to the interests of its customers and investors. foreign exchange position. Basically, even though the contextually healthy financial Antony R. WITHERS Principle 3 – Supervisors should expect banks to operate fundamentals posted lately testifies to the judiciousness Chief Executive (Banking) above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. our futurewillbewithoutrainbows. the sun,isunique.Butwithoutthemall, Every naturaltreasure,likeeachcolourunder

© Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org MCB Group Annual Report 2010

statement of management's responsibility for financial reporting

The Group Financial Statements and the Financial The Bank’s Board of Directors, acting in part through the The Bank’s external auditors, BDO & Co, have full and Statements for the Bank’s operations in Mauritius Audit Committee, Conduct Review Committee and Risk free access to the Board of Directors and its committees presented in this annual report have been prepared by Monitoring Committee, which comprise, principally, inde- to discuss the audit and matters arising therefrom, Management, which is responsible for their integrity, pendent directors, oversees Management’s responsibility such as their observations on the fairness of financial consistency, objectivity and reliability. International for financial reporting, internal controls, assessment and reporting and the adequacy of internal controls. Financial Reporting Standards as well as the requirements control of major risk areas, and assessment of significant of the Banking Act 2004 and the guidelines issued and related party transactions. thereunder have been applied for the year ended 30 June 2010 and Management has exercised its judgement The Bank’s Internal Auditor, who has full and free access and made best estimates where deemed necessary. to the Audit Committee, conducts a well-designed programme of internal audits in coordination with Pierre-Guy NOEL Antony R. WITHERS The Bank has designed and maintained its accounting the Bank’s external auditors. In addition, the Bank’s Chief Executive (Group) Chief Executive (Banking) systems, related internal controls and supporting compliance function maintains policies, procedures procedures to provide reasonable assurance that financial and programmes directed at ensuring compliance with records are complete and accurate and that assets are regulatory requirements. safeguarded against loss from unauthorised use or disposal. These supporting procedures include careful selection Pursuant to the provisions of the Banking Act 2004, the and training of qualified staff, the implementation of Bank of Mauritius makes such examination and inquiry organisation and governance structures providing a well- into the operations and affairs of the Bank as it deems J. Gérard HARDY Bertrand DE CHAZAL 122 defined division of responsibilities, authorisation levels and necessary. 123 Director Director accountability for performance, and the communication Chairman Audit Committee of the Bank’s policies, procedures manuals and guidelines of the Bank of Mauritius throughout the Bank. MCB Group Annual Report 2010

report of the auditors

To the shareholders of the Mauritius and for the preparation and fair presentation of these reasonableness of accounting estimates made by the Banking Act 2004 Commercial Bank Ltd. financial statements in accordance with International directors, as well as evaluating the overall presentation of Financial Reporting Standards and in compliance with the the financial statements. In our opinion, the financial statements have been Independent Auditor's Report to the Members requirements of the Companies Act 2001 and Banking Act prepared on a basis consistent with that of the preceding 2004. This responsibility includes: designing, implementing We believe that the audit evidence we have obtained is year and are complete, fair and properly drawn up and and maintaining internal control relevant to the preparation sufficient and appropriate to provide a basis for our audit This report is made solely to the members of The Mauritius comply with the Banking Act 2004 and the regulations and fair presentation of financial statements that are free opinion. Commercial Bank Ltd (the “Bank”), as a body, in accordance and guidelines of the Bank of Mauritius. from material misstatement, whether due to fraud or error; with Section 205 of the Companies Act 2001. Our audit selecting and applying appropriate accounting policies; and Opinion The explanations or information called for or given to us work has been undertaken so that we might state to the making accounting estimates that are reasonable in the by the officers or agents of the Bank were satisfactory. Bank's members those matters we are required to state to circumstances. In our opinion, the financial statements on pages 126 to them in an auditors’ report and for no other purpose. To 223 give a true and fair view of the financial position of The Financial Reporting Act 2004 the fullest extent permitted by law, we do not accept or Auditors’ Responsibility the Group and of the Bank at June 30, 2010, and of their assume responsibility to anyone other than the Bank and financial performance and their cash flows for the year The directors are responsible for preparing the Corporate the Bank's members as a body, for our audit work, for this Our responsibility is to express an opinion on these financial then ended in accordance with International Financial Governance Report and making the disclosures required report, or for the opinions we have formed. statements based on our audit. We conducted our audit Reporting Standards and comply with the Companies by Section 8.4 of the Code of Corporate Governance of in accordance with International Standards on Auditing. Act 2001. Mauritius ("Code"). Our responsibility is to report on Report on the Financial Statements Those Standards require that we comply with ethical these disclosures. requirements and plan and perform the audit to obtain Report on Other Legal and Regulatory We have audited the financial statements of The Mauritius reasonable assurance whether the financial statements are Requirements In our opinion, the disclosures in the Corporate Governance Commercial Bank Ltd and its subsidiaries (the “Group”) and free from material misstatement. Report are consistent with the requirements of the Code. the Bank’s separate financial statements on pages 126 to Companies Act 2001 223 which comprise the statements of financial position at An audit involves performing procedures to obtain 124 June 30, 2010 and the income statements, statements of audit evidence about the amounts and disclosures in the We have no relationship with, or interests in, the Bank 125 comprehensive income, statements of changes in equity financial statements. The procedures selected depend on or any of its subsidiaries, other than in our capacity as BDO & Co and statements of cash flows for the year then ended, and the auditors’ judgement, including the assessment of the auditors, tax and business advisers and dealings in the (Formerly BDO De Chazal Du Mée) a summary of significant accounting policies and other risks of material misstatement of the financial statements, ordinary course of business. Chartered Accountants explanatory notes. whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant We have obtained all information and explanations we Directors’ Responsibility for the to the Bank’s preparation and fair presentation of the have required. Financial Statements financial statements in order to design audit procedures Per M.Yacoob A.Ramtoola - FCA In our opinion, proper accounting records have been kept that are appropriate in the circumstances, but not for the 29th September 2010 by the Bank as far as it appears from our examination of The directors are responsible for keeping proper accounting purpose of expressing an opinion on the effectiveness of the Port Louis those records. records which disclose with reasonable accuracy at any Bank’s internal control. An audit also includes evaluating Mauritius time the financial position of the Group and of the Bank the appropriateness of accounting policies used and the MCB Group Annual Report 2010

statements of financial position income statements as at 30th June 2010 for the year ended 30th June 2010

GROUP BANK GROUP BANK 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000 Assets Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000 Cash and cash equivalents 3 15,352,000 17,922,610 13,476,454 14,032,127 16,703,076 12,587,622 Derivative financial instruments 4 40,195 120,408 137,261 40,195 120,408 137,261 Interest income 20 9,326,639 10,348,263 10,283,586 8,460,748 9,416,773 9,442,478 Loans and advances to banks 5(a) 1,889,801 2,318,568 1,818,874 1,940,302 2,222,735 1,568,519 Interest expense 21 (4,181,663) (5,312,066) (6,119,650) (3,773,649) (4,866,761) (5,777,095) Loans and advances to customers 5(b) 107,552,548 94,540,496 75,733,033 101,743,388 89,128,211 70,325,172 Net interest income 5,144,976 5,036,197 4,163,936 4,687,099 4,550,012 3,665,383 Investment securities 6 19,105,410 17,731,647 26,309,048 15,131,136 14,032,673 22,073,538 Investments in associates 7 6,386,548 6,490,699 6,022,694 862,632 914,593 885,586 Investments in subsidiaries 8 - - - 3,230,761 3,019,830 2,391,412 Fee and commission income 22 2,008,208 1,871,185 1,623,374 1,578,795 1,428,753 1,244,966 Goodwill and other intangible assets 9 756,231 360,025 284,835 611,353 275,728 202,246 Fee and commission expense 23 (311,412) (286,257) (262,606) (240,378) (233,984) (220,785) Property, plant and equipment 10 4,696,459 3,839,527 3,371,104 3,927,355 3,008,629 2,458,313 Net fee and commission income 1,696,796 1,584,928 1,360,768 1,338,417 1,194,769 1,024,181 Deferred tax assets 11 29,337 29,654 15,140 9,232 26,146 13,153 Other assets 12 6,930,640 7,122,709 5,803,218 5,835,482 5,957,544 4,712,412 Total assets 162,739,169 150,476,343 132,971,661 147,363,963 135,409,573 117,355,234 Other income Profit arising from dealing in foreign currencies 1,054,932 1,355,855 1,191,962 832,739 1,101,582 1,042,689 LIABILITIES AND SHAREHOLDERS' EQUITY Net (loss)/income from financial instruments Deposits from banks 13(a) 1,118,656 1,609,655 906,951 3,067,436 3,569,403 2,373,015 carried at fair value 24 (43,795) 41,752 33,561 (43,795) 41,752 33,561 Deposits from customers 13(b) 131,364,901 119,631,291 104,579,922 121,878,417 110,937,039 95,173,010 Dividend income 25 89,257 69,393 118,668 148,249 186,368 206,486 Derivative financial instruments 4 85,571 44,544 95,973 85,571 44,544 95,973 Other borrowed funds 14 1,521,864 2,285,933 3,346,579 1,161,061 1,579,269 3,004,756 Net gain on sale of securities 3,218 76,211 536,448 44 43,648 397,191 Subordinated liabilities 15 1,454,853 1,471,555 1,237,128 1,454,853 1,471,555 1,237,128 Other operating income 48,275 91,633 35,657 22,205 2,803 1,981 Current tax liabilities 292,540 758,314 455,102 266,769 628,659 347,643 1,151,887 1,634,844 1,916,296 959,442 1,376,153 1,681,908 Deferred tax liabilities 11 32,987 37,365 37,044 - - - Operating income 7,993,659 8,255,969 7,441,000 6,984,958 7,120,934 6,371,472 Other liabilities 17 4,991,375 4,505,804 4,318,572 4,291,168 3,925,929 3,779,877 Non-interest expense Total liabilities 140,862,747 130,344,461 114,977,271 132,205,275 122,156,398 106,011,402 Salaries and human resource development 26 (1,765,138) (1,740,503) (1,581,067) (1,550,543) (1,552,114) (1,441,237) Shareholders' Equity Employee benefits 16 (191,512) (110,547) (13,228) (191,512) (110,547) (13,228) Share capital and share premium 2,554,970 2,544,998 2,543,046 2,554,970 2,544,998 2,543,046 Depreciation (371,745) (318,317) (436,823) (254,482) (204,818) (335,961) Retained earnings 13,774,324 11,611,885 8,955,759 9,651,949 7,803,419 5,837,778 Amortisation of intangible assets (89,272) (104,518) (104,897) (73,015) (91,169) (96,114) Other components of equity 4,363,294 4,792,928 5,224,028 3,324,977 3,280,615 3,339,485 Other 26 (1,296,477) (1,204,860) (1,059,027) (1,018,981) (873,015) (780,086) 20,692,588 18,949,811 16,722,833 15,531,896 13,629,032 11,720,309 (3,714,144) (3,478,745) (3,195,042) (3,088,533) (2,831,663) (2,666,626) Less treasury shares (373,208) (375,857) (376,477) (373,208) (375,857) (376,477) Equity attributable to the ordinary equity holders of the parent 20,319,380 18,573,954 16,346,356 15,158,688 13,253,175 11,343,832 Operating profit before impairment 4,279,515 4,777,224 4,245,958 3,896,425 4,289,271 3,704,846 Non-controlling interests 1,557,042 1,557,928 1,648,034 - - - Allowance for credit impairment 27(a) (272,180) (371,226) (425,889) (219,852) (361,115) (408,417) Total equity 21,876,422 20,131,882 17,994,390 15,158,688 13,253,175 11,343,832 Impairment of available-for-sale investments 27(b) (190,140) - - - - - 126 Total equity and liabilities 162,739,169 150,476,343 132,971,661 147,363,963 135,409,573 117,355,234 Operating profit 3,817,195 4,405,998 3,820,069 3,676,573 3,928,156 3,296,429 127

CONTINGENT LIABILITIES Share of profit of associates 294,842 527,937 640,839 - - - Acceptances, guarantees, letters of credit, Profit before tax 4,112,037 4,933,935 4,460,908 3,676,573 3,928,156 3,296,429 endorsements and other obligations on account of customers 26,796,327 22,646,581 22,132,669 25,628,905 21,342,230 20,024,795 Income tax expense 28 (691,918) (887,976) (575,180) (572,197) (675,676) (395,394) Commitments 6,450,251 7,473,105 6,300,151 6,239,807 7,277,317 6,115,111 Profit for the year 3,420,119 4,045,959 3,885,728 3,104,376 3,252,480 2,901,035 Tax assessments 319,900 278,274 220,642 319,900 278,274 220,642 Other 777,123 969,117 1,085,998 765,152 969,117 996,426 19 34,343,601 31,367,077 29,739,460 32,953,764 29,866,938 27,356,974 Profit for the year attributable to :- Ordinary equity holders of the parent 3,413,254 3,964,002 3,693,734 3,104,376 3,252,480 2,901,035 These financial statements were approved for issue by the Board of Directors on the 29th September 2010. Non-controlling interests 6,865 81,957 191,994 - - - 3,420,119 4,045,959 3,885,728 3,104,376 3,252,480 2,901,035 The notes on pages 137 to 223 form part of these financial statements. Auditors' report on pages 124 and 125. Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the parent (Rs) 30 14.38 16.71 15.58

Pierre-Guy NOEL Antony R. WITHERS J. Gérard HARDY Bertrand de CHAZAL Chief Executive (Group) Chief Executive (Banking) Director Director The notes on pages 137 to 223 form part of these financial statements. President of the Board Chairman Audit Committee Auditors' report on pages 124 and 125. MCB Group Annual Report 2010

statements of comprehensive income statement of changes in equity for the year ended 30th June 2010 for the year ended 30th June 2010

GROUP BANK Attributable to ordinary equity holders of the parent 2010 2009 2008 2010 2009 2008 Share Share Treasury Retained Capital Translation Statutory General Total Non- Total Capital Premium Shares Earnings Reserve Reserve Reserve Banking controlling Equity RS'000 RS'000 RS'000 RS'000 RS'000 RS'000 Reserve Interests Note RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Profit for the year 3,420,119 4,045,959 3,885,728 3,104,376 3,252,480 2,901,035 Group At 1st July 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 Other comprehensive (expense)/income: Total comprehensive income for the year - - - 3,693,734 285,936 (71,130) - - 3,908,540 237,801 4,146,341 Exchange differences on translating foreign operations (156,843) (87,213) (102,664) - - - Increase in shareholding in subsidiaries ------(15,576) (15,576) Reclassification adjustments 87,303 (49,834) - - (49,834) - Net assets disposed of by subsidiary ------11,377 11,377 Net fair value (loss)/gain for available-for-sale investments (52,197) (413,303) 240,787 34,390 (50,278) 196,228 Profit on deemed disposal of subsidiary - - - 11,108 - - - - 11,108 1,234 12,342 Share of other comprehensive (expense)/income of associates (303,961) (36,194) 122,490 - - - Dividends 29 - - - (1,079,038) - - - - (1,079,038) (26,294) (1,105,332) Other comprehensive (expense)/income for the year (425,698) (586,544) 260,613 34,390 (100,112) 196,228 Transfer to general banking reserve - - - (6,219) - - - 6,219 - - - Total comprehensive income for the year 2,994,421 3,459,415 4,146,341 3,138,766 3,152,368 3,097,263 Transfer to statutory reserve - - - (429,524) - - 429,524 - - - - Employee share options exercised - 23,038 7,812 - - - - - 30,850 - 30,850 At 30th June 2008 2,503,756 39,290 (376,477) 8,955,759 1,803,064 330,112 2,512,102 578,750 16,346,356 1,648,034 17,994,390 Total comprehensive income attributable to:- Total comprehensive income for the year - - - 3,964,002 (562,950) 75,504 - - 3,476,556 (17,141) 3,459,415 Ordinary equity holders of the parent 2,974,604 3,476,556 3,908,540 3,138,766 3,152,368 3,097,263 Increase in shareholding in subsidiaries - - - (5,933) - - - - (5,933) (51,257) (57,190) Non-controlling interests 19,817 (17,141) 237,801 - - - Contribution of non-controlling interests in 2,994,421 3,459,415 4,146,341 3,138,766 3,152,368 3,097,263 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 - - - The notes on pages 137 to 223 form part of these financial statements. Transfer to statutory reserve - - - (43,712) - - 43,712 - - - - Auditors' report on pages 124 and 125. 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 Total comprehensive income for the year - - - 3,413,254 87,298 (525,948) - - 2,974,604 19,817 2,994,421 Increase in effective shareholding of associate - - - 4,075 - - - - 4,075 3,005 7,080 Dividends 29 - - - (1,245,874) - - - - (1,245,874) (23,708) (1,269,582)

Share of transfer on disposal of property, plant 128 & equipment by associate - - - 10,014 (10,014) ------129 Transfer to general banking reserve - - - (7,674) - - - 7,674 - - - Transfer to statutory reserve - - - (11,356) - - 11,356 - - - - Employee share options exercised - 9,972 2,649 - - - - - 12,621 - 12,621 At 30th June 2010 2,503,756 51,214 (373,208) 13,774,324 1,317,398 (120,332) 2,567,170 599,058 20,319,380 1,557,042 21,876,422

The notes on pages 137 to 223 form part of these financial statements. Auditors' report on pages 124 and 125. MCB Group Annual Report 2010

statement of changes in equity statements of cash flows for the year ended 30th June 2010 for the year ended 30th June 2010

Share Share Treasury Retained Capital Statutory General Total GROUP BANK Capital Premium Shares Earnings Reserve Reserve Banking Equity Reserve 2010 2009 2008 2010 2009 2008 Note RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Notes RS'000 RS'000 RS'000 RS'000 RS'000 RS'000 Bank At 1st July 2007 2,503,756 16,252 (384,289) 4,436,959 105,921 2,082,578 533,580 9,294,757 Net cash flows from trading activities 32 5,539,269 4,005,310 3,556,001 4,923,545 3,423,801 3,327,323 Total comprehensive income for the year - - - 2,901,035 196,228 - - 3,097,263 Net cash flows from other operating activities 33 (3,099,688) 4,930,372 (585,280) (3,220,770) 5,008,301 296,893 Dividends 29 - - - (1,079,038) - - - (1,079,038) Dividends received from associates 52,247 56,758 34,668 - - - Transfer to statutory reserve - - - (421,178) - 421,178 - - Dividends paid (1,245,597) (1,221,808) (391,057) (1,245,597) (1,221,808) (391,057) Employee share options exercised - 23,038 7,812 - - - - 30,850 Dividends paid to non-controlling interests in At 30th June 2008 2,503,756 39,290 (376,477) 5,837,778 302,149 2,503,756 533,580 11,343,832 subsidiaries (21,803) (41,708) (26,294) - - - Total comprehensive income for the year - - - 3,252,480 (100,112) - - 3,152,368 Income tax paid (1,160,491) (574,675) (476,005) (917,173) (407,653) (373,182) Dividends 29 - - - (1,245,597) - - - (1,245,597) Net cash flows from operating activities 63,937 7,154,249 2,112,033 (459,995) 6,802,641 2,859,977 Transfer to statutory reserve - - - (41,242) - 41,242 - - Investing activities Employee share options exercised - 1,952 620 - - - - 2,572 Purchase of available-for-sale investments (129,097) (847,990) (380,942) (5,756) (162,348) (7,103) At 30th June 2009 2,503,756 41,242 (375,857) 7,803,419 202,037 2,544,998 533,580 13,253,175 Proceeds from sale of available-for-sale investments 16,847 526,719 1,130,870 44 412,895 330,940 Total comprehensive income for the year - - - 3,104,376 34,390 - - 3,138,766 Proceeds from disposal of shares in subsidiaries - - - - - 698,807 Dividends 29 - - - (1,245,874) - - - (1,245,874) Investment in subsidiaries - - (21,178) (373,223) (617,605) (417,700) Transfer to statutory reserve - - - (9,972) - 9,972 - - Increase in shareholding of subsidiary from non- Employee share options exercised - 9,972 2,649 - - - - 12,621 controlling interests - (57,190) - - (57,190) - At 30th June 2010 2,503,756 51,214 (373,208) 9,651,949 236,427 2,554,970 533,580 15,158,688 Purchase of property, plant and equipment (1,318,717) (1,005,370) (529,571) (1,178,425) (764,907) (352,131) Purchase of intangible assets (429,354) (174,944) (84,140) (408,805) (164,651) (70,973) Proceeds from sale of property, plant and equipment 27,398 183,081 29,776 7,846 12,576 10,055 The notes on pages 137 to 223 form part of these financial statements. Auditors' report on pages 124 and 125. Proceeds from sale of intangible assets - - 1,377 - - 1,377 (1,832,923) (1,375,694) 146,192 (1,958,319) (1,341,230) 193,272 Net cash flows before financing (1,768,986) 5,778,555 2,258,225 (2,418,314) 5,461,411 3,053,249 Financing Contribution of non-controlling interests in new subsidiary - 20,000 23,719 - - - 130 Employee share options exercised 11,693 2,393 28,842 11,693 2,393 28,842 131 Grant/refund of subordinated loan to subsidiary/ associate (1,620) - - 153,880 77,691 (200,647) Capital element of finance lease rental payments - - - - (554) (1,773) 10,073 22,393 52,561 165,573 79,530 (173,578) (Decrease)/Increase in cash and cash equivalents (1,758,913) 5,800,948 2,310,786 (2,252,741) 5,540,941 2,879,671 Net cash and cash equivalents at 1st July 2009 15,636,677 10,129,875 8,374,281 15,123,807 9,582,866 6,703,195 Effect of foreign exchange rate changes (47,628) (294,146) (555,192) - - -

Net cash and cash equivalents at 30th June 2010 34 13,830,136 15,636,677 10,129,875 12,871,066 15,123,807 9,582,866

The notes on pages 137 to 223 form part of these financial statements. Auditors' report on pages 124 and 125. MCB Group Annual Report 2010

general information index to notes to the financial statements

The Mauritius Commercial Bank Limited ("the Company") is a public company incorporated by Royal Charter in 1838 and registered NOTES PAGES as limited liability company on 18th August 1955. Its registered office is situated at 9-15, Sir William Newton Street, Port Louis, 1 Accounting Policies 137 - 144 Mauritius. (a) Basis of presentation (b) Basis of consolidation 145 - 146 The Mauritius Commercial Bank Limited was one of the first group of companies to be listed on The Stock Exchange of Mauritius. (c) Foreign currency translation 147 (d) Derivative financial instruments 148 The main activities of the Company and those of its subsidiaries ("the Group") consist in providing a whole range of financial (e) Offsetting financial instruments (f) Interest income and expense services in the Indian Ocean region and beyond. (g) Fees and commissions (h) Sale and repurchase agreements 149 (i) Investment securities 149 - 150 (j) Trading securities 150 (k) Loans and provisions for loan impairment 150 - 151 (l) Goodwill 151 (m) Property, plant and equipment 151 - 152 (n) Computer software development costs 152 (o) Finance leases - where the company is the lessee (p) Accounting for leases - where the company is the lessor (q) Cash and cash equivalents 153 (r) Provisions (s) Employee benefits (t) Deferred tax (u) Borrowings (v) Acceptances 154 132 (w) Operating segments 133 (x) Share capital (i) Share issue costs (ii) Treasury shares (y) Borrowing costs

2 Financial Risk Management 155 (a) Strategy in using financial instruments (b) Credit risk 155 - 156 (c) Market risk 157 (d) Price risk 157 - 158 (e) Currency risk 158 - 162 (f) Interest rate risk 162 - 166 (g) Liquidity risk 166 - 170 MCB Group Annual Report 2010

index to notes to the financial statements (continued)

NOTES PAGES NOTES PAGES 3 Cash and Cash Equivalents 171 17 Other Liabilities 190 4 Derivative Financial Instruments 172 18 Share Capital and Treasury Shares 5 Loans 173 19 Contingent Liabilities 191 (a) (i) Loans and advances to banks 20 Interest Income 192 (ii) Remaining term to maturity 21 Interest Expense (iii) Allowances for credit impairment 22 Fee and Commission Income (b) (i) Loans and advances to customers 174 23 Fee and Commission Expense (ii) Remaining term to maturity 24 Net (Loss)/Income from Financial Instruments carried at Fair Value 193 (iii) Allowances for credit impairment 175 25 Dividend Income (iv) Allowances for credit impairment by industry sectors 176 26 Non-Interest Expense 194 (v) Credit concentration of risk by industry sectors 177 (a) Salaries and human resource development 6 Investment Securities (b) Other non-interest expense (a) At fair value through profit or loss (c) Share-based payments (b) (i) Held to maturity 178 27(a) Allowance for Credit Impairment 195 (ii) Remaining term to maturity 27(b) Impairment of Available-for-Sale Investments (c) Available-for-sale 28 Income Tax Expense 7 Investments in Associates 179 - 180 29 Dividends 196 8 Investments in Subsidiaries 181 30 Earnings per Share 9 Goodwill and Other Intangible Assets 182 (a) Basic earnings per share (a) Goodwill (b) Diluted earnings per share (b) Other intangible assets 31 Capital Commitments 197 10 Property, Plant and Equipment 183 - 185 32 Net Cash Flows from Trading Activities 11 Deferred Tax (Liabilities)/Assets 185 33 Net Cash Flows from Other Operating Activities 198 12 Other Assets 134 34 Analysis of Net Cash and Cash Equivalents as shown in the Statements of Cash Flows 135 13 Deposits 186 35 Operating Segments 199 - 204 (a) Deposits from banks 36 Related Party Transactions 205 - 207 (b) Deposits from customers 37 Segmental Reporting – Bank 207 (i) Retail customers statements of financial position 208 (ii) Corporate customers income statements 209 (iii) Government statements of comprehensive income 210 14 Other Borrowed Funds 187 (a) Derivative Financial Instruments 211 (a) Other borrowed funds comprise the following (i) Fair value assets (b) Remaining term to maturity (ii) Fair value liabilities 15 Subordinated Liabilities (b) Loans and Advances to Banks 16 Employee Benefits Assets 188 - 189 (i) Remaining term to maturity (ii) Allowances for credit impairment MCB Group Annual Report 2010

index to notes to the financial statements notes to the financial statements (continued) for the year ended 30th June 2010

NOTES PAGES 1. Accounting Policies 37 Segmental Reporting – Bank (continued) The principal accounting policies adopted in the preparation of these financial statements are set out below. These (c) Loans and Advances to Customers 212 policies have been consistently applied to all the years presented, unless otherwise stated. (i) Remaining term to maturity (ii) Credit concentration of risk by industry sectors (a) Basis of presentation (iii) Allowances for credit impairment 213 (iv) Allowances for credit impairment by industry sectors 214 The financialstatements of The Mauritius Commercial Bank comply with Companies Act 2001 and have been prepared (d) Investment Securities 215 in accordance with International Financial Reporting Standards (IFRS) and instructions, Guidelines and Guidance notes (i) At fair value through profit or loss (ii) Held to maturity issued by the Bank of Mauritius, in so far as the operations of the Bank are concerned. (iii) Available-for-sale Where necessary, comparative figures have been amended to conform with changes in presentation, or in accounting (e) Investments in Associates policies in the current year. (f) Investments in Subsidiaries 216 (g) Property, Plant and Equipment 217 The financial statements have been prepared under the historical cost convention as modified by the revaluation of (h) Other Assets 218 certain property, plant and equipment, available-for-sale investment securities, financial assets and liabilities held-for- (i) Deposits from Banks trading and all derivative contracts. (j) Deposits from Customers 219 (k) Subordinated Liabilities 220 Standards, Amendments to published Standards and Interpretations effective in the reporting period (l) Other Liabilities (m) Contingent Liabilities (i) Instruments IFRIC 16, 'Hedges of a Net Investment in a Foreign Operation', clarifies that the net investment hedging relates to (ii) Commitments differences in functional currency not presentation currency, and hedging instruments may be held anywhere in the (iii) Tax assessments Group. This IFRIC will not have any impact on the Group’s financial statements. (iv) Other 136 (n) Interest Income 221 IAS 1, ‘Presentation of Financial Statements’ (Revised 2007), prohibits the presentation of items of income and expenses 137 (o) Interest Expense (that is, ‘non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ (p) Fee and Commission Income to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be (q) Fee and Commission Expense shown in either one performance statement (the statement of comprehensive income) or two statements (the income (r) Dividend Income 222 statement and statement of comprehensive income). The Group early adopted the revised standard for the year ended (s) Net (Loss)/Income from Financial Instruments carried at Fair Value 30 June 2009. (t) Salaries and Human Resource Development (u) Other Non-Interest Expense (v) Allowances for Credit Impairment 223 IAS 23, ‘Borrowing Costs’ (Revised 2007), requires an entity to capitalise borrowing costs directly attributable to the (w) Income Tax Expense acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. This IAS is currently applicable to the Group. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

IFRS 8, ‘Operating Segments’, requires a ‘management approach’, under which segment information is presented on the in goodwill or gains and losses. The revised standard also specifies the accounting when control is lost. Any remaining same basis as that used for internal reporting purposes. In addition, the segments are reported in a manner that is more interest in the entity is remeasured to fair value, and a gain or loss is recognised in profit or loss. This IAS will not have consistent with the internal reporting provided to the chief operating decision-maker. any impact on the Group’s financial statements.

Amendments to IAS 32 and IAS 1, ‘Puttable financial instruments and obligations arising on liquidation’, requires entities IFRS 3, ‘Business combinations’ (Revised 2008), continues to apply the acquisition method to business combinations, to classify puttable financial instruments and instruments, or components of instruments that impose on the entity an with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation as equity, provided the acquisition date, with contingent payments classified as debt subsequently remeasured through the statement of the financial instruments have particular features and meet specific conditions. The amendment is not expected to have comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest any impact on the Group’s financial statements. in the acquiree at fair value or at the non-controlling interest's proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. This IFRS will not have any impact on the Group’s financial statements. Amendments to IFRS 2, ‘Vesting Conditions and Cancellations’, clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. These features would Amendments to IAS 39, ‘Eligible hedged items’, prohibits designating inflation as a hedgeable component of a fixed rate need to be included in the grant date fair value for transactions with employees and others providing similar services; they debt. In a hedge of one-sided risk with options, it prohibits including time value in the hedged risk. The amendment is would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. All cancellations, not expected to have any impact on the Group’s financial statements. whether by the entity or by other parties, should receive the same accounting treatment. The amendment is not expected to have any impact on the Group’s financial statements. Amendments to IFRS 1 and IAS 27, ‘Cost of an Investment in a Subsidiary’, clarifies that the cost of a subsidiary, jointly controlled entity or associate in a parent’s separate financial statements, on transition to IFRS, is determined under IAS Amendments to IFRS 7, ‘Improving Disclosures about Financial Instruments’, requires enhanced disclosures about fair value 27 or as a deemed cost. Dividends from a subsidiary, jointly controlled entity or associate are recognised as income. measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of There is no longer a distinction between pre-acquisition and post-acquisition dividends. The cost of the investment of a fair value measurement hierarchy. As the change in accounting policy only results in additional disclosures, there is no a new parent in a group (in a reorganisation meeting certain criteria) is measured at the carrying amount of its share impact on earnings per share. of equity as shown in the separate financial statements of the previous parent. The amendment is not expected to have 138 any impact on the Group’s financial statements. 139 IFRIC 15, ‘Agreements for the Construction of Real Estate’, clarifies whether IAS 18, ‘Revenue’, or IAS 11, ‘Construction contracts’, should be applied to particular transactions. IFRIC 15 is not relevant to the Group’s operations as all revenue IFRIC 17, ‘Distributions of Non-cash Assets to Owners’, clarifies that a dividend payable is recognised when appropriately transactions are accounted for under IAS 18 and not IAS 11. authorised and no longer at the entity’s discretion. An entity measures distributions of assets other than cash when it pays dividends to its owners, at the fair value of the net assets to be distributed. The difference between fair value of Amendments to IFRIC 9 and IAS 39, ‘Embedded Derivatives’, clarifies the accounting for embedded derivatives when a the dividend paid and the carrying amount of the net assets distributed is recognised in profit or loss. This IFRIC will not financial asset is reclassified out of the 'fair value through profit or loss' category. The amendment is not expected to have have any impact on the Group’s financial statements. any impact on the Group’s financial statements. IFRIC 18, ‘Transfers of Assets from Customers’, addresses the treatment for assets transferred from a customer in return IAS 27, ‘Consolidated and Separate Financial Statements’ (Revised 2008), requires the effects of all transactions with non- for connection to a network or ongoing access to goods or services, or both. It requires the transferred assets to be controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result recognised initially at fair value and the related revenue to be recognised immediately; or, if there is a future service MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

obligation, revenue is deferred and recognised over the relevant service period. This IFRIC will not have any impact on the IAS 20 (Amendment), ‘Government Grants and Disclosure of Government Assistance’, clarifies that the benefit of a Group’s financial statements. below market rate government loan is measured as the difference between the carrying amount in accordance with IAS 39, ‘Financial instruments: Recognition and measurement’, and the proceeds received with the benefit accounted Improvements to IFRSs (issued 22 May 2008) for in accordance with IAS 20. This amendment will not have an impact on the Group’s operations.

IAS 1 (Amendment), ‘Presentation of Financial Statements’, clarifies that some rather than all financial assets and liabilities IAS 23 (Amendment), ‘Borrowing Costs’, has amended the definition of borrowing costs so that interest expense is classifiedas held for trading in accordance with IAS 39, ‘Financial instruments: Recognition and measurement’ are examples calculated using the effective interest method defined in IAS 39 ‘Financial instruments: Recognition and measurement’. of current assets and liabilities respectively. This amendment is not expected to have any impact on the Group’s financial This amendment is currently applicable to the Group. statements. IAS 27 (Amendment), ‘Consolidated and Separate Financial Statements’, requires an investment in a subsidiary that is IAS 8 (Amendment), ‘Accounting Policies, Changes in Accounting Estimates and Errors’, clarifies that application of the accounted for under IAS 39, ‘Financial instruments: recognition and measurement’, and is classified as held for sale under guidance issued with IFRSs that is not an integral part of the Standard is not mandatory in selecting and applying accounting IFRS 5, ‘Non-current assets held-for-sale and discontinued operations’, to continue to apply IAS 39. The amendment will policies. This amendment is unlikely to have an impact on the Group’s financial statements. not have an impact on the Group’s operations.

IAS 10 (Amendment), ‘Events after the Reporting Period’, reinforces the clarification of the explanation as to why a dividend IAS 28 (Amendment), ‘Investments in Associates’, clarifies that an investment in associate is treated as a single asset for the declared after the reporting period does not result in the recognition of a liability. purposes of impairment testing. Any impairment loss is not allocated to specific assets included within the investment, for example, goodwill. Reversals of impairment are recorded as an adjustment to the investment balance to the extent IAS 16 (Amendment), ‘Property, Plant and Equipment’, requires entities whose ordinary activities comprise renting and that the recoverable amount of the associate increases. Where an investment in an associate that is accounted for under subsequently selling assets to present proceeds from the sale of those assets as revenue and transfer the carrying amount IAS 39, ‘Financial instruments: Recognition and Measurement’, only certain rather than all disclosure requirements in of the asset to inventories when the asset becomes held for sale. Consequential amendment to IAS 7 requires that cash IAS 28 need to be made. This amendment will not have an impact on the Group’s operations. flows arising from purchase, rental and sale of those assets to be classified as cash flows from operating activities. The 140 amendment will not have an impact on the Group’s operations. IAS 29 (Amendment), ‘Financial Reporting in Hyperinflationary Economies’, has amended the guidance to reflect the 141 fact that a number of assets and liabilities are measured at fair value rather than historical cost. The amendment will IAS 18 (Amendment), ‘Revenue’, removes the inconsistency between IAS 39 and the guidance in IAS 18 relating to the not have an impact on the Group’s operations. definition of costs incurred in originating a financial asset that should be deferred and recognised as an adjustment to the effective interest rate. IAS 31 (Amendment), ‘Interests in Joint Ventures’, requires where an investment in joint venture is accounted for in accordance with IAS 39, only certain rather than all disclosure requirements in IAS 31 need to be made. The amendment IAS 19 (Amendment), ‘Employee Benefits’, clarifies that a plan amendment that results in a change in the extent to which will not have an impact on the Group’s operations. benefit promises are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost if it results in a reduction in the present value of the IAS 34 (Amendment), ‘Interim Financial Reporting’, clarifies that the presentation of basic and diluted earnings per defined benefit obligation. The definition of return on plan assets has been amended to state that plan administration share in interim financial reports is required only when the entity is within the scope of IAS 33. costs are deducted in the calculation of return on plan assets only to the extent that such costs have been excluded from measurement of the defined benefit obligation. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

IAS 36 (Amendment), ‘Impairment of Assets’, clarifies that where fair value less costs to sell is calculated on the basis of IAS 38 (Amendment), ‘Intangible Assets’, clarifies guidance in measuring the fair value of an intangible asset acquired in discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made. a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. This amendment has no impact on the Group’s financial statements. IAS 38 (Amendment), ‘Intangible Assets’, clarifies that a prepayment may only be recognised in the event that payment has been made in advance of obtaining right of access to goods or receipt of services. Advertising and promotional activities IFRIC 9 (Amendment), ‘Reassessment of Embedded Derivatives’, clarifies that embedded derivatives in contracts acquired includes mail order catalogues in a combination between entities or businesses under common control or the formation of a joint venture are outside the scope of IFRIC 9. This amendment has no impact on the Group’s financial statements. IAS 39 (Amendment), ‘Financial Instruments: Recognition and Measurement’, clarifies that it is possible for there to be move- ments into and out of the fair value through profit or loss category where a derivative commences or ceases to qualify as a hedg- IFRIC 16 (Amendment), ‘Hedges of a Net Investment in a Foreign Operation’, clarifies that hedging instruments may ing instrument in cash flow or net investment hedge. The definition of financial asset or financial liability at fair value through be held by any entity or entities within the group. This includes a foreign operation that itself is being hedged. This profit or loss as it relates to items that are held for trading is also amended. This clarifies that a financial asset or liability that amendment has no impact on the Group’s financial statements. is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition. When remeasuring the carrying amount of a debt instrument on Standards, Amendments to published Standards and Interpretations issued but not yet effective cessation of fair value hedge accounting, the amendment clarifies that a revised effective interest rate (calculated at the date fair value hedge accounting ceases) is used. The amendment is not expected to have an impact on the Group’s income statement. Certain standards, amendments to published standards and interpretations have been issued that are mandatory for accounting periods beginning on or after 1 January 2010 or later periods, but which the Group has not early adopted. IAS 40 (Amendment), ‘Investment Property’, clarifies that property under construction or development for future use as investment property is within the scope of IAS 40. Where the fair value model is applied, such property is, therefore, At the reporting date of these financial statements, the following were in issue but not yet effective: measured at fair value. However, where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value Amendments to IFRS 1 Additional Exemptions for First-time Adopters becomes reliably measurable. The amendment will not have an impact on the Group’s operations, as there are no investment Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions 142 properties held by the Group. Classification of Rights Issues (Amendment to IAS 32) 143 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IAS 41 and IFRS5 are not applicable to the Group. Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement IAS 24 Related Party Disclosures (Revised 2009) IFRS 7 (Amendment), ‘Financial Instruments: Disclosures’, clarifies that interest income is not a component of finance costs. IFRS 9 Financial Instruments Amendment to IFRS 1 Limited Exemption from Comparatives IFRS 7 Disclosures for First-time Adopters Improvements to IFRSs (issued 16 April 2009)

IFRS 2 (Amendment), ‘Share-based Payment’, confirms that, transactions in which the entity acquires goods as part of the net assets acquired in a business combination as defined by IFRS 3 (2008) Business Combinations, contribution of a business on formation of a joint venture and common control transactions are excluded from the scope of IFRS 2 Share-based Payment. The amendment will not have an impact on the Group’s operations. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

Improvements to IFRSs (issued 16 April 2009) (b) Basis of consolidation (1) (i) Subsidiaries IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern IFRS 8 Operating Segments the financial and operating policies generally accompanying a shareholding of more than one half ofthe IAS 1 Presentation of Financial Statements voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible IAS 7 Statement of Cash Flows are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated IAS 17 Leases from the date on which control is transferred to the group. They are de-consolidated from the date that control IAS 18 Revenue ceases. IAS 36 Impairment of Assets IAS 38 Intangible Assets The acquisition method of accounting is used to account for business combinations by the group. The consideration IAS 39 Financial Instruments: Recognition and Measurement transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. Where relevant, the Group is still evaluating the effect of these Standards, amendments to published Standards and Interpretations issued but not yet effective, on the presentation of its financial statements. Th e consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and Improvements to IFRSs (issued 6 May 2010) liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognises any non-controlling interests in IFRS 1 First-time Adoption of International Financial Reporting Standards the acquiree either at fair value or at the non-controlling interests' proportionate share of the acquiree’s net assets. IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosures The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the IAS 1 Presentation of Financial Statements acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the group’s share 144 IAS 27 Consolidated and Separate Financial Statements of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of 145 IAS 34 Interim Financial Reporting the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement IFRIC 13 Customer Loyalty Programmes of comprehensive income.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

Separate financial statement of the Bank In the separate financial statements of the Bank, investments in subsidiary companies are carried at cost (or at fair value). The carrying amount is reduced to recognise any impairment in the value of individual investments. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

(ii) Transactions and non-controlling interests (c) Foreign currency translation The foreign subsidiaries' Statement of Financial Position are translated to Mauritian Rupees using the closing rate The group treats transactions with non-controlling interests as transactions with equity owners of the group. For method. Their Income Statements and cash flows are translated at the average rate for the year. Any resulting exchange purchases from non-controlling interests, the difference between any consideration paid and the relevant share differences are recognised in other comprehensive income. On disposal of a foreign entity, such exchange differences acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to are recognised in the Income Statement as part of the gain or loss on sale. non-controlling interests are also recorded in equity. 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. (2) Associates (i) Functional and presentation currency 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  Items included in the financial statements of each of the Group's entities are measured using Mauritian rupees, influence, but which it does not control. Unrealised gains on transactions between the Group and its associates the currency of the primary economic environment in which the entity operates ("functional currency"). The are eliminated to the extent of the Group's interests in the associates. Unrealised losses are also eliminated unless consolidated financial statements are presented in Mauritian rupees, which is the Company's functional and the transaction provides evidence of an impairment of the asset transferred. The Group's investment in associates presentation currency. 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 guaranteed obligations in respect of the associates. The (ii) Transactions and balances Group Income Statement reflects the Group's share of post-tax profits of associates. Fo reign currency transactions are translated into the functional currency using the exchange rates prevailing on the In the separate financial statements of the Bank, the investment in associated companies is accounted atcost dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and (which includes transaction costs). The carrying amount is reduced to recognise any impairment in the value of the from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are individual companies. recognised in the Income statement , except when deferred in equity as qualifying cashflow hedges and qualifying net 146 investment hedges. 147 (3) Joint Venture  Trading transactions denominated in foreign currencies are accounted for at the rate of exchange ruling at the date Interest in jointly controlled entities is consolidated in a line - by - line basis using proportionate consolidation. of the transaction. Under this method, the appropriate share of income, expenses, assets and liabilities of the jointly controlled entities  Mo netary assets and liabilities expressed in foreign currencies are reported at the rate of exchange ruling at the end of is included in the relevant components of the financial statements. the reporting date. Differences arising from reporting monetary items are dealt with through the Income Statement.

 Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.  Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

(d) Derivative financial instruments (h) Sale and repurchase agreements Derivative financial instruments include foreign exchange contracts and currency swaps. These are initially recognised in Securities sold subject to linked repurchase agreements ("repos") are retained in the Statement of financial position the Statement of financial position at cost (which includes transaction costs) and subsequently remeasured at their fair as Government securities and Treasury bills and the counterparty liability is included in amount due to other banks or value. Fair values of derivatives between two external currencies are based on interest rate differential between the two deposits, as appropriate. currencies. Fair values of forwards involving Mauritian Rupees are based on treasury bills rate or LIBOR. All derivatives are Securities purchased under agreements to resell ("reverse repos") are recorded as amount due from other banks or carried as assets when fair value is positive and as liabilities when fair value is negative. 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. 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 (i) Investment securities trading with fair value gains and losses reported in the Income Statement. 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 The fair values of derivative financial instruments held for trading are disclosed in note 4. 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 period of time in response to needs (e) Offsetting financial instruments for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for-sale, which may Financial assets and liabilities are offset and the net amount reported in the Statement of financial position when there is be sold. a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 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 (f) Interest income and expense are estimated using maintainable earnings or net assets bases refined to reflect the specific circumstances ofthe Interest income and expense are recognised in the Income Statement for all interest bearing instruments on an accrual issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are basis using the effective yield method based on the actual purchase price. Interest income includes coupons earned on recognised in statement of comprehensive income. Equity securities for which fair values cannot be measured reliably 148 fixed income investment and trading securities and accrued discount and premium on treasury bills and other discounted are recognised at cost less impairment. 149 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 Financial assets at fair value through profit or loss are financial assets held for trading. purpose of measuring the recoverable amount. Held-to-maturity investments are carried at amortised cost using the effective yield method, less any provision for impairment. (g) Fees and commissions A financialasset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan processing impairment loss for assets carried at amortised cost is calculated as the difference between the asset's carrying amount fees are deferred and recognised as income over the life of the loan. 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. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

Interest earned while holding investment securities is reported as interest income. Dividends receivable are included If the amount of the impairment subsequently decreases due to an event occuring after the write-down, the release of separately in 'dividend income' in the Income Statement when the entity's right to receive payment is established. the provision is credited as a reduction of the provision for loan losses.

All regular way purchases and sales of investment securities are recognised at trade date which is the date that the Group (l) Goodwill commits to purchase or sell the asset. All other purchases and sales are recognised as derivative forward transactions until Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of net assets of settlement. the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in Intangible Assets. (j) Trading securities Trading securities are securities which were either acquired for generating a profit from short-term fluctuations in price Gain on bargain purchase represents the excess of the fair value of the Group's share of net assets acquired over or dealer's margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading the cost of acquisition and is recognised in the Income Statement.Goodwill on acquisition of associates is included in securities are initially recognised at cost (which includes transaction costs) and measured at subsequent reporting dates at investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment fair value. All related realised and unrealised gains and losses are recognised in the Income Statement for the year. losses. 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. (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 (m) Property, plant and equipment Bank and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate these Property, plant and equipment are carried at historical cost or at revalued amounts less accumulated depreciation. loans as is determinable by reference to market prices at origination date. Third party expenses, such as legal fees, incurred Revaluation surpluses are credited to reserves.Any subsequent decrease is first charged to reserves. Thereafter, decreases in securing a loan are treated as part of the cost of the transaction. 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. 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 Land and buildings are revalued on a regular basis by qualified independent valuers. Depreciation is calculated to 150 contractual terms of the loans. The amount of the provision is the difference between the carrying amount and the write down the cost or amount of the valuation of such assets to their residual values on a straight-line basis over their 151 recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and estimated useful lives as follows: 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 Buildings 50 years of the loan portfolio at the end of the reporting date. These have been estimated upon the historical patterns of losses in Computer and other equipment 5-10 years each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the Other fixed assets 5-15 years 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. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Statutory and often regulatory loan loss reserve requirements that exceed these amounts are dealt with in the general Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately banking reserve as an appropriation of retained earnings. to its recoverable amount. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 1. Accounting Policies (continued)

Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount and (q) Cash and cash equivalents are recognised as income or expense in the Income Statement.Repairs and renewals are charged to the Income Statement For the purposes of the Statements of Cash Flows, cash and cash equivalents comprise cash and balances with Central when the expenditure is incurred. 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. (n) Computer software development costs Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are (r) Provisions directly associated with identifiable and unique software products controlled by the Bank and the Group and will probably Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a costs of the software development team. reliable estimate of the amount of the obligation can be made. 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 (s) Employee benefits development costs recognised as assets are amortised using the straight-line method over their useful lives, but not The Group operates a number of defined benefit and defined contribution plans throughout the region. The defined exceeding a period of five years. benefit plan is fully funded. The assets of the funded plan are held independently and administered bytheMCB Superannuation Fund. The pension costs are assessed in accordance with the advice of qualified actuaries using the (o) Finance leases-where the company is the lessee projected unit credit method.The Group's contributions are charged to the Income Statement in the year to which they Assets acquired under finance leases are accounted for at the present value of the minimum lease payments and depreciated relate. The main assumptions made in the actuarial valuation of the pension fund are listed in note 16 to the financial over their estimated useful lives. A corresponding liability is recorded as outstanding lease obligations. statements. 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. (t) Deferred tax Deferred tax is provided for, using the liability method, on all taxable temporary differences arising between the tax (p) Accounting for leases - where the company is the lessor bases of assets and liabilities and their carrying amounts in the financial statements.The principal temporary differences 152 Finance leases arise from depreciation of property, plant and equipment,provisions for impairment losses on loans and advances and 153 When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable, provisions for employee benefits. The rates enacted or subsequently enacted at the balance sheet date are used to the amount being equal to the net investment in the leases after specific provision for bad and doudtful debts in respect determine deferred tax.Deferred tax assets are recognised to the extent that it is probable that future taxable profit of all identified impaired leases in the light of periodical reviews.The difference between the gross receivable and the will be available against which the temporary differences can be utilised. 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. (u) Borrowings Borrowings are recognised initially at 'cost' , being their issue proceeds ( fair value of consideration received ) net Operating leases of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between net Assets leased out under operating leases are included in plant and equipment in the Statement of Financial Position.They proceeds and the redemption value is recognised in the Income Statement over the period of the borrowings using the are depreciated over their expected useful lives on a basis consistent with similar assets.Rental income is recognised on a effective yield method. straight line basis over the lease term. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

1. Accounting Policies (continued) 2. Financial Risk Management

(v) Acceptances (a) Strategy in using financial instruments Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most The use of financial instruments is a major feature of the Bank's operations. It has been the Bank's policy totake acceptances to be settled simultaneously with the reimbursement from the customers. Acceptances are disclosed as deposits from customers at variable rates mostly by investing these funds in a wide range of assets. liabilities with corresponding contra-assets. The Bank also seeks to raise its interest margins, net of provisions, through lending to commercial and retail borrowers (w) Operating segments with a range of credit standing. The Bank's exposures are not restricted to just on-balance sheet loans and advances An operating segment is a component of the group that engages in business activities from which it may earn revenues but, also, to guarantees and other commitments such as letters of credit, performance and other bonds. and incur expenses, including revenues and expenses that relate to transactions with any of the group's other components. All operating segments' operating results are reviewed regularly by the Supervisory and Monitoring Commitee to make (b) Credit risk decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial Credit risk arises when customers or counterparties are not able to fulfill their contractual obligations. Credit Risk position is available. 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 Detailed analysis of operating segments are shown in note 35 to the financial statements. assessments are carried out to assist in portfolio management decisions including exposure levels and the constitution of required provisions. (x) Share capital Ordinary shares are classified as equity. Credit related commitments The main purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and (i) Share issue costs standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial in equity as a deduction, net of tax, from the proceeds. 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 goodsto 154 (ii) Treasury shares which they relate and therefore carry less risk than a direct borrowing. 155 Where the Company purchases its equity share capital, the consideration paid is deducted from total shareholders’ equity as treasury shares until they are cancelled. Where such shares are subsequently sold or reissued, any consideration Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, received is included in shareholders’ equity. 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 (y) Borrowing costs the total unused commitments since most commitments to extend credit are contingent upon customers maintaining Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised until specific credit standards. The Bank monitors the term to maturity of credit commitments because longerterm such time as the assets are substantially ready for their intended use or sale. commitments generally have a greater degree of credit risk than shorter term commitments.

Other borrowing costs are expensed. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

Credit Quality of Loans And Advances (c) Market risk Market risk arises from activities undertaken in or impacted by financial markets generally. This includes the risk of gain or Group Bank loss arising from the movement in market price of a financial asset or liability as well as ancillary risks such as liquidity and 2010 2009 2008 2010 2009 2008 Rs M Rs M Rs M Rs M Rs M Rs M funding risk. The market risk management policies at the Bank are set by the Risk Committee of the Board and executive Neither past due nor impaired 104,962 92,300 70,234 99,399 86,988 64,758 management of this class of risk is delegated to the Asset and Liability Committee (ALCO). The Market Risk Business Unit Past due but not impaired (more than 90 days) 3,198 3,125 5,821 3,098 3,025 5,728 (MRBU) plays a central role in monitoring and controlling market risk activities. It is the aim of MRBU to ensure that market Impaired 4,336 4,809 4,692 4,111 4,618 4,509 Gross 112,496 100,234 80,747 106,608 94,631 74,995 risk policies and guidelines are being effectively complied with and that limits are being observed. Less Allowances for credit impairment (3,053) (3,376) (3,196) (2,925) (3,280) (3,101) Net 109,443 96,858 77,551 103,683 91,351 71,894 A major methodology which MCB uses for the measurement of market price risk is Value-at-Risk (VaR). VaR is the statistical Fair Value of collaterals of past due but not impaired loans 3,198 3,118 5,821 3,098 3,025 5,728 representation of financial risk, expressed as a number, based on consistent modelling of past data and/or simulation of Fair Value of collaterals of impaired loans 2,240 2,330 2,293 2,000 2,134 2,096 possible future movements, applied to a particular risk position, asset, or portfolio. Loans and advances negotiated The VaR model used by the Bank is based upon a 99 percent one-tailed confidence level and assumes a ten-day holding Group Bank period, with market data taken from the previous two years. 2010 2009 2008 2010 2009 2008 Rs M Rs M Rs M Rs M Rs M Rs M VaR Analysis - Foreign Exchange Risk (Group) Loans and advances negotiated 4,972 4,557 283 4,972 4,454 276 Fair value of collaterals 4,972 4,557 283 4,972 4,454 276 As at 30 June Average Maximum Minimum Maximum exposure to credit risk before collateral and other credit risk enhancements : 2010 (Rs M) (95.74) (80.90) (111.88) (53.67) 2009 (Rs M) (55.03) (31.66) (62.11) (6.34) Group Bank 2010 2009 2008 2010 2009 2008 VaR Analysis - Foreign Exchange Risk (Bank) 156 Rs M Rs M Rs M Rs M Rs M Rs M 157 Credit risk exposures relating to on - balance sheet aasets are as follows : As at 30 June Average Maximum Minimum Cash and cash equivalents 15,352 21,945 16,582 14,032 20,726 15,693 2010 (Rs M) (26.22) (28.94) (45.66) (11.86) Derivatives financial instruments 40 120 137 40 120 137 Loans and advances to banks 1,890 2,318 1,819 1,940 2,223 1,568 2009 (Rs M) (32.75) (21.04) (38.87) (3.05) Loans and advances to customers 107,553 94,540 75,733 101,743 89,128 70,325 Investment securities 19,105 17,732 26,309 15,131 14,033 22,074 Other assets 6,931 3,100 2,698 5,835 1,935 1,607 (d) Price risk Credit risk exposures relating to off - balance sheet The Group and the Bank are exposed to equity securities price risk because of investments held and classified as available- aasets are as follows : for-sale financial assets. The table below summarises the impact of increases/decreases in fair value of the investments on Financial guarantees 26,796 27,717 36,461 25,629 25,833 34,242 the Group's and the Bank's equity. The analysis is based on the assumption that the fair value had increased/decreased Loans committed and other credit related liabilities 6,450 7,311 6,001 6,240 7,115 5,816 Total 184,117 174,783 165,740 170,590 161,113 151,462 by 5%. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(d) Price risk (continued) (e) Currency risk (continued) Concentration of assets, liabilities and off-balance sheet items Group Bank 2010 2009 2008 2010 2009 2008 Group Rs M Rs M Rs M Rs M Rs M Rs M At June 30, 2010 EURO USD GBP MUR OTHER TOTAL Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 168 170 173 46 45 59 Available-for-sale financial assets Cash & cash equivalents 4,911,988 2,965,686 2,750,993 1,684,953 1,718,507 14,032,127 Derivative financial instruments 1,381 4,499 5,910 27,319 1,086 40,195 (e) Currency risk Loans and advances to banks 59,102 1,749,278 - 138,070 - 1,946,450 Loans and advances to customers 8,203,650 21,296,354 369,414 74,447,698 345,261 104,662,377 Currency Risk is defined as the risk that movements in foreign exchange rates adversely affect the value of the Bank's Investment securities - 160,450 - 14,970,686 - 15,131,136 foreign currency positions. Investments in associates 2,958,134 - - 3,428,414 - 6,386,548 Exposure resulting from trading activities is monitored through the use of targets and limits. Limits are given to the Goodwill and other intangible assets - - - 611,353 - 611,353 Property, plant and equipment - - - 3,927,355 - 3,927,355 individual trader and monitored by the Treasury Manager. Such limits include daily, monthly, half-yearly and yearly stop Deferred tax assets - - - 9,232 - 9,232 losses. Exposure resulting from non-trading activities is managed through the Asset Liability Management framework, with Other assets 823,893 125,683 29,922 4,848,674 7,310 5,835,482 reference to guidelines and policies set and approved by ALCO and the Board Risk Monitoring Committee. 16,958,148 26,301,950 3,156,239 104,093,754 2,072,164 152,582,255 Less allowances for credit impairment (2,925,137) 149,657,118 Subsidiaries 13,082,051 Total assets 162,739,169

Liabilities Deposits from banks 686,943 1,827,614 263,973 58,416 230,490 3,067,436 Deposits from customers 12,541,875 20,384,128 2,664,307 84,958,570 1,329,537 121,878,417 Derivative financial instruments 1,767 46,070 5,476 133 32,125 85,571 158 Other borrowed funds - 848,760 - 312,301 - 1,161,061 159 Subordinated liabilities - 1,454,853 - - - 1,454,853 Current tax liabilities - - - 266,769 - 266,769 Other liabilities 217,960 356,857 17,292 3,627,733 71,326 4,291,168 13,448,545 24,918,282 2,951,048 89,223,922 1,663,478 132,205,275 Subsidiaries 8,657,472 Total liabilities 140,862,747

Net on-balance sheet position 3,509,603 1,383,668 205,191 14,869,832 408,686 20,376,980 Less allowances for credit impairment (2,925,137) Subsidiaries 4,424,579 21,876,422

Off balance sheet net notional position 1,348,691 1,980,154 592,645 633,089 698,764 5,253,343 Credit commitments 5,018,845 14,410,545 60,653 11,300,380 1,078,289 31,868,712 Subsidiaries 1,377,866 38,499,921 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(e) Currency risk (continued) (e) Currency risk (continued) Concentration of assets, liabilities and off-balance sheet items Concentration of assets, liabilities and off-balance sheet items

Bank Group At June 30, 2010 EURO USD GBP MUR OTHER TOTAL At June 30, 2009 EURO USD GBP MUR OTHER TOTAL Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 4,911,988 2,965,686 2,750,993 1,684,953 1,718,507 14,032,127 Total assets 14,887,143 25,068,280 4,192,882 95,016,326 2,081,262 141,245,893 Derivative financial instruments 1,381 4,499 5,910 27,319 1,086 40,195 Total liabilities 12,281,718 22,646,606 3,898,107 81,762,781 1,567,186 122,156,398 Loans and advances to banks 59,102 1,749,278 - 138,070 - 1,946,450 Net on-balance sheet position 2,605,425 2,421,674 294,775 13,253,545 514,076 19,089,495 Loans and advances to customers 8,203,650 21,296,354 369,414 74,447,698 345,261 104,662,377 Less allowances for credit impairment (3,280,044) Investment securities - 160,450 - 14,970,686 - 15,131,136 15,809,451 Investments in associates 401,829 - - 460,803 - 862,632 Subsidiaries 4,322,431 Investments in subsidiaries - - - 3,230,761 - 3,230,761 20,131,882 Goodwill and other intangible assets - - - 611,353 - 611,353 Property, plant and equipment - - - 3,927,355 - 3,927,355 Off balance sheet net notional position 818,994 2,412,351 395,856 221,552 642,537 4,491,290 Deferred tax assets - - - 9,232 - 9,232 Credit commitments 6,276,788 11,428,474 108,065 10,214,460 591,760 28,619,547 Other assets 823,893 125,683 29,922 4,848,674 7,310 5,835,482 Subsidiaries 2,079,122 14,401,843 26,301,950 3,156,239 104,356,904 2,072,164 150,289,100 35,189,959 Less allowances for credit impairment (2,925,137) Total assets 147,363,963 Bank At June 30, 2009 Liabilities Total assets 12,237,251 25,230,572 4,192,882 94,947,650 2,081,262 138,689,617 Deposits from banks 686,943 1,827,614 263,973 58,416 230,490 3,067,436 Total liabilities 12,281,718 22,646,606 3,898,107 81,762,781 1,567,186 122,156,398 Deposits from customers 12,541,875 20,384,128 2,664,307 84,958,570 1,329,537 121,878,417 Net on-balance sheet position (44,467) 2,583,966 294,775 13,184,869 514,076 16,533,219 Derivative financial instruments 1,767 46,070 5,476 133 32,125 85,571 Less allowances for credit impairment (3,280,044) Other borrowed funds - 848,760 - 312,301 - 1,161,061 13,253,175 160 Subordinated liabilities - 1,454,853 - - - 1,454,853 161 Current tax liabilities - - - 266,769 - 266,769 Off balance sheet net notional position 818,994 2,412,351 395,856 221,552 642,537 4,491,290 Other liabilities 217,960 356,857 17,292 3,627,733 71,326 4,291,168 Credit commitments 6,276,788 11,428,474 108,065 10,214,460 591,760 28,619,547 Total liabilities 13,448,545 24,918,282 2,951,048 89,223,922 1,663,478 132,205,275

Net on-balance sheet position 953,298 1,383,668 205,191 15,132,982 408,686 18,083,825 Less allowances for credit impairment (2,925,137) 15,158,688

Off balance sheet net notional position 1,348,691 1,980,154 592,645 633,089 698,764 5,253,343 Credit commitments 5,018,845 14,410,545 60,653 11,300,380 1,078,289 31,868,712 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(e) Currency risk (continued) (f) Interest rate risk (continued) Concentration of assets, liabilities and off-balance sheet items Interest sensitivity of assets and liabilities - repricing analysis

Group EURO USD GBP MUR OTHER TOTAL Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2008 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 At June 30, 2010 1 month months months months years years bearing Total Total assets 12,212,444 18,184,607 2,452,372 89,011,259 1,341,606 123,202,288 Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total liabilities 10,993,568 18,162,752 2,807,447 72,986,599 1,061,036 106,011,402 Cash & cash equivalents 12,150,594 - - - - - 1,881,533 14,032,127 Net on-balance sheet position 1,218,876 21,855 (355,075) 16,024,660 280,570 17,190,886 Derivative financial instruments ------40,195 40,195 Less allowances for credit impairment (3,101,358) Loans and advances to banks 1,159,132 786,465 - - - - 853 1,946,450 Loans and advances to customers 85,261,020 4,541,002 6,482,735 2,379,345 1,441,064 3,733,759 823,452 104,662,377 14,089,528 Investment securities 1,462,845 2,292,235 2,829,696 3,761,900 2,451,596 1,411,001 921,863 15,131,136 Subsidiaries 3,904,862 Investments in associates - - 401,829 - - - 5,984,719 6,386,548 17,994,390 Goodwill and other intangible assets ------611,353 611,353 Property, plant and equipment ------3,927,355 3,927,355 Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,260 295,026 14,217,663 Deferred tax assets ------9,232 9,232 Credit commitments 4,486,351 11,286,168 99,867 9,445,817 821,703 26,139,906 Other assets ------5,835,482 5,835,482 Subsidiaries 2,403,372 100,033,591 7,619,702 9,714,260 6,141,245 3,892,660 5,144,760 20,036,037 152,582,255 42,760,941 Less allowances for credit impairment (2,925,137) 149,657,118 Bank Subsidiaries 13,082,051 At June 30, 2008 Total assets 162,739,169 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 Liabilities Net on-balance sheet position (877,016) 291,557 (355,075) 15,105,154 280,570 14,445,190 Deposits from banks 1,625,104 792,206 421,004 160,450 - - 68,672 3,067,436 Less allowances for credit impairment (3,101,358) Deposits from customers 104,256,086 4,437,659 1,784,248 1,899,681 111,161 73,268 9,316,314 121,878,417 11,343,832 Derivative financial instruments ------85,571 85,571 Other borrowed funds 841,798 83 160,450 - 112,219 46,511 - 1,161,061 162 Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,260 295,026 14,217,663 Subordinated liabilities - - 1,454,853 - - - - 1,454,853 163 Credit commitments 4,486,351 11,286,168 99,867 9,445,817 821,703 26,139,906 Current tax liabilities ------266,769 266,769 Other liabilities 432,597 - - - - - 3,858,571 4,291,168 107,155,585 5,229,948 3,820,555 2,060,131 223,380 119,779 13,595,897 132,205,275 (f) Interest rate risk Subsidiaries 8,657,472 Total liabilities 140,862,747 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 On balance sheet interest sensitivity gap (7,121,994) 2,389,754 5,893,705 4,081,114 3,669,280 5,024,981 6,440,140 20,376,980 to deposits in foreign currencies; however maturities in this regard are only short-term. Less allowances for credit impairment (2,925,137) Subsidiaries 4,424,579 21,876,422 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(f) Interest rate risk (continued) (f) Interest rate risk (continued) Interest sensitivity of assets and liabilities - repricing analysis Interest sensitivity of assets and liabilities - repricing analysis

Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest 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 Total At June 30, 2010 1 month months months months years years bearing Total RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Total assets 86,131,763 13,341,649 8,498,755 7,497,611 3,386,325 5,388,053 17,001,737 141,245,893 Cash & cash equivalents 12,150,594 - - - - - 1,881,533 14,032,127 Total liabilities 97,793,831 5,311,209 4,909,305 1,085,332 72,956 122,382 12,861,383 122,156,398 Derivative financial instruments ------40,195 40,195 On balance sheet interest Loans and advances to banks 1,159,132 786,465 - - - - 853 1,946,450 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 Loans and advances to customers 85,261,020 4,541,002 6,482,735 2,379,345 1,441,064 3,733,759 823,452 104,662,377 Less allowances for credit impairment (3,280,044) Investment securities 1,462,845 2,292,235 2,829,696 3,761,900 2,451,596 1,411,001 921,863 15,131,136 15,809,451 Investments in associates - - 401,829 - - - 460,803 862,632 Investments in subsidiaries ------3,230,761 3,230,761 Subsidiaries 4,322,431 Goodwill and other intangible assets ------611,353 611,353 20,131,882 Property, plant and equipment ------3,927,355 3,927,355 Bank Deferred tax assets ------9,232 9,232 At June 30, 2009 Other assets ------5,835,482 5,835,482 100,033,591 7,619,702 9,714,260 6,141,245 3,892,660 5,144,760 17,742,882 150,289,100 Total assets 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 (2,925,137) Total liabilities 97,793,831 5,311,209 4,909,305 1,085,332 72,956 122,382 12,861,383 122,156,398 Total assets 147,363,963 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 Liabilities Less allowances for credit impairment (3,280,044) Deposits from banks 1,625,104 792,206 421,004 160,450 - - 68,672 3,067,436 13,253,175 Deposits from customers 104,256,086 4,437,659 1,784,248 1,899,681 111,161 73,268 9,316,314 121,878,417 Derivative financial instruments ------85,571 85,571 164 Other borrowed funds 841,798 83 160,450 - 112,219 46,511 - 1,161,061 165 Subordinated liabilities - - 1,454,853 - - - - 1,454,853 Current tax liabilities ------266,769 266,769 Other liabilities 432,597 - - - - - 3,858,571 4,291,168 Total liabilities 107,155,585 5,229,948 3,820,555 2,060,131 223,380 119,779 13,595,897 132,205,275

On balance sheet interest sensitivity gap (7,121,994) 2,389,754 5,893,705 4,081,114 3,669,280 5,024,981 4,146,985 18,083,825

Less allowances for credit impairment (2,925,137) 15,158,688 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(f) Interest rate risk (continued) (g) Liquidity risk (continued) Interest sensitivity of assets and liabilities - repricing analysis Maturities of assets and liabilitities

Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2010 1 month months months months years years items Total At June 30, 2008 1 month months months months years years bearing Total Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 13,788,613 - - - - - 243,514 14,032,127 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 Derivative financial instruments 33,467 4,127 2,601 - - - - 40,195 Total liabilities 87,317,395 2,045,217 3,340,696 756,964 549,666 341,475 11,659,989 106,011,402 Loans and advances to banks 780,958 626,016 - 173,803 365,673 - - 1,946,450 On balance sheet interest Loans and advances to customers 26,338,840 4,111,908 2,527,685 1,418,438 9,647,595 60,070,447 547,464 104,662,377 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 Investment securities 1,462,845 2,292,235 2,829,696 3,761,900 2,612,046 1,411,001 761,413 15,131,136 Less allowances for Investments in associates - - 401,829 - - - 5,984,719 6,386,548 credit impairment (3,101,358) Goodwill and other intangible assets ------611,353 611,353 14,089,528 Property, plant and equipment ------3,927,355 3,927,355 Subsidiaries 3,904,862 Deferred tax assets ------9,232 9,232 17,994,390 Other assets ------5,835,482 5,835,482 42,404,723 7,034,286 5,761,811 5,354,141 12,625,314 61,481,448 17,920,532 152,582,255 Bank Less allowances for credit impairment (2,925,137) At June 30, 2008 149,657,118 Subsidiaries 13,082,051 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 assets 162,739,169 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 Liabilities 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 Deposits from banks 1,693,776 792,206 581,454 - - - - 3,067,436 Less allowances for Deposits from customers 97,816,452 6,237,289 3,352,517 5,122,105 5,324,380 4,025,674 - 121,878,417 credit impairment (3,101,358) Derivative financial instruments 9,346 11,365 64,860 - - - - 85,571 166 11,343,832 167 Other borrowed funds 200,000 83 160,450 641,798 112,219 46,511 - 1,161,061 Subordinated liabilities - - - - - 1,454,853 - 1,454,853 (g) Liquidity risk Current tax liabilities - - 266,769 - - - - 266,769 Liquidity risk can be defined as the risk of a funding crisis, notably a lack of funds to meet immediate orshortterm Other liabilities 442,275 - - - - - 3,848,893 4,291,168 100,161,849 7,040,943 4,426,050 5,763,903 5,436,599 5,527,038 3,848,893 132,205,275 obligations in a cost-effective way. Subsidiaries 8,657,472 There are two aspects of liquidity risk management a) cash flow management to ensure a balanced inflow and outflow Total liabilities 140,862,747 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 Net liquidity gap (57,757,126) (6,657) 1,335,761 (409,762) 7,188,715 55,954,410 14,071,639 20,376,980 Less allowances for credit impairment (2,925,137) accordance with this policy, on a day-to-day basis. Subsidiaries 4,424,579 21,876,422 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 2. Financial Risk Management (continued)

(g) Liquidity risk (continued) (g) Liquidity risk (continued) Maturities of assets and liabilitities Maturities of assets and liabilitities

Bank Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2010 1 month months months months years years items Total At June 30, 2009 1 month months months months years years bearing Total Assets RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Cash & cash equivalents 13,788,613 - - - - - 243,514 14,032,127 Total assets 39,980,888 7,863,311 3,332,442 6,513,756 12,235,085 54,377,384 16,943,027 141,245,893 Derivative financial instruments 33,467 4,127 2,601 - - - - 40,195 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 Loans and advances to banks 780,958 626,016 - 173,803 365,673 - - 1,946,450 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 Loans and advances to customers 26,338,840 4,111,908 2,527,685 1,418,438 9,647,595 60,070,447 547,464 104,662,377 Less allowances for Investment securities 1,462,845 2,292,235 2,829,696 3,761,900 2,612,046 1,411,001 761,413 15,131,136 credit impairment (3,280,044) Investments in associates - - 401,829 - - - 460,803 862,632 15,809,451 Investments in subsidiaries - - - - - 26,655 3,204,106 3,230,761 Subsidiaries 4,322,431 Goodwill and other intangible assets ------611,353 611,353 20,131,882 Property, plant and equipment ------3,927,355 3,927,355 Bank Deferred tax assets ------9,232 9,232 At June 30, 2009 Other assets ------5,835,482 5,835,482 42,404,723 7,034,286 5,761,811 5,354,141 12,625,314 61,508,103 15,600,722 150,289,100 Total assets 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 (2,925,137) 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 Total assets 147,363,963 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 Liabilities credit impairment (3,280,044) Deposits from banks 1,693,776 792,206 581,454 - - - - 3,067,436 13,253,175 Deposits from customers 97,816,452 6,237,289 3,352,517 5,122,105 5,324,380 4,025,674 - 121,878,417 Derivative financial instruments 9,346 11,365 64,860 - - - - 85,571 168 Other borrowed funds 200,000 83 160,450 641,798 112,219 46,511 - 1,161,061 169 Subordinated liabilities - - - - - 1,454,853 - 1,454,853 - - 266,769 - - - - 266,769 Other liabilities 442,275 - - - - - 3,848,893 4,291,168 Total liabilities 100,161,849 7,040,943 4,426,050 5,763,903 5,436,599 5,527,038 3,848,893 132,205,275

Net liquidity gap (57,757,126) (6,657) 1,335,761 (409,762) 7,188,715 55,981,065 11,751,829 18,083,825 Less allowances for credit impairment (2,925,137) 15,158,688 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

2. Financial Risk Management (continued) 3. Cash and Cash Equivalents

(g) Liquidity risk (continued) GROUP BANK Maturities of assets and liabilitities 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000

Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest Cash in hand 1,468,406 1,407,195 1,299,199 1,366,848 1,059,888 1,125,362 At June 30, 2008 1 month months months months years years bearing Total Foreign currency notes and coin 81,132 78,058 79,877 49,653 75,458 73,966 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 RS ‘000 Unrestricted balances with Central Banks 592,348 546,487 414,248 97,200 220,957 - 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 Balances due in clearing 303,024 297,896 385,420 220,898 212,001 305,132 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 Balances with local banks 25,604 321,236 51,322 - 186,236 51,322 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 Interbank loans 266,860 473,949 185,547 - 300,000 - Less allowances for Money market placements 9,372,333 12,779,513 9,892,200 9,340,243 12,779,513 9,892,200 credit impairment (3,101,358) 14,089,528 Balances with banks abroad 3,242,293 2,018,276 1,168,641 2,957,285 1,869,023 1,139,640 Subsidiaries 3,904,862 15,352,000 17,922,610 13,476,454 14,032,127 16,703,076 12,587,622 17,994,390 Bank At June 30, 2008

Total assets 40,706,760 6,546,427 5,076,244 9,069,744 11,605,943 37,801,437 9,650,037 120,456,592 Total liabilities 81,394,574 2,853,822 1,488,223 4,292,841 8,553,455 4,240,527 3,187,960 106,011,402 Net liquidity gap (40,687,814) 3,692,605 3,588,021 4,776,903 3,052,488 33,560,910 6,462,077 14,445,190 Less allowances for credit impairment (3,101,358) 11,343,832

170 171 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

4. Derivative Financial Instruments 5. Loans

The Group utilises the following derivative instruments to manage its exposure to foreign currency risk: (a) Loans and advances to banks Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions. GROUP BANK 2010 2009 2008 2010 2009 2008 Currency swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 of currencies. Except for certain currency swaps, no exchange of principal takes place. The Group's credit risk represents (i) Loans and advances to banks the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored in Mauritius 138,353 220,833 304,167 138,353 220,833 304,167 on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and outside Mauritius 1,757,596 2,102,972 1,518,415 1,808,097 2,007,139 1,268,060 1,895,949 2,323,805 1,822,582 1,946,450 2,227,972 1,572,227 the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same Less: techniques as for its lending activities. Allowances for credit impairment (6,148) (5,237) (3,708) (6,148) (5,237) (3,708) 1,889,801 2,318,568 1,818,874 1,940,302 2,222,735 1,568,519

The fair values of derivative instruments held are set out below: (ii) Remaining term to maturity Up to 3 months 1,056,026 1,160,378 134,237 1,406,974 1,414,027 141,864 Contractual/ Nominal Fair value Fair value Over 3 months and up to 6 months - 194,750 - - 194,750 - Amount assets liabilities Over 6 months and up to 1 year 173,803 - - 173,803 - - Group & Bank RS’000 RS’000 RS’000 Over 1 year and up to 5 years 365,673 619,195 1,341,450 365,673 619,195 1,411,262 Derivatives held-for-trading Over 5 years 300,447 349,482 346,895 - - 19,101 Year ended 30th June 2010 1,895,949 2,323,805 1,822,582 1,946,450 2,227,972 1,572,227 Foreign Exchange Derivatives Currency forwards 1,817,772 16,097 49,444 (iii) Allowances for credit impairment Currency swaps 3,435,571 24,098 36,127 5,253,343 40,195 85,571 GROUP & 172 Year ended 30th June 2009 BANK 173 RS’000 Foreign Exchange Derivatives Portfolio Provisions : Currency forwards 1,348,944 53,970 40,886 At 30th June 2007 1,401 Currency swaps 3,142,346 66,438 3,658 Provision for credit impairment for the year 2,307 4,491,290 120,408 44,544 At 30th June 2008 3,708 Year ended 30th June 2008 Provision for credit impairment for the year 1,529 Foreign Exchange Derivatives At 30th June 2009 5,237 Currency forwards 5,257,531 90,847 83,070 Provision for credit impairment for the year 911 Currency swaps 8,960,132 46,414 12,903 At 30th June 2010 6,148 14,217,663 137,261 95,973 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

5. Loans (continued) 5. Loans (continued)

(b) Loans and advances to customers (b) Loans and advances to customers (continued) (iii) Allowances for credit impairment GROUP BANK 2010 2009 2008 2010 2009 2008 GROUP BANK RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Specific Portfolio Total Specific Portfolio Total (i) Retail customers: RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 At 1st July 2007 1,992,388 451,227 2,443,615 1,936,510 437,399 2,373,909 Credit cards 449,922 497,442 421,276 449,922 497,442 421,276 Mortgages 11,031,512 8,303,979 7,636,156 10,827,873 8,197,017 7,506,230 Translation differences in respect of subsidiaries 3,903 - 3,903 - - - Other retail loans 10,535,902 8,481,026 6,870,258 10,205,352 8,240,408 6,651,997 Provision for credit impairment for the year 365,571 82,688 448,259 328,170 78,693 406,863 Corporate customers 74,057,120 68,743,178 56,650,994 68,675,436 63,726,930 51,545,435 Provisions released (46,897) - (46,897) (22,973) - (22,973) Governments 1,202,650 1,234,266 1,247,553 1,180,908 1,195,941 1,204,078 Amounts written off (285,997) - (285,997) (264,548) - (264,548) Entities outside Mauritius 13,322,886 10,545,280 6,093,806 13,322,886 10,545,280 6,093,806 At 30th June 2008 2,028,968 533,915 2,562,883 1,977,159 516,092 2,493,251 Others - 106,726 5,656 - - - Interest suspense 629,783 - 629,783 604,399 - 604,399 110,599,992 97,911,897 78,925,699 104,662,377 92,403,018 73,422,822 Less: Provisions and interest suspense at 30th June 2008 2,658,751 533,915 3,192,666 2,581,558 516,092 3,097,650 Allowances for credit impairment (3,047,444) (3,371,401) (3,192,666) (2,918,989) (3,274,807) (3,097,650) 107,552,548 94,540,496 75,733,033 101,743,388 89,128,211 70,325,172 At 1st July 2008 2,028,968 533,915 2,562,883 1,977,159 516,092 2,493,251 Finance lease receivable included in Group loans amount to Rs. 2,022 million as at 30th June 2010 (2009 : Rs 1,896 million, Translation differences in respect of 2008 : Rs 2,001 million). subsidiaries 2,336 - 2,336 - - - Provision for credit impairment for the year 260,389 133,600 393,989 232,263 133,971 366,234 (ii) Remaining term to maturity Provisions released (77,739) - (77,739) (60,095) - (60,095) Up to 3 months 32,259,716 30,016,773 31,193,390 30,450,748 28,373,842 29,627,416 Amounts written off (135,141) - (135,141) (135,141) - (135,141) Over 3 months and up to 6 months 2,783,863 1,867,020 1,525,766 2,527,685 1,343,923 1,313,923 At 30th June 2009 2,078,813 667,515 2,746,328 2,014,186 650,063 2,664,249 Over 6 months and up to 1 year 2,244,424 2,004,509 2,057,240 1,418,438 1,234,291 1,228,098 Interest suspense 625,073 - 625,073 610,558 - 610,558 174 Over 1 year and up to 5 years 24,851,335 21,970,196 18,439,692 22,397,396 19,820,942 15,984,413 Provisions and interest suspense at 175 30th June 2009 2,703,886 667,515 3,371,401 2,624,744 650,063 3,274,807 Over 5 years 48,460,654 42,053,399 25,709,611 47,868,110 41,630,020 25,268,972 110,599,992 97,911,897 78,925,699 104,662,377 92,403,018 73,422,822 At 1st July 2009 2,078,813 667,515 2,746,328 2,014,186 650,063 2,664,249 Translation differences in respect of subsidiaries (8,466) - (8,466) - - - Provision for credit impairment for the year 276,165 81,449 357,614 198,864 79,489 278,353 Provisions released (115,611) - (115,611) (88,678) - (88,678) Amounts written off (470,718) - (470,718) (457,138) - (457,138) At 30th June 2010 1,760,183 748,964 2,509,147 1,667,234 729,552 2,396,786 Interest suspense 538,297 - 538,297 522,203 - 522,203 Provisions and interest suspense at 30th June 2010 2,298,480 748,964 3,047,444 2,189,437 729,552 2,918,989 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

5. Loans (continued) 5. Loans (continued)

(b) Loans and advances to customers (continued) (b) Loans and advances to customers (continued) (iv) Allowances for credit impairment by industry sectors (v) Credit concentration of risk by industry sectors Total credit facilities including guarantees, acceptances and other similar commitments extended by the Bank to any 2010 2009 2008 one customer or group of closely-related customers for amounts aggregating more than 15% of its capital base, Gross Non Specific Portfolio Total Total Total amount of performing provision provision provision provision provision classified by industry sectors. loans loans RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 GROUP GROUP 2010 2009 2008 Agriculture and fishing 8,481,696 47,893 24,516 59,176 83,692 94,016 101,799 RS’000 RS’000 RS’000 Manufacturing 9,983,696 751,358 354,031 70,060 424,091 687,219 620,421 of which EPZ 3,307,534 114,787 97,085 34,300 131,385 355,027 298,228 Agriculture and fishing 2,343,045 3,312,950 3,122,423 Tourism 24,656,061 88,416 43,833 58,957 102,790 103,234 54,124 Manufacturing 2,234,114 3,349,139 4,815,580 Transport 992,293 35,508 15,388 3,379 18,767 14,087 12,430 of which EPZ 1,480,118 2,560,622 2,129,926 Construction 19,620,732 1,062,712 527,340 138,052 665,392 605,679 433,647 Tourism 14,482,497 12,725,944 7,065,448 Financial and business services 9,633,765 290,299 97,700 30,686 128,386 39,868 58,653 Transport 290,237 239,369 - Traders 14,188,857 656,387 442,858 119,945 562,803 725,183 856,049 Construction 3,303,039 4,501,655 1,341,306 Personal 8,553,259 969,545 554,311 126,567 680,878 768,189 727,599 Financial and Business Services 1,475,224 2,419,944 387,335 of which credit cards 442,946 99,162 67,509 17,200 84,709 128,507 105,174 Traders 894,063 810,827 690,304 Professional 284,629 120,689 59,103 2,185 61,288 73,486 78,807 Global Business Licence holders 672,571 1,006,558 159,602 Foreign governments 1,180,908 - - 5,905 5,905 5,970 6,020 Others 3,055,753 3,338,412 2,056,660 Global Business Licence holders 6,199,309 5,029 1,895 62,000 63,895 47,924 1,987 28,750,543 31,704,798 19,638,658 Others 6,824,787 308,000 177,505 72,052 249,557 206,546 241,130 110,599,992 4,335,836 2,298,480 748,964 3,047,444 3,371,401 3,192,666 6. Investment Securities BANK Agriculture and fishing 7,955,437 45,498 23,540 58,200 81,740 89,919 97,322 GROUP BANK 176 Manufacturing 8,801,398 673,300 314,452 64,000 378,452 666,208 590,042 177 2010 2009 2008 2010 2009 2008 of which EPZ 3,250,911 112,643 94,941 34,300 129,241 350,615 293,692 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Tourism 23,655,315 60,036 42,990 58,100 101,090 98,484 51,725 At fair value through profit or loss - 64,692 593 - 64,692 593 Transport 517,943 21,648 9,019 2,600 11,619 12,370 11,264 Held to maturity 15,754,989 14,266,313 22,838,624 14,209,275 13,072,424 20,885,231 Construction 18,908,296 1,044,115 522,904 135,500 658,404 598,930 430,064 Financial and business services 9,276,812 287,351 94,752 30,352 125,104 38,214 56,543 Available-for-sale 3,350,421 3,400,642 3,469,831 921,861 895,557 1,187,714 Traders 12,633,743 614,173 413,360 116,900 530,260 681,092 805,954 19,105,410 17,731,647 26,309,048 15,131,136 14,032,673 22,073,538 Personal 8,389,963 968,197 553,439 125,900 679,339 766,915 726,691 of which credit cards 442,946 99,162 67,509 17,200 84,709 128,507 105,174 (a) At fair value through profit or loss Professional 184,771 120,689 59,103 2,000 61,103 73,343 78,590 Foreign governments 1,180,908 - - 5,905 5,905 5,970 6,020 Treasury bills held for trading : Global Business Licence holders 6,199,309 5,029 1,895 62,000 63,895 47,924 11,040 Over 3 months and up to 12 months - 64,692 593 - 64,692 593 Others 6,958,482 270,703 153,983 68,095 222,078 195,438 232,395 104,662,377 4,110,739 2,189,437 729,552 2,918,989 3,274,807 3,097,650 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

6. Investment Securities (continued) 7. Investments in Associates

(b) (i) Held to maturity The Group interest in its principal associates are as follows: GROUP BANK 2010 2009 2008 2010 2009 2008 BANK RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Assets Liabilities Non- Revenues Profit/ Holding Cost Mauritius Development Loan Stocks 772,633 866,283 1,116,671 717,567 712,128 784,207 controlling (loss) GOM bonds 4,754,826 5,897,313 6,729,264 4,604,354 5,170,983 5,438,426 Country of Interest incorporation RS’000 RS’000 RS’000 RS’000 RS’000 % RS’000 Treasury bills 10,227,530 7,502,717 14,992,689 8,887,354 7,189,313 14,662,598 Year ended 30th June 2010 Direct Effective 15,754,989 14,266,313 22,838,624 14,209,275 13,072,424 20,885,231 Banque Française Commerciale O.I. 60,824,619 55,825,574 - 4,130,768 626,747 49.99 49.99 447,184 Credit Guarantee Company Ltd Mauritius 26,129 7,383 - 2,271 (11,255) 40.00 40.00 12,000 Promotion and Development Ltd Mauritius 9,551,039 1,418,119 1,095,122 476,875 (35,964) 46.43 46.43 - (b)(ii) Remaining term to maturity Caudan Development Ltd Mauritius 4,012,079 1,155,527 - 424,028 51,142 5.34 33.65 - 2010 2009 2008 459,184 Up to 3 3 - 6 6 - 12 1 - 5 Over 5 Total Total Total Subordinated loan to associates 403,448 months months months years years 862,632 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 GROUP Year ended 30th June 2009 Mauritius Development Banque Française Commerciale O.I. France 77,056,521 71,911,268 - 5,230,454 792,839 49.99 49.99 447,184 Loan Stocks - 74,519 24,122 668,747 5,245 772,633 866,283 1,116,671 Promotion and Development Ltd Mauritius 9,392,269 1,287,987 1,120,341 594,194 278,090 46.43 46.43 - GOM bonds 307,028 - 1,100,860 3,346,348 590 4,754,826 5,897,313 6,729,264 Caudan Development Ltd Mauritius 3,992,408 1,143,087 - 412,990 116,030 5.34 33.19 - Treasury bills 4,370,897 3,072,836 2,783,797 - - 10,227,530 7,502,717 14,992,689 447,184 4,677,925 3,147,355 3,908,779 4,015,095 5,835 15,754,989 14,266,313 22,838,624 Subordinated loan to associate 467,409 914,593 BANK Mauritius Development Year ended 30th June 2008 Loan Stocks - 74,519 24,122 618,926 - 717,567 712,128 784,207 Banque 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 - GOM bonds 307,028 - 1,053,654 3,243,672 - 4,604,354 5,170,983 5,438,426 Caudan Development Ltd Mauritius 3,936,353 1,159,045 - 329,042 738,895 5.34 33.19 - Treasury bills 3,448,053 2,755,178 2,684,123 - - 8,887,354 7,189,313 14,662,598 178 447,184 179 3,755,081 2,829,697 3,761,899 3,862,598 - 14,209,275 13,072,424 20,885,231 Subordinated loan to associate 438,402 885,586 (c) Available-for-sale

GROUP BANK 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Quoted Official list : shares 450,227 401,084 453,962 2,104 2,104 2,104 Development and Enterprise Market/Over The Counter : shares 282,227 282,913 189,107 - - - Unquoted Shares 2,617,967 2,716,645 2,826,762 919,757 893,453 1,185,610 3,350,421 3,400,642 3,469,831 921,861 895,557 1,187,714 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

7. Investments in Associates (continued) 8. Investments in Subsidiaries

Except for Banque Française Commerciale Ocean Indien and Credit Guarantee Company Ltd which are unquoted, the other Country of Stated Effective holding BANK associates are quoted. incorporation/ Principal capital 2010 2009 2008 2010 2009 2008 operation activities RS’000 % %% RS’000 RS’000 RS’000 MCB Equity Fund Ltd Mauritius Private Equity Fund 2,074,949 100.00 100.00 100.00 2,074,949 1,910,965 1,451,052 BANK MCB Male Branch* Republic of Banking & Financial services 376,054 100.00 100.00 100.00 347,963 138,724 61,033 2010 2009 2008 Maldives RS’000 RS’000 RS’000 MCB Moçambique SA Mozambique Banking & Financial services 118,166 95.00 95.00 95.00 260,040 260,040 260,040 Cost of unquoted investments 459,184 447,184 447,184 MCB Seychelles Ltd Seychelles Banking & Financial services 52,450 100.00 100.00 100.00 211,522 211,522 211,522 GROUP International Card Mauritius Providing card system 100,000 80.00 80.00 - 80,000 80,000 - 2010 2009 2008 Processing Services Ltd facilities, card embossing and RS’000 RS’000 RS’000 encoding services Group share of net assets 5,926,215 5,966,405 5,527,407 MCB Capital Markets Ltd Mauritius Investment Holding Company 98,719 90.00 90.00 90.00 75,000 75,000 75,000 Goodwill 56,885 56,885 56,885 Subordinated loan to associates 403,448 467,409 438,402 MCB Madagascar SA Madagascar Banking & Financial services 171,527 85.00 85.00 75.00 64,322 64,322 7,131 6,386,548 6,490,699 6,022,694 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 & 14,625 100.00 100.00 100.00 14,625 14,625 14,625 development

Blue Penny Museum Mauritius Philatelic museum 1,000 97.88 97.88 97.88 950 950 950 3,204,106 2,830,883 2,156,088 Subordinated loan to subsidiary 26,655 188,947 235,324 3,230,761 3,019,830 2,391,412

180 Except for Fincorp Investment Ltd, which is quoted, the other above companies are unquoted. 181

* 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.

MCB Male Branch was incorporated as a separate legal entity, known as The Mauritius Commercial Bank (Maldives) Private Ltd on 8th September 2010. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

9. Goodwill and Other Intangible Assets 10. Property, Plant and Equipment

(a) Goodwill Assets under Land and Computer and Other fixed Work in Total finance leases buildings other equipment assets progress RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 GROUP GROUP 2010 2009 2008 RS’000 RS’000 RS’000 Cost & valuation At 1st July 2007 11,457 2,640,645 1,779,528 912,734 - 5,344,364 At 1st July 2009 52,849 52,849 33,501 Additions - 144,348 189,440 195,783 - 529,571 Investment in subsidiary - - 19,348 Disposals (142) (4,300) (141,712) (77,379) - (223,533) At 30th June 2010 52,849 52,849 52,849 Exchange adjustment - (110,554) (34,508) (5,801) - (150,863) Transfer (7,954) - 8,452 (498) - - (b) Other intangible assets 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 GROUP BANK Disposals - (170,954) (235,072) (167,913) - (573,939) 2010 2009 2008 2010 2009 2008 Exchange adjustment - (64,364) (13,151) (3,005) - (80,520) RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Transfer (2,739) (476) (380) (625) - (4,220) Computer Software At 30th June 2009 622 2,864,597 1,881,842 1,099,169 - 5,846,230 Additions* - 303,404 419,381 270,667 325,265 1,318,717 Cost Disposals - - (122,209) (91,259) - (213,468) At 1st July 2009 1,379,737 1,201,856 1,124,987 1,308,327 1,145,374 1,079,658 Exchange adjustment - 297 (11,029) (10,431) - (21,163) Transfer from property, plant and equipment 58,047 4,220 - - - - Transfer - 684 (6,459) (52,272) - (58,047) Additions* 429,354 174,944 84,140 408,805 164,651 70,973 At 30th June 2010 622 3,168,982 2,161,526 1,215,874 325,265 6,872,269 Disposals (1,059) (1,698) (5,775) (977) (1,698) (5,257) Accumulated depreciation Exchange adjustment (5,115) 415 (1,496) - - - At 1st July 2007 10,181 333,072 1,172,151 385,891 - 1,901,295 At 30th June 2010 1,860,964 1,379,737 1,201,856 1,716,155 1,308,327 1,145,374 Charge for the year 591 41,631 222,543 172,058 - 436,823 Disposal adjustment (142) (343) (141,006) (53,514) - (195,005) Amortisation Exchange adjustment - (9,708) (4,260) (710) - (14,678) At 1st July 2009 1,072,561 969,870 870,186 1,032,599 943,128 850,457 Transfer (7,954) - 8,269 (315) - - 182 Transfer from property, plant and equipment - 844 - - - - At 30th June 2008 2,676 364,652 1,257,697 503,410 - 2,128,435 183 Disposals adjustment (845) (1,698) (3,961) (812) (1,698) (3,443) Charge for the year 24 42,371 156,187 119,735 - 318,317 Charge for the year 89,272 104,518 104,897 73,015 91,169 96,114 Disposal adjustment - (59,759) (234,517) (148,596) - (442,872) Exchange adjustment (3,406) (973) (1,252) - - - Exchange adjustment - 10,469 (3,307) (3,495) - 3,667 At 30th June 2010 1,157,582 1,072,561 969,870 1,104,802 1,032,599 943,128 Transfer (2,191) - 1,862 (515) - (844) Net book value 703,382 307,176 231,986 611,353 275,728 202,246 At 30th June 2009 509 357,733 1,177,922 470,539 - 2,006,703 Charge for the year 24 37,637 200,267 133,817 - 371,745 TOTAL 756,231 360,025 284,835 611,353 275,728 202,246 Disposal adjustment - - (121,053) (67,578) - (188,631) Exchange adjustment - 1,104 (10,478) (4,633) - (14,007) * Borrowing costs amounting to Rs 15.6 million were capitalised by the Bank and the Group during the year as computer software at the Transfer - 585 148 (733) - - capitalisation rate of 3.20% per annum. At 30th June 2010 533 397,059 1,246,806 531,412 - 2,175,810

Net book values At 30th June 2010 89 2,771,923 914,720 684,462 325,265 4,696,459 At 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

* Borrowing costs amounting to Rs 24.3 million were capitalised during the year as work in progress at the capitalisation rate of 3.20% per annum. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

10. Property, Plant and Equipment (continued) 10. Property, Plant and Equipment (continued)

Assets under Land and Computer and Other fixed Work in Total If the land and buildings were stated on the historical basis, the amounts would be as follows : finance leases buildings other equipment assets progress RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 GROUP BANK BANK 2010 2009 2008 2010 2009 2008 Cost & valuation RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 At 1st July 2007 10,835 1,991,352 1,591,070 469,892 - 4,063,149 Additions - 123,424 169,196 59,511 - 352,131 Cost 6,178,026 5,151,991 4,945,898 5,020,886 3,980,650 3,721,104 Disposals (142) (4,300) (112,961) (23,132) - (140,535) Accumulated depreciation (2,059,373) (1,898,434) (2,052,892) (1,671,337) (1,557,991) (1,740,889) Transfer (7,954) - 7,954 - - - 4,118,653 3,253,557 2,893,006 3,349,549 2,422,659 1,980,215 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) 11. Deferred Tax (Liabilities)/Assets Transfer (2,739) - - 2,739 - - At 30th June 2009 - 2,529,004 1,665,654 480,235 - 4,674,893 The movement on the deferred income tax account is as follows :- Additions* - 300,495 409,060 143,605 325,265 1,178,425 Disposals - - (111,065) (27,124) - (138,189) At 1st July 2009 (7,711) (21,904) (5,888) 26,146 13,153 15,096 At 30th June 2010 - 2,829,499 1,963,649 596,716 325,265 5,715,129 Effect of reduction in tax rate - - (5,032) - - (5,032) Accumulated depreciation Exchange adjustments in respect of foreign subsidiaries (2,149) 7,502 4,121 - - - At 1st July 2007 9,739 249,768 1,109,691 244,171 - 1,613,369 Income statement credit/(charge) 6,210 6,691 (15,105) (16,914) 12,993 3,089 Charge for the year 548 28,115 206,461 100,837 - 335,961 At 30th June 2010 (3,650) (7,711) (21,904) 9,232 26,146 13,153 Disposal adjustment (142) (343) (112,266) (20,147) - (132,898) Transfer (7,954) - 7,954 - - - Deferred tax assets :- At 30th June 2008 2,191 277,540 1,211,840 324,861 - 1,816,432 Provisions and post retirement benefits 32,232 27,254 32,272 32,232 27,254 32,272 Charge for the year - 29,580 133,321 41,917 - 204,818 Provisions for credit impairment 56,388 46,561 30,840 51,720 46,561 30,840 Disposal adjustment - (722) (234,150) (120,114) - (354,986) Tax losses carried forward 15,473 1,844 1,852 - - - 184 Transfer (2,191) - - 2,191 - - Accelerated tax depreciation (74,756) (46,005) (49,824) (74,720) (47,669) (49,959) 185 At 30th June 2009 - 306,398 1,111,011 248,855 - 1,666,264 29,337 29,654 15,140 9,232 26,146 13,153 Charge for the year - 30,940 173,554 49,988 - 254,482 Deferred tax liabilities :- Disposal adjustment - - (109,935) (23,037) - (132,972) Accelerated tax depreciation 32,987 37,365 37,044 - - - At 30th June 2010 - 337,338 1,174,630 275,806 - 1,787,774 (3,650) (7,711) (21,904) 9,232 26,146 13,153 Net book values At 30th June 2010 - 2,492,161 789,019 320,910 325,265 3,927,355 12. Other Assets At 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 Mandatory balances with Central Banks 4,780,076 5,041,531 4,071,776 4,056,680 4,222,836 3,234,902 Accrued interest receivable 876,464 907,327 773,130 838,225 854,766 720,860 * Borrowing costs amounting to Rs 24.3 million were capitalised during the year as work in progress at the capitalisation rate of 3.20% Employee benefits assets (see note 16) 328,119 343,945 327,857 328,119 343,945 327,857 per annum. Non-banking assets acquired in satisfaction of debts 43,064 42,169 44,032 43,064 42,169 44,032 Others 902,917 787,737 586,423 569,394 493,828 384,761 6,930,640 7,122,709 5,803,218 5,835,482 5,957,544 4,712,412 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

13. Deposits 14. Other Borrowed Funds

GROUP BANK (a) Other borrowed funds comprise the following: 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 GROUP BANK (a) Deposits from banks 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Other deposits 449,097 539,453 684,259 1,477,902 2,341,569 2,150,323 Money market deposits with remaining term to maturity: Borrowings from Central Banks 112,301 176,984 449,630 112,301 176,984 449,630 Up to 3 months 669,559 1,032,064 221,419 1,008,080 1,042,836 221,419 Borrowings from banks: Over 3 months and up to 6 months - 21,909 1,273 581,454 168,769 1,273 in Mauritius 328,371 - 50,000 200,000 - 50,000 Over 6 months and up to 1 year - 16,229 - - 16,229 - abroad 1,081,192 2,108,949 2,846,949 848,760 1,402,285 2,505,126 669,559 1,070,202 222,692 1,589,534 1,227,834 222,692 1,521,864 2,285,933 3,346,579 1,161,061 1,579,269 3,004,756 1,118,656 1,609,655 906,951 3,067,436 3,569,403 2,373,015 (b) Deposits from customers (b) Remaining term to maturity: (i) Retail customers On demand or within a period Demand deposits 10,500,291 9,847,781 9,461,493 9,914,354 8,419,224 7,527,772 not exceeding 1 year 1,265,523 540,078 1,161,889 1,002,331 106,750 1,081,083 Savings deposits 48,834,713 45,244,845 39,930,316 47,857,556 44,328,183 38,617,226 Within a period of more than 1 year Time deposits with remaining term to maturity: but not exceeding 2 years 62,174 1,318,855 179,676 42,270 1,299,364 55,593 Up to 3 months 7,005,429 5,901,814 5,214,681 6,016,866 5,223,093 4,550,479 Within a period of more than 2 years Over 3 months and up to 6 months 2,629,841 3,044,253 1,900,046 2,397,487 2,166,265 1,301,556 but not exceeding 3 years 90,585 71,923 1,693,495 69,948 71,923 1,639,181 Over 6 months and up to 1 year 4,392,475 3,784,937 2,769,987 3,910,186 3,606,499 2,681,230 Within a period of more than 3 years 103,582 355,077 311,519 46,512 101,232 228,899 Over 1 year and up to 5 years 9,261,318 11,189,745 11,246,301 8,317,423 9,479,236 9,114,209 1,521,864 2,285,933 3,346,579 1,161,061 1,579,269 3,004,756 Over 5 years 357 8,870 67,020 357 8,870 61,796 23,289,420 23,929,619 21,198,035 20,642,319 20,483,963 17,709,270 82,624,424 79,022,245 70,589,844 78,414,229 73,231,370 63,854,268 15. Subordinated Liabilities (ii) Corporate customers Demand deposits 31,632,603 24,578,498 19,092,754 28,711,590 22,832,954 17,508,553 Subordinated debt repayable beyond 3 years 1,454,853 1,471,555 1,237,128 1,454,853 1,471,555 1,237,128 Savings deposits 5,383,673 3,793,235 3,641,685 4,381,891 3,662,533 3,554,688 Time deposits with remaining term to maturity: Up to 3 months 7,540,007 9,761,822 9,716,380 7,042,346 9,228,306 9,220,143 186 Over 3 months and up to 6 months 1,128,608 1,088,682 283,266 955,030 1,013,129 185,394 187 Over 6 months and up to 1 year 1,276,516 260,322 301,971 1,211,919 325,517 282,037 Over 1 year and up to 5 years 1,191,797 687,303 595,971 1,032,274 456,834 457,075 Over 5 years - - 100 - - 100 11,136,928 11,798,129 10,897,688 10,241,569 11,023,786 10,144,749 48,153,204 40,169,862 33,632,127 43,335,050 37,519,273 31,207,990 (iii) Government Demand deposits 243,380 256,916 107,636 31,971 27,418 45,936 Savings deposits 108,564 158,978 64,818 97,167 158,978 64,816 Time deposits with remaining term to maturity: Up to 3 months 197,014 22,325 153,805 - - - Over 3 months and up to 6 months 27,536 - 30,334 - - - Over 6 months and up to 1 year 10,632 965 - - - - Over 1 year and up to 5 years 147 - 1,358 - - - 235,329 23,290 185,497 - - - 587,273 439,184 357,951 129,138 186,396 110,752 131,364,901 119,631,291 104,579,922 121,878,417 110,937,039 95,173,010 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

16. Employee Benefits Assets 16. Employee Benefits Assets (continued)

GROUP & BANK Reconciliation of the present value of funded obligations GROUP & BANK 2010 2009 2008 2007 2006 2010 2009 2008 2007 2006 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Amounts recognised in the Statements of financial position Present value of obligation at start of year 3,446,058 2,603,510 2,389,118 2,169,478 1,914,583 at end of year: Current service cost 142,354 131,798 103,349 94,858 87,065 Present value of funded obligations 3,804,858 3,446,058 2,603,510 2,389,118 2,169,478 Interest cost 338,641 267,739 245,988 212,500 178,316 Fair value of plan assets (3,346,005) (3,031,372) (3,104,721) (3,092,815) (2,427,893) Benefits paid (122,195) (109,449) (134,945) (87,718) (84,419) Shortfall/(Surplus) of plan assets 458,853 414,686 (501,211) (703,697) (258,415) Liability loss - 552,460 - - 73,933 Unrecognised actuarial (losses)/gains (786,972) (758,631) 173,354 473,532 60,053 Present value of obligation at end of year 3,804,858 3,446,058 2,603,510 2,389,118 2,169,478 Assets shown in note 12 (328,119) (343,945) (327,857) (230,165) (198,362) Reconciliation of fair value of plan assets Amounts recognised as total expense: Current service cost 142,354 131,798 103,349 Fair value of plan assets at start of year 3,031,372 3,104,721 3,092,815 2,427,893 2,075,061 Interest cost 338,641 267,739 245,988 Expected return on plan assets 306,276 326,553 325,159 242,923 197,599 Expected return on plan assets (306,276) (326,553) (325,159) Employer contributions 186,495 126,635 110,920 95,140 86,963 Actuarial losses/(gain) recognised 27,602 37,563 (10,950) Benefits paid (122,195) (109,449) (134,945) (87,718) (84,419) Total included in non-interest expense 202,321 110,547 13,228 Asset (losses)/gains (55,943) (417,088) (289,228) 414,577 152,689 Less: Amount capitalised under IAS 38 (10,809) - - Fair value of plan assets at end of year 3,346,005 3,031,372 3,104,721 3,092,815 2,427,893 191,512 110,547 13,228 Movements in assets recognised in Statements of Distribution of plan assets at end of year GROUP & BANK financial position: 2010 2009 2008 At 1st July 2009 (343,945) (327,857) (230,165) Percentage of assets at end of year % % % Total expense as recognised in the Income Statements 191,512 110,547 13,228 Local equities 24 25 30 Amound capitalised under IAS 38 10,809 - - Local bonds 14 18 14 Contributions and direct benefits paid (186,495) (126,635) (110,920) Property 5 4 4 At 30th June 2010 (328,119) (343,945) (327,857) Loan 1 4 3 188 Overseas bonds and equities 40 32 36 189 Actual return/(deficit) on plan assets 250,333 (90,535) 35,931 Other 16 17 13 Total 100 100 100 The principal actuarial assumptions at end of year: % % % 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. Discount rate 10.50 10.00 10.50 Expected return on plan assets 10.50 10.00 10.50 Additional disclosure on assets issued or used by the reporting entity Future salary increases* 9.00 8.50 9.00 GROUP & BANK Future pension increases 6.00 5.50 6.00 2010 2009 2008 Percentage of assets at end of year % % % * 9.0% for clerical staff and non-clerical staff. Assets held in the entity’s own financial instruments 4 5 6 Property occupied by the entity 3 2 2 Other assets used by the entity 13 8 9

Expected employer contributions for 2011 is Rs 202.3 million.

Note: Employee benefits obligations have been provided for based on the report from Hewitt LY Ltd., Actuaries and Consultants. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

17. Other Liabilities 19. Contingent Liabilities

GROUP BANK GROUP BANK 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 (a) Instruments Accrued interest payable 1,422,731 1,234,952 1,405,620 1,254,642 1,161,795 1,379,347 Acceptances on account of customers 217,257 158,370 533,476 - - - MCB Superannuation Fund 432,597 250,468 285,619 432,597 250,468 285,619 Guarantees on account of customers 15,525,976 15,660,007 13,750,102 15,177,173 15,224,725 13,238,177 Proposed dividend 712,047 711,770 687,981 712,047 711,770 687,981 Letters of credit and other obligations on account Outstanding lease obligations - - - - - 554 of customers 8,343,369 4,743,560 5,331,029 7,757,811 4,055,483 4,646,053 Interest suspense, impersonal & other accounts 2,962,297 2,933,687 2,569,135 2,414,085 2,412,454 2,030,775 Other contingent items 2,709,725 2,084,644 2,518,062 2,693,921 2,062,022 2,140,565 5,529,672 5,130,877 4,948,355 4,813,371 4,536,487 4,384,276 26,796,327 22,646,581 22,132,669 25,628,905 21,342,230 20,024,795 Interest suspense shown in note 5(b)(iii) (538,297) (625,073) (629,783) (522,203) (610,558) (604,399) 4,991,375 4,505,804 4,318,572 4,291,168 3,925,929 3,779,877 (b) Commitments Loans and other facilities, including undrawn credit facilities 6,450,251 7,473,105 6,300,151 6,239,807 7,277,317 6,115,111 18. Share Capital and Treasury Shares (c) Tax assessments * 319,900 278,274 220,642 319,900 278,274 220,642 Number of shares Share Capital Treasury Shares Total (d) Other At 1st July 2007 250,375,595 (13,413,408) 236,962,187 Inward bills held for collection 361,526 422,295 454,376 349,555 422,295 364,804 Exercise of share options - 272,672 272,672 Outward bills sent for collection 415,597 546,822 631,622 415,597 546,822 631,622 At 30th June 2008 250,375,595 (13,140,736) 237,234,859 777,123 969,117 1,085,998 765,152 969,117 996,426 Exercise of share options - 21,642 21,642 34,343,601 31,367,077 29,739,460 32,953,764 29,866,938 27,356,974 At 30th June 2009 250,375,595 (13,119,094) 237,256,501 Exercise of share options - 92,445 92,445 At 30th June 2010 250,375,595 (13,026,649) 237,348,946 * The Bank received in 2005 an income tax assessment relating to the three years ended 30th June 2003. 190  The Bank objected to that part of the assessment which disputed the deductibility of the loss of Rs 632 million sustained as the result 191 The nominal value of the shares is Rs 10 each. 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.

 Further assessments were raised in June 2009 and December 2009 for the years ended 30th June 2004 and 30th June 2005 respectively against which the Bank has objected.

The maximum liability that could arise from these assessments amounts to Rs 320 million, including penalties. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

20. Interest Income 24. Net (Loss)/Income from Financial Instruments carried at Fair Value

GROUP BANK GROUP BANK 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Loans and advances to banks 46,113 133,585 131,691 39,199 131,644 114,071 Net (loss)/income from derivatives (45,377) 34,578 31,597 (45,377) 34,578 31,597 Loans and advances to customers 8,028,621 8,405,441 8,158,137 7,336,485 7,700,078 7,508,149 Investment securities at fair value Placements with other banks 155,869 340,119 631,407 111,413 270,564 589,480 through profit or loss 1,582 7,174 1,964 1,582 7,174 1,964 Held to maturity investments 1,096,036 1,469,118 1,362,351 973,651 1,314,487 1,230,778 (43,795) 41,752 33,561 (43,795) 41,752 33,561 9,326,639 10,348,263 10,283,586 8,460,748 9,416,773 9,442,478 25. Dividend Income 21. Interest Expense Income from quoted investments: Deposits from banks 28,504 70,274 69,463 28,499 69,409 69,463 Subsidiary - - - 8,924 29,745 35,694 Deposits from customers 4,077,395 5,038,343 5,792,932 3,688,630 4,585,272 5,423,951 Others 21,376 17,333 28,916 151 129 118 Other borrowed funds 35,778 135,047 168,355 16,718 143,955 196,637 Income from unquoted investments: Subordinated liabilities 28,276 59,312 77,747 28,276 59,312 77,747 Subsidiaries - - - 95,372 150,326 143,495 Others 11,710 9,090 11,153 11,526 8,813 9,297 Others 67,881 52,060 89,752 43,802 6,168 27,179 4,181,663 5,312,066 6,119,650 3,773,649 4,866,761 5,777,095 89,257 69,393 118,668 148,249 186,368 206,486

22. Fee and Commission Income

Retail banking customer fees 167,708 195,528 107,158 151,383 172,826 107,158 Corporate banking fees 229,112 233,450 261,038 195,423 196,261 218,560 Guarantees 162,401 143,347 140,680 156,213 141,205 106,001 Interbank transaction fees 37,166 27,406 50,531 35,256 27,406 25,139 Brokerage 57,597 47,631 20,464 - - - 192 Asset management fees 29,549 56,641 57,678 - - - 193 Rental income 125,253 121,579 136,555 1,886 2,755 1,658 Card related fees 684,299 540,322 499,366 623,102 536,893 470,826 Trade finance fees 327,878 272,002 258,027 300,347 270,296 220,887 Others 187,245 233,279 91,877 115,185 81,111 94,737 2,008,208 1,871,185 1,623,374 1,578,795 1,428,753 1,244,966

23. Fee and Commission Expense

Guarantees - - 9,668 - - - Brokerage - 6,788 - - - - Interbank transaction fees 15,427 52,650 35,915 4,102 7,165 3,762 Card related fees 272,582 214,810 215,569 230,819 214,810 215,569 Others 23,403 12,009 1,454 5,457 12,009 1,454 311,412 286,257 262,606 240,378 233,984 220,785 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

26. Non-Interest Expense 27(a). Allowance for Credit Impairment

(a) Salaries and human resource development GROUP BANK GROUP BANK 2010 2009 2008 2010 2009 2008 2010 2009 2008 2010 2009 2008 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Provisions for bad and doubtful debts: Wages and salaries 1,395,093 1,350,639 1,219,820 1,206,724 1,204,546 1,099,334 Loans and advances to banks 911 1,529 2,307 911 1,529 2,307 Compulsory social security obligations 52,075 42,645 30,656 33,576 29,647 25,402 Loans and advances to customers 357,614 393,989 448,259 278,353 366,234 406,863 Equity settled share-based payments 1,062 192 2,229 1,062 192 2,229 Bad debts written off for which no provisions Other personnel expenses 316,908 347,027 328,362 309,181 317,729 314,272 were made 37,517 70,892 63,440 37,517 70,892 63,440 1,765,138 1,740,503 1,581,067 1,550,543 1,552,114 1,441,237 Provisions released during the year (115,611) (77,739) (46,897) (88,678) (60,095) (22,973) Number of employees at the end of the year 2,672 2,598 2,344 2,274 2,233 2,076 Recoveries of advances written off (8,251) (17,445) (41,220) (8,251) (17,445) (41,220) 272,180 371,226 425,889 219,852 361,115 408,417 (b) Other non-interest expense Software licensing and other information technology cost 199,192 149,608 132,367 120,829 87,852 76,753 27(b). Impairment of Available-for-Sale Investments Others 1,097,285 1,055,252 926,660 898,152 785,163 703,333 1,296,477 1,204,860 1,059,027 1,018,981 873,015 780,086 The impairment adjustment of Rs 190.1m is in respect of our subsidiary's investment made in a cable network project which is presently under judicial administration. (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 28. Income Tax Expense in the Company at a discount. A further offer on similar terms was made to these employees on the 4th November 2009.

The number and weighted average exercise price of share options are as follows: Income tax based on the adjusted profits 554,191 685,118 465,159 413,254 481,496 306,988 Deferred tax (6,210) (6,691) 20,137 16,914 (12,993) 1,943 2010 2009 2008 Special levy on banks 156,136 166,806 87,897 156,136 166,806 87,897 Weighted Number of Weighted Number of Weighted Number of (Over)/Under provision in previous years (12,199) 42,743 1,987 (14,107) 40,367 (1,434) avg options avg options avg options Charge for the year 691,918 887,976 575,180 572,197 675,676 395,394 exercise exercise exercise 194 price price price The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows: 195 RS RS RS Outstanding and exercisable at 1st July 2009 150.61 496,609 108.92 224,231 75.53 231,816 Profit before tax 4,112,037 4,933,935 4,460,908 3,676,573 3,928,156 3,296,429 Granted during the year 131.65 660,330 150.61 496,609 109.78 455,049 Less profit of Associates (294,842) (527,937) (640,839) - - - Exercised during the year 136.52 (92,445) 117.33 (21,642) 106.24 (272,672) 3,817,195 4,405,998 3,820,069 3,676,573 3,928,156 3,296,429 Expired during the year 150.61 (496,609) 109.41 (202,589) 75.07 (189,962) Outstanding and exercisable at 30th June 2010 567,885 496,609 224,231 Tax calculated at a rate of 15% 572,579 660,900 573,010 551,486 589,223 494,464 Effect of different tax rates 65,809 87,488 81,170 - - - The options outstanding at 30th June 2010 have an exercise price in the range of Rs 126 to Rs 142 and a weighted average contractual life Impact of: of 3½ months (2009 : 3½ months). Income not subject to tax (80,358) (50,857) (199,010) (88,159) (54,445) (146,863) Expenses not deductible for tax purposes 126,522 120,741 152,158 102,616 72,428 80,995 The weighted average share price at the date the share options were exercised during F/Y 09/10 was Rs 139.84 (2009 : Rs 151.30, 2008 : Tax credits (136,571) (139,845) (122,032) (135,775) (138,703) (119,665) Rs 155.07) Special levy on banks 156,136 166,806 87,897 156,136 166,806 87,897 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 (Over)/Under provision in previous years (12,199) 42,743 1,987 (14,107) 40,367 (1,434) 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 Tax charge 691,918 887,976 575,180 572,197 675,676 395,394 measurement date is Rs 137 (2009 : Rs 154, 2008 : Rs 119) MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

29. Dividends 31. Capital Commitments

BANK Capital Commitments at 30th June are as follows: 2010 2009 2008 RS’000 RS’000 RS’000 GROUP BANK Interim paid on 22nd December 2009 at Rs 2.25 per share 533,827 533,827 391,057 2010 2009 2008 2010 2009 2008 Final paid on 27th July 2010 at Rs 3.00 per share 712,047 711,770 687,981 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 1,245,874 1,245,597 1,079,038 Expenditure contracted for but not incurred 1,337,926 1,859,327 164,418 1,337,926 1,859,327 164,418 30. Earnings per Share Expenditure approved by the Board but not contracted for 484,045 888,814 1,249,480 484,045 888,814 1,249,480 (a) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted 32. Net Cash Flows from Trading Activities 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. Operating profit 3,817,195 4,405,998 3,820,069 3,676,573 3,928,156 3,296,429 Decrease/(Increase) in interest receivable GROUP and other assets 79,859 (1,323,932) (805,269) 106,236 (1,229,044) (424,761) 2010 2009 2008 Increase in other liabilities 497,838 222,443 262,149 364,962 122,817 187,358 RS’000 RS’000 RS’000 Net decrease/(increase) in derivatives 121,240 (34,576) (31,596) 121,240 (34,576) (31,596) Profit attributable to the ordinary equity holders of the parent 3,413,254 3,964,002 3,693,734 Decrease/(Increase) in investment securities Weighted average number of ordinary shares (thousands) 237,305 237,252 237,112 at fair value 64,692 (64,099) 90,409 64,692 (64,099) 90,409 Basic earnings per share (Rs) 14.38 16.71 15.58 Employee share option expenses 928 179 2,008 928 179 2,008 Release provision for employee benefits 15,826 (16,088) (97,692) 15,826 (16,088) (97,692) (b) Diluted earnings per share Charge for credit impairment 358,525 395,518 450,566 279,264 367,763 409,170 Diluted earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted Release of provisions for credit impairment (115,611) (77,739) (46,897) (88,678) (60,095) (22,973) average number of ordinary shares outstanding during the year after adjustment for the effects of all dilutive potential ordinary shares. Exchange adjustment 53,477 184,819 (92,207) 57,513 159,252 (113,932) 196 The Bank has only one category of dilutive potential ordinary shares which is share options. Depreciation 371,745 318,317 436,823 254,482 204,818 335,961 197 Amortisation of intangible assets 89,272 104,518 104,897 73,015 91,169 96,114 For share options, the proceeds from these instruments shall be regarded as having been received from the issue of ordinary shares at Profit on disposal of property, plant and equipment (2,561) (52,014) (1,248) (2,629) (2,803) (2,418) the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued and the Impairment/loss on disposal of intangible assets 214 - 437 165 - 437 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. Impairment of available-for-sale investments 190,140 - - - - - Profit on disposal of available-for-sale investments (3,510) (58,034) (536,448) (44) (43,648) (59,440) Profit attributable to the ordinary equity holders of the parent 3,413,254 3,964,002 3,693,734 Profit on disposal of shares in subsidiaries - - - - - (337,751) Weighted average number of ordinary shares basic (thousands) 237,305 237,252 237,112 5,539,269 4,005,310 3,556,001 4,923,545 3,423,801 3,327,323 Effect of share options in issue (thousands) 54 39 21 Weighted average number of ordinary shares diluted (thousands) at year end 237,359 237,291 237,133 Diluted earnings per share (Rs) 14.38 16.71 15.58 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

33. Net Cash Flows from Other Operating Activities 35. Operating Segments

GROUP BANK Operating segments are reported in accordance with the internal reporting provided to the Supervisory and Monitoring 2010 2009 2008 2010 2009 2008 Committee, which is the Board Committee responsible for allocating capital and resources to the reportable segments RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 and assesses their performance. All operating segments used by the Group meet the definition of a reportable segment Net increase in deposits 11,658,342 16,888,152 22,608,532 10,439,411 16,960,417 22,108,566 under IFRS 8. Net increase in loans and advances (13,317,998) (19,993,798) (12,707,747) (12,523,330) (19,764,923) (11,340,743) (Increase)/Decrease in held to maturity investment securities (1,440,032) 8,036,018 (10,486,065) (1,136,851) 7,812,807 (10,470,930) Year ended 30th June 2010 (3,099,688) 4,930,372 (585,280) (3,220,770) 5,008,301 296,893 Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations 34. Analysis of Net Cash and Cash Equivalents as shown in the Statements of Cash Flows RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Income: External gross income 12,486,734 11,429,699 - 428,024 356,962 272,049 Cash and cash equivalents (see note 3) 15,352,000 17,922,610 13,476,454 14,032,127 16,703,076 12,587,622 Expenses (8,207,219) (7,548,723) - (316,854) (235,641) (106,001) Other borrowed funds (see note 14) (1,521,864) (2,285,933) (3,346,579) (1,161,061) (1,579,269) (3,004,756) Operating profit before impairment 4,279,515 3,880,976 - 111,170 121,321 166,048 NET CASH AND CASH EQUIVALENTS 13,830,136 15,636,677 10,129,875 12,871,066 15,123,807 9,582,866 Allowance for credit impairment (272,180) (238,391) - (956) (11,964) (20,869) CHANGE IN YEAR (1,806,541) 5,506,802 1,755,594 (2,252,741) 5,540,941 2,879,671 Impairment of available-for-sale investments (190,140) (190,140) - - - - Operating profit 3,817,195 3,452,445 - 110,214 109,357 145,179 Share of profit of associates 294,842 (18,469) 313,311 - - - Profit before tax 4,112,037 3,433,976 313,311 110,214 109,357 145,179 Income tax expense (691,918) Profit for the year 3,420,119

Other segment items: Segment assets 155,567,053 151,736,344 - 4,129,315 3,398,646 1,270,085 (4,967,337) 198 Investments in associates 6,386,548 3,403,424 2,983,124 - - - - 199 Goodwill and other intangible assets 756,231 Deferred tax assets 29,337 Total assets 162,739,169 Segment liabilities 138,370,320 134,614,659 - 3,961,428 2,879,830 1,095,161 (4,180,758) Unallocated liabilities 2,492,427 Total liabilities 140,862,747 Capital expenditure 1,748,071 1,715,859 - 5,230 25,268 1,714 Depreciation charge 371,745 343,537 - 14,317 8,480 5,411 Amortisation 89,272 84,354 - 707 2,874 1,337 Impairment charge 190,354

* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s main place of business. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

35. Operating Segments (continued) 35. Operating Segments (continued)

Year ended 30th June 2009 Year ended 30th June 2008

Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations Group Mauritius Reunion* Seychelles Madagascar Mozambique Eliminations RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Income: Income: External gross income 13,854,292 12,643,531 - 607,561 395,313 207,887 External gross income 13,823,256 12,763,476 - 529,886 320,107 209,787 Expenses (9,077,068) (8,353,616) - (359,393) (241,194) (122,865) Expenses (9,577,298) (8,942,099) - (293,458) (187,159) (154,582) Operating profit before impairment 4,777,224 4,289,915 - 248,168 154,119 85,022 Operating profit before impairment 4,245,958 3,821,377 - 236,428 132,948 55,205 Allowance for credit impairment (371,226) (372,570) - (8,666) 338 9,672 Allowance for credit impairment (425,889) (418,422) - (195) 1,045 (8,317) Operating profit 4,405,998 3,917,345 - 239,502 154,457 94,694 Operating profit 3,820,069 3,402,955 - 236,233 133,993 46,888 Share of profit of associates 527,937 131,597 396,340 - - - Share of profit of associates 640,839 360,107 280,732 - - - Profit before tax 4,933,935 4,048,942 396,340 239,502 154,457 94,694 Profit before tax 4,460,908 3,763,062 280,732 236,233 133,993 46,888 Income tax expense (887,976) Income tax expense (575,180) Profit for the year 4,045,959 Profit for the year 3,885,728

Other segment items: Other segment items: Segment assets 143,595,965 139,699,274 - 3,381,161 3,608,522 1,575,733 (4,668,725) Segment assets 126,648,992 120,976,056 - 4,445,299 2,818,423 1,468,854 (3,059,640) Investments in associates 6,490,699 3,370,124 3,120,575 - - - - Investments in associates 6,022,694 3,488,400 2,534,294 - - - - Goodwill and other Goodwill and other intangible assets 360,025 intangible assets 284,835 Deferred tax assets 29,654 Deferred tax assets 15,140 Total assets 150,476,343 Total assets 132,971,661 Segment liabilities 127,365,457 123,923,632 - 3,212,917 3,075,670 1,400,325 (4,247,087) Segment liabilities 112,560,016 107,381,281 - 4,247,284 2,323,498 1,367,199 (2,759,246) Unallocated liabilities 2,979,004 Unallocated liabilities 2,417,255 200 Total liabilities 130,344,461 Total liabilities 114,977,271 201 Capital expenditure 1,180,314 1,126,305 - 18,977 25,287 9,745 Capital expenditure 613,711 569,821 - 2,872 6,752 34,266 Depreciation charge 318,317 288,304 - 12,305 8,638 9,070 Depreciation charge 436,823 406,725 - 17,324 7,575 5,199 Amortisation 104,518 99,247 - 537 2,299 2,435 Amortisation 104,897 101,034 - 139 2,379 1,345

* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s * Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank’s main place of business. main place of business. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

35. Operating Segments (continued) 35. Operating Segments (continued)

Year ended 30th June 2010 Year ended 30th June 2009

Group Group RS’000 RS’000 External gross income: External gross income: The Mauritius Commercial Bank Ltd 10,998,985 The Mauritius Commercial Bank Ltd 12,221,679 MCB Madagascar SA 356,962 MCB Madagascar SA 395,313 MCB Moçambique SA 272,049 MCB Moçambique SA 207,887 MCB Seychelles Ltd 428,024 MCB Seychelles Ltd 607,561 Fincorp Investment Ltd 375,758 Fincorp Investment Ltd 415,439 Others 394,694 Others 466,481 Eliminations (339,738) Eliminations (460,068) 12,486,734 13,854,292

Group Net interest Net fee and Dividend Forex profit Group Net interest Net fee and Dividend Forex profit income/(expense) commissions income and others income/(expense) commissions income and others RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Operating income: Operating income: The Mauritius Commercial Bank Ltd 6,984,958 4,687,099 1,338,417 148,249 811,193 The Mauritius Commercial Bank Ltd 7,120,934 4,550,012 1,194,769 186,368 1,189,785 MCB Madagascar SA 246,100 174,911 49,019 - 22,170 MCB Madagascar SA 290,816 212,477 56,877 - 21,462 MCB Moçambique SA 247,429 91,489 24,942 - 130,998 MCB Moçambique SA 180,958 106,191 26,196 - 48,571 MCB Seychelles Ltd 315,016 134,486 90,992 32 89,506 MCB Seychelles Ltd 460,293 135,423 122,182 89 202,599 Fincorp Investment Ltd 99,815 (14,562) 110,783 4,746 (1,152) Fincorp Investment Ltd 101,509 (17,619) 102,892 2,831 13,405 Others 335,455 71,553 190,587 47,884 25,431 Others 410,675 49,713 180,800 74,889 105,273 Eliminations (235,114) - (107,944) (111,654) (15,516) Eliminations (309,216) - (98,788) (194,784) (15,644) 202 7,993,659 5,144,976 1,696,796 89,257 1,062,630 8,255,969 5,036,197 1,584,928 69,393 1,565,451 203 Segment assets 141,454,849 138,104,428 3,350,421 Segment assets 130,118,993 126,718,351 3,400,642 Investments in associates 6,386,548 Investments in associates 6,490,699 Goodwill and other intangible assets 756,231 Goodwill and other intangible assets 360,025 Deferred tax assets 29,337 Deferred tax assets 29,654 Unallocated assets 14,112,204 Unallocated assets 13,476,972 Total assets 162,739,169 Total assets 150,476,343 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

35. Operating Segments (continued) 36. Related Party Transactions

Year ended 30th June 2008 (a) The Group

Associated companies and Directors and Enterprises in which Directors and Group entities in which the Bank holds Key Management Key Management Personnel have RS’000 more than a 10% interest Personnel significant interest External gross income: RS’000 RS’000 RS’000 The Mauritius Commercial Bank Ltd 12,369,352 Loans and Advances MCB Madagascar SA 320,107 Balances at 30th June 2009 2,833,013 30,050 187,760 Movements relating to directors and MCB Moçambique SA 209,787 managers who retired during the year - (1,406) - MCB Seychelles Ltd 529,886 Existing loans of new entities - - 193,217 Fincorp Investment Ltd 409,436 Other net movements 494,746 5,078 (4,829) Others 766,118 Balances at 30th June 2010 3,327,759 33,722 376,148

Eliminations (781,430) Leases receivable 13,823,256 Balance at year end: 30th June 2008 N/A N/A 44,057 Group Net interest Net fee and Dividend Forex profit 30th June 2009 N/A N/A 34,676 30th June 2010 N/A N/A 48,936 income/(expense) commissions income and others RS’000 RS’000 RS’000 RS’000 RS’000 Deposits Operating income: Balance at year end: The Mauritius Commercial Bank Ltd 6,371,472 3,665,383 1,024,181 206,486 1,475,422 30th June 2008 517,272 105,773 2,431 30th June 2009 966,311 191,878 1,091,132 MCB Madagascar SA 247,097 172,276 61,846 - 12,975 30th June 2010 839,661 153,683 69,642 MCB Moçambique SA 159,743 105,752 22,733 - 31,258 MCB Seychelles Ltd 438,555 193,712 125,379 - 119,464 Off Balance sheet items Fincorp Investment Ltd 109,931 (5,196) 91,367 5,114 18,646 Balance at year end: 30th June 2008 263,523 500 46,008 Others 734,501 32,009 139,406 113,085 450,001 30th June 2009 1,670 500 449,961 Eliminations (620,299) - (104,144) (206,017) (310,138) 30th June 2010 10,037 400 180,951 7,441,000 4,163,936 1,360,768 118,668 1,797,628 204 Interest income 205 For the year ended: Segment assets 115,158,072 111,688,241 3,469,831 30th June 2008 287,193 10,405 20,440 Investments in associates 6,022,694 30th June 2009 235,512 2,006 27,060 Goodwill and other intangible assets 284,835 30th June 2010 194,840 2,648 40,272 Deferred tax assets 15,140 Interest expense Unallocated assets 11,490,920 For the year ended: Total assets 132,971,661 30th June 2008 10,178 6,361 1,238 30th June 2009 20,299 6,665 46,710 30th June 2010 19,963 4,035 1,302

Other income For the year ended: 30th June 2008 22,784 108 583 30th June 2009 23,417 164 7,792 30th June 2010 36,432 261 4,212

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. MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

36. Related Party Transactions (continued) 36. Related Party Transactions (continued)

(a) The Group (continued) (c) Key Management personnel compensation The figure for "other income" from Associated Companies includes an element, representing management fees charged to associated The Group companies in respect of salaries, notional rental of office space and provision of technical, administrative and other assistance to local and the Bank Group companies. It also includes an amount of Rs 29.7 M, Rs 10.3 M and Rs 21.5 M respectively for 2010, 2009 and 2008 in respect of Remuneration and other benefits relating to key management 2010 2009 2008 management fees charged to BFCOI. personnel, including directors, were as follows : RS’000 RS’000 RS’000 Salaries and short term employee benefits 123,644 118,634 95,650 Additionally, the Bank has entered into management contracts with its foreign banking subsidiaries and charges management fees Post employment benefits 13,138 7,165 6,042 based on operating income. These fees represent the re-invoicing of expatriate salaries and benefits, where applicable, as well as 136,782 125,799 101,692 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 26.6 M 37. Segmental Reporting - Bank MCB Madagascar 5% of operating income Rs 9.3 M MCB Moçambique 5% of operating income Rs 11.8 M The Bank classifies its assets and liabilities into two segments; Segment A and Segment B. Segment B activity is essentially IT and Systems support to the above three companies is provided by BFCOI who has claimed EUR 319,000, EUR 330,000 and EUR 166,000 directed to the provision of international financial services that give rise to "foreign source income". 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. Segment B assets will generally consist of placements with and advances to foreign financial institutions, notably associated companies and overseas correspondents. (b) The Bank Segment B liabilities will normally arise from deposits, borrowings and funds deposited by non-residents, global business In addition to the amounts disclosed in (a) above, the following information relate to subsidiaries of the Bank: companies and residents.

(i) Balances as at 30th June : Loans and Deposits Off Balance Segment A activity relates to all banking business other than Segment B activity. Advances Sheet items RS’000 RS’000 RS’000 Balance at year end: Expenditure incurred by the Bank but which is not directly attributable to its income derived from Mauritius or its 30th June 2008 1,221,417 2,039,213 795,658 foreign source income is apportioned in a fair and reasonable manner. 206 30th June 2009 1,577,327 2,581,252 212,639 207 30th June 2010 1,617,278 2,530,268 523,802

(ii) Income and expenses : Interest Interest Other income expense income For the year ended: 30th June 2008 114,706 82,535 68,077 30th June 2009 112,466 79,440 60,648 30th June 2010 81,144 35,493 58,786 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

statements of financial position income statements as at 30th June 2010 for the year ended 30th June 2010 2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B 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 Note RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 ASSETS Cash and cash equivalents 14,032,127 1,734,600 12,297,527 16,703,076 2,054,540 14,648,536 12,587,622 1,555,782 11,031,840 37(n) 8,460,748 7,483,995 976,753 9,416,773 8,185,433 1,231,340 9,442,478 8,152,536 1,289,942 Derivative financial instruments 37(a) 40,195 37,610 2,585 120,408 49,355 71,053 137,261 44,020 93,241 Interest income Loans and advances to banks 37(b) 1,940,302 138,353 1,801,949 2,222,735 220,833 2,001,902 1,568,519 304,167 1,264,352 Interest expense 37(o) (3,773,649) (3,478,986) (294,663) (4,866,761) (4,244,223) (622,538) (5,777,095) (5,012,818) (764,277) Loans and advances to customers 37(c) 101,743,388 79,933,278 21,810,110 89,128,211 71,217,679 17,910,532 70,325,172 58,950,412 11,374,760 Net interest income 4,687,099 4,005,009 682,090 4,550,012 3,941,210 608,802 3,665,383 3,139,718 525,665 Investment securities 37(d) 15,131,136 14,704,388 426,748 14,032,673 13,638,490 394,183 22,073,538 21,416,400 657,138 Investment in associates 37(e) 862,632 13,620 849,012 914,593 - 914,593 885,586 - 885,586 Fee and commission income 37(p) 1,578,795 1,112,308 466,487 1,428,753 1,040,080 388,673 1,244,966 957,471 287,495 Investment in subsidiaries 37(f) 3,230,761 2,346,914 883,847 3,019,830 2,182,930 836,900 2,391,412 1,643,017 748,395 Fee and commission expense 37(q) (240,378) (230,819) (9,559) (233,984) (226,819) (7,165) (220,785) (217,023) (3,762) Goodwill and other intangible assets 611,353 611,353 - 275,728 275,728 - 202,246 202,246 - Net fee and commission income 1,338,417 881,489 456,928 1,194,769 813,261 381,508 1,024,181 740,448 283,733 Property, plant and equipment 37(g) 3,927,355 3,927,355 - 3,008,629 3,008,629 - 2,458,313 2,458,313 - Deferred tax assets 9,232 9,232 - 26,146 26,146 - 13,153 13,153 - Other assets 37(h) 5,835,482 5,545,881 289,601 5,957,544 5,779,701 177,843 4,712,412 4,536,206 176,206 Other income Total assets 147,363,963 109,002,584 38,361,379 135,409,573 98,454,031 36,955,542 117,355,234 91,123,716 26,231,518 Profit arising from dealing in foreign currencies 832,739 752,015 80,724 1,101,582 1,024,232 77,350 1,042,689 949,400 93,289 LIABILITIES AND SHAREHOLDERS’ Dividend income 37(r) 148,249 78,668 69,581 186,368 64,886 121,482 206,486 110,194 96,292 EQUITY Net (loss)/income from other financial Deposits from banks 37(i) 3,067,436 18,800 3,048,636 3,569,403 66,262 3,503,141 2,373,015 1,260 2,371,755 instruments carried at fair value 37(s) (43,795) (43,795) - 41,752 41,752 - 33,561 33,561 - Deposits from customers 37(j) 121,878,417 98,158,326 23,720,091 110,937,039 90,068,227 20,868,812 95,173,010 80,176,738 14,996,272 Net gain/(loss) on sale of securities 44 44 - 43,648 (12,876) 56,524 397,191 343,770 53,421 Derivative financial instruments 37(a) 85,571 44,612 40,959 44,544 1,431 43,113 95,973 12,407 83,566 22,205 22,205 - 2,803 2,803 - 1,981 1,981 - Other borrowed funds 1,161,061 312,301 848,760 1,579,269 176,984 1,402,285 3,004,756 504,065 2,500,691 Other operating income Subordinated liabilities 37(k) 1,454,853 - 1,454,853 1,471,555 - 1,471,555 1,237,128 - 1,237,128 959,442 809,137 150,305 1,376,153 1,120,797 255,356 1,681,908 1,438,906 243,002 Current tax liabilities 266,769 266,769 - 628,659 628,659 - 347,643 347,643 - Operating income 6,984,958 5,695,635 1,289,323 7,120,934 5,875,268 1,245,666 6,371,472 5,319,072 1,052,400 Other liabilities 37(l) 4,291,168 3,979,787 311,381 3,925,929 3,591,820 334,109 3,779,877 3,589,319 190,558 Non-interest expense Total liabilities 132,205,275 102,780,595 29,424,680 122,156,398 94,533,383 27,623,015 106,011,402 84,631,432 21,379,970 Salaries and human 208 resource development 37(t) (1,550,543) (1,441,186) (109,357) (1,552,114) (1,466,663) (85,451) (1,441,237) (1,364,437) (76,800) 209 Shareholders’ Equity Employee benefits (191,512) (178,281) (13,231) (110,547) (102,974) (7,573) (13,228) (10,006) (3,222) Share capital and share premium 2,554,970 2,554,970 - 2,544,998 2,544,998 - 2,543,046 2,543,046 - Depreciation (254,482) (243,360) (11,122) (204,818) (196,569) (8,249) (335,961) (322,610) (13,351) Retained earnings 9,651,949 9,651,949 - 7,803,419 7,803,419 - 5,837,778 5,837,778 - Other components of equity 3,324,977 3,290,570 34,407 3,280,615 3,331,121 (50,506) 3,339,485 3,078,710 260,775 Amortisation of intangible assets (73,015) (69,078) (3,937) (91,169) (82,504) (8,665) (96,114) (88,365) (7,749) 15,531,896 15,497,489 34,407 13,629,032 13,679,538 (50,506) 11,720,309 11,459,534 260,775 Other 37(u) (1,018,981) (990,945) (28,036) (873,015) (830,770) (42,245) (780,086) (739,790) (40,296) Less treasury shares (373,208) (373,208) - (375,857) (375,857) - (376,477) (376,477) - (3,088,533) (2,922,850) (165,683) (2,831,663) (2,679,480) (152,183) (2,666,626) (2,525,208) (141,418) Total equity 15,158,688 15,124,281 34,407 13,253,175 13,303,681 (50,506) 11,343,832 11,083,057 260,775 Operating profit before impairment 3,896,425 2,772,785 1,123,640 4,289,271 3,195,788 1,093,483 3,704,846 2,793,864 910,982 Total equity and liabilities 147,363,963 117,904,876 29,459,087 135,409,573 107,837,064 27,572,509 117,355,234 95,714,489 21,640,745 Allowances for credit impairment 37(v) (219,852) (140,415) (79,437) (361,115) (296,876) (64,239) (408,417) (426,594) 18,177 Profit before tax 3,676,573 2,632,370 1,044,203 3,928,156 2,898,912 1,029,244 3,296,429 2,367,270 929,159 CONTINGENT LIABILITIES Income tax expense 37(w) (572,197) (531,349) (40,848) (675,676) (636,259) (39,417) (395,394) (347,176) (48,218) Acceptances, guarantees, letters of Profit for the year 3,104,376 2,101,021 1,003,355 3,252,480 2,262,653 989,827 2,901,035 2,020,094 880,941 credit, endorsements and other obligations on account of customers 25,628,905 13,413,646 12,215,259 21,342,230 13,333,712 8,008,518 20,024,795 13,066,827 6,957,968 Commitments 6,239,807 5,687,041 552,766 7,277,317 5,753,299 1,524,018 6,115,111 4,817,491 1,297,620 Tax assessments 319,900 319,900 - 278,274 278,274 - 220,642 220,642 - Other 765,152 634,600 130,552 969,117 751,502 217,615 996,426 729,003 267,423 37(m) 32,953,764 20,055,187 12,898,577 29,866,938 20,116,787 9,750,151 27,356,974 18,833,963 8,523,011 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

statements of comprehensive income (a) Derivative Financial Instruments for the year ended 30th June 2010 2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 (i) Fair value assets Profit for the year 3,104,376 2,101,021 1,003,355 3,252,480 2,262,653 989,827 2,901,035 2,020,094 880,941 Currency forwards 16,097 15,439 658 53,970 44,073 9,897 90,847 10,026 80,821 Currency swaps 24,098 22,171 1,927 66,438 5,282 61,156 46,414 33,994 12,420 40,195 37,610 2,585 120,408 49,355 71,053 137,261 44,020 93,241 Other comprehensive (expense)/income: Reclassification adjustments - - - (49,834) 12,621 (62,455) - - - (ii) Fair value liabilities Net fair value gain/(loss) Currency forwards 49,444 44,156 5,288 40,886 501 40,385 83,070 1,239 81,831 on available-for-sale investments 34,390 (17) 34,407 (50,278) 228 (50,506) 196,228 870 195,358 Currency swaps 36,127 456 35,671 3,658 930 2,728 12,903 11,168 1,735 Total comprehensive income for the year 3,138,766 2,101,004 1,037,762 3,152,368 2,275,502 876,866 3,097,263 2,020,964 1,076,299 85,571 44,612 40,959 44,544 1,431 43,113 95,973 12,407 83,566

(b) Loans and Advances to Banks

Loans and advances to banks in Mauritius 138,353 138,353 - 220,833 220,833 - 304,167 304,167 - outside Mauritius 1,808,097 - 1,808,097 2,007,139 - 2,007,139 1,268,060 - 1,268,060 1,946,450 138,353 1,808,097 2,227,972 220,833 2,007,139 1,572,227 304,167 1,268,060 Less allowances for credit impairment (6,148) - (6,148) (5,237) - (5,237) (3,708) - (3,708) 1,940,302 138,353 1,801,949 2,222,735 220,833 2,001,902 1,568,519 304,167 1,264,352 (i) Remaining term to maturity Up to 3 months 1,406,974 - 1,406,974 1,414,027 - 1,414,027 141,864 - 141,864 Over 3 months and up to 6 months - - - 194,750 - 194,750 - - - Over 6 months and up to 1 year 173,803 13,353 160,450 ------Over 1 year and up to 5 years 365,673 125,000 240,673 619,195 220,833 398,362 1,411,262 304,167 1,107,095 210 Over 5 years ------19,101 - 19,101 211 1,946,450 138,353 1,808,097 2,227,972 220,833 2,007,139 1,572,227 304,167 1,268,060

(ii) Allowances for credit impairment BANK SEGMENT B RS’000 RS’000 Portfolio provisions At 30th June 2007 1,401 1,401 Provision for credit impairment for the year 2,307 2,307 At 30th June 2008 3,708 3,708 Provision for credit impairment for the year 1,529 1,529 At 30th June 2009 5,237 5,237 Provision for credit impairment for the year 911 911 At 30th June 2010 6,148 6,148 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(c) Loans and Advances to Customers (c) Loans and Advances to Customers (continued)

2010 2009 2008 (iii) Allowances for credit impairment BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK SEGMENT A SEGMENT B RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Specific Portfolio Total Specific Portfolio Total Specific Portfolio Total Retail customers: RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Credit cards 449,922 449,922 - 497,442 497,442 - 421,276 421,276 -

Mortgages 10,827,873 9,783,829 1,044,044 8,197,017 7,028,229 1,168,788 7,506,230 6,900,311 605,919 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 Other retail loans 10,205,352 9,919,320 286,032 8,240,408 8,152,173 88,235 6,651,997 6,601,696 50,301 Provision for credit impairment Corporate customers 68,675,436 62,478,653 6,196,783 63,726,930 58,674,809 5,052,121 51,545,435 48,051,432 3,494,003 for the year 328,170 78,693 406,863 327,148 60,170 387,318 1,022 18,523 19,545 Governments 1,180,908 - 1,180,908 1,195,941 1,475 1,194,466 1,204,078 - 1,204,078 Provisions released (22,973) - (22,973) (22,973) - (22,973) - - - Entities outside Mauritius 13,322,886 - 13,322,886 10,545,280 - 10,545,280 6,093,806 - 6,093,806 Amounts written off (264,548) - (264,548) (263,676) - (263,676) (872) - (872) 104,662,377 82,631,724 22,030,653 92,403,018 74,354,128 18,048,890 73,422,822 61,974,715 11,448,107 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 Less: allowances for credit impairment (2,918,989) (2,698,446) (220,543) (3,274,807) (3,136,449) (138,358) (3,097,650) (3,024,303) (73,347) Interest suspense 604,399 - 604,399 604,399 - 604,399 - - - 101,743,388 79,933,278 21,810,110 89,128,211 71,217,679 17,910,532 70,325,172 58,950,412 11,374,760 Provisions and interest suspense at 30th June 2008 2,581,558 516,092 3,097,650 2,566,196 458,107 3,024,303 15,362 57,985 73,347

(i) Remaining term to maturity Up to 3 months 30,450,748 25,420,449 5,030,299 28,373,842 27,855,076 518,766 29,627,416 25,755,736 3,871,680 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 Over 3 months and up to 6 months 2,527,685 1,290,315 1,237,370 1,343,923 1,335,751 8,172 1,313,923 929,562 384,361 Provision for credit impairment for the year 232,263 133,971 366,234 224,260 79,264 303,524 8,003 54,707 62,710 Over 6 months and up to 12 months 1,418,438 1,386,042 32,396 1,234,291 1,190,724 43,567 1,228,098 688,269 539,829 Provisions released (60,095) - (60,095) (60,095) - (60,095) - - - Over 1 year and up to 5 years 22,397,396 13,744,475 8,652,921 19,820,942 9,957,481 9,863,461 15,984,413 13,163,422 2,820,991 Amounts written off (135,141) - (135,141) (135,141) - (135,141) - - - Over 5 years 47,868,110 40,790,443 7,077,667 41,630,020 34,015,096 7,614,924 25,268,972 21,437,726 3,831,246 At 30th June 2009 2,014,186 650,063 2,664,249 1,990,821 537,371 2,528,192 23,365 112,692 136,057 104,662,377 82,631,724 22,030,653 92,403,018 74,354,128 18,048,890 73,422,822 61,974,715 11,448,107 Interest suspense 610,558 - 610,558 608,257 - 608,257 2,301 - 2,301 Provisions and interest suspense (ii) Credit concentration of risk at 30th June 2009 2,624,744 650,063 3,274,807 2,599,078 537,371 3,136,449 25,666 112,692 138,358 212 by industry sectors 213 Agriculture and fishing 2,343,045 2,343,045 - 3,312,950 3,312,950 - 3,122,423 3,122,423 - At 1st July 2009 2,014,186 650,063 2,664,249 1,990,821 537,371 2,528,192 23,365 112,692 136,057 Manufacturing 2,234,114 2,234,114 - 3,333,440 3,333,440 - 4,762,089 4,762,089 - Provision for credit impairment of which EPZ 1,480,118 1,480,118 - 2,560,622 2,560,622 - 2,129,926 2,129,926 - for the year 198,864 79,489 278,353 162,256 37,654 199,910 36,608 41,835 78,443 Tourism 14,482,497 9,918,685 4,563,812 12,725,757 8,681,120 4,044,637 6,501,857 5,747,904 753,953 Provisions released (88,678) - (88,678) (88,562) - (88,562) (116) - (116) Transport 290,237 290,237 - 239,369 239,369 - - - - Amounts written off (457,138) - (457,138) (455,504) - (455,504) (1,634) - (1,634) Construction 3,303,039 3,303,039 - 4,501,655 4,501,655 - 1,341,306 1,341,306 - At 30th June 2010 1,667,234 729,552 2,396,786 1,609,011 575,025 2,184,036 58,223 154,527 212,750 Financial and business services 1,475,224 1,475,224 - 2,419,944 2,419,944 - 387,335 387,335 - Interest suspense 522,203 - 522,203 514,410 - 514,410 7,793 - 7,793 Traders 894,063 894,063 - 810,827 810,827 - 690,304 690,304 - Provisions and interest suspense Global business licence holders 672,571 - 672,571 1,006,558 - 1,006,558 159,602 - 159,602 at 30th June 2010 2,189,437 729,552 2,918,989 2,123,421 575,025 2,698,446 66,016 154,527 220,543 Others 3,055,753 2,651,187 404,566 3,320,329 2,861,839 458,490 2,030,453 2,030,453 - 28,750,543 23,109,594 5,640,949 31,670,829 26,161,144 5,509,685 18,995,369 18,081,814 913,555 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(c) Loans and Advances to Customers (continued) (d) Investment Securities

(iv) Allowances for credit impairment by industry sectors 2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B Gross amount Non Specific Portfolio Total provision Total provision Total provision RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 of loans performing provision provision At fair value through profit or loss - - - 64,692 64,692 - 593 593 - loans RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Held to maturity 14,209,275 14,209,275 - 13,072,424 13,072,424 - 20,885,231 20,885,231 - BANK Available-for-sale 921,861 495,113 426,748 895,557 501,374 394,183 1,187,714 530,576 657,138 Agriculture and fishing 7,955,437 45,498 23,540 58,200 81,740 89,919 97,322 Manufacturing 8,801,398 673,300 314,452 64,000 378,452 666,208 590,042 15,131,136 14,704,388 426,748 14,032,673 13,638,490 394,183 22,073,538 21,416,400 657,138 of which EPZ 3,250,911 112,643 94,941 34,300 129,241 350,615 293,692 Tourism 23,655,315 60,036 42,990 58,100 101,090 98,484 51,725 (i) At fair value through profit or loss Transport 517,943 21,648 9,019 2,600 11,619 12,370 11,264 Construction 18,908,296 1,044,115 522,904 135,500 658,404 598,930 430,064 Treasury bills held for trading: Financial and business services 9,276,812 287,351 94,752 30,352 125,104 38,214 56,543 Over 3 months and up to 12 months - - - 64,692 64,692 - 593 593 - Traders 12,633,743 614,173 413,360 116,900 530,260 681,092 805,954 - - - 64,692 64,692 - 593 593 - Personal 8,389,963 968,197 553,439 125,900 679,339 766,915 726,691 of which credit cards 442,946 99,162 67,509 17,200 84,709 128,507 105,174 Professional 184,771 120,689 59,103 2,000 61,103 73,343 78,590 (ii) Held to maturity Foreign governments 1,180,908 - - 5,905 5,905 5,970 6,020 Mauritius Development Loan Stocks 717,567 717,567 - 712,128 712,128 - 784,207 784,207 - Global Business Licence holders 6,199,309 5,029 1,895 62,000 63,895 47,924 11,040 Others 6,958,482 270,703 153,983 68,095 222,078 195,438 232,395 GOM bonds 4,604,354 4,604,354 - 5,170,983 5,170,983 - 5,438,426 5,438,426 - 104,662,377 4,110,739 2,189,437 729,552 2,918,989 3,274,807 3,097,650 Treasury bills 8,887,354 8,887,354 - 7,189,313 7,189,313 - 14,662,598 14,662,598 - 14,209,275 14,209,275 - 13,072,424 13,072,424 - 20,885,231 20,885,231 - Segment A Agriculture and fishing 7,362,362 45,498 23,540 53,753 77,293 84,976 95,678 Manufacturing 8,801,230 673,132 314,279 64,000 378,279 666,128 590,042 (iii) Available-for-sale of which EPZ 3,250,911 112,643 94,941 34,300 129,241 350,615 293,692 Quoted Tourism 15,992,970 59,960 42,916 38,938 81,854 82,347 46,447 Transport 350,154 21,602 8,958 1,705 10,663 10,919 10,220 Official list: shares 2,104 2,104 - 2,104 2,104 - 2,104 2,104 - Construction 17,714,754 846,467 481,742 127,873 609,615 587,756 425,670 Unquoted Financial and business services 8,953,304 287,336 94,662 29,349 124,011 37,145 48,195 Shares 919,757 493,009 426,748 893,453 499,270 394,183 1,185,610 528,472 657,138 214 Traders 10,174,765 613,955 412,114 92,305 504,419 664,748 793,259 215 Personal 8,103,219 946,748 537,106 120,789 657,895 744,911 708,048 921,861 495,113 426,748 895,557 501,374 394,183 1,187,714 530,576 657,138 of which credit cards 442,946 99,162 67,509 17,200 84,709 128,507 105,174 Professional 183,842 120,529 55,385 1,976 57,361 73,216 78,582 (e) Investments in Associates Others 4,995,124 267,395 152,719 44,337 197,056 184,034 228,162 82,631,724 3,882,622 2,123,421 575,025 2,698,446 3,136,180 3,024,303 2010 2009 2008 Segment B Country Effective BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B Agriculture and fishing 593,075 - - 4,447 4,447 4,943 1,644 Manufacturing 168 168 173 - 173 80 - of Holding Tourism 7,662,345 76 74 19,162 19,236 16,137 5,278 incorporation % RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Transport 167,789 46 61 895 956 1,451 1,044 Construction 1,193,542 197,648 41,162 7,627 48,789 11,174 4,394 Banque Française Financial and business services 323,508 15 90 1,003 1,093 1,069 8,348 Commerciale O.I. France 49.99 447,184 - 447,184 447,184 - 447,184 447,184 - 447,184 Traders 2,458,978 218 1,246 24,595 25,841 16,344 12,695 Credit Guarantee Co. Ltd Mauritius 40.00 12,000 12,000 ------Personal 286,744 21,449 16,333 5,111 21,444 22,004 18,643 Subordinated loan Professional 929 160 3,718 24 3,742 127 8 to associates 403,448 1,620 401,828 467,409 - 467,409 438,402 - 438,402 Foreign governments 1,180,908 - - 5,905 5,905 5,970 6,020 Global Business Licence holders 6,199,309 5,029 1,895 62,000 63,895 47,924 11,040 862,632 13,620 849,012 914,593 - 914,593 885,586 - 885,586 Others 1,963,358 3,308 1,264 23,758 25,022 11,404 4,233 22,030,653 228,117 66,016 154,527 220,543 138,627 73,347 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(f) Investments in Subsidiaries (g) Property, Plant and Equipment 2010 Country of Principal activities Stated Effective BANK Segment A Segment B incorporation/ Capital Holding Assets under Land Computer Other Work Total operation RS’000 % RS’000 RS’000 RS’000 finance and and other fixed in MCB Equity Fund Ltd Mauritius Private Equity Fund 2,074,949 100.00 2,074,949 2,074,949 - MCB Male Branch Republic of Maldives Banking & Financial services 376,054 100.00 347,963 - 347,963 leases buildings equipment assets progress MCB Moçambique SA Mozambique Banking & Financial services 118,166 95.00 260,040 - 260,040 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 MCB Seychelles Ltd Seychelles Banking & Financial services 52,450 100.00 211,522 - 211,522 Cost & valuation International Card Processing Mauritius Providing card system facilities, card 100,000 80.00 80,000 80,000 - At 1st July 2007 10,835 1,991,352 1,591,070 469,892 - 4,063,149 Services Ltd embossing & encoding services MCB Capital Markets Ltd Mauritius Investment Holding Company 98,719 90.00 75,000 75,000 - Additions - 123,424 169,196 59,511 - 352,131 MCB Madagascar SA Madagascar Banking & Financial services 171,527 85.00 64,322 - 64,322 Disposals (142) (4,300) (112,961) (23,132) - (140,535) MCB Factors Ltd Mauritius Factoring 50,000 100.00 50,000 50,000 - Transfer (7,954) - 7,954 - - - 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 - At 30th June 2008 2,739 2,110,476 1,655,259 506,271 - 4,274,745 Blue Penny Museum Mauritius Philatelic museum 1,000 97.88 950 950 - Additions - 424,630 245,002 95,275 - 764,907 3,204,106 2,320,259 883,847 Disposals - (6,102) (234,607) (124,050) - (364,759) Subordinated loan to subsidiary 26,655 26,655 - 3,230,761 2,346,914 883,847 Transfer (2,739) - - 2,739 - - At 30th June 2009 - 2,529,004 1,665,654 480,235 - 4,674,893 2009 Additions* - 300,495 409,060 143,605 325,265 1,178,425 Country of Principal activities Effective BANK Segment A Segment B Disposals - - (111,065) (27,124) - (138,189) incorporation/ Holding operation % RS’000 RS’000 RS’000 At 30th June 2010 - 2,829,499 1,963,649 596,716 325,265 5,715,129 MCB Equity Fund Ltd Mauritius Private Equity Fund 100.00 1,910,965 1,910,965 - MCB Moçambique SA Mozambique Banking & Financial services 95.00 260,040 - 260,040 Accumulated depreciation MCB Seychelles Ltd Seychelles Banking & Financial services 100.00 211,522 - 211,522 MCB Male Branch Republic of Maldives Banking & Financial services 100.00 138,724 - 138,724 International Card Processing Mauritius Providing card system facilities, card 80.00 80,000 80,000 - At 1st July 2007 9,739 249,768 1,109,691 244,171 - 1,613,369 Services Ltd embossing & encoding services Charge for the year 548 28,115 206,461 100,837 - 335,961 MCB Capital Markets Ltd Mauritius Investment Holding Company 90.00 75,000 75,000 - MCB Madagascar SA Madagascar Banking & Financial services 85.00 64,322 - 64,322 Disposal adjustment (142) (343) (112,266) (20,147) - (132,898) MCB Factors Ltd Mauritius Factoring 100.00 50,000 50,000 - Transfer (7,954) - 7,954 - - - Fincorp Investment Ltd Mauritius Investment Company 57.56 24,735 24,735 - At 30th June 2008 2,191 277,540 1,211,840 324,861 - 1,816,432 216 MCB Properties Ltd Mauritius Property ownership and development 100.00 14,625 14,625 - 217 Charge for the year - 29,580 133,321 41,917 - 204,818 Blue Penny Museum Mauritius Philatelic museum 97.88 950 950 - 2,830,883 2,156,275 674,608 Disposal adjustment - (722) (234,150) (120,114) - (354,986) Subordinated loans to subsidiaries 188,947 26,655 162,292 Transfer (2,191) - - 2,191 - - 3,019,830 2,182,930 836,900 At 30th June 2009 - 306,398 1,111,011 248,855 - 1,666,264 2008 Charge for the year - 30,940 173,554 49,988 - 254,482 Country of Principal activities Effective BANK Segment A Segment B Disposal adjustment - - (109,935) (23,037) - (132,972) incorporation/ Holding operation % RS’000 RS’000 RS’000 At 30th June 2010 - 337,338 1,174,630 275,806 - 1,787,774 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 Net book values - Segment A 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 At 30th June 2010 - 2,492,161 789,019 320,910 325,265 3,927,355 MCB Factors Ltd Mauritius Factoring 100.00 50,000 50,000 - At 30th June 2009 - 2,222,606 554,643 231,380 - 3,008,629 Fincorp Investment Ltd Mauritius Investment company 57.56 24,735 24,735 - At 30th June 2008 548 1,832,936 443,419 181,410 - 2,458,313 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 - * Borrowing costs amounting to Rs 24.3 million were capitalised during the year as work in progress at the capitalisation rate of 3.20% per annum. 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 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(h) Other Assets (j) Deposits from Customers

2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Mandatory balances with Retail customers Bank of Mauritius 4,056,680 4,056,680 - 4,222,836 4,222,836 - 3,234,902 3,234,902 - Demand deposits 9,914,354 6,576,422 3,337,932 8,419,224 5,473,002 2,946,222 7,527,772 5,227,287 2,300,485 Accrued interest receivable 838,225 723,528 114,697 854,766 744,372 110,394 720,860 629,796 91,064 Savings deposits 47,857,556 45,266,614 2,590,942 44,328,183 41,877,966 2,450,217 38,617,226 36,804,841 1,812,385 Time deposits with remaining Employee benefits assets 328,119 328,119 - 343,945 343,945 - 327,857 327,857 - term to maturity: Non-banking assets acquired Up to 3 months 6,016,866 4,057,620 1,959,246 5,223,093 4,074,235 1,148,858 4,550,479 3,753,754 796,725 in satisfaction of debts 43,064 43,064 - 42,169 42,169 - 44,032 44,032 - Over 3 months and up to 6 months 2,397,487 1,706,142 691,345 2,166,265 1,689,779 476,486 1,301,556 1,073,672 227,884 Others 569,394 394,490 174,904 493,828 426,379 67,449 384,761 299,619 85,142 Over 6 months and up to 1 year 3,910,186 3,055,916 854,270 3,606,499 2,813,223 793,276 2,681,230 2,211,784 469,446 5,835,482 5,545,881 289,601 5,957,544 5,779,701 177,843 4,712,412 4,536,206 176,206 Over 1 year and up to 5 years 8,317,423 7,309,621 1,007,802 9,479,236 7,394,208 2,085,028 9,114,209 7,518,438 1,595,771 Over 5 years 357 357 - 8,870 6,919 1,951 61,796 50,977 10,819 (i) Deposits from Banks 20,642,319 16,129,656 4,512,663 20,483,963 15,978,364 4,505,599 17,709,270 14,608,625 3,100,645 78,414,229 67,972,692 10,441,537 73,231,370 63,329,332 9,902,038 63,854,268 56,640,753 7,213,515 Corporate customers Other deposits 1,477,902 18,800 1,459,102 2,341,569 1,344 2,340,225 2,150,323 - 2,150,323 Demand deposits 28,711,590 17,916,682 10,794,908 22,832,954 16,537,231 6,295,723 17,508,553 14,085,867 3,422,686 Money market deposits with Savings deposits 4,381,891 4,325,368 56,523 3,662,533 3,621,220 41,313 3,554,688 3,542,942 11,746 remaining term to maturity: Time deposits with remaining term to maturity: Up to 3 months 1,008,080 - 1,008,080 1,042,836 64,918 977,918 221,419 1,260 220,159 Up to 3 months 7,042,346 5,362,910 1,679,436 9,228,306 5,352,629 3,875,677 9,220,143 5,268,087 3,952,056 Over 3 months and up to 6 months 581,454 - 581,454 168,769 - 168,769 1,273 - 1,273 Over 3 months and up to 6 months 955,030 690,204 264,826 1,013,129 587,638 425,491 185,394 105,929 79,465 Over 6 months and up to 1 year - - - 16,229 - 16,229 - - - Over 6 months and up to 1 year 1,211,919 730,315 481,604 325,517 188,807 136,710 282,037 161,148 120,889 1,589,534 - 1,589,534 1,227,834 64,918 1,162,916 222,692 1,260 221,432 Over 1 year and up to 5 years 1,032,274 1,031,017 1,257 456,834 264,974 191,860 457,075 261,160 195,915 3,067,436 18,800 3,048,636 3,569,403 66,262 3,503,141 2,373,015 1,260 2,371,755 Over 5 years ------100 100 - 10,241,569 7,814,446 2,427,123 11,023,786 6,394,048 4,629,738 10,144,749 5,796,424 4,348,325 218 43,335,050 30,056,496 13,278,554 37,519,273 26,552,499 10,966,774 31,207,990 23,425,233 7,782,757 219 Government Demand deposits 31,971 31,971 - 27,418 27,418 - 45,936 45,936 - Savings deposits 97,167 97,167 - 158,978 158,978 - 64,816 64,816 - 129,138 129,138 - 186,396 186,396 - 110,752 110,752 -

121,878,417 98,158,326 23,720,091 110,937,039 90,068,227 20,868,812 95,173,010 80,176,738 14,996,272 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(k) Subordinated Liabilities (n) Interest Income

2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Loans and advances to banks 39,199 17,199 22,000 131,644 26,365 105,279 114,071 50,180 63,891 Subordinated debt repayable Loans and advances to customers 7,336,485 6,491,455 845,030 7,700,078 6,844,628 855,450 7,508,149 6,865,633 642,516 beyond 3 years 1,454,853 - 1,454,853 1,471,555 - 1,471,555 1,237,128 - 1,237,128 Placements with other banks 111,413 3,017 108,396 270,564 1,084 269,480 589,480 26,984 562,496 Held to maturity investments 973,651 972,324 1,327 1,314,487 1,313,356 1,131 1,230,778 1,209,739 21,039 8,460,748 7,483,995 976,753 9,416,773 8,185,433 1,231,340 9,442,478 8,152,536 1,289,942 (l) Other Liabilities (o) Interest Expense Accrued interest payable 1,254,642 1,128,852 125,790 1,161,795 1,040,932 120,863 1,379,347 1,275,960 103,387 MCB Superannuation Fund 432,597 432,597 - 250,468 250,468 - 285,619 285,619 - Deposits from banks 28,499 143 28,356 69,409 3,338 66,071 69,463 52 69,411 Proposed dividend 712,047 712,047 - 711,770 711,770 - 687,981 687,981 - Deposits from customers 3,688,630 3,458,451 230,179 4,585,272 4,145,936 439,336 5,423,951 4,962,125 461,826 Outstanding lease obligation ------554 554 - Other borrowed funds 16,718 8,866 7,852 143,955 86,136 57,819 196,637 41,344 155,293 Interest suspense, impersonal & other accounts 2,414,085 2,220,701 193,384 2,412,454 2,196,907 215,547 2,030,775 1,943,604 87,171 Subordinated liabilities 28,276 - 28,276 59,312 - 59,312 77,747 - 77,747 4,813,371 4,494,197 319,174 4,536,487 4,200,077 336,410 4,384,276 4,193,718 190,558 Others 11,526 11,526 - 8,813 8,813 - 9,297 9,297 - Interest suspense (522,203) (514,410) (7,793) (610,558) (608,257) (2,301) (604,399) (604,399) - 3,773,649 3,478,986 294,663 4,866,761 4,244,223 622,538 5,777,095 5,012,818 764,277 4,291,168 3,979,787 311,381 3,925,929 3,591,820 334,109 3,779,877 3,589,319 190,558 (m) Contingent Liabilities (p) Fee and Commission Income

Retail banking customer fees 151,383 139,877 11,506 172,826 166,123 6,703 107,158 101,616 5,542 (i) Instruments Corporate banking fees 195,423 119,748 75,675 196,261 110,087 86,174 218,560 140,980 77,580 Guarantees on account of customers 15,177,173 10,355,529 4,821,644 15,224,725 10,707,058 4,517,667 13,238,177 10,208,514 3,029,663 Guarantees 156,213 121,555 34,658 141,205 107,618 33,587 106,001 83,818 22,183 Letters of credit and other obligations Interbank transaction fees 35,256 - 35,256 27,406 - 27,406 25,139 - 25,139 on account of customers 7,757,811 2,960,112 4,797,699 4,055,483 2,602,352 1,453,131 4,646,053 2,841,676 1,804,377 Rental income 1,886 1,886 - 2,755 2,755 - 1,658 1,658 - Other contingent items 2,693,921 98,005 2,595,916 2,062,022 24,302 2,037,720 2,140,565 16,637 2,123,928 Card related fees 623,102 544,615 78,487 536,893 498,294 38,599 470,826 443,766 27,060 220 25,628,905 13,413,646 12,215,259 21,342,230 13,333,712 8,008,518 20,024,795 13,066,827 6,957,968 Trade finance fees 300,347 150,538 149,809 270,296 120,123 150,173 220,887 140,792 80,095 221 Others 115,185 34,089 81,096 81,111 35,080 46,031 94,737 44,841 49,896 (ii) Commitments 1,578,795 1,112,308 466,487 1,428,753 1,040,080 388,673 1,244,966 957,471 287,495 Loans and other facilities, including undrawn credit facilities 6,239,807 5,687,041 552,766 7,277,317 5,753,299 1,524,018 6,115,111 4,817,491 1,297,620 (q) Fee and Commission Expense (iii) Tax assessments 319,900 319,900 - 278,274 278,274 - 220,642 220,642 - Interbank transaction fees 4,102 - 4,102 7,165 - 7,165 3,762 - 3,762 (iv) Other Card related fees 230,819 230,819 - 214,810 214,810 - 215,569 215,569 - Inward bills held for collection 349,555 281,525 68,030 422,295 318,493 103,802 364,804 268,391 96,413 Others 5,457 - 5,457 12,009 12,009 - 1,454 1,454 - Outward bills sent for collection 415,597 353,075 62,522 546,822 433,009 113,813 631,622 460,612 171,010 240,378 230,819 9,559 233,984 226,819 7,165 220,785 217,023 3,762 765,152 634,600 130,552 969,117 751,502 217,615 996,426 729,003 267,423 32,953,764 20,055,187 12,898,577 29,866,938 20,116,787 9,750,151 27,356,974 18,833,963 8,523,011 MCB Group Annual Report 2010

notes to the financial statements for the year ended 30th June 2010

37. Segmental Reporting - Bank (continued) 37. Segmental Reporting - Bank (continued)

(r) Dividend Income (v) Allowances for Credit Impairment

2010 2009 2008 2010 2009 2008 BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B BANK Segment A Segment B RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 RS’000 Available-for-sale securities 43,953 42,744 1,209 6,297 5,140 1,157 27,297 24,500 2,797 Loans and advances to banks 911 - 911 1,529 - 1,529 2,307 - 2,307 Others 104,296 35,924 68,372 180,071 59,746 120,325 179,189 85,694 93,495 Loans and advances to customers 218,941 140,415 78,526 359,586 296,876 62,710 406,110 426,594 (20,484) 148,249 78,668 69,581 186,368 64,886 121,482 206,486 110,194 96,292 219,852 140,415 79,437 361,115 296,876 64,239 408,417 426,594 (18,177) (s) Net (Loss)/Income from Financial Instruments carried at Fair Value (w) Income Tax Expense

Net (loss)/income from derivatives (45,377) (45,377) - 34,578 34,578 - 31,597 31,597 - Current tax expense Investment securities at fair value through profit or loss 1,582 1,582 - 7,174 7,174 - 1,964 1,964 - Current year 569,390 528,542 40,848 648,302 608,885 39,417 394,885 346,667 48,218 (43,795) (43,795) - 41,752 41,752 - 33,561 33,561 - Adjustment for prior years (14,107) (14,107) - 40,367 40,367 - (1,434) (1,434) - 555,283 514,435 40,848 688,669 649,252 39,417 393,451 345,233 48,218 Deferred tax 16,914 16,914 - (12,993) (12,993) - 1,943 1,943 - (t) Salaries and Human Resource Development Total income tax expense 572,197 531,349 40,848 675,676 636,259 39,417 395,394 347,176 48,218

Wages and salaries 1,206,724 1,123,865 82,859 1,204,546 1,140,462 64,084 1,099,334 1,043,885 55,449 The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows: Compulsory social security obligations 33,576 31,166 2,410 29,647 28,021 1,626 25,402 24,274 1,128 Equity settled share-based payments 1,062 1,033 29 192 187 5 2,229 1,800 429 Profit before tax 3,676,573 2,632,370 1,044,203 3,928,156 2,898,912 1,029,244 3,296,429 2,367,270 929,159 Other personnel expenses 309,181 285,122 24,059 317,729 297,993 19,736 314,272 294,478 19,794 Tax calculated at a rate of 15% 551,486 394,856 156,630 589,223 434,836 154,387 494,464 355,090 139,374 1,550,543 1,441,186 109,357 1,552,114 1,466,663 85,451 1,441,237 1,364,437 76,800 Impact of: Income not subject to tax (88,159) (85,017) (3,142) (54,445) (44,505) (9,940) (146,863) (137,074) (9,789) (u) Other Non-Interest Expense Expenses not deductible for tax purposes 102,616 89,262 13,354 72,428 48,360 24,068 80,995 64,204 16,791 Tax credits (135,775) (102) (135,673) (138,703) (116) (138,587) (119,665) (78) (119,587) Software licensing and other Special levy on banks 156,136 146,457 9,679 166,806 157,317 9,489 87,897 66,468 21,429 information technology cost 120,829 108,456 12,373 87,852 83,956 3,896 76,753 72,786 3,967 (Over)/Under provision in previous years (14,107) (14,107) - 40,367 40,367 - (1,434) (1,434) - 222 Others 898,152 882,489 15,663 785,163 746,814 38,349 703,333 667,004 36,329 Tax charge 572,197 531,349 40,848 675,676 636,259 39,417 395,394 347,176 48,218 223 1,018,981 990,945 28,036 873,015 830,770 42,245 780,086 739,790 40,296 MCB Group Annual Report 2010

224 225

You cannot live in the shadow of such a colossus without feeling the power of nature. It's not so much that she looks down on us, as we look up to her. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

a review of the economic environment

The International Context leading developed economies that registered declines in Consumer confidence indicator The global economy witnessed its deepest post-war real GDP in 2009 include the US (2.4%), euro area (4.1%), 105 United Kingdom (4.9%) and Japan (5.2%). For their part, % of GDP recession so far to contract by 0.6% in 2009 according to emerging and developing countries posted a perceptible 100 the IMF, with various countries around the world being deceleration in their overall output growth to 2.5% in 95 affected by the wide-ranging financial crisis and the 2009 as compared to around 6% a year before. Within 90 United Kingdom Euro area (16 countries)

considerable slump in real sector activity. While the US Index: July 2007 = 100 this group, East Asian countries that rely greatly on 85 United States economy has suffered most from intensifying financial Jul Jan Jul Jan Jul Jan Jul OECD - Total manufacturing exports as well as emerging European and 2007 2008 2008 2009 2009 2010 2010 strains and the sustained worsening of the housing sector Commonwealth of Independent States (CIS) economies Source: OECD performance, Western Europe and emerging economies which depend on notable capital flows to stimulate have been plagued by the collapse in global trade and growth have been subject to non-negligible economic growing financial problems of their own. Specifically, difficulties. On the other hand, a pick-up was observed in worldwide business sentiment and confidence in the outcome registered a year before and expand by 4.6%, IMF World Economic Outlook closing stages of 2009 as compared to earlier historical which represents an upward revision of about forty Annual percent change lows, triggered by extensive and often untraditional basis points compared to the prior forecast. While being 2007 2008 2009(e) 2010(f) 2011(f) policy measures to limit output downturns. reflected by recovering real and financial activity as World output 5.2 3.0 -0.6 4.6 4.3 well as an upsurge in cross-border financial flows from Advanced economies 2.7 0.5 -3.2 2.6 2.4 For 2010, factoring in a better-than-expected annualised developed to emerging countries, this improvement United States 2.1 0.4 -2.4 3.3 2.9 Euro area 2.7 0.6 -4.1 1.0 1.3 growth rate of over 5% during the first quarter on the should be mainly underpinned by the reduced statistical Germany 2.5 1.2 -4.9 1.4 1.6 basis of solid performances in Asia especially, the world base and major macroeconomic interventions, in the France 2.3 0.1 -2.5 1.4 1.6 economy is expected to pick up as compared to the form of unprecedented monetary and fiscal stimulus Italy 1.6 -1.3 -5.0 0.9 1.1 226 Spain 3.6 0.9 -3.6 -0.4 0.6 Evolution of World Trade 227 Japan 2.3 -1.2 -5.2 2.4 1.8 Annual percent change United Kingdom 2.6 0.5 -4.9 1.2 2.1 2007 2008 2009(e) 2010(f) 2011(f) Emerging and developing economies 8.3 6.1 2.5 6.8 6.4 Volume (goods and services) 7.3 2.8 -11.3 9.0 6.3 Sub-Saharan Africa 7.0 5.6 2.2 5.0 5.9 Advanced economies Russia 8.1 5.6 -7.9 4.3 4.1 Imports 4.7 0.5 -12.9 7.2 4.6 Developing Asia 10.6 7.7 6.9 9.2 8.5 Exports 6.3 1.8 -12.6 8.2 5.0 China 13.0 9.6 9.1 10.5 9.6 Emerging and developing economies India 9.4 6.4 5.7 9.4 8.4 Imports 13.8 8.6 -8.3 12.5 9.3 Consumer prices Exports 9.8 4.5 -8.5 10.5 9.0 Advanced economies 2.2 3.4 0.1 1.4 1.3 Emerging and developing economies 6.4 9.3 5.2 6.3 5.0 (e) estimates (f) forecasts Source: IMF World Economic Outlook - July 2010 Update, October 2009 (e) estimates (f) forecasts Source: IMF World Economic Outlook - July 2010 Update, October 2009 MCB Group Annual Report 2010

a review of the economic environment

coupled with wide-ranging financial stability reforms. marked trade and financial linkages between Europe All in all, considering the relatively high dependence of with the positive effects of euro depreciation on growth The growth upturn should be mainly driven by emerging and several other regions, these developments should the Mauritian economy on external markets for goods patterns and reforms aimed at preserving financial and developing countries which are anticipated to have notable adverse repercussions on the economic and services, the precarious operating environment stability. In the latter respect, the possibility that grow by an appreciable 6.8% this year, led by creditable environment worldwide due to (i) restrained spending abroad has certainly a bearing on local activity. reduced uncertainty on the international scene triggers achievements of the BRIC nations (Brazil, Russia, India via slowed down private consumption and investment Notably, as a cause for concern to local businesses, a stronger-than-expected upturn in financial market and China). This has been made possible by the rebound linked to dampened confidence and risk appetite as well muted private demand should contribute to relatively sentiment, trade and capital flows as well as private in global trade amongst others, while non-negligible as constrained bank lending and job losses; (ii) impaired modest economic growth rates of 1.0% and 1.2% demand indeed exists. support, albeit to a relatively lower extent, would also output growth on account of subdued business activity in the eurozone and the United Kingdom markets emanate from advanced economies whose exports seem and fiscal consolidation measures put into place by the respectively for 2010, while the US should also bear the With regard to other indicators, after staying at relatively to be increasingly stimulated by resurging demand from authorities; and (iii) strains in money and capital markets brunt of tight credit conditions and moderate demand low levels last year and for the first half of 2010 on the emerging economies to even beyond pre-crisis highs. in terms of funding pressures and sharp movements growth. However, even if the outlook for global basis mainly of downward pressures on commodity in the currency, equity and commodity markets owing growth is predominantly biased on the downside and prices associated with under-capacity utilisation and However, the world economy continues to be beset by to significant sell-offs of assets as markets scale back characterised by pronounced ambiguities linked to the well-anchored expectations of weak global demand, the major difficulties and downside risks to growth on various expectations for future growth. In parallel, a major risk of any escalation of financial stress and contagion inflation rate is likely to remain mostly subdued in the fronts, particularly in view of turbulences in financial apprehension relates to the fact that the room for policy on the back of acute anxieties about sovereign risk, the near term. As compared to emerging countries where markets, with fiscal sustainability issues coming to the fore manoeuvres as a response to economic complications domestic economy can nurture hopes for experiencing headline inflation is expected to edge up above the 6% principally in European countries, initially triggered by in many developed countries has either become largely better-than-expected fortunes in the coming periods. mark this year, the indicator for advanced economies is concerns over the budgetary positions and competitiveness exhausted or much more limited. This is, however, conditional on a material and speedy foreseen to remain within the 1¼ - 1½ % range in 2010 in several vulnerable euro area economies. Given the improvement of the eurozone economic climate in line and 2011 on account of the delicate recovery process

Primary commodity prices 228 Evolution of global stock market indices 229 120 110 100 100 80 90 80 60 70 Index: June 08 =100 40 Index: Jun 07=100

Index: 1 July 08 = 100 60 20 Food 50 Dow Jones (DJI) Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Metals Nikkei 225 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 Energy 40 FTSE 100 Jun 07Aug 07Oct 07Dec 07Feb 08Apr 08Jun 08Aug 08Oct 08Dec 08Feb-09Apr-09Jun-09Aug-09 Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep CAC 40 Notes: 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 DAX (i) Energy includes petroleum, natural gas and coal (ii) Food includes mainly cereals, vegetable oils, meat and seafood Source: IMF MCB Group Annual Report 2010

a review of the economic environment

Exchange rates on world markets environment and subdued inflation pressures. In parallel, Fiscal indicators for selected countries in 2009 with benchmark interest rates being very low in several Value as at Annual average Greece economies, Central Banks are left with the alternative of 30-Jun-09 30-Jun-10 FY 2008/09 FY 2009/10 Belgium relying more heavily on managing their balance sheets USD/GBP 1.6452 1.4947 1.6158 1.5814 Ireland to further ease monetary policy should downside risks to USD/EUR 1.4020 1.2291 1.3742 1.3902 economic growth materialise going forward. Italy % of GDP JPY/USD 96.42 88.49 98.81 91.57 France ZAR/USD 7.7300 7.6252 9.0052 7.5874 Evolution of key interest rates for Portugal selected countries Spain % as at end United Kingdom Fundamentally, countries are called upon to demonstrate a credible commitment for implementing Jun-08 Jun-09 Jun-10 United States Government deficit medium-term fiscal consolidation plans often through Euro area 4.00 1.00 1.00 0 20 40 60 80 100 120 140 Gross Government debt politically-difficult upfront measures so as to prevent % of GDP United States 2.00 0 - 0.25 0 - 0.25 adverse market reactions, while maintaining supportive United Kingdom 5.00 0.50 0.50 Source: OECD Economic Interim Assessment, September 2010 monetary conditions, microeconomic reforms and Australia 7.25 3.00 4.50 structural measures to retrieve a high, sustainable and India 6.00 3.25 3.75 balanced growth path. Essentially, the extent and type and extensive economic slack, with the risk of deflation conditions in the financial sector have recently been China 7.47 5.31 5.31 of budgetary consolidation plans would be dependent remaining on the cards. As for public finances, fiscal rehabilitated from the high strain levels experienced South Africa 11.75 7.50 6.50 on country circumstances, with the timing of fiscal balances have deteriorated in most regions of the world last year by means of policy intervention which helped tightening being subject to the speed and dynamism as a result of falling revenue in the wake of declining to stabilise money markets, improve the health of the of economic recovery. As regards monetary policy, real and financial activity as well as extraordinary fiscal banking sector and cause some rebound in equity markets. keynote interest rates in several parts of the world The Regional Performance stimulus unleashed to stabilise output. What have ensued Nevertheless, the financial damage amidst the eurozone 230 have remained at exceptionally low levels last year and Despite showing a notable resistance to exogenous 231 are high and often unsustainable budget deficits and crisis drew attention to the need to maintain the focus in 2010 so far with a view to stimulating demand and shocks on grounds of a rather limited integration of debt positions which are likely to remain a major policy on measures towards reforming overall financial systems improving financial conditions. several countries in the global economy, macroeconomic challenge in coming periods. and consolidating banking activity. On the policy front, reforms and fitting policy responses to external overwhelming challenges lie ahead to ensure that the Even if those nations which have not been overly affected complications, economic growth in sub-Saharan Africa For their part, exchange rates around the world have global recovery process is consolidated against shocks and by the global economic crisis and are faced with price slowed down to reach 2.1% in 2009 according to the gyrated a lot in 2009 and various periods of 2010 on account further solidified, alongside fostering a noticeable rise in pressures have resorted back to policy stiffening (such as IMF, prompted mainly by a contraction of 1.8% in output of heightened uncertainty levels and ever-changing consumer and business confidence. Australia and India), there are indications that monetary registered by the middle-income nations. Overall, the signals about the healthiness of the economic climate conditions will remain highly accommodative for the global financial and economic crisis affected the real in several parts of the world, with a chief development foreseeable future in most advanced countries and several sector of most African countries through a variety of being the unremitting depreciation of the euro against other economies given the fragility of the global economic channels such as a decline in global trade notably in the US dollar for a long period. From another perspective, MCB Group Annual Report 2010

a review of the economic environment

respect of primary commodities, a considerable drop in varied, with the most severely affected economies being prices and weaker domestic demand, inflation in the a comprehensive resolution of socio-political crises as foreign direct investment (FDI) and portfolio inflows, the middle-income and oil-exporting nations which faced region moderated in 2009, even if sharp depreciations well as the resumption of external aid and FDI flows and a fall in remittances from abroad. Besides, the large adjustments, including sharply rising unemployment, in the exchange rate of some emerging and frontier exist. As for the Seychelles, after contracting by 1.3% general lack of export product and market diversification given that they are more closely integrated into the world markets as well as oil exporters countered this tendency. in 2008 on the back of the severe repercussions of the compounded tribulations faced by African countries and economy. With external demand somewhat recovering, On the external front, performances were troubled last balance of payments crisis in particular, the economy worsened their external positions. Against this backdrop real GDP growth in sub-Saharan Africa is anticipated to year by (i) dampened demand; (ii) restrained prices of somewhat recovered last year to expand by 0.7%. This of economic worries, employment opportunities were rebound to 4.75% in 2010 and further accelerate to 5.75% various exports; (iii) lower remittances from abroad; was underpinned by the unfolding of general reform materially reduced, thereby upsetting many households in 2011, upon the expected continued improvement and (iv) impaired capital inflows. A relatively improved programmes and aggressive discounting in the tourism and generating social problems. The impact of the global in global economic conditions. With regard to other performance is expected in 2010 as the economic industry which accounts for a quarter of economic downturn on different countries in the region has been macroeconomic indicators, reflecting the decline in oil environment gets somewhat better. Concerning public activity. Moreover, other indicators fared rather well as sector debt, it has worsened in various countries last gauged by low inflation, a relatively stable exchange Regional Economic Outlook year as a result of the ramifications of the economic rate recently and a steady rise in reserves which Annual percent change slowdown, with some countries still facing a high risk altogether boosted domestic confidence and further Real GDP Growth Consumer Price Inflation of debt distress. Overall, to foster a comprehensive and entrenched macroeconomic stabilisation gains. For 2008 2009(e) 2010(f) 2008 2009(e) 2010(f) long-lasting improvement in economic achievements, 2010, in spite of remaining highly exposed to external Sub-Saharan Africa 5.6 2.1 4.7 11.6 10.5 7.9 experience within sub-Saharan Africa suggests that shocks given risks to the eurozone outlook and piracy Botswana 3.1 -3.7 8.4 12.6 8.1 6.7 Ethiopia 11.2 9.9 7.0 25.3 36.4 3.8 ongoing reforms should be broadened and reinforced threats, the Seychelles is anticipated to pursue its Ghana 7.3 3.5 4.5 16.5 19.3 10.8 in order to unlock the region’s productive potential by economic upturn and grow by around 4%, provided Kenya 1.5 2.1 4.1 13.1 11.8 8.0 promoting trade and financial sector development as ongoing domestic reforms are pursued and the external Madagascar 7.1 -5.0 -1.0 9.2 9.0 9.6 well as raising the standards of governance, bolstering climate continues to heal. For its part, Mozambique Malawi 9.4 8.0 6.0 8.7 8.4 8.4 the infrastructure set-up and strengthening institutions. showed considerable resilience to the global economic Mauritius 5.1 3.1 3.9 9.7 2.5 2.7 Mozambique 6.7 6.3 6.5 10.3 3.3 9.3 crisis, with GDP expanding by around 6% in 2009 owing 232 Namibia 4.3 -0.8 4.4 10.0 9.1 6.5 As regards the performance of presence countries, to the strong performance of the construction, energy 233 Nigeria 6.0 5.6 7.0 11.6 12.4 11.5 Madagascar was confronted by both the global and financial sectors as well as the general impact of Seychelles -1.3 0.7 4.0 37.0 31.8 -2.4 economic crisis and the persistence of a political turmoil fiscal and monetary easing on economic activity. Growth South Africa 3.7 -1.8 3.2 11.5 7.1 5.6 which triggered a significant decline in economic is expected to improve further in 2010, led by mega Tanzania 7.4 5.5 6.2 10.3 12.1 7.8 activity last year, notably through a fall in public and projects in the natural resources sector and stepped-up Uganda 8.7 7.1 5.6 7.3 14.2 9.5 Zambia 5.7 6.3 5.8 12.4 13.4 8.2 private investment. As such, real GDP growth contracted public investment. Finally, after contracting by some Zimbabwe -14.5 4.0 2.2 n.a 6.5 5.0 by 5.0% in 2009 and is anticipated to remain in negative 3% last year owing to a sharp decline in tourist arrivals Maldives 6.3 -3.0 3.4 12.3 4.0 4.3 territory this year. For the short to medium term, the amidst exogenous shocks, the Maldives economy is Madagascar economy is likely to remain troubled forecast to register a technical rebound in economic (e) estimates (f) forecasts by adverse economic and political conditions, even growth this year on the strength of a relative recovery Sources: though upside risks to the growth outlook in terms of in external demand, namely for its tourism sector which CSO and MCB staff estimates for Mauritius IMF Regional Economic Outlook: sub-Saharan Africa, World Economic Outlook – April 2010, Individual Country Reports MCB Group Annual Report 2010

a review of the economic environment Main economic indicators Indicators Unit 2001 2002 2003 2004 2005 2006 2007 2008 2009(1) 2010(2) Population mid-year, '000 1,200 1,210 1,223 1,233 1,243 1,253 1,260 1,269 1,275 1,281 accounts for more than 25% of GDP and around 60% of complications on Mauritius has been largely intensified GDP at market prices Rs bn 132 142 157 176 185 206 236 265 275 290 the country’s foreign exchange earnings. Commendably, and entrenched by (i) the recurring, far-reaching and the authorities continue to display commitment to their prolonged nature of economic and financial shocks Real GDP growth % 5.2 1.8 4.4 4.8 2.3 5.1 5.5 5.1 3.1 3.9 ambitious reform agenda, considered as a sine qua occurring in various parts of the world in spite of vigilance GDP per capita USD 3,795 3,938 4,578 5,182 5,101 5,286 5,958 7,356 6,730 7,250 non condition to reduce the economy’s vulnerability and reforms being applied by the authorities; and (ii) GDFCF % GDP 22.7 21.8 22.6 21.6 21.4 24.3 25.1 24.6 26.2 24.2 to external shocks and to place the country on a sound structural impediments to the upgrade of mechanisms GDS % GDP 26.6 25.2 24.7 22.0 16.5 15.3 16.5 12.4 10.8 10.7 footing for sustained growth. Concerning the countries in underpinning local production and the capacity of the GNS % GDP 28.4 27.4 25.1 22.6 17.4 17.1 21.2 16.7 13.6 14.0 which the MCB has established an appreciable presence economy to improve competitiveness and long-term Budget deficit FY(a), % GDP 6.7 6.1 6.2 5.4 5.0 5.3 4.3 2.7 3.1 - through its associate, Banque Française Commerciale growth exigencies. Moving forward, there are clear Budget deficit % GDP ------4.1(b) 4.5 Océan Indien, Réunion Island saw its economy contracting apprehensions that the difficult external context could (c) last year on the basis of the delicate external conditions thwart the medium-term growth path of the Mauritian Broad money end June, % GDP 78.1 80.6 92.2 98.6 102.7 101.4 98.4 100.2 105.0 107.1 and subdued public investment, while Mayotte continues economy in terms of real activity and nominal wealth Broad money growth end June, % 9.9 13.0 11.7 18.3 13.6 6.7 8.6 17.0 12.5 6.8 to face up to key economic risks. creation, unless conditions abroad materially improve Bank rate end June, % 11.14 10.01 8.26 4.74 6.13 7.30 10.98 7.45 4.76 3.96 and local reforms are sensibly implemented. Besides, Headline inflation June, % 4.4 6.3 5.1 3.9 5.6 5.1 10.7 8.8 6.9 1.7 The Mauritian Economy apart from inflation which is on course to remain within Headline inflation Dec, % 5.4 6.4 3.9 4.7 4.9 8.9 8.8 9.7 2.5 2.7 manageable levels in the periods ahead on account of Introduction Unemployment rate(d) CY, % 6.8 7.2 7.7 8.4 9.6 9.1 8.5 7.2 7.3 7.8 Last year, the Mauritian economy has had to bear the brunt the lukewarm world economic upturn, the challenging Balance of visible trade Rs bn -10.4 -10.7 -12.9 -21.5 -30.1 -41.5 -51.3 -64.2 -56.5 -67.2 of a notable downturn in global economic activity, which operating environment threatens to exert non-negligible Current account balance % GDP +6.1 +5.2 +1.7 -1.8 -5.2 -9.4 -5.6 -10.4 -7.8 -9.6 negatively affected several macroeconomic indicators pressures on employment creation, external trade and such as real GDP growth, unemployment and export of public finances. Against this backdrop, the attention Overall BOP Rs bn -1.3 +10.2 +6.2 -0.9 -4.9 -4.6 +13.9 +4.6 +12.1 -0.2 goods and services. However, it is worth highlighting is cast on the evolution of the global economic climate Net International Reserves(c) end June, USD m 1,091 1,356 1,729 1,957 2,262 2,126 2,654 3,096 3,023 3,181 that the country displayed noticeable resilience to the and the execution of the domestic reform agenda, upon Import cover end June, weeks 21.0 25.3 30.4 31.1 31.0 25.7 27.7 24.9 30.3 30.6 234 difficult operating environment on the strength of fitting which economic prospects of Mauritius will hinge. External debt service ratio FY, % exports 9.7 8.5 8.0 6.5 6.5 8.4 7.1 4.0 3.1 - 235 policy responses and broad-based socio-economic reforms External debt service ratio % exports ------3.0(b) 3.6 which, inter alia, led to the diversification of the output annual avg., Exchange rate (Rs/USD) 29.01 29.89 28.11 27.47 29.22 31.15 31.36 28.36 31.92 31.20 base, an improved institutional and regulatory framework mid-rate as well as gains with respect to the social sphere. For

2010, there are indications that the resistance of the (1) revised estimates (2) MCB forecasts Mauritian economy to shocks is being increasingly tested Notes: and drawn-out to ever-demanding levels on account of (a) Former fiscal year (July-June period) serious shortfalls in economic activity abroad as well as (b) Relates to the July-December period the influence of lengthy episodes of rupee strength on (c) 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' external competitiveness. In fact, the impact of these (d) 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

MCB Group Annual Report 2010

a review of the economic environment

The Real Sector industry, nationwide output growth was weighed down domestic reform initiatives. Specifically, the technical economic recovery and the purchasing power in key Economic Growth by the contracting tourism and textile industries. From recovery in the tourism and textile segments as well markets especially since getting the ailing economies Notwithstanding reforms put into place and recuperating another angle, partly due to delicate economic conditions, as the enhanced achievement of the trade industry back on the track of strong, sustainable and balanced activity in the second half of the year during which output activity was somewhat restrained by subdued private should materially contribute to the relative healing growth could take years before being achieved. In the grew by some 5% as compared to the corresponding investment and a relative slowdown in the expansion of of the economic growth path this year. Activity is also same vein, fiscal austerity measures being adopted period in 2008, overall real GDP growth decelerated to household expenditure. Nonetheless, despite bearing with likely to be underpinned by a noteworthy, albeit lower in several advanced economies are likely to constrain attain an estimated 3.1% for 2009, thereby derailing the adverse developments, it is worth stressing that Mauritius than previously expected, expansion of the construction aggregate demand there, whilst the gradual fading out nascent recovery impetus achieved in prior years. In fact, depicted a fair level of resilience to exogenous shocks last sector as well as by appreciable performances in the ICT of rebound factors like budgetary stimuli are unlikely the Mauritian economy was confronted by the adverse year regardless of its multiple vulnerabilities. and the business and financial services segments. to be rapidly and comprehensively substituted by repercussions of the global economic crisis in terms mainly recuperating private investment and consumption in the of weak external demand for goods and services coupled For 2010, the testing and uncertain climate externally will All in all, the real GDP growth rate for 2010 is forecast search for enhanced demand. As such, notwithstanding with dampened investor confidence. Overall, even though continue to weigh down on the expansion of national to stand at 3.9% according to latest assessment, which is recent policy responses, the medium-term growth path being supported by the appreciable expansions of the output. However, economic growth is anticipated to a relatively modest achievement by historical standards of the domestic economy is set to be moderate, the more construction (6.5%), financial and business services (6.1%), register an upturn from last year’s slowdown in line with and undershoots medium-term targets. Basically, notable so given a potentially material reduction of the capacity ICT (14.8%) and seafood (10.1%) sectors as well as sizeable the statistical effect of a low base, a relative improvement strains on export-linked industries and, to a lower of domestic operators to invest in projects intended to offshoots linked to the re-engineering of the sugar of the world economic climate and the impact of extent, on other sectors such as property development enhance competitiveness levels and gratifyingly foster and construction will be wielded by (i) the sustained expanded activity on the back of restrained financial repercussions of recent global economic downturns; resources associated with reduced demand and the (ii) continuing jitters in the eurozone in terms of impact of rupee strength on export receipts. The latter Quarterly GDP growth downward pressures on external demand and capital factors are also projected to hold down the increase

% 10 flows originating from the region and elsewhere; and in the aggregate national wealth level as measured

8 (iii) unfavourable rupee dynamics in particular against by nominal GDP at market prices. This situation is 236 6 the euro. From an expenditure viewpoint, activity levels viewed with particular concern to the extent that it can 237 4 will be seriously encumbered by a continued restrained (i) materially restrain the leeway for the income growth 2 real growth of household consumption and, particularly, of households, going by the national income theory 0 by the continually subdued private investment on whereby revenue generated from productive activities

-2 % account of lingering and often exacerbated economic is distributed as returns to factors of production; and -4 complications. Moreover, the growth prognosis for (ii) negatively affect opportunities for investment and

-6 Year-on-year quarterly growth* this year is subject to significant downside risks, with job creation by industries. To enable Mauritius to face 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q091Q10 2Q10(e) Seasonally adjusted quarter-to-quarter growth** a further cut in the current projection not to be ruled up to current and impending economic challenges (e) estimates out should worries plaguing our key export markets amidst the eurozone crisis, the Government unveiled a Notes: * The year-on-year quarterly growth is calculated over the corresponding quarter of the previous year based on unadjusted data materialise. In fact, Mauritius is still beset by persisting policy package in August last with the aim of protecting ** The quarter-to-quarter growth is calculated over the previous quarter based on seasonally adjusted data 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 questions as regards the strength of the international enterprises and boosting the medium to long-term 2Q10(e) MCB Group Annual Report 2010

a review of the economic environment

competitiveness of the economy. Still, for the earmarked and secondary sectors should relatively improve on the reform initiatives to generate maximum and desired basis essentially of better economic conditions, while the Sector contribution to GDP (Year 2009) impact over time, it is necessary that (i) deeper structural primary sector is anticipated to witness a more tempered measures be put in place to underpin the sustained growth increase in real activity. Sugar Construction Banking of the economy; and (ii) initiatives announced be clearly 2.1% 7.1% 7.5% Non-sugar agriculture Wholesale & retail trade Other financial spelt out, swiftly and coherently put into practice, backed Contribution to GDP growth (% points) 2.7% 11.2% business services 8.0% Rs 244 bn Food manufacturing Hotels & restaurants Social & general by an overall synchronised macroeconomic management, 2005 2006 2007 2008 2009 (excl. sugar) 6.7% 7.3% public services 15.2% particularly when considering the backdrop of general Textile Transport, storage Others Primary sector -0.3 0.0 -0.3 0.1 0.5 5.4% & communications 10.7% 6.4% upward pressures on the rupee. Other manufacturing Insurance Secondary sector -1.4 1.2 1.3 1.4 0.8 6.9% 2.8% Tertiary sector 4.0 3.9 4.5 3.6 1.8 Sector Activity Real GDP Growth 2.3 5.1 5.5 5.1 3.1 Last year, the deceleration of nationwide economic growth was driven by the subdued growth rates of the Primary sector including the cane cluster lately relate to (i) the securing of additional sources Notes: tertiary sector – which represents nearly three quarter of 1. Primary sector consists of sugarcane, non-sugar agriculture and 'mining Sugar cane cluster of revenue through exports of white sugar to Europe; total value added generated nationwide and is the most & quarrying'. Against the backdrop of the termination of the Sugar (ii) centralisation and factory closure; (iii) labour force 2. Secondary sector comprises manufacturing (sugar milling, food, textile important contributor to economic growth – as well as rightsizing; (iv) electricity production from bagasse; & others), 'electricity, gas & water supply' and construction. Protocol and heightened competitive pressures, the the secondary sector on account mainly of the difficult 3. Tertiary sector is composed of: Trade & repairs; Hotels & restaurants; sugar industry is characterised by key challenges (v) production of ethanol from molasses; and (vi) external climate. This was not fully compensated for by Transport, storage & comm.; Financial interm.; Real estate, renting & business activities; and Social & general public services. emanating from revenue shortfalls in line principally restructuring of the Global CESS. At the production the buoyancy of the primary segment which registered with the cumulative cut of 36% in guaranteed prices level, after being adversely affected by above-average a double-digit expansion rate on the strength of robust of raw sugar production on the EU market. This is rainfall in the second part of 2009 and a decline of growth rates of both the sugarcane and non-sugar compounded by rupee strength against the euro, an 2.5% in total area harvested to 60,503 hectares, sugar segments. For 2010, the performances of the tertiary elevated debt burden, high input costs and volatile output expanded by a restrained 3.4% to reach 467,234 238 production patterns. As such, apart from recent tonnes in 2009. However, with some 44% of the latter 239 outturn being converted into white sugar as compared Real value-added growth index contextual measures to alleviate the strains faced by sugar sector operators, comprehensive economic to practically nothing before, the sugar industry actually 140 reform programmes have been implemented over time posted a notable growth rate that stood at some 15% %130 of GDP to re-engineer the sugar industry into a multi-pillar last year after accounting for the higher prices fetched 120 and viable cluster. According to the recent draft Multi by such products as opposed to raw sugar. Index: 2004 = 100 110 Annual Programme for Accompanying Measures for 100 Sugar Protocol Countries (Mauritius 2011-13) of the For 2010, in spite of benefiting from the transformation 90 Primary sector Ministry of Finance and Economic Development, while of the entire outturn into refined sugar, the industry is Secondary sector anticipated to grow at a more restrained pace than in 80 Tertiary sector being characterised by varying degrees of completion 2004 2005 2006 2007 2008 2009 GDP to date, various projects that have been put into train 2009 when considering the reinforced base level coupled MCB Group Annual Report 2010

a review of the economic environment

Sugar production and price Export oriented enterprises - employment & exports

600 20 100 40 Rs bn 500 18 80 35

‘000 tonnes 400 16 60 30 '000 tonnes Rs '000 per tonne

300 14 Rs‘000 per tonne 40 25 Raw 200 12 Special 20 20 100 10 White Mauritian workers Employment as at Dec; '000 0 15 Expatriates Price (right scale) 0 8 2005 2006 2007 2008 2009 Exports (right scale) 2005/06 2006/07 2007/08 2008/09 2009/10 Crop year

performance of the textile and clothing industry could Construction with a likely decline in the production level according Secondary sector excluding sugar milling remain delicate over the medium term. This will be all The construction sector continued to register note- to latest indications. With regards to export revenue, Export oriented manufacturing the more so if dampened export receipts of enterprises worthy performances in recent times in view of key while adequate support could be provided by high prices Notwithstanding targeted Government support to enable inhibit efforts to improve capacity and competitiveness development projects taking place in various spheres attached to refined sugar, it will be largely affected by the operators to effectively face up to the global economic levels. As regards the seafood industry, after growing by of activity. Indeed, underpinned to a large extent by average weakening of the value of the euro. In this context slowdown, the performance of the textile and clothing around 10% last year on the basis of advances garnered noteworthy public infrastructure ventures in several and recognising the other limitations to the performance industry materially worsened in 2009, with the sector with respect to market access, it should register another fields, the construction industry grew by 6.5% in 2009, of the industry, it is hoped that endeavours to foster the contracting by nearly 3% in line with difficulties faced by notable expansion in value added in 2010 as already with a noteworthy performance rate of 24.3% registered long-term viability and sustainability of the sugar industry key markets, and competitive limitations in some instances. gauged by a year-on-year increase of some 26% in the in the last quarter of the year more than compensating will be boosted by further capital investments, effective In 2010, the industry is projected to register a technical volume of domestic exports of fish and fish preparations for the contraction in real value-added during the negotiations to smoothen labour relations, a clear and rebound from the negative growth it registered last year for the first semester. Hindrances relating to rules of first semester as compared to that of the preceding 240 coherent enunciation of the national energy policy, and in view of low base effects and a general improvement in 241 origin and the supply of fish do, however, remain quite year on grounds of dampened private investment. targeted initiatives to raise efficiency and productivity the economic climate prevailing in main export markets. real. In general though, factoring in the difficulties being An appreciable expansion rate is forecast this year on levels. However, the real growth forecast for the sector is set to be encountered by various industries, the export oriented account of the continued unfolding of various public only marginally positive owing to the still sluggish nature manufacturing industry is anticipated to sustain a rather sector ventures at the level of road infrastructure, Non-sugar segment of consumer expenditure abroad and the relative strength subdued achievement level this year. All in all, with a airport, housing and schools amongst others, even Apart from the sugarcane industry, it is worth noting that of the rupee against the backdrop of the eurozone crisis. view to preserving jobs – particularly given that jobs lost though the overall outcome should, to some extent, be the production of other agricultural products, notably Should adverse conditions characterising the operating cannot, in all probability, be reversed – and boosting hampered by delays in the realisation of Government livestock and fish, rose at an appreciable rate last year. environment deteriorate, and suggestions that AGOA competitiveness levels in the export oriented segment, projects and continuing softness in respect of private For 2010, the non-sugar segment is expected to fare provisions could potentially be reviewed to expand it is essential that restructuring initiatives be bolstered sector outlays associated with lingering weaknesses and reasonably well in line with various measures to shore up preferential access on the US market to an increasing by emphasising on high value added production and uncertainties characterising the economic climate. capacity and improve competitiveness. range of least developed countries materialise, the growth market diversification. MCB Group Annual Report 2010

a review of the economic environment

Domestic oriented industry Tertiary sector For the first semester of 2010, bearing in mind the operation of new/renovated hotels. However, it is worth In 2009, the domestic oriented industry registered a Tourism reduced base level and economic recovery in several noting that the performance of the sector should still near-zero growth rate, somewhat pinned down by its Last year, the tourism sector witnessed one of its most markets, tourist arrivals grew by 6.2% compared to the be marred by the sluggish economic upturn in our main long-standing competitive limitations amidst the trade difficult years in recent memory in terms of arrivals and same period a year before, underpinned by notable markets as constrained income growth and purchasing liberalisation process, in spite of initiatives put into place receipts, both being hit by the problematic international expansions with respect especially to the French (8.7%), power as well as high unemployment impact travel to support the development of SMEs. The industry should economic environment characterised by dampened South African (16.9%), Réunion Island (9.1%) and Indian preferences which in various cases appear to be shifting post a slightly positive expansion rate this year, with purchasing power and high uncertainty. As such, (26.4%) markets. While somewhat reassuring to the towards shorter-haul and even intra-country visits. As extent that tourism – as a core pillar of the economy regards tourism earnings, notwithstanding an expansion non-negligible support springing from a general pick- notwithstanding a resilient growth of 6.0% noted in – is portraying some signs of a relative pick-up, results of 8.5% to Rs 19.8 billion for the first six months of the up in real economic activity nationwide, while economic relation to France, our main market, tourist arrivals obtained so far should be treated with caution given that year, they are likely to rise only slightly to some Rs 37 restructuring reforms earmarked by the authorities – contracted by 6.4% in 2009 to reach 871,356, led by under- recovering tourism arrivals for the first semester of 2010 billion this year as compared to 2009 on account of (i) as recently exemplified by measures announced in par performances in respect of the UK, Italian, German remains below the level achieved in the corresponding the relative strength of the rupee against the euro in the policy package introduced in August last to assist and South African markets in particular. Consequently, period in 2008 when the global economic crisis had not particular; (ii) restraints on the growth in arrivals; (iii) enterprises affected by the eurozone crisis – could also gross tourist receipts dropped by 13.4% to stand at yet set in. price discounting practised by hotel operators; and (iv) provide some relief if promptly and rationally executed. some Rs 36 billion last year, after factoring in additional likely inhibitions with respect to average tourist spending Nevertheless, there is still ample ground to enhance the pressures on receipts emanating from (i) increased Based on current trends, the tourism industry is and length of stay. Already, reflective of the continuing medium to long-term competitiveness of operators via spending cautiousness on the part of potential clients; expected to perform better in 2010 as compared to the temperance of their revenue generation ability despite a efficiency-enhancing measures towards human resource (ii) inhibited year-on-year decline in the average length performance realised in 2009, with arrivals expected to pick-up in official tourist arrival figures, various leading development and the adoption of innovative practices. of stay particularly in the second half of the year; and (iii) be close to 915,000. This is in line with a calming down hotel groups, smaller-scale operators and ancillary price discounting practices adopted by business operators. of external economic disturbances, additional cruise businesses have displayed worsening financial results for shipping activity and extra capacity being created in the recent periods, thereby triggering fears that, should the peak season especially following the coming into conditions on the exchange rate front and external 242 243

Tourist arrivals and receipts Tourist arrivals by origin (Year 2009) 1,000 50 ‘000 800 40 Rs bn

600 30 France 47.6% 400 20 871,356 Europe Réunion Island 200 10 66.5% 12.1% UK 17.6%

Asia Other African Europe Italy 9.8% 0 0 Tourist arrivals 7.1% 2.9% Germany 8.8% 2005 2006 2007 2008 2009 Receipts (right scale) South Africa Others Other European 16.2% 8.5% 2.9% MCB Group Annual Report 2010

a review of the economic environment

demand not sensibly improve over time, the medium term nevertheless, still managed to grow by an appreciable following the international economic slowdown, as well sustained its notable double-digit growth pattern in growth path of the tourism industry could be hampered margin of some 6% on the basis of its generally strong as increased competition on the international front, 2009 – after taking into consideration the components as a result of an impaired ability for enhanced capacity fundamentals. The latter performance was mainly the global business segment registered a somewhat of manufacturing, domestic trade, communications development. As such, with a view to accelerating the supported by the circumstantially good performances restrained performance in 2009, the more so given and business services – underpinned largely by solid turnaround of the tourism industry, perennial measures of the banking and business activities segments which notable uncertainties associated with the threats of a performances of the telecommunications and business like market and product diversification should be boosted expanded by around 5% and 8% respectively. In particular, potential review of the India-Mauritius double taxation process outsourcing segments. In spite of factoring and swiftly implemented. At the same time, due care even though the real sector slowdown impacted on the avoidance treaty. in some concerns relating especially to the eurozone should be taken to (i) preserve the ‘exclusivity’ attribute volume and profitability of operations, the banking crisis and labour availability, the ICT sector is expected and the idyllic status of the Mauritian destination; and sector was relatively shielded from the financial upheavals This year, the business and financial services industry is to perform remarkably well in 2010 too, supported by (ii) place appropriate focus on an air access strategy abroad and maintained the overall dependability of its projected to uphold its appreciable growth momentum developed infrastructure frameworks, a broadening which is conducive to the country’s ambitions. Above financial metrics over time on the basis of its generally on the basis of past and ongoing realisations in terms range of value-added services and market diversification all, the computation of comprehensive Tourism Satellite healthy strategic positioning as well as the presence of ambitious, yet prudent, market diversification and in conjunction with the official strategy to position Accounts is called for if only to more confidently capture of a sound regulatory and supervisory framework as overall bolstered strategies, although output levels will Mauritius as a high-quality outsourcing destination. the evolution and extent of tourist-related activities in backdrop. Basically, supported by generally sensible continue to be inhibited by soft conditions and lingering For its part, after posting a moderate expansion rate the country, in order to pave the way for more judicious business models, the overall capital adequacy ratio in the economic uncertainty. Specifically, whilst standing ready last year in line with the economic slowdown, the trade planning and greater effectiveness of reforms. banking sector oscillated around the 16% mark for much to take advantage of opportunities likely to surface over sector should improve its growth rate in 2010 owing to of last year and during the first quarter of 2010, while time when economic recovery, abroad and domestically, the upshots of relatively enhanced nationwide activity, Business and financial services reassuring asset quality levels were maintained as gauged gathers pace, the banking sector is forecast to witness even though the performance should remain somewhat In contrast to the robust growth trajectory posted in by the non-performing loans to gross loans ratio attaining a notable performance in 2010. Yet, overall real value modest as a result of restrained real consumption growth recent years, the business and financial services sector 2.6% as at June 2009 and only marginally worsening as at added is likely to be held back by (i) the ongoing and against the backdrop of the still delicate recovery experienced some slowdown in its expansion rate in 2009 March 2010. For its part, bearing the brunt of a reduction lagged impact of the subdued global environment on process. As regards social and general public services, due to the challenging operating environment. The sector, in client activity and a cutback of private capital flows general economic activity and the riskiness of major the segment pursued an appreciable growth pattern in 244 sectors, particularly given the non-negligible concerns 2009 and is anticipated to fare well in 2010 also, with 245 triggered by the eurozone crisis and rupee strength; the health sector in particular likely to perform well (ii) recent high liquidity levels experienced by operators amidst noticeable investment therein. Banking sector activity and the accompanying pronounced drop in the average 800 16 % weighted yield on Government securities; and (iii) Saving and Investment

600 % 12 potential restrictions in the currency market. On account of elevated uncertainty levels and lukewarm '000 400 8 economic activity, private sector investment declined

200 4 Other main sectors in 2009, with the completion of some major ventures Loans As at December, Rs bn As at December, 0 0 Other assets Regardless of pressures originating from the difficult being only partly mitigated by the impact of the start of 2005 2006 2007 2008 2009 Sector growth rate (right scale) context on demand for services as well as constraints some new projects. On the other hand, after contracting linked to labour market imbalances, the ICT industry in the preceding two years, public investment materially MCB Group Annual Report 2010

a review of the economic environment

picked up last year, with the significant expansion rate in recent times, reflecting major delays in the execution of expenditure to GDP rose last year owing to a notable can act as a worrying drag on capital outlays, the low being underpinned by a relatively low base level, the various planned ventures by the Government and, also, expansion in current Government outlays. As a result, saving ratio does bring out some concerns, implying unfolding of key infrastructure projects particularly in the further concerns on the international scene, particularly the ratio of gross national saving (GNS) to GDP fell to that appropriate measures are warranted to remedy last quarter and the purchase of aircraft. As such, the ratio in the wake of the eurozone crisis. All in all, to the extent 13.6% last year, while a further drop was registered in the situation. These could include (i) further market of gross domestic fixed capital formation as a percentage that it is a major ingredient in the strategy to foster high respect of the corresponding ratio for gross domestic development at the micro level, and (ii) expanded of GDP rose to an estimated 26.2% in 2009. Whilst capital and sustainable growth, the medium-term investment saving (GDS) to 10.8% – as compared to 12.4% a year nationwide income generation from a macro standpoint. spending already unclenched by the Government in path, particularly at the level of the private sector, needs before and far below the peak of 26.6% registered in relation principally to road and airport networks as well to be closely monitored in view of recurring difficulties 2001 – thereby causing the resource gap to widen. For Inflation as education and housing should continue to somewhat on the international economic front and the domestic 2010, whereas the GNS ratio is expected to increase, During FY 2009/10, reflecting broad international support national investment this year, a projected vulnerability to external developments. Hence, it is vital supported by net primary income and transfers from trends, both headline inflation domestically and its core contraction in private investment is likely to weigh down that the sustainability of investment be firmed up by (i) abroad, the GDS ratio is expected to remain close to rates – which exclude items prone to price volatility on the overall investment ratio. Indeed, deferred and/or a further tangible diversification of the economic base; last year’s low level with the eroding impact of the – sustained their descent already triggered in prior delayed materialisation of projects by private operators on (ii) conscientious international openness; (iii) an improved challenging operating environment taking its toll on periods owing mainly to the dampening impact of world the back of the sub-optimal recovery process, a wait-and- development of SMEs; (iv) coherence of purpose in respect wealth generation capacity of various sectors in spite of economic woes on the evolution of prices of imported see attitude associated with uncertain economic signals, of general policy implementation; and (v) further micro- relatively improved economic growth. To the extent that commodities like food and fuel, subdued domestic and the impaired revenue-generating capacity of firms reforms towards reducing bureaucratic hindrances at the it continues to remain far below historical standards and activity levels and the general strength of the rupee against the backdrop of dampened demand and rupee public sector level. strength should contribute to a decline of two percentage Movement in CPI points in this year’s anticipated national investment ratio As a result of adverse pressures on disposable income, % Change (FY 2009/10) Description Weight in CPI basket to 24.2%, with the drop being less important, albeit still themselves linked to the economic cycle, real growth in Average Point-to-point noticeable, when excluding aircraft purchase. It is worth household consumption slowed down markedly to attain Food and non-alcoholic beverages 286 2.4 2.6 noting that the outlook has consistently been downgraded 2.1% in 2009. Nonetheless, the ratio of final consumption Alcoholic beverages and tobacco 92 2.2 0.5 246 Clothing and footwear 51 7.2 7.2 247 Housing, water, electricity, gas and other fuels 131 (2.6) 0.6 Furnishings, household equipment & 64 3.8 3.1 Savings and investment ratios routine household maintenance Health 30 4.7 3.4 30 Transport 147 (0.3) 2.6 25 % of GDP

% of GDP Communication 36 (0.3) 0.3 20 Recreation and culture 48 2.0 2.9 15 Education 32 2.1 1.2 10 Restaurants and hotels 43 2.4 3.2

5 GDS Miscellaneous goods and services 40 4.9 3.5 2005 2006 2007 2008 2009 GDFCF TOTAL 1,000 1.7 2.4 MCB Group Annual Report 2010

a review of the economic environment

Inflation

% 7 Labour force 6 600 10 %

5 ‘000 4 550 8 3 2 500 % 6 '000 1 Headline 450 4 0 Core 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Core 2 400 2 Mauritian employed 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010 Year-on-year CPI change Jul-08Aug-08Sep-08Oct-08Nov-08 Mauritian unemployed 350 0 Expatriates 2005 2006 2007 2008 2009 Unemployment rate (right scale) Core 1: excludes ‘Food, Beverages and Tobacco’ components and mortgage interest on housing loan from headline inflation Core 2: excludes Food, Beverages, Tobacco, mortgage interest, energy prices and administered prices from headline inflation

especially in the latter half of 2009. Overall, these factors run, from any acceleration of the international economic 566,300, the challenging context restrained the increase financial services and ICT, (ii) a general enhancement of held back the evolution of the Consumer Price Index (CPI) upturn and, possibly, exchange rate developments, it in nationwide employment to 5,800 for a cumulative the economic climate, and (iii) efforts by the authorities over time, thereby driving the headline inflation figure can be observed that the general domestic price level is pool of 545,800, thereby prompting an expansion in the to foster job creation. Essentially, factors which could down to 2.5% as at December 2009 and further below unlikely to constitute a major constraint with regard to number of unemployed to 41,500 last year as compared thwart employment growth in the economy comprise to 1.7% in June 2010 despite hints of relative economic policy formulation for the proper management of the to 40,400 in 2008. Key highlights of the labour market mainly (i) skills mismatch at various levels in an upturn internationally and episodes of rupee depreciation economy in an ever testing environment at least in the for last year are: (i) the workforce is made up of twice increasingly demanding and services-based economy, against the US dollar, in which most of our imports are immediate term. as many men as women; (ii) the tertiary sector has and (ii) sustained difficulties afflicting several sectors, denominated, in the second quarter of 2010. However, the reinforced its position as the main source of jobs; (iii) notably export oriented manufacturing enterprises pace of the decline in the CPI growth has been weakening Labour Market unemployed women outnumbered unemployed men and tourism operators in view of the delicate global over time as the significance of positive statistical effects In spite of sustained efforts to improve labour market though they were generally more qualified – leading economic improvement amidst the eurozone crisis. 248 gradually eroded, eventually contributing to an upward dynamics through the implementation of structural female joblessness to stand at a worrying 12.3% – with As the situation stands, despite exhibiting a relatively 249 drift in headline inflation to 1.9% as at August last and micro-policies as well as appreciable activity women tending to be on average above the 30-year appreciable resistance to pressures in comparison according to latest figures. The figure is projected to within various segments of the tertiary sector and in age threshold and being inclined to be out of job for a to alarming job losses encountered by various other edge up further, but should remain low at 2.7% as at construction amidst the unfolding of public infrastructure relatively higher duration than men in general; and (iv) countries, deficiencies in the net employment creation December next on account of subdued demand-pull ventures, the national unemployment rate interrupted the unemployed are predominantly made up of persons capacity of the economy is viewed with concern given forces and overall rupee strength in effective terms, its downward movement of recent years to attain 7.3% with work experience. the possible related costs in terms of below-potential notwithstanding upward pressures emanating, amongst in 2009 as compared to 7.2% in 2008. This reflected the output and social welfare complications. At the same others, from adverse climatic conditions in key commodity curtailing effect of generally adverse economic conditions For 2010, reflecting difficulties in the labour market, time, it is essential not to be misguided by an incomplete exporting countries and the relative recovery process. and heightened uncertainty levels on the job creation the unemployment rate is projected to worsen to reach statistical interpretation of real labour market trends Against this backdrop, while it is essential to exert caution capacity and willingness of operators. In fact, against 7.8%, although benefiting from (i) relatively appreciable to the extent that the methodology used might not over pressures likely to emerge, over the short to medium the backdrop of a rise of 6,900 in the labour force to activity in sectors like construction, business and reasonably capture genuine employment movements MCB Group Annual Report 2010

a review of the economic environment

Composition of unemployed population by age group and sex – 2009 solutions on an opportune and wide-ranging basis. However, it is worth noting that the increase of the Conspicuously, investment in training and education as fiscal deficit was largely predictable in view ofthe Age group (years) Unemployment Labour force Unemployment rate (%) well as a propping up of the entrepreneurial spirit of difficult economic context and the significant amount of Overall Male Female Both sexes SMEs would help to ensure that there is an adequate capital expenditure undertaken to improve productive Below 20 6,200 18,400 29.2 40.8 33.7 pool of properly skilled employees to meet the evolving capacity. On a different note, the deterioration of the 20-29 17,300 132,900 9.5 18.4 13.0 exigencies of labour demand over time. budget deficit exerted pressures on public sector debt 30-39 10,000 153,100 2.5 12.5 6.4 as a percentage of GDP which briefly exceeded the 40-49 5,800 146,200 1.6 8.0 4.0 The Fiscal Sector 60% mark as at December 2009 as compared to 53.8% 50 & over 2,200 115,700 1.3 3.9 2.1 Owing to the ramifications of dampened economic a year earlier, before dropping to an estimated 59.4% All ages 41,500 566,300 4.4 12.3 7.3 activity on revenue generation, sizeable outlays linked as at March 2010, with the external public sector debt to the implementation of growth-enhancing measures remaining manageable at some 10% of GDP. via public infrastructure spending and fiscal stimulus occurring in the Mauritian socio-economic context, to implement innovative practices towards promoting measures, and a relatively subdued nominal GDP The negative fiscal balance is set to remain at a relatively particularly considering the fair level of underemployment employment creation and social dialogue. Besides, as part growth, the budget deficit as a percentage of GDP high level in 2010, largely due to dampened direct and drift nationwide associated with cyclical or structural of the recent policy package to tackle the threats of the increased for FY 2008/09 and for the July-December indirect revenue collection following restrained income factors. Moreover, apprehensions exist regarding the eurozone crisis, the authorities earmarked the setting 2009 period to stand at 3.1% and 4.1% respectively. growth and subdued profitability levels. Indeed, in spite joblessness of women, thereby implying that solving up of a Support Unit for Re-employment of Employees gender imbalances in the labour market should feature as to monitor and support retrenched workers during the Statement of Government Operations a core aspect of the employment creation strategy. From time they are out of job. Overall, it appears primordial Rs million a general perspective, the authorities have commendably that strategic intentions to address chronic imbalances 2007/08 2008/09 Jul-Dec 09 expressed their willingness to materially reduce the in the labour market be supported by coherent planning Actual Prov Act Prov Act national unemployment rate. For instance, the Government and harmonious collaboration among stakeholders Revenue and grants 53,222 62,216 33,183 250 stressed on the creation of a National Employment Policy with a view to executing short, medium and long term o/w Tax revenue 47,831 52,333 27,641 251 Grants 454 2,781 3,182 Expense 55,590 65,103 34,096 o/w Compensation of employees 12,700 16,247 8,686 Sectoral breakdown of employment (Year 2009) Interest 10,675 10,688 5,326 Grants and subsidies 14,848 18,573 9,291 Social benefits 10,232 11,692 6,729 Sugar Other manufacturing Transport, storage 3.2% 8.3% & communications 7.3% Gross operating balance -2,368 -2,886 -913 545,800 Non-sugar agriculture Construction Business & financial services 5.6% 9.6% and real estate 8.1% Net acquisition of non-financial assets 4,539 5,546 4,946 Food manufacturing Trade Social & general public services Budget balance -6,907 -8,432 -5,859 (excl. sugar) 2.3% 15.6% 15.8% Textile Hotels & restaurants Others Budget balance as % of GDP -2.7% -3.1% -4.1% 10.3% 6.6% 7.4% Primary balance as % of GDP 1.5% 0.8% -0.4% MCB Group Annual Report 2010

a review of the economic environment

of indications of under-spending in respect of planned fact, considering the primary goal of preserving fiscal the Bank of Mauritius slashing the key Repo rate by a liquidity levels in both the rupee and foreign currencies. capital projects and the relative upturn in national healthiness without impeding growth aspirations, the cumulative 250 basis points between October 2008 and These include the rise in the cash reserve ratio by fifty economic growth, the budget deficit is projected to edge authorities should devote growing attention to the March 2009 to 5.75%, prompted by the objective to basis points and one percentage point in June and up further to around 4.5% of GDP this year. Nonetheless, following: (i) implementation of fiscal stimulus measures ensure that the Mauritian economy withstands the testing September 2010 respectively to 6.0% as well as the it is interesting to take note of the efforts undertaken by in a rational and well-monitored manner, while exiting economic context, worldwide monetary orientations and conduct of reverse repo transactions, a Special Deposit Government to ensure that public finances do not escalate therefrom on a timely basis as and when the economic a relatively favourable inflation outlook, the reference Scheme with banks, alongside some interventions in the into overly high territories. The policy package unveiled climate durably and materially improves; (ii) reduction of rate has been kept unchanged in subsequent Monetary foreign exchange market. by the Government in August last is thus deemed to the leeway granted to any of the sub-optimally productive Policy Committee (MPC) over FY 2009/10. In fact, the MPC have been prepared within the constraints of mobilising expenditure patterns through adequate scrutiny and, continued to judge that a no-change monetary policy Reflecting the accommodative monetary policy stance, financial resources while upholding fiscal integrity. That more specifically, the long-overdue and wide-ranging stance was appropriate, considering the benign inflation the lower growth in credit to the private sector and said, public finances continue to warrant alertness for reengineering of parastatal bodies and other public sector outlook for coming periods, the low national saving ratio perceived undersupply of securities by the Bank of the short to medium term given the still-fragile nature entities; (iii) enhancement of the efficiency of spending and that economic activity would continue to improve Mauritius, the Bank rate fell to 4.39% on an annual of the economic environment, the likely repercussions of and their future revenue-generation capacity, notably by in spite of staying below potential. However, in view average basis in FY 2009/10 compared to 7.34% in the planned decision to abolish some taxes on receipts sensibly selecting projects and ensuring their competent of enduring difficulties by key sectors, the benchmark the previous financial year, while declining by 80 basis and the sub-optimal dynamics in certain areas of the execution; and (iv) boost to the expansion of revenue rate was slashed by one percentage point to 4.75% in points on a point-to-point basis over the twelve months public sector. In essence, it is important to ensure that the via improved collection methods and overall improved September 2010 with a view to supporting the on-going ending June 2010 to reach 3.96%. Additionally, it is primary budget balance – which has recently entered into economic activity in various fields. economic restructuring process and fostering national worth highlighting that the average yield on Treasury a negative territory – does not move towards levels that competitiveness, the more so that inflation is expected Bills pursued its downtrend in more recent times to could make it tricky to maintain an appropriate stability The Financial Sector to remain below trend over the next few quarters. At attain 2.59% as at mid-September last. In a nutshell, in the national debt ratio and consequently weaken Monetary Front another level, the Bank of Mauritius intervened in the the Bank rate has, for a quite lengthy period, remained the economy’s ability to uphold fiscal sustainability. In After a period of pronounced monetary easing which saw marketplace through measures aiming to mop up excess well below the interest rates being applied on deposits –

252 253 Evolution of Repo rate, Bank rate and MCB Prime Lending & Savings rate

Public sector debt 12%

200 70 % 10

Rs bn 8 160 60 6 120 50 4 80 40 2 Bank rate 40 30 0 MCB Prime Lending rate Domestic Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Repo rate 0 20 External 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 MCB Savings rate Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Total public sector debt as % of GDP Note: The graph does not cater for the impact of measures announced towards the end of September 2010 in the wake of the BoM Monetary Policy Committee meeting. MCB Group Annual Report 2010

a review of the economic environment

Evolution of key interest rates Daily evolution of SEMTRI (in rupee terms)

% 9 5,500 8 7 5,000 6 5 % 4 4,500 3

2 Index: 5 July 1989=100 4,000 1 BoM repo rate

Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 0 Aug-07Sep-07Oct-07Nov-07Dec-07 Feb-08Mar-08Apr-08May-08Jun-08 Aug-08Sep-08Oct-08Nov-08Dec-08 Feb-09Mar-09Apr-09May-09Jun-09 Aug-09Sep-09 Bank of England Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep ECB rate 3,500 2008 2008 2008 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 Federal funds rate* Jul-08Aug-08Sep-08Oct-08Nov-08 Jul Sep Nov Jan Mar May Jul Sep 2009 2009 2009 2010 2010 2010 2010 2010 * Effective 16 Dec 08, the FED rate stands at 0% – 0.25%

with the overall savings rate standing at around 4.5% – favourable inflation outlook, and (iv) the relatively low 2010/11, while being characterised by bullish episodes in on commodity prices on international markets which in sharp contrast with historical trends whereby the yields generated on Treasury Bills as compared to interest the early months, the local stock market remained under contributed to decreases in the bill for food items average returns on securities consistently exceeded the rates on bank deposits. However, it is important to considerable pressure as displayed so far by the recent (7.2%) such as rice, wheat and dairy products and for latter rate by some premium. For its part, money supply continuously monitor unfolding international economic market volatility. This probably flows from the unsettled refined petroleum products (37.2%). Consequently, the grew by 6.8% on a point-to-point basis over FY 2009/10, developments and the speed at which the local economy economic climate of the country’s main export markets as balance of trade deficit narrowed by a sizeable 12% to even though the evolution decelerated as compared to is rebounding over time before undertaking a more well as the impact of the relative strength of the rupee reach Rs 56.5 billion last year, which yet represented a that of the last financial year in line with the economic complete assessment of future interest rate movements. on the local economic buoyancy. high 20.6% of GDP. slowdown. The expansion in broad money was backed by a rise of 4.7% in net foreign assets and of 7.1% in Stock Exchange The External Sector For the first semester of 2010, notwithstanding a drop domestic credit mainly due to a hike of 7.5% in net claims On the strength of the noticeable resilience of the External Trade in receipts from articles of apparel and clothing, total 254 on private sector, mostly in the last quarter. As a result, Mauritian economy in the midst of budding indications Despite a noteworthy expansion of 14.0% in exports exports picked up to grow by 8.6% as compared to 255 broad money supply reached Rs 302.9 billion as at June of international economic recovery, the local bourse of fish and fish preparations amidst harnessed market the corresponding period last year on the strength 2010, representing 107.1% of GDP. maintained a noteworthy upward movement during the access, total exports declined by 9.1% in 2009 as a of increased sugar revenue buoyed by higher value- first few months of FY 2009/10 in line with movements of result of a drop of 20.1% in sugar receipts following a added products and the sustained momentum of the For the short to medium term, in spite of apprehensions foreign stock exchanges. Thereafter and until mid-2010, significant cut in guaranteed prices on the EU market, seafood sector. Nonetheless, the balance of trade over the relatively low saving ratio and a relative healing the domestic stock market however displayed a generally a slight fall in textile and clothing revenue linked to deficit deteriorated significantly by 25.7% to attain Rs of economic activity, the accommodative monetary policy bearish mood, mainly attributable to the effect of enduring the testing environment and a considerable drop in re- 31.3 billion in view of a 16.5% increase in total imports stance is likely to be sustained given (i) the fragility of international qualms on the risk appetite of investors which exports of machinery and equipment. A more important associated with a relatively higher upturn in commodity the economic environment, particularly with the risks was further aggravated by the euro crisis. Nonetheless, the contraction of 10.5% was registered in respect of total prices on average and a healing of domestic activity associated with the eurozone crisis, (ii) the sub-optimal SEMDEX and SEMTRI in rupee terms still grew by 16.7% and imports on account largely of relatively subdued local in some areas. Considering that the odds of enduring conditions on the employment front, (iii) the generally 20.8% on a point-to-point basis over FY 2009/10. As for FY economic activity and, especially, downward pressures economic woes afflicting key markets remain firmly MCB Group Annual Report 2010

a review of the economic environment

Balance of trade Exports of goods by country of destination (Year 2009)

140 120 Rs bn 100 80 60 Rs 56 bn UK Other European South Africa 40Rs bn 27.0% 17.4% 4.6% 20 France USA Madagascar 0 16.6% 8.3% 6.4% -20 Italy Réunion Island Others -40 -30 Exports (f.o.b) 5.5% 4.1% 10.0% -60 -41 -51 -64 -57 Imports (c.i.f) -80 2005 2006 2007 2008 2009 Balance of trade

Imports of goods by country of origin (Year 2009) Terms of trade

140 Asia Spain South Africa 120 49.8% 2.4% 8.7% India 37.6% Index: 2004 = 100 UK Australia China 25.3% Rs 118 bn France 100 11.7% 2.5% 2.8% Japan 6.5% Other European Others Malaysia 5.8%

Germany Asia

Index: 2005 = 100 80 2.6% 7.3% 7.9% Thailand 5.3% Export price index 60 Italy USA Indonesia 5.1% Import price index 2.3% 2.2% Other Asian 14.4% 40 Terms of trade 2005 2006 2007 2008 2009

grounded and given the detrimental effect of a general Balance of Payments more than compensated for by notable FDI inflows and as demonstrated by net errors and omissions standing 256 appreciation of the rupee on exports, the worsening Activated by a reduction of the balance of trade deficit considerable official disbursements from bilateral and at some Rs 3.5 billion – as well as investment flows, 257 trend of the trade balance is likely to persist in the period as well as by an improved performance of the services multilateral sources as well as unrecorded flows, leading with a surplus of Rs 1.7 billion being recorded in spite ahead. Some hopes exist, however, that the trade deficit account despite a notable reduction of 13.4% in gross tourism to a large surplus of Rs 12.1 billion on the overall balance of deterioration in the current account deficit, thereby could be somewhat cut back by a fairly good outcome in receipts, the current account deficit dropped significantly in of payments. Accordingly, the level of net international exerting general upward pressures on the external relation to white sugar receipts and the dampening impact 2009, but still represented 7.8% of GDP. Further support to reserves increased by a notable 17.3% over the twelve value of the rupee. For the year, the balance of of the still subdued economic climate on imports. On the the current account stemmed from a notable surplus with months ending December 2009 to stand at Rs 105.7 billion, payments should benefit from major private and official whole, the trade deficit is projected to increase to some respect to current transfers following higher grants received representing a comfortable import coverage of 7.8 months, capital and financial flows, including the significant Rs 67 billion in 2010, representing 23% of GDP, with the by the Government whereas the positive balance on the based on imports of goods and services for the year. part-disbursement of a loan already secured from possibility of a higher deficit not to be overlooked should income account nearly collapsed. Besides, notwithstan- the African Development Bank. However, the overall adverse international developments and the terms of trade ding the restraining effect of the difficult global context on During the first half of 2010, the balance of payments balance should bear the brunt of downward pressures degenerate. investment flows, the current account imbalance was continued to be upheld by sizeable unrecorded flows – emanating from a notable widening of the current MCB Group Annual Report 2010

a review of the economic environment

against the backdrop of the reduced domestic import Selling rates of main currencies vis-à-vis Current account Balance of payments and import cover bill and international trends such as (i) the overall frailty the rupee 6 15 of the pound sterling, and (ii) the losses encountered by Value as at Annual average 0 12 the greenback on the back of some recovery in global 30-Jun-09 30-Jun-10 FY 2008/09 FY 2009/10 9 -6 economic activity, the highly accommodative stance of 6 USD 33.10 33.10 31.83 31.85 -12 monetary policy in the US and talks of ongoing reserve 3 GBP 55.04 49.89 51.29 50.37 -18 currency diversification. As such, the effective exchange 0 EUR 46.56 40.45 43.73 44.26 -24 rate of the rupee slightly appreciated on a point-to- -3 JPY(100) 34.77 37.63 32.66 35.06 -30 -6 point basis over 2009 in line with external developments 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 ZAR 4.28 4.37 3.60 4.25 and the high balance of payments surplus posted for the

Balance (Rs bn) BOP (Rs bn) year. As for 2010, considering the impact of lingering % GDP Import cover (months) economic uncertainty and risk aversion worldwide, by the single currency on international exchange the rupee posted a sustained downward movement markets as a result of the challenges besetting the against the US dollar as from the beginning of the year eurozone economy. As for the pound sterling, its and increasingly towards mid-year due to the latter evolution against the rupee has been rather volatile for account deficit, in line with an elevated negative trade external debt ratio rose to 9.9% of GDP in June 2009 and currency’s pronounced firming up internationally, much of 2010, reflective of the underlying vulnerabilities balance and a modest increase in tourism receipts on further up to an estimated 12.3% of GDP as at December before resuming a general uptrend against the currency and uncertainties characterising the UK economy. All the back of sluggish recovery in our main markets and last, with the relevant stock rising from Rs 26.9 billion to during the initial periods of the second semester. On the in all, largely echoing international activity despite general rupee strength. Indeed, whilst an upturn in the Rs 34.5 billion during the period, partly reflecting external other hand, in spite of sporadic depreciating episodes, the high current account deficit locally, the external income account, notable performance of the non-tourism loan disbursements and the IMF Special Drawing Rights the rupee has experienced an appreciating inclination value of the rupee appreciated in effective terms over services account and significant current transfers in the allocations. This upward movement was triggered by against the euro so far following the troubles endured the first three quarters of the year. For the coming wake of the receipt of EU grant are anticipated to temper an expansion of 26.5% in external debt accruing to the pressures on the current account, the latter should record Government – which comprised about 64.9% of the debt 258 a deficit of some 9.6% of GDP this present year. Allin stock as at December 2009 – and, to a lower extent, by an 259 all, the balance of payments position is not anticipated increase of 27.4% in debt accruing to public corporations. Evolution of main currencies versus the rupee to repeat the notable surplus achievements of recent According to official provisional estimates, the external 105 years, with current projections pointing to a more or less debt ratio is anticipated to pursue its uptrend to 13.2% of balanced situation. Nevertheless, it is worth highlighting GDP as at December 2010. 100 that the actual outcome for the year will, to some extent, 95 1 July 2009 = 100 depend on the size of net errors and omissions upon Exchange Rate 90 which there is lack of visibility. After posting depreciating tendencies in the first four 85 USD months of 2009, the rupee pursued a pronounced 80 Euro Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep External Debt appreciating trend against the international majors since 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010 2010 GBP After pursuing a declining trend in recent years, the roughly mid-2009 and until around the end of the year MCB Group Annual Report 2010

a review of the economic environment

months, the course that the local currency will take will the population at heart; (ii) balanced after ensuring that SOURCES be largely dependent on international developments, sources for wealth creation are as extensive as possible; and

with any potential deepening of the eurozone crisis (iii) ecological via appropriate emphasis on environmental Bank of Mauritius, Annual Report, Various Publications and Pronouncements likely to perpetuate upward pressures on the evolution protection and energy efficiency. In particular, considering Central Statistics Office, Economic and Social Indicators and Reports of the rupee. Considerations to preserve the country’s the frequent evocation of the ‘Maurice Ile Durable’ International Monetary Fund, Data and Statistics, World & Regional Economic Outlook & Updates, and Other Publications international competitiveness – particularly when taking concept to foster the sustainable development of the Internet and Newspaper Articles into account the high and rising current account deficit – country, it is high time that the philosophy be (i) more Mauritius Chamber of Agriculture, Various Statistics can also influence the external value of the rupee. clearly defined and articulated to cover an all-embracing Ministry of Finance and Economic Development, Budget Speech and related documents, Various Publications and range of areas that relate to all aspects of living standards; Conclusion and (ii) comprehensively operationalised via suitable legal Pronouncements In spite of its small geographical size and lack of natural and institutional foundations as well as coherence in OECD, Interim Economic Assessment Report and Databases resources, it cannot be disputed that Mauritius is policy approaches. This is all the more important ahead Stock Exchange of Mauritius, Various Publications endowed with a notable potential for embarking into of eventual major hikes in petroleum prices as growth is World Bank, Various Publications ever-higher echelons of socio-economic development and re-ignited worldwide and before the hydrocarbon MCB Strategy, Research and Development SBU, Staff Estimates related sustained improvements in standards of living on resources inevitably face growing imbalances between the strength of nurtured accomplishments such as the demand and supply. All in all, confronted by challenges investment-conducive business environment, social and that call for resolute, prompt, wide-ranging and pragmatic ABBREVIATIONS political stability, preferential access to markets, skilled actions, the Mauritian economy is required to put its best labour force and a multi-pillar economic base. At the same response on show to ride out of complex circumstances AGOA African Growth and Opportunity Act time though, it is primordial that the authorities bring to and confidently move forward. BOP Balance of Payments light a more fitting and solid response to the increasing BRIC Brazil, Russia, India, China recurrence of exogenous shocks by reinforcing micro- CIS Commonwealth of Independent States economic foundations towards bolstering the public 260 CPI Consumer Price Index 261 infrastructure set-up, accelerating public sector reforms, tackling labour market imperfections, and upgrading EU European Union the efficiency of business operations and strategy via FDI Foreign Direct Investment technological readiness and innovation. Overall, as a result GDFCF Gross Domestic Fixed Capital Formation of materially improved policy/project implementation GDP Gross Domestic Product capacity as well as more conscientious cooperation with GDS Gross Domestic Saving private sector stakeholders and the society at large, high GNS Gross National Saving and sustainable growth for Mauritius can be reasonably ICT Information and Communication Technologies aimed for, while ensuring that economic prosperity be MCB Strategy, Research and Development IMF International Monetary Fund (i) inclusive by having the interests of all members of 29 September 2010 OECD Organisation for Economic Co-operation and Development MCB Group Annual Report 2010

A biography of Yann Arthus-Bertrand At the age of 30, he travelled to Kenya where he carried out He then founded GoodPlanet, a non-profit organisation that Programme on Earth Day (April 22nd, 2009) in recognition a three-year study on the behaviour of a family of lions in aims to raise public awareness on environmental issues, and of his outstanding advocacy work for the environment. He the Massaï Mara reserve. He quickly started using a camera to develop concrete solutions towards a more sustainable was also named a UNEP 2009 Champion of the Earth in the to capture their observations and to enhance his written way of life - one that is more respectful of our planet and its category « Inspiration and Action ». reports. He earned his money as a hot-air balloon pilot. It was inhabitants. then that he properly discovered the earth from above and He is also the author of Seen From Above, a documentary series his interest in viewing what he was studying from afar, which In partnership with ADEME (the French Agency of the currently being broadcasted in 40 countries. Interspersed with gave him the advantage of having an overall picture of an Environment and Energy Management) he developed Action sequences filmed from the sky and interviews with experts area and its resources. This is how he discovered his calling: to Carbone, which offers institutions, companies and individuals or people on the ground, each episode of Seen From Above demonstrate the Earth’s beauty in pictures in order to raise the possibility to calculate, reduce and offset their greenhouse explores an environmental issue. awareness of the importance of preserving it. gas emissions by changing their own impact and by funding renewable energies, energy efficiency or reforestation Emboldened by his television experiment, Yann Arthus- His first book, Lions, was borne of this adventure – he likes projects, carried out by NGO’s in the global South. Bertrand undertook to produce a full-length cinema film: to call these lions his “first photography teachers”. Upon his HOME. It deals with the state of our planet and the challenges return to France, he became a photographer for specialised This was followed by projects such as “Why Sustainable we will have to face if we do not protect it. The film, whose coverage of adventure, sport and nature. Development?”, an educational exhibition of his aerial producer is Luc Besson, was released on the 5th of June photographs accompanied by a series of texts. Other projects 2009 on television, on the internet, on DVD and in cinemas In 1991 he founded Altitude, the world’s first aerial include GoodPlanet.info, an informative website on the state simultaneously worldwide, mostly free of charge. More than photography agency bringing together photographs from of the world regarding environmental issues in a broad sense, 100 million people have seen it since. all over the world, and, in his own work turned his attention and GoodPlanet Conso, which encourages individuals to towards long-term projects, books and exhibitions, that consume less and better. In April 2010, Yann Arthus-Bertrand was invited by the MCB examined the links between man and nature: The Earth from Group to present “La Terre Vue du Ciel” at the Caudan Above, Animals, Horses, 365 Days to Think about our Planet... All these projects have in common Yann Arthus-Bertrand’s waterfront. This free exhibition was designed to sensitize desire to act by suggesting concrete solutions to the public the local population on the need for action in relation to In 2003, Yann Arthus-Bertrand launched the project “Six that will enable us to put the environment at the core of our sustainable development. The event attracted more than Billion Others”, which was exhibited in Paris’s Grand Palais consciences. It is due to this involvement that Yann Arthus- 400,000 visitors between April and June 2010. During his visit, Yann Arthus-Bertrand (born in 1946) has always had in January and February 2009 and is now on tour. A team Bertrand is nowadays considered more of an environmentalist Yann Arthus-Bertrand also captured images of Mauritius from a passion for the animal world and the natural of film directors went to meet men and women all over the than a photographer. Yann Arthus-Bertrand was designated above exclusively for the MCB. environment. In 1967, he settled in central France and world and recorded on video the testimonies they received Goodwill Ambassador for the United Nations Environment became the director of a nature reserve. on general themes (such as life, death, love, hate etc).

Blue Bay Gris Gris Ile au Phare Riche en Eau Ilot Mangénie and Ile aux Cerfs Ile aux Aigrettes Chamarel Pieter Both Protection of the endangered species

In a world in which everything and everyone is connected, every little step we take towards protecting our environment and preserving endangered species is part of a giant leap in the right direction. © Yann Arthus-Bertrand / Altitude. www.yannarthusbertrand.org © Yann MCB Group Annual Report 2010

2010 in restrospect

Remodelling our network

The redesign of all the branches of the MCB network in Mauritius has progressed well and should finish on time by the end of 2010. As at October 2010, 32 branches were sporting the new interior design, offering even more comfort to the customers while reducing their waiting time.

The new MCB branches provide customers with a whole new banking experience. The changes go beyond aesthetics. Intensive training and the introduction of the latest technologies have enabled staff to serve customers even better in a modern and welcoming setting. MCB Group Annual Report 2010

2010 in restrospect

Upholding FIFA World Cup business promotional campaign relationships Staff and customers were united as the MCB made the most of its MCB Business designation as Official Mauritius Banking organised Bank of the FIFA World Cup in a series of Business association with Visa. Through Meetings for small and the Laduma promotional medium enterprises campaign that lasted nine in collaboration with months, the MCB gave away Enterprise Mauritius more than 60 all-inclusive tickets to experience the world’s most spectacular sports event in South Africa.

Product diversification

The MCB became the first partner of China UnionPay in Mauritius.

The MCB was the brand which was most recognized by Mauritians as partner of the 2010 FIFA World Cup MCB Group Annual Report 2010

2010 in restrospect

Promotion of sports

Camp Levieux and Grand Baie have welcomed the MCB Football Academy in the last financial year. The MCB is active at all levels of sports, from Green directory beginners at ground level to professionals The MCB launched the first Green competing in Directory in Mauritius as part of its prestigious arenas. Initiative 175 programme in favour of sustainable development.

Raising public environmental awareness

More than 400 000 people visited “La Terre Vue du Ciel”, Yann Arthus-Bertrand’s exhibition at Caudan between April and June 2010. The exhibition, which was exclusively sponsored by the MCB, focused on the need for sustainable development. MCB Group Annual Report 2010 administrative information

THE MAURITIUS COMMERCIAL MCB FUND MANAGERS LTD. MCB CAPITAL PARTNERS LTD. FINCORP INVESTMENT LTD. BANK LTD. – MAURITIUS 6th Floor Travel House 4th Floor Travel House 9-15 Sir William Newton Street Sir William Newton Street Sir William Newton Street Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius Telephone: (230) 202 5000 – Telefax: (230) 208 0248 HEAD OFFICE – PORT LOUIS Telephone: (230) 202 5522 – Telefax: (230) 211 3592 Telephone: (230) 202 5063 – Telefax: (230) 213 5961 P.O Box 52 – Sir William Newton Street Email address: [email protected] Email address: [email protected] FINLEASE CO. LTD. Port Louis – Republic of Mauritius Website: www.mcbfundmanagers.mu Website: www.mcbcapitalpartners.com 5th Floor Travel House Telephone: (230) 202 5000 – Fax: (230) 208 7054 Corner Royal & Sir William Newton Streets Swift Code: MCBLMUMU MCB INVESTMENT SERVICES LTD. MCB INVESTMENT MANAGEMENT CO. LTD. Port Louis – Republic of Mauritius Email address: [email protected] 4th Floor Travel House 6th Floor Travel House Telephone: (230) 202 5504 – Telefax: (230) 208 9056 Website: www.mcb.mu Sir William Newton Street Sir William Newton Street Email address: [email protected] Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius Telephone: (230) 202 5063 – Telefax: (230) 213 5961 Telephone: (230) 202 5515 – Telefax: (230) 210 5260 INTERNATIONAL CARD PROCESSING LOCAL SUBSIDIARIES Email address: [email protected] Email address: [email protected] SERVICES LTD. Website: www.mcbcapitalmarkets.mu Website: www.mcbim.com Anse Courtois MCB EQUITY FUND LTD. Pailles – Republic of Mauritius c/o MCB Capital Partners Ltd. MCB REGISTRY & SECURITIES LTD. MCB FACTORS LTD. Telephone: (230) 286 7950 – Telefax: (230) 286 0232 4th Floor Travel House Raymond Lamusse Building MCB Centre Email address: [email protected] Sir William Newton Street 9-11 Sir William Newton Street 9-15 Sir William Newton Street Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius MCB FORWARD FOUNDATION Telephone: (230) 202 5063 – Telefax: (230) 213 5961 Telephone: (230) 202 5397 – Telefax: (230) 208 1167 Telephone: (230) 202 6150 – Telefax: (230) 208 5082 9-15 Sir William Newton Street Email address: [email protected] Email address: [email protected] Email address: [email protected] Port Louis – Republic of Mauritius Website: www.mcbcapitalpartners.com Website: www.mcbcapitalmarkets.mu Telephone: (230) 202 5000 – Telefax: (230) 208 4910 BLUE PENNY MUSEUM Email address: [email protected] MCB CAPITAL MARKETS LTD. MCB STOCKBROKERS LTD. Le Caudan Waterfront 4th Floor Travel House Raymond Lamusse Building Port Louis – Republic of Mauritius Sir William Newton Street 9-11 Sir William Newton Street Telephone: (230) 210 8176 – Telefax: (230) 210 9243 Port Louis – Republic of Mauritius Port Louis – Republic of Mauritius Email address: [email protected] Telephone: (230) 202 5063 – Telefax: (230) 213 5961 Telephone: (230) 202 5427 – Telefax: (230) 208 9210 Website: www.bluepennymuseum.com Email address: [email protected] Email address: [email protected] Website: www.mcbcapitalmarkets.mu Website: www.mcbstockbrokers.com

MCB Group Annual Report 2010 administrative information

FOREIGN BANKING SUBSIDIARIES THE MAURITIUS COMMERCIAL BANK CREDIT GUARANTEE INSURANCE CO. LTD. MAYOTTE (MOÇAMBIQUE) SA 2nd Floor Barkly Wharf Route de l’Agriculture THE MAURITIUS COMMERCIAL BANK HEAD OFFICE – Le Caudan Waterfront B.P 222 – 97600 Mamoudzou (MADAGASCAR) SA 400 Ave Friedrich Engels Port Louis – Republic of Mauritius Telephone: (269) 269 61 10 91 – Telefax: (269) 269 61 17 40 HEAD OFFICE – C.P 1568 – Maputo – Mozambique Telephone: (230) 213 2741 – Telefax: (230) 213 2689 Swift Code: BFCOYTYT Rue Solombavambahoaka Frantsay 77 Telephone: (258) 21 49 99 00 and (258) 21 48 19 00 Email address: [email protected] Antsahavola – B.P 197 – Antananarivo 101 Telefax: (258) 21 49 86 75 GHF FUTURES LTD. Website: www.bfcoi.com Telephone: (261) 20 22 272 62 – Telefax: (261) 20 22 322 82 Swift Code: MCBLMZMA 1st Floor HSBC Centre Swift Code: MCBLMGMG Email address: [email protected] Ebene Cybercity Website: www.mcbmozambique.com Email address: [email protected] Ebene – Republic of Mauritius REPRESENTATIVE OFFICES Website: www.mcbmadagascar.com General Manager: Peter Higgins Telephone: (230) 467 0457 – Telefax: (230) 465 6446 General Manager: Marc de Bollivier Email address: [email protected] PARIS – FRANCE Website: www.ghffutures.mu 29 Boulevard Haussmann – 75009 Paris THE MAURITIUS COMMERCIAL BANK LOCAL ASSOCIATES Telephone: (33) (1) 41 45 95 95 – Telefax: (33) (1) 41 45 99 88 (MALDIVES) PRIVATE LTD. Email address: [email protected] M. Kandoogasdhoshuge Building – Orchid Magu PROMOTION AND DEVELOPMENT LTD. FOREIGN ASSOCIATE P.O Box 3019 – Malé 8th Floor Dias Pier Building JOHANNESBURG – SOUTH AFRICA Telephone: (960) 330 5656 – Telefax: (960) 330 5757 Le Caudan Waterfront BANQUE FRANÇAISE COMMERCIALE 123 Jan Smuts Avenue – Parkwood Swift Code: MCBLMVMV Port Louis – Republic of Mauritius OCÉAN INDIEN Johannesburg 2193 Email address: [email protected] Telephone: (230) 211 9430 – Telefax: (230) 211 0239 HEAD OFFICE – RÉUNION Telephone: (27) (11) 880 8472 Website: www.mcbmaldives.com Email address: [email protected] 60 Rue Alexis de Villeneuve Telefax: (27) (11) 447 4727 Managing Director: Moossa Mohammad Website: www.promotionanddevelopment.com B.P 323 – 97466 Saint Denis Email address: [email protected] Telephone: (262) 40 55 55 – Telefax: (262) 21 21 47 THE MAURITIUS COMMERCIAL BANK CAUDAN DEVELOPMENT LTD. Swift Code: BFCORERX (SEYCHELLES) LTD. 8th Floor Dias Pier Building Email address: [email protected] HEAD OFFICE – VICTORIA Le Caudan Waterfront Website: www.bfcoi.com Caravelle House – Manglier Street Port Louis – Republic of Mauritius P.O Box 122 – Victoria – Mahé – Seychelles Telephone: (230) 211 9430 – Telefax: (230) 211 0239 Telephone: (248) 284 555 – Telefax: (248) 322 676 PARIS BRANCH - FRANCE Email address: [email protected] 29 Boulevard Haussmann – 75009 Paris Swift Code: MCBLSCSC Website: www.caudan.com Telephone: (33) (1) 41 45 95 95 – Telefax: (33) (1) 41 45 99 88 Email address: [email protected] Swift Code: BFCOFRPP Website: www.mcbseychelles.com Email address: [email protected] Managing Director: Jocelyn Ah-Yu Website: www.bfcoi.com MCB Group Annual Report 2010 local branch network

mauritius

Pereybère Grand Bay Mont Choisy

Goodlands

Triolet Plaine des Papayes

Pamplemousses Rivière du Rempart

Caudan Plaine Verte

Port Louis Edith Cavell Bell Village SSR Jules Koenig Lallmatie Flacq Belle Mare

Beau Bassin Saint Pierre Réduit Rose Hill Stanley Trianon Bel Air rodrigues Quatre Bornes Candos Phoenix Flic en Flac La Caverne Vacoas Montagne Blanche Port Mathurin Floréal Curepipe Road

Curepipe

Rivière Noire

Mahebourg Rose Belle SSR International Airport Plaine Magnien

Le Morne

Chemin Grenier Rivière des Anguilles

Branches Bureaux de Change / Forex ATMs www.mcb.mu