th anniversary On 1st September 2013, the Mauritius Commercial Bank Ltd. celebrated the 175th year of its eventful history. During this journey that spanned over three centuries, MCB has witnessed great QSQIRXW[LMPIEPWSJEGMRKYTXSHMJ½GYPXTLEWIW=IXMXLEWEP[E]W coped with challenges. Through time, the organisation has helped individuals and institutions of different spheres to progress from ambition to achievement. In WS HSMRK MX LEW FIIR MR¾YIRXMEP MR TVSQSXMRK XLI WSGMSIGSRSQMG 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 development of Mauritius, while also supporting the foreign countries I\TIGXEXMSRWERHSXLIVJSV[EVHPSSOMRKWXEXIQIRXWXLEXEVIFEWIHSRQEREKIQIRX´WGYVVIRXZMI[WERHEWWYQTXMSRW8LIWIMRZSPZIVMWOWERHYRGIVXEMRXMIWXLEXGSYPHGEYWIEGXYEPVIWYPXW in which it is present. performance or events to differ materially from those expressed or implied in such statements. Today, the history of MCB is only at its beginning. MCB is intent on 6IEHIVWEVIEHZMWIHRSXXSTPEGIYRHYIVIPMERGISRXLIJSV[EVHPSSOMRKWXEXIQIRXWVIPEXMRKXSXLI+VSYT´WFYWMRIWWWXVEXIK]TPERWSFNIGXMZIWERH½RERGMEPTSWMXMSRWEWXLIWIWXEXIQIRXW pushing its boundaries further on the markets where it is involved, 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 either domestically or abroad. Hence, it will ensure that it remains 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 [SVXL] SJ XLI GSR½HIRGI SJ MXW WLEVILSPHIVW GPMIRXW ERH SXLIV XIGLRSPSKMGEPJEGXSVW-REHHMXMSR1'&0XHHSIWRSXYRHIVXEOIXSYTHEXIER]JSV[EVHPSSOMRKWXEXIQIRXXLEXQE]FIQEHIJVSQXMQIXSXMQIF]XLISVKERMWEXMSRSVSRMXWFILEPJ stakeholders. Contents • Corporate 43 Governance Report • Management Discussion 43• Introduction and Analysis • The Year in Review 44• Board Governance Structure 82 8 48• Directorate 57• Executive Management 82• Achievements and Prospects 59• Related Party Transactions 84• Review of the Operating Environment 60• Directors of MCB Subsidiaries 96• Review of MCB Operations 62• Shareholder Relations and Communication 113• Financial Review 67• Statement of Remuneration Philosophy 67• Employee Share Option Scheme 68• Auditors’ Fees and Fees for Other Services 69• Sustainability Reporting 12• Corporate Information 24 • MCB Board and Management 162 • Financial Statements 128 • Risk Management Report • Report of the Directors 128• Risk Management Philosophy 32 129• Key Financial Soundness Indicators 130• Introduction 132• Risk Appetite and Strategy 134• Governance and Structure 135• Management of Key Risks 144• Assurance Functions 147• Compliance with Basel II Requirements • Company Secretary’s Certificate 42 • Statement of Compliance 256 256• 2013 in Retrospect 264• Administrative Information and Local Branch Network 4 |MCB Group Annual Report 2013 | 175 th anniversary 5 |MCB Group Annual Report 2013 Sugar’s heyday 1838 – 1880 When the ‘Banque Commerciale’ (original name of the Mauritius Commercial Bank) starts its operations on 1st 7ITXIQFIV WYKEV TVSHYGXMSR MW ½VQP] IWXEFPMWLMRK MXWIPJEWXLIQSWXMQTSVXERXIGSRSQMGEGXMZMX]SRXLIMWPERH The passing of the Trade Act in British parliament in 1825 puts Mauritian sugar on an equal footing with West Indian WYKEVJSVEHQMWWMSRSRXLI&VMXMWLQEVOIX%WEVIWYPXPSGEP TVSHYGXMSR KIXW EHHIH QSQIRXYQ %JXIV XLI EFSPMXMSR SJ WPEZIV] MR PEFSYV JSV ER I\TERHMRK WYKEV MRHYWXV] MW sought from India: Between 1834 and 1870, some 350,000 -RHMERMRHIRXYVIHPEFSYVIVWEVIFVSYKLXXS1EYVMXMYW &IX[IIRERHMX´WXLILI]HE]SJWYKEV%VIEYRHIV cultivation grows threefold between 1831 and 1860, and WYKEVTVSHYGXMSRRIEVP]½ZIJSPHFIX[IIRERH-R 1858, the number of sugar estates reaches an all-time peak SJ 8VEHIMWFVMWOEWEVIWYPXSJWYKEVI\TSVXWMQQMKVERXEVVMZEP imports of sugar production equipment and commodities VIUYMVIHXSJIIHERHGPSXLI-RHMERMQQMKVERXW %WJVSQXLIQMHWXLI1EYVMXMERWYKEVMRHYWXV] WXEVXWXSJEGIFSXLI\XIVREPERHMRXIVREPTVSFPIQW7IZIVI competition from European beet sugar, a series of natural GEPEQMXMIWERHXLIFVIEOSYXSJQEPEVMEHIEPELIEZ]FPS[XS IGSRSQMGEGXMZMXMIWERHEGVMWMWWIXWMR%QENSVVIWXVYGXYVMRK SJXLIWYKEVMRHYWXV]WXEVXWXEOMRKWLETIXLVSYKLXLIX[MR process of selling off parceled out estates - known as the ³QSVGIPPIQIRXTVSGIWW´ERHXLIQIVKIVSJIWXEXIW-R the number of sugar factories is down to 178, with the merged, better equipped estates delivering higher output QSVIIJ½GMIRXP] Throughout the period, the Mauritius Commercial Bank TVSZMHIWPSERWERHEHZERGIWXSXVEHIVWERHWYKEVIWXEXIW nnual Report 2013 | 175 th anniversary 7 |MCB Group Annual Report 2013 | 175 th anniversary Year in review (YVMRK*=SYV½RERGMEPTSWMXMSRWXE]IHKIRIVEPP]LIEPXL]HIWTMXIXLI GLEPPIRKMRKGSRXI\X© +VSYT*MRERGMEP7YQQEV] Key Financials of MCB Group 2013 2012 2011 2010 2009 Income statement (Rs m) 3TIVEXMRKTVS½X 4,946 4,873 5,082 3,817 4,406 4VS½XEJXIVXE\ 4,350 4,147 4,517 3,420 4,046 4.9% 10.1% 4VS½XEXXVMFYXEFPIXSSVHMREV]IUYMX]LSPHIVWSJXLITEVIRX 4,315 4,115 4,491 3,413 3,964 Sources of GroupFY 2011/12 Profitprofit 7XEXIQIRXWSJ½RERGMEPTSWMXMSR 6WQ Sustained profitability Sustained profitability FY 2012/13 Total assets 216,563 191,410 172,689 162,739 150,476 Total loans (net) 150,914 137,641 122,440 109,442 96,859 Rs 4.3 bn Rs 11.0 bn Total deposits 166,113 150,877 136,210 132,484 121,241 Attributable profit Operating income Sustained profitability Shareholders' funds 29,432 26,136 23,729 20,319 18,574 Tier 1 capital 27,586 24,485 21,772 18,851 17,517 6MWO[IMKLXIHEWWIXW 212,034 193,208 163,397 146,928 135,222 Local (54%) Foreign (46%) 4IVJSVQERGIVEXMSW Return on average total assets 2.1 2.3 2.7 2.2 2.8 10.1% 10.1% 6IXYVRSREZIVEKIIUYMX] 15.5 16.5 20.4 17.6 22.7 Return on average Tier 1 capital 16.6 17.8 22.1 18.8 24.6 2SRMRXIVIWXMRGSQIXSSTIVEXMRKMRGSQI 36.1 36.2 37.7 35.6 39.0 Balance sheet growth Balance sheet growth Loans to deposits ratio 93.4 93.4 92.3 84.9 82.7 Cost to income ratio 45.3 46.1 42.6 46.5 42.1 Rs 155.1 bn Rs 166.1 bn Balance sheet growth SourcesGroup of Gross loans Deposits value-addedGroupFY 2011/12 Profit 'ETMXEPEHIUYEG]VEXMSW FY 2012/13 Capital & reserves/Total assets 13.6 13.7 13.7 12.5 12.3 BIS risk adjusted ratio 13.9 13.6 15.0 14.9 15.1 of which Tier 1 13.0 12.7 13.3 12.8 13.0 4.3% 4.8% %WWIXUYEPMX] 2SRTIVJSVQMRKPSERW 6WQ 7,779 6,277 4,346 4,336 4,809 Employees (29%) NPL ratio (%) 5.0 4.5 3.4 3.9 4.8 Good stock profile Good stock profile Corporate social responsibility (1%) Allowance for loan impairment losses (Rs m) 4,232 3,271 3,276 3,054 3,377 Government (11%) Provision coverage ratio (%) 54.4 52.1 75.4 70.4 70.2 Rs 6.10 Rs 18.15 Providers of capital (17%) Good stock profile Good stock Expansion and growth (42%) 2SXI.YRI½KYVIWJSVGETMXEPFEWIERHVMWO[IMKLXIHEWWIXWLEZIFIIRVIWXEXIH Dividend per share Earnings per share Wealth created Rs 8.7 billion 8 |MCB Group Annual Report 2013 | 175 th anniversary 9 |MCB Group Annual Report 2013 | 175 th anniversary Year in review … underpinned by the deployment of key strategic intents… … with our achievements providing us with due recognition and accolades FY 2012/13 was another year of progress for MCB. While improving its value proposition and reinforcing in-house capabilities, it further diversified its revenue streams. Of note also, the last financial year was marked by MCB setting out its proposal to separate its banking and non-banking activities. The Banker Top 1000 Banks Furthermore, MCB fostered its social and environmental engagement via the implementation of a wide range of initiatives by the MCB Forward Foundation (July 2013) as well as the pursuit of the ‘Initiative 175’ programme, which fosters the adoption of environment-friendly behaviours and practices. Strategic orientations nd 672 1st Consolidating our position on the local front Growing our international footprint Bolstering our non-bank activities Among the Top 1000 Banks -R)EWX%JVMGE (in terms of Tier 1 Capital) 20 th What we’ve done -R%JVMGE Only Mauritian Bank to figure Entrenched market expansion and diversification in the Top 25 African Banks Consolidation and broadening of our domestic banking position on the retail and corporate markets (IITIRIHMRZSPZIQIRXMRWYF7ELEVER%JVMGEERHFI]SRHIK greater participation in big-ticket structured trade, commodities and project financing, major increase in our ‘Bank of Banks’ client portfolio size, proactive development of risk participation and syndication agreements with top tier international banks; widening of market footprint in the global business area B-:;4-9/15/)92-;:)52 6<5;9@>155-9)<91;1<: in the Global Finance Magazine Reinforced operations and increased market presence in the field of non-banking financial services B-:;6+)3)5215)<91;1<: in the EMEA Finance African Banking Awards 2012 B-:;#1:2)5)/-4-5;1:+36:<9-:>)9, in the PricewaterhouseCoopers Corporate Reporting Awards 2013 B"-9.694)5+-?+-33-5+->)9, attributed by Citibank, Commerzbank, J.P. Morgan and Wells Fargo for straight-through processing rate for payments and transfers Key underpinnings BA3-),15/9-/165)3*)52 in terms of profitability in the Eco Austral Magazine Enriched customer value proposition and experience Reinforced in-house capabilities )\XIRWMSRERHQSHIVRMWEXMSRSJGLERRIPGETEFMPMXMIW -QTPIQIRXEXMSRSJ)PIGXVSRMG(SGYQIRX1EREKIQIRX7]WXIQXS Bank of the Year for Mauritius )RLERGIQIRXSJXLIVERKISJTVSHYGXWERHWIVZMGIWMRVIWTIGXof pave the way