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The Mauritius Commercial Bank Ltd.

Annual Report30 June 2007

T H E M A U R I T I U S C O M M E R C I A L B A N K L T D . 3

PAGES

Group Financial Summary 5

MCB Board and Management 7

• Board of Directors 8

• Committees of the Board 9

• General Management 10

Corporate Profile and Reports 11

• Corporate Profile 12-13

• Report of the Directors 14-17

• Corporate Governance Report 19-42

• Company Secretary’s Certificate 43

• Management Discussion and Analysis 45-82

Financial Statements 83

• Statement of Management’s Responsibility for Financial Reporting 85

• Report of the Auditors 86-87

• Balance Sheets 88-89

• Income Statements 90

• Statement of Changes in Equity (Group) 91

• Statement of Changes in Equity (Bank) 92

• Cash Flow Statements 93

• General Information 94

• Index to Notes to the Financial Statements 95-99

• Notes to the Financial Statements 100-163

A Review of the Economic Environment 165-188

Administrative Information 189-191

Branch Network 192

2007 in Retrospect 193-199

Table of Contents

4 A N N U A L R E P O R T 2 0 0 7

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.

Group Financial Summary

2007 2006 2005 2004 2003Income Statement (Rs m)Operating profit 3,108 2,334 2,141 1,967 1,701 Exceptional items* - 79 - (96) (670)Profit after tax 2,547 2,013 1,685 1,521 972 Profit attributable to shareholders 2,461 1,986 1,658 1,488 923 Balance Sheet (Rs m)Total assets 110,143 99,409 85,232 81,266 74,437 Total loans (net) 65,845 58,365 55,123 51,322 50,353 Total deposits 85,158 77,195 68,914 66,277 59,679 Shareholders' funds 13,475 12,334 10,232 9,355 8,364 Tier 1 Capital 10,473 10,022 8,547 7,754 6,562 Risk-weighted assets 91,965 78,471 71,293 67,421 66,038 Performance Ratios (%)Return on average total assets 2.3 2.2 2.0 1.9 1.1 Return on average equity 19.1 17.6 16.9 16.8 11.3 Return on average Tier 1 capital 24.0 21.4 20.3 20.8 13.9 Non-interest income to operating income 42.3 38.3 38.7 38.5 37.2 Loans to deposits ratio 81.1 80.0 84.5 81.5 88.7 Cost to income ratio 47.5 49.8 49.7 51.3 56.7 Capital Adequacy Ratios (%)Capital & reserves/Total assets 12.2 12.4 12.0 11.5 11.2 BIS risk adjusted ratio 15.7 15.2 13.9 13.6 13.0

of which Tier 1 11.4 12.8 12.0 11.5 9.9 Asset QualityNon-performing loans (Rs m) 4,833 4,750 4,712 5,102 4,636 NPL ratio (%) 7.0 7.7 8.1 9.4 8.8 Allowance for loan impairment losses (Rs m) 3,246 3,359 3,142 2,717 2,594 Provision coverage ratio (%) 67.2 70.7 66.7 53.3 56.0 Investor DataEarnings per share (Rs) 9.7 7.4 6.2 5.5 3.2 Earnings yield (%) 9.5 13.2 15.3 15.5 11.1 Price earnings ratio (times) 10.6 7.6 6.5 6.5 9.0 Net assets value per share (Rs) 56.9 46.0 38.1 34.7 29.8 Dividends per share (Rs) 2.9 2.1 1.9 1.7 1.5 Dividend yield (%) 2.8 3.8 4.7 4.8 5.3 Dividend cover (times) 3.4 3.5 3.2 3.2 2.1 Market DataMarket capitalisation (Rs m) 25,789 15,798 11,369 10,015 8,040 Market price per share (Rs) :-

High 109.00 58.00 41.20 38.50 29.30 Low 56.00 40.30 34.00 25.00 14.80 Closing (Year end) 103.00 56.00 40.30 35.50 28.50

* The significant net exceptional loss in FY 2002/03 resulted from reimbursements of Rs 881.6 million in respect of a fraud perpetrated over a number of years and discovered in February 2003 while a gain of Rs 211.7 million was derived from the sale by the MCB to Société Générale of a 50% stake in BFCOI. Operating profit for that year included the full results of BFCOI.

Market Capitalisation and EPS

Local Non-Bank 11.8%

Foreign 38.6%

Local Bank 49.7%

Rs bn Rs

Market capitalisation Earnings per share (right scale)

30

25

20

15

10

5

0

12

10

8

6

4

2

0Jun 03 Jun 04 Jun 05 Jun 06 Jun 07

Sources of Group Profit (FY 2006/07)

6 A N N U A L R E P O R T 2 0 0 7

“ Our Vision: To be the obvious choice for financial services in the region and beyond.”

MCB Board & Management

8 A N N U A L R E P O R T 2 0 0 7

President J. Gérard HARDY (Independent)

Vice president E. Jean MAMET (Independent)

Members Herbert COUACAUD, C.M.G.

Anil CURRIMJEE

Bertrand DE CHAZAL (Independent)

Philippe A. FORGET (Executive)

Patrick GIBLOT DUCRAY

Sanjiv GOBURDHUN (Independent)

Navin HOOLOOMANN, C.S.K. (Independent)

Edgar JULLIENNE (Independent)

Thierry KOENIG

Jean Pierre MONTOCCHIO (Independent)

Pierre-Guy NOEL (Executive)

Antony R. WITHERS (Executive)

Margaret WONG PING LUN (Independent)

Secretary to the Board Jean-François DESVAUX DE MARIGNY

Board of Directors

T H E M A U R I T I U S C O M M E R C I A L B A N K L T D . 9

Supervisory and Monitoring Committee

Members J. Gérard HARDY (Chairperson)

E. Jean MAMET

Pierre-Guy NOEL

Antony R. WITHERS

Philippe A. FORGET

Secretary Jean-François DESVAUX DE MARIGNY

Audit Committee

Members Bertrand DE CHAZAL (Chairperson)

Anil CURRIMJEE

E. Jean MAMET

Margaret WONG PING LUN


Risk Monitoring Committee

Members E. Jean MAMET (Chairperson)

Pierre-Guy NOEL

Antony R. WITHERS

Patrick GIBLOT DUCRAY

Sanjiv GOBURDHUN

Alternate Philippe A. FORGET (to P.G. Noël or A.R. Withers)

Secretary Michaël J. PIKE

Nomination and Remuneration Committee

Members J. Gérard HARDY (Chairperson)

Herbert COUACAUD, C.M.G.

Navin HOOLOOMANN, C.S.K.

Edgar JULLIENNE

Secretary Jean Pierre MONTOCCHIO

Conduct Review Committee

Members Margaret WONG PING LUN (Chairperson)

Bertrand DE CHAZAL

Sanjiv GOBURDHUN

Jean Pierre MONTOCCHIO


Committees of the Board

1 0 A N N U A L R E P O R T 2 0 0 7

General Management

Chief Executive (Group) Pierre-Guy NOEL

Chief Executive (Banking) Antony R. WITHERS

Deputy Chief Executive (Banking) Philippe A. FORGET

Chief Managers Jean-François DESVAUX DE MARIGNY Head - Group Finance and Company Secretary

Marc LAGESSE Head - Group Capital Markets

Alain LAW MIN Head - Retail

Jean-Michel NG TSEUNG Head - Corporate

Michaël J. PIKE Head - Group Risk (until September 2007)

Senior Managers Patrice BESTEL Head - Administration (retired in July 2007)

Paul CORSON Deputy Head - Corporate

Jean-Marie D'ESPAGNAC Head - Private Banking

Marc DESMARAIS Head - Human Resources

Andrew HEATHCOTE-MARKS Head - Organisation & Systems

Angelo LETIMIER Head - Cards

Denis MOTET Head - Credit Risk (Head – Group Risk as from October 2007)

Managers Jocelyn AH-YU Managing Director - MCB Seychelles

Koomaren CUNNOOSAMY Corporate

Jean Michel FELIX Head - Group Audit

Raoul GUFFLET Head - International

Hemandra Kumar HAZAREESING Corporate

Vinoba Devi LALLAH Banking Products

Steve LEUNG SOCK PING Head - Marketing

Bhavish NAECK Head - Financial Management

Cyril NICOLE Head - Market Risk (retired in September 2007)

Cyril PERRIER Head - Compliance

Kreshna RAMDHONY Corporate

Jean-Marie STEPHEN Head - Banking Products

Jocelyn THOMASSE Head - Network

André WONG TING FOOK Head - Accountancy

Advisers Jacques TENNANT Property, Premises & Equipment

Cyril PROVENÇAL Regional Development

“ The recently implemented culture change programme epitomises our corporate goal of providing a world-class service to our customers.”

Corporate Profile & Reports

Corporate Profile

wide representation in the region. The MCB brand is well

established in Rodrigues, Seychelles, Madagascar and

Mozambique. Through our associate company, Banque

Française Commerciale Océan Indien, which is a joint

venture with Société Générale, we also have a presence in

France, Reunion Island and Mayotte.

Reflective of its corporate philosophy, the MCB has a

tradition of being a pioneer in adapting to changes through

continuous business innovations and introduction of state-

of-the-art products and services in the domestic financial

sphere to enhance satisfaction of customer needs. The

recently implemented “Moving Customer Boundaries”

culture change programme epitomises our corporate goal

of providing a world-class service to our customers in

an increasingly demanding and competitive commercial

environment. Through this initiative, the Bank aims to

consolidate its strong reputation notably built on its core

values towards achieving its vision of being “the obvious

choice for financial services in the region and beyond”.

The MCB Group

• Largest market capitalisation on the Stock Exchange of Mauritius at Rs 25.8 billion as at end June 2007 representing 19.4 % of the total. In September 2007, the MCB became the first domestic company to reach the USD 1 billion mark in terms of market capitalisation

• Over 16,000 local and foreign shareholders

• 42 strategically located branches complemented by a broad network of 135 ATMs in Mauritius and Rodrigues

• More than 2,000 employees dedicated to the Group

• Above 3,800 Point of Sale (POS) terminals across the island

• Leading bank domestically with over 40% market share in respect of

credit to the economy and local currency deposits

• Moody’sratings:• Foreign Currency Deposits Baa2/P-2

• Foreign Currency Issuer Baa1

• Global Local Currency Deposit A3/P-1

• Financial Strength D+

• NSR Senior Unsecured MTN-Domestic Currency Aa3.za

• NSR Subordinate MTN-Domestic Currency Aa3.za

• Sole local institution ranking among top1000globalbanksandTop18Sub-SaharanAfricabanks according to The Banker’s Top 1000 World Banks July 2007 issue

• Highestprofitabilityamongregionalbanksof the Indian Ocean according to the annual publication of Eco Austral “Spécial 100 premières entreprises de l’Océan Indien”

1 2 A N N U A L R E P O R T 2 0 0 7

Key facts and figures

Established in 1838, the Mauritius Commercial Bank

Ltd. (MCB) is a prominent banking and financial services

provider in the Indian Ocean whilst being the undisputed

leader in Mauritius.

The Bank offers a comprehensive range of high quality

financial services to individuals and corporate customers as

well as to financial institutions worldwide. Anchored on an

extensive local network of branches, a comprehensive ATM

grid, Telephone and Internet Banking services as well as a

professionally-run customer Contact Centre, the MCB has

grown into a dominant local bank whose brand is continuously

sustained by quality service and dedicated staff.

Besides core banking operations, the MCB Group has

been actively diversifying its range of services locally

and regionally, to encompass non-bank financial

services such as leasing, factoring and investment

management services amongst others. The Group started

its overseas expansion strategy in 1991 and has now a

• Buy-back and cancellation of Lloyds TSB Bank plc 11.25% shareholding in the MCB at a significant 33.8% discount to the market price

• First foreign institution to issue a 10-year subordinated bond on the Bond Exchange of South Africa in December 2006

• Near doubling of share price over FY 2006/07

• Introduction of an Employee Share Option Scheme for all staff

• Successful Chikungunya awareness campaign

• Consolidation of the MCB brand on the international front with the renaming of UCB Madagascar and UCB Moçambique to MCB Madagascar and MCB Moçambique respectively

• Pioneered the use of Teller Cash Recyclers (TCRs), an innovative solution designed to improve cash handling and queue management

• Another market first achieved with the launch of mobile POS working on GPRS technology

• First member financial institution to offer the MasterCard Gateway Service (MiGS), a new service that guarantees a secure on-line payments system for web purchases

• Attained a satisfactory state of readiness regarding Basel II Standardised Approach well before the regulatory deadline

2006/07 Highlights

Integrity

Customer Care

Teamwork

Innovation

Knowledge

Excellence

Our Core Values

To be the obvious choice for financial

services in the region and beyond

Our Vision

Our MissionPursuing the

voyage towards excellence

Group StructureSubsidiaries

Local

MCB Stockbrokers Ltd. 100.00%

MCB Registry & Securities Ltd. 100.00%

MCB Investment Management Co. Ltd. 62.22%

MCB Equity Fund Ltd. 100.00%

MCB Capital Partners Ltd. 100.00%

MCB Factors Ltd. 100.00%

MCB Properties Ltd. 100.00%

Blue Penny Museum 97.88%

Fincorp Investment Ltd. 57.56%

Finlease Co. Ltd. 57.56%

Multipliant Management Co. Ltd. 100.00%

Foreign

MCB Moçambique 91.28%

MCB Madagascar 75.00%

MCB Seychelles 100.00%

MCB International Services Ltd. 100.00%

Mascareignes Properties Ltd. 100.00%

Associates

Banque Française Commerciale Océan Indien 49.99%

Promotion and Development Ltd. 26.72%

T H E M A U R I T I U S C O M M E R C I A L B A N K L T D . 1 3

1 4 A N N U A L R E P O R T 2 0 0 7

The Directors of the Mauritius Commercial

Bank Ltd. (MCB) are pleased to submit to

the shareholders the Annual Report of the

Group and of the Bank for the year ended

30 June 2007.

OverviewThe MCB Group reached a number of impressive landmarks

in a most successful year which sets, in many respects, new

benchmarks for the future.

• Group profits attributable to the shareholders of the

MCB increased by 23.9% to reach Rs 2.46 billion while

earnings per share were up 31.6% to Rs 9.74.

• The share price increased by 83.9% during the year

to reach Rs 103 as at 30 June 2007 with market

capitalisation as at that date reaching Rs 25.8 billion.

This positive trend has been maintained since, with the

share price and market capitalisation breaking through

the levels of Rs 120 and Rs 30 billion respectively.

This is, at the current rate of exchange, approximately

USD 1 billion, marking a key milestone for the Group.

• All lines of business have contributed positively to the

growth in profits, despite the increasingly competitive

environment. Non-bank revenues, which contributed

some 12% to Group profits, and income from foreign

sources and banking subsidiaries, which grew further

to 38.6% of consolidated results, have for the first time

exceeded 50% of our income stream.

• The buy-back of Lloyds TSB Bank plc’s 11.25% stake in

the MCB for Rs 1.4 billion generated substantial value

for the remaining shareholders of the MCB. Concurrently,

subordinated debt with a ten-year maturity was raised

in foreign currency for the equivalent of Rs 1.4 billion

on the Bond Exchange of South Africa. This qualified

for Tier 2 Capital, hence diversifying the Bank’s capital

resources while at the same time raising the profile of

the MCB on international capital markets.

• The MCB became in April 2007 the first local bank to

have attained the state of readiness for Basel II under

the Standardised Approach to risk.

• In December 2006, the Bank became the first listed

company to implement a fully comprehensive Employee

Share Option Scheme for all its employees.

A detailed review of this year’s achievements and

realisations is given in the “Management Discussion and

Analysis” on pages 45 to 82.

Activities and ResultsThe financial year ended 30 June 2007 has proved to be

outstanding in terms of activities and results.

Group net interest income rose by 16.8% to Rs 3,613 million

whereas the Bank’s increased by 13.9% to just above

Rs 3 billion. Other income went up by 38.2% at Group level,

reaching Rs 2,653 million and by 25.9% for the Bank to

Rs 1,929 million. In particular, treasury transactions, which

had registered a particularly low level of profitability in

2005/06, were back on a much more normal trend, with

Rs 987 million realised on dealings in foreign currencies,

a progression of 47.1% on the previous year. As a result,

operating income of the Group amounted to Rs 6.3 billion,

an increase of 25.0%, while that of the Bank rose by 18.3%,

nearly reaching the Rs 5 billion mark.

Group operating expenses increased by 18.0% to Rs 2,782

million, while those of the Bank grew by 13.9%. This was

essentially due to a rise of more than 20% in systems

and infrastructure costs, a result of the MCB’s continuous

drive to improve efficiency, delivery and quality of service.

Allowances for credit impairment rose by around 18% for

Report of the Directors


both the Group and the Bank to reach Rs 376 million and

Rs 371 million respectively. Income tax charges for the

Group increased by 40.3% to Rs 561 million, including

the newly imposed levy on banks’ results, which this year

amounted to Rs 19 million for the MCB.

Attributable profits to the shareholders of the MCB grew by

23.9% to Rs 2,461 million, while net results of the Bank,

at Rs 1,921 million, rose by 19.6% on the previous year,

a remarkable performance in view of a most competitive

banking environment. This underlines the success of

the stated strategy of the MCB Group, based on a strong

regional presence, diversification into non-bank financial

services and the development of our delivery channels.

Boosted by the reduced number of shares in issue following

the share buy-back, Group earnings per share reached

Rs 9.74, an increase of 31.6% over last year. Total assets

crossed the Rs 100 billion mark, at Rs 110 billion, a 10.8%

increase over the situation at 30 June 2006.

Dividends and Capital ResourcesAn interim dividend of Rs 1.15 per share was paid in

December 2006 while the Board has declared a final

dividend of Rs 1.75 per share, paid in June 2007. Total

dividends for the year amounted to Rs 723 million, while

undistributed profits of Rs 1,738 million were carried to

reserves. Group shareholders’ funds stood at Rs 13,475

million at 30 June 2007, an increase of Rs 1.1 billion over

the year, after taking into consideration the Rs 1.4 billion

cost of the share buy-back.

Risk ManagementThe Board of the MCB, recognising that the MCB Group, as

a financial organisation, encounters risk in every aspect of

its business, has put in place the necessary committees

to manage such risks, as required by Basel II. The Board

whilst approving risk strategy, appetite and policies, has

delegated the formulation thereof and the monitoring of

their implementation to the Risk Monitoring Committee.

The MCB recognises the importance for all its businesses

to comply with the highest standards of good corporate

governance, international best practices and risk

management processes. In April 2007, the MCB announced

that it had achieved a satisfactory state of readiness

regarding the Basel II Standardised Approach and the

implementation of revised policies in the main areas of

banking activity of credit risk, operational risk and market

risk. Through this Basel II project, enhanced risk awareness

and improved corporate governance have been achieved

across the Bank.

Code of ConductThe MCB Group is committed to the highest standards

of integrity and ethical conduct in dealings with all its

stakeholders. The MCB’s Code of Conduct is based on the

model code of the Joint Economic Council as adapted to

meet the specific needs of the MCB Group.

ProspectsDuring the financial year to 30 June 2008, the MCB Group

will pursue its efforts towards developing and diversifying

its activities at local, regional and international levels.

Concurrently, in line with its wish to provide the best quality

of service to its customers, it will continue to improve its

equipment, systems and processes while building an even

more experienced, qualified and motivated workforce. The

MCB will endeavour to maintain the highest standards of

Corporate Governance and contribute actively to the well-

being of the community while its ultimate objective will remain

that of providing ever-increasing value to its shareholders.

1 6 A N N U A L R E P O R T 2 0 0 7

Report of the Directors

Statement of Directors’ ResponsibilitiesCompany law requires the Directors to prepare Financial

Statements for each financial year, which give a true

and fair view of the state of affairs of the Bank and of

the Group. In preparing those Financial Statements, the

Directors are required to: ensure that adequate accounting

records and an effective system of internal controls and

risk management have been maintained; select suitable

accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and

prudent; state whether applicable accounting standards

have been followed, subject to any material departures

disclosed and explained in the Financial Statements; and

prepare the Financial Statements on the going concern

basis unless it is inappropriate to presume that the Bank

will continue in business. The Directors confirm that they

have complied with these requirements in preparing the

Financial Statements. The external auditors are responsible

for reporting on whether the Financial Statements are

fairly presented. The Directors are responsible for keeping

proper accounting records which disclose with reasonable

accuracy, at any time, the financial position of the Group

and of the Bank and for ensuring that the Financial

Statements fairly present the state of affairs of the Group

and of the Bank, as at the financial year end, and the

results of its operations and cash flow for that period and

have been prepared in accordance with and comply with

International Financial Reporting Standards as well as the

requirements of the Banking Act 2004 and the guidelines

issued thereunder. Directors are also responsible for

safeguarding the assets of the Group and of the Bank

and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities. Other main

responsibilities of the Directors include assessment of the

General Management’s performance relative to corporate

objectives, overseeing the implementation and upholding

of the Code of Corporate Governance and ensuring timely

and comprehensive communication to all stakeholders on

events significant to the Group.

AuditorsThe Auditors, BDO De Chazal Du Mée, have expressed their

willingness to continue in office and a resolution proposing

their re-appointment will be submitted to the Annual

Meeting.

AcknowledgementsThe Board wishes to thank Patrice Bestel and Cyril Nicole,

members of Management who have retired during the

year, for their important contribution over the years to the

development of the MCB Group.

continued


Cyril Provençal, who has reached retirement age during the

year, has been asked by the Board to stay with the Group

under a short term contract to oversee the completion of

some specific projects within the International Strategic

Business Unit.

Michaël Pike, who joined the Bank in 2005 as Head of Group

Risk, is reaching the end of his contract on 30 September

2007. The Board would like to thank him for his contribution

to the consolidation of the Risk Management framework of

the MCB Group.

The Board finally wishes to express its appreciation to the

Group’s Management and staff for their continued hard

work during the past year and to congratulate everyone for

the exceptional financial results achieved.

We would also like to place on record our thanks to our

fellow members of the Board for their support throughout

the year.

J. Gérard HARDY

PresidentBertrand DE CHAZAL

Chairman Audit Committee

APPROVED BY THE BOARD OF DIRECTORS AND SIGNED ON ITS BEHALF

1 8 A N N U A L R E P O R T 2 0 0 7

Corporate Governance Report

“ The Employee Share Option Scheme provides an opportunity for employees to share in the growth and prosperity of the MCB.”

Corporate Governance Report

2 0 A N N U A L R E P O R T 2 0 0 7

Statement on Corporate GovernanceCorporate governance involves a set of relationships

between a company’s management, board, shareholders and

other stakeholders. Effective corporate governance practices

are essential to achieving and maintaining high levels of

public trust and confidence in the banking system.

The Board of the MCB is fully committed to attaining and

maintaining the highest standards of corporate governance.

This is ensured through bank-wide awareness of its

operating ethics and the stewardship and close supervision

of the management of the Bank by the Board of Directors.

In accordance with the Company’s constitution, the Board

has all the powers necessary for managing, directing and

supervising the management of the business and affairs

of the Company. The Board is ultimately responsible

for the affairs of the Company. The methods through

which the Board exercises its powers and discharges its

responsibilities are set out in the MCB Board Charter which

provides among others for the following:

• thecompositionoftheBoardwithpreferablyamajority

of independent non-executive directors;

• theChairpersonoftheBoardmustbeanindependent

non-executive director;

• thecreationofBoardCommittees;

• acorporatecodeofconductaddressinginter alia issues

relating to conflicts of interests;

• theestablishmentofstrategicobjectives;

• appointmentstotheGeneralManagement;

• the existence of clear lines of responsibility and

accountability throughout the organisation; and

• the provision to the shareholders of timely and

transparent information relating to material events.

Board approval is specifically required for, amongst other

important matters, modifying the Bank’s constitution,

issuing fresh capital or buying back shares, declaring

dividends, acquiring or divesting sizeable stakes in

subsidiaries or associated companies, and establishing the

remuneration of directors and managers.

The Board comprises 15 directors, 3 of whom are executives.

Of the non-executive directors, 8 are independent. The

President and Vice President of the Board are non-executive

independent directors.

The Board has created five Board Committees to help it in

carrying out its duties and responsibilities: the Supervisory

and Monitoring Committee (SMC), the Audit Committee,

the Conduct Review Committee, the Nomination and

Remuneration Committee, and the Risk Monitoring

Committee. Each committee has its own charter which has

been approved by the Board. Through the deliberations and

reporting of its various committees, the Board ensures that

Management’s daily actions are in line with the Board’s

objectivesandregulatoryrequirements.

The Board and Senior Management of the MCB are

required by the Bank of Mauritius, the Financial Services

Commission and corporate governance best practices to

inter alia demonstrate, to the satisfaction of the regulatory

Board structure and composition

Others 27% (4)

Executive 20% (3)

Independent 53% (8)


authorities, a clear structure of policy and systems of

control emanating directly from the Board, which manifestly

identify and manage the risks inherent in the businesses

oftheMCB.Tothisend,theBoardhasapprovedtheGroup

RiskPolicyaswellasGrouppoliciesinrespectofcreditrisk,

operational risk and market risk.

In line with such requirements, there is a clear separation

of the executive role of day-to-day decisions relating to

credit from the Board’s role of setting out the credit policy

and ensuring that, through the organisational structure

(executive credit committees with set limits) and the control

and reporting systems, the business is effectively run in

accordance with such policy.

Regarding risk management, the Bank has achieved a

satisfactory state of readiness for the Basel II Standardised

Approach in April 2007. The Bank is adopting the best

practice Internal Capital Adequacy Assessment Process

(ICAAP) which uses evolving risk assessment methodologies

for capital adequacy to support the different portfolios of

risk represented by the Bank’s financial business. The Bank

has also adopted a formal disclosure policy as defined in

the Basel II Framework.

Besides optimising shareholder value, the Bank, being

particularly conscious of its responsibilities as a dominant

player in the local market, has always supported the generally

higher risk businesses associated with new economic

initiatives and start-ups whilst contributing to the well being

of the community through a large involvement in social actions

(humanitarian, education, environmental, and cultural).

The Bank is committed to the highest standards of business

integrity, transparency and professionalism and ensures that

all its activities are managed responsibly and ethically whilst

seeking to enhance business value for all stakeholders. In

linewiththisobjective,theBankissuedaCodeofConduct

in February 2002, based on the model code of the Joint

Economic Council, as appropriately adapted to meet its own

specific needs. In addition, the Bank complies with the Code

of Banking Practice issued by the Bank of Mauritius in 1998

and subscribes to the Code of Corporate Governance for

Mauritius, which was issued in October 2003.

The directors continuously review the implications of

corporate governance best practices and are of the opinion

that the Bank complies with the requirements of the Code of

CorporateGovernanceinallmaterialaspects.

Corporate Governance Report continued

2 2 A N N U A L R E P O R T 2 0 0 7

Directorate and ManagementBoard of Directors

Directors’ Profiles

The Board is composed of 15 members, 12 non-executive directors, of whom 8 are independent and 3 executive directors.

The average age of the Board is 54 years.

J. Gérard HARDY - Age 63

After spending 4 years in London having qualified as

Certified Accountant, he moved to Paris in 1969 where he

qualified as an “Expert Comptable”. He has worked for 8

yearswithKPMGbeforespending17yearswiththeIPGroup,

which he left as Deputy Managing Director to set up his own

consultancy firm. In 2001, he returned to Mauritius.

He was appointed to the Board at the shareholders’ meeting

of October 2002 and was elected Vice President of the Board.

In July 2003, at the request of the Board, he chaired the

Bank’s Management Committee until its dissolution at the

beginning of 2005. He is currently President of the Board and

Chairperson of the Supervisory and Monitoring Committee

and of the Nomination and Remuneration Committee.

E. Jean MAMET - Age 64

Certified Accountant since 1975. He has worked for 40 years

in the field of auditing, having retired in 2003 as Senior

Partner of Ernst & Young in Mauritius.


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 member of the Audit Committee.

Directorship in other listed companies

United Basalt Products Ltd.


Herbert COUACAUD, C.M.G. - Age 59

Holder of a BSc in Economics and Mathematics

from the University of Cape Town (1971), he has

actively contributed to the development of the

tourism industry in Mauritius and is the Chief

Executive Officer of the New Mauritius Hotels Group.

He was first appointed to the Board in 2002 and was

re-appointed at the shareholders’ meeting of December

2005. He is a member of the Nomination and Remuneration

Committee.


Fincorp Investment Ltd.

New Mauritius Hotels Ltd.

Rogers & Co. Ltd.

Anil CURRIMJEE - Age 45

Holds a BA in Liberal Arts from Williams College USA (1983)

and an MBA from London Business School (1988). He is

adirectorofanumberofcompanieswithintheCurrimjee

Group, a well diversified conglomerate with interests in

manufacturing, commerce, telecommunications, financial

and travel services. He is a former Chairperson of the

Mauritius Chamber of Commerce and Industry.


re-elected at the shareholders’ meeting of December 2005.

He is a member of the Audit Committee.


Mauritius Development Investment Trust Ltd.

Bertrand DE CHAZAL - Age 66

Fellow member of the Institute of Chartered Accountants

in England and Wales and a “Commissaire aux Comptes”.

After a career with the accounting firm Touche Ross in

Paris and then in West Africa, he joined the World Bank

in Washington in 1986 from which he retired as Senior

Financial Analyst in 2003.


of October 2004. He is Chairperson of the Audit Committee

and member of the Conduct Review Committee.


Caudan Development Ltd.

Promotion and Development Ltd.


2 4 A N N U A L R E P O R T 2 0 0 7

Philippe A. FORGET – Age 57

Holder of a BSc (First Class Honours) from the University of

Liverpool and an MSc (with distinction) in Management &

Operational Science from the Imperial College of Science

and Technology, London. After working as an economist for

2 years for the Food & Allied Group, he joined the Bank

in1978andwasappointedAssistantGeneralManagerin

1996. He has been the Chairperson of MCB Moçambique

until March 2006 and is a director of MCB Investment

Management Co. Ltd.


of December 2005. He is a member of the Supervisory and

Monitoring Committee and Risk Monitoring Committee.

He was first appointed to the Board of the MCB in 1995.

He was re-appointed to the Board at the shareholders’

meeting of October 2004 and is a member of the Risk

Monitoring Committee.


Mauritius Development Investment Trust Ltd.

Patrick GIBLOT DUCRAY - Age 56

Obtained a BSc in Information Technology in the UK in 1976.

He is the Executive Director of the Union Sugar Estates

Company Ltd. and has been involved in the activities,

development and diversification of the sugar industry for

a number of years. He is also Chairperson of a leading

private medical clinic and, in this capacity, has actively

contributed to the furtherance of health care in Mauritius.


Sanjiv GOBURDHUN - Age 42

AfteraspellinmarketresearchintheUK,hejoinedRoseHill

Transport in 1990 and was appointed Managing Director in

1995. He is a member of the Institute of Directors, UK, and

oftheNationalCommitteeonCorporateGovernance.


re-appointed at the shareholders’ meeting of October

2004. He is a member of the Risk Monitoring Committee

and of the Conduct Review Committee.

Navin HOOLOOMANN, C.S.K. - Age 48

Holds a First Class Honours degree in Surveying from

the University of West of England and is a Fellow of the

Royal Institution of Chartered Surveyors, UK, since 1992.

He has some 20 years of experience in the construction

industry in Mauritius. He is the founder and Managing

Director of Hooloomann & Associates Ltd., a construction

projectmanagementandcostmanagementconsultancy

firm in Mauritius with subsidiary offices in the Seychelles

and India.


of October 2002. He is a member of the Nomination and

Remuneration Committee.

Edgar JULLIENNE - Age 64

A Honours graduate in Civil Engineering from Loughborough

College obtained in 1965, he is a member of the UK Institute

of Civil Engineers and practised since 1973 as an engineer

in the UK, South Africa and finally Mauritius. He ended his

active professional career as Executive Director of General

Construction Co. Ltd.

He was first appointed to the Board at the shareholders’

meeting of December 2003. He is a member of the Nomination

and Remuneration Committee.


2 6 A N N U A L R E P O R T 2 0 0 7

Margaret WONG PING LUN - Age 53

Holds a BA (Honours) in Business Studies (UK) and is a

fellow member of the Institute of Chartered Accountants

in England and Wales. After working in the consultancy

departmentofalocalfirmofaccountants,shejoinedthe

University of Mauritius in 1991 where she is a lecturer in

Accounting and Finance. She is a member of the Listing

Committee of the Stock Exchange of Mauritius.

She was appointed to the Board at the shareholders’

meeting of October 2004. She is currently Chairperson

of the Conduct Review Committee and member of the

Audit Committee.

Antony R. WITHERS - Age 53

Heads the banking operations of the MCB as the Chief

Executive (Banking) since April 2006 and is the holder of an

MA, Economics from Christ’s College, Cambridge and was

also awarded an MBA by IMD, in Lausanne, Switzerland. He

has accumulated wide-ranging experience in the banking

sector shouldering a varied array of high level responsibilities

in a number of institutions. These include Citibank, Bank

ofMontreal,S.GWarburg&Co.Ltd.,UBSSecuritiesLtd.,

CommerzbankA.Gand, latelyLloydsTSBBankplcwhere

hewasDirectorandGlobalHeadofFinancialInstitutions&

International Trade Finance.

He was appointed to the Board at the shareholders’

meeting of December 2006. He is a member of the

Supervisory and Monitoring Committee and of the Risk



Jean Pierre MONTOCCHIO - Age 44

Notary Public since 1990, he drew up the new constitution

of the Bank. He is a member of the Nomination and

Remuneration Committee and has participated on the

NationalCommitteeonCorporateGovernance.

He was first appointed to the Board in 2001.


Caudan Development Ltd. (Chairperson)

Fincorp Investment Ltd. (Chairperson)

Promotion and Development Ltd. (Chairperson)

Rogers & Co. Ltd.

Pierre-Guy NOEL – Age 51

Holds a BSc (Honours) in Economics from the London School

of Economics and Political Science and is an Associate of the

Institute of Chartered Accountants in England and Wales.

He was a partner in financial consultancy at De Chazal Du

Mée&Co. between1981and1992,whenhe joined the

Bank as Planning and Development Consultant. He was

appointedGeneralManageroftheBankin1996andhas

been,sinceJuly2005,appointedChiefExecutive(Group).

Pierre-GuyNoëlisaboardmemberinseveralcompanies

oftheMCBGroupactingeitherasChairpersonorDirector

namely in Banque Française Commerciale Océan Indien,

MCB Moçambique and MCB Seychelles.


of December 2005. He is a member of the Supervisory

and Monitoring Committee and of the Risk Monitoring

Committee.

Thierry KOENIG - Age 49

Holder of a “Maîtrise en Droit” from the University of Réunion

obtained in 1983, he is a practising Attorney since 1986 with

the local law firm De Comarmond & Koenig. He is the President

of the Association of Business Lawyers and is the Mauritian

representative of the International Litigation Committee of

the International Bar Association.

He was first appointed to the Board in 2002.


2 8 A N N U A L R E P O R T 2 0 0 7

Committees of the Board of Directors

The composition of the committees of the Board of Directors

appears on page 9 of the Annual Report.

Supervisory and Monitoring Committee (SMC)

TheSMCis,subjecttoanydecisionwhichtheBoardmaytake

from time to time, competent to exercise all or any powers,

authorities and discretions vested in or exercisable by the

Board other than those set out in the Seventh Schedule of

the Companies Act 2001 and those of appointment of senior

officerswho,whenappointed,shallformpartoftheGeneral

Management of the Bank.

The committee is chaired by the President of the Board

of Directors. The other members are: the Board Vice

President,theChiefExecutive(Group),theChiefExecutive

(Banking) and the Deputy Chief Executive (Banking).

The Company Secretary is the secretary of the SMC. The

committee meets weekly.

The committee’s role and responsibilities include:

• submittingtotheBoardthedevelopmentstrategyof

theGroup;

• settingoutthecorporatevaluesandprincipalpolicies,

including the credit policy, in respect of the conduct of

the business;

• ensuringthattheorganisationstructureisbestsuited

to the implementation and realisation of such policies

and strategy and provides for clear lines of responsibility

and accountability;

• delegating authority to the Chief Executives and

supervising the delegation of authority by the Chief

ExecutivestothemembersoftheGeneralManagement;

• ensuringthatadequatesuccessionplanningexistsat

senior executive level;

• liaisingwithalltheBoardCommittees;

• reviewing the yearly budget, the quarterly and yearly

financial statements to be submitted to the Board;

• proposingthedividendpolicy;

• monitoring strategic alliances and major litigation

issues; and

• ensuringthattheBoardispermanentlyinformedofthe

runningoftheaffairsoftheGroup.

Audit Committee

The Audit Committee of the Bank consists of four non-

executive directors, three of whom are independent,

including the Chairperson. It meets at least four times a year

corresponding to the Bank’s reporting cycle and its principal

function is to oversee the financial reporting process. In

particular, it reviews annual financial statements before

these are approved by the Board.

The activities of the Audit Committee include regular

reviews and monitoring of the following:

• theeffectivenessoftheBank’sinternalfinancialcontrol

and risk management systems;

• theeffectivenessoftheinternalauditfunction;

• the independence of the external auditors and the

assessment of the external auditors’ performance;

• the remuneration of the external auditors and their

supply of non-audit services;

• the Bank’s procedures for ensuring compliance with

laws and regulations relevant to financial reporting and

with its internal code of business conduct; and

• specificissueswherethecommitteeconsidersactionor

improvement is needed.

In carrying out its responsibilities, the committee meets

regularly with the Executive Management of the Bank and

receives regular reports from both internal and external

auditors. Separate sessions are held with both sets of auditors


at least once a year, without Management being present. The

Chairperson of the committee also has regular contact with

theFirstDeputyGovernoroftheBankofMauritiustoinformthe

latter of developments within the Bank and to receive guidance

and advice. The committee has satisfied its responsibilities for

the year in compliance with its terms of reference.


The Board of Directors at their meeting held on 20 June

2007 approved a new charter for the Risk Monitoring

Committee (RMC); the name of the committee having been

changed by a decision of the committee on 4 October 2006.

The committee, which meets quarterly, consists of the Chief

Executive (Group), the Chief Executive (Banking), and a

minimum of two and a maximum of three non-executive

directors appointed by the Board. The committee is chaired

by an independent non-executive director. The Head of

GroupRiskactsassecretaryandtheDeputyChiefExecutive

(Banking)actsasanalternatetotheChiefExecutive(Group)

and to the Chief Executive (Banking), in their absence.

The principal responsibility of the RMC is to monitor the risk

portfolios of the Bank, set against the agreed risk appetite

in compliance with the Basel II Accord. The Chairman of

RMC reports to the Board, in a timely manner, on all risk

issues that could have an impact on the operations or

reputation of the Bank.

Nomination and Remuneration Committee

The committee, consisting of five non-executive directors,

is responsible for making recommendations to the Board

on the appointment of directors and senior executives. This

responsibility includes: ascertaining whether candidates

are fit and proper persons, have the required skills and

expertise and are free from material conflicts of interest;

reviewing the Board structure, size and composition

(balance between independent/non-executive/executive);

and, reviewing the composition of the Board Committees,

including those of wholly-owned subsidiaries.

The committee is also responsible for making

recommendations on the level of the directors’ fees,

including the remuneration of the Board committee

members, to be submitted at the shareholders’ meeting as

well as the remuneration policy for senior executives and

members of Management.

The Nomination and Remuneration Committee meets twice

a year and on an ad hoc basis when required. To fulfil its

responsibilities during the financial year ended 30 June

2007, the committee met six times with respect to:

• makingrecommendationsforanEmployeeShareOption

Scheme as part of the remuneration policy of the Bank,

supervising the construction thereof and submitting

the scheme to Board approval;

• reviewingandmakingrecommendationstotheBoardfor

the top executives and Management’s remunerations;

• reviewingtheoverallandindividualperformanceofthe

Board and of the directors;

• undertakingtheselectionandmakingrecommendations

in respect of new Board members and the composition

of the Board Committees;

• reviewingthedirectors’feesandtheirremunerationin

line with the study initiated during the prior year; and

• reviewingtheproposals receivedfor thesubsidiaries’

Boards and making recommendations thereon/ratifying

them.

Conduct Review Committee

The committee, chaired by a non-executive director,

also comprises three other non-executive directors. The

Company Secretary acts as secretary to the committee. The


3 0 A N N U A L R E P O R T 2 0 0 7

committee meets four times a year and is responsible for

monitoring and reviewing related party transactions, their

terms and conditions, and ensuring the effectiveness of

established procedures and compliance with the Bank of

MauritiusGuidelines.

The mandate of the committee includes:

• ensuring that procedures have been established by

Management to comply with the requirements of the

Guidelines;

• implementingthematerialitycriteriafallingunderthe

definition of related party transactions and reviewing

all transactions that are not immaterial; and

• periodically reviewing the existing procedures to

ensure their continuing adequacy. In particular,

ascertaining that they are sufficient to identify any

transactions with related parties that may have

a material effect on the stability and solvency of

the Bank and ensuring that such transactions are

properly dealt with.

Board and Committee Attendance

The following table gives the record of attendance at meetings of the MCB Board and its committees for FY 2006/07.

Board of Directors Board Committees

Supervisory and Monitoring Audit Risk Monitoring Nomination and

RemunerationConduct Review

Number of meetings held 11 44 4 4 6 3

Meetings attended

J.GérardHARDY 10 41 6

E. Jean MAMET 10 32 4 4

Herbert COUACAUD, C.M.G. 9 4

Anil CURRIMJEE 8 2

Arnaud DALAIS (until December 2006)

3

Bertrand DE CHAZAL 10 4 3

PhilippeA.FORGET 10 39 4

PatrickGIBLOTDUCRAY 9 3

SanjivGOBURDHUN 9 3 3

Navin HOOLOOMANN, C.S.K. 7 4

Edgar JULLIENNE 10 6

ThierryKOENIG 10

Jean Pierre MONTOCCHIO 7 5 1

Pierre-GuyNOEL 11 33 4

Luc PILOT (until December 2006)

2

Antony R. WITHERS (as from December 2006)

6 37 3

MargaretWONGPINGLUN 10 4 3


Directors’ Interests and Dealings in Shares

With regard to directors’ dealings in the shares of their own

company, the directors confirm that they have followed the

absolute prohibition principles and notification requirements

of the model code on securities transactions by directors as

detailed in Appendix 6 of the Stock Exchange of Mauritius

Listing Rules.

The Company Secretary maintains a Register of Interests

which is updated with every transaction entered into

by directors and their closely related parties. Such

transactions, which have to take place exclusively outside

the close periods prescribed by the Stock Exchange

Regulations, require the written authorisation of the Board

of Directors, through the delegation given to the Supervisory

and Monitoring Committee.

All new directors are required to notify in writing to the

Company Secretary their holdings in MCB shares as well

as those in related corporations. This is entered in the

Register of Interests, which is subsequently updated with

all relevant movements. The minimum holding of MCB

shares required from the directors by the constitution of

the Bank is 500.

The interests of the directors in the share capital of the Bank

and the transactions in MCB shares by directors who have

served during the year are given in the following tables:

Number of shares

Interests as at 30 June 2007 Direct Indirect

J.GérardHARDY 2,500 -

E. Jean MAMET 149,000 120,700

Herbert COUACAUD, C.M.G. 11,683 363,384

Anil CURRIMJEE 5,025 6,669

Bertrand DE CHAZAL 500 11,000

PhilippeA.FORGET 26,375 10,910

PatrickGIBLOTDUCRAY 35,000 -

SanjivGOBURDHUN 45,500 3,256,490

Navin HOOLOOMANN, C.S.K. 55,910 747,029

Edgar JULLIENNE 27,200 357,561

ThierryKOENIG 7,124 5,610

Jean Pierre MONTOCCHIO 1,000 26,017

Pierre-GuyNOEL 864,862 28,302

Antony R. WITHERS 15,000 -

MargaretWONGPINGLUN 500 11,400

Transactions during the year

Number of shares purchased

Number of shares sold

PhilippeA.FORGET 25,375 -

SanjivGOBURDHUN 15,000 -

Edgar JULLIENNE - 330,861

Jean Pierre MONTOCCHIO 1,000 -

Pierre-GuyNOEL 13,790 -

Luc PILOT 18,200 -

Antony R. WITHERS 15,000 -

The above figures include purchases of 12,575 shares, 13,790 shares and 2,994 shares by Philippe A. Forget, Pierre-Guy Noël and Antony R. Withers respectively and represent options granted under the Employee Share Option Scheme and exercised at the price of Rs 83.50 per share in January 2007.


3 2 A N N U A L R E P O R T 2 0 0 7

The interests of the directors in the share capital of Fincorp

Investment Ltd. as at 30 June 2007 were as follows. None

of the directors had any interest in the equity of other

subsidiaries of the Bank.

Directors’ Remuneration

Remuneration and benefits received by directors during the

financial year were as follows:

Additionally, directors of subsidiaries, who did not sit

on MCB’s Board during the year, received the following

remuneration and benefits:

Directors’ Service Contracts

There were no service contracts between the Bank and its

directors during the year.

Number of shares

Directors Direct Indirect

E. Jean MAMET 27,000 63,400

Herbert COUACAUD, C.M.G. 41,587 187,390

Anil CURRIMJEE - 6,500

Navin HOOLOOMANN, C.S.K. - 362,200

Jean Pierre MONTOCCHIO - 37,480

Pierre-GuyNOEL 750,166 32,250

From the Holding Company From Subsidiaries Total

Directors Rs ‘000 Rs’ 000 Rs’ 000

J.GérardHARDY 2,062 2,062

E. Jean MAMET 1,663 80 1,743

Herbert COUACAUD, C.M.G. 408 35 443

Anil CURRIMJEE 441 441

Arnaud DALAIS (until December 2006) 108 108

Bertrand DE CHAZAL 664 45 709

PatrickGIBLOTDUCRAY 424 424

SanjivGOBURDHUN 568 568

Navin HOOLOOMANN, C.S.K. 408 408

Edgar JULLIENNE 408 408

ThierryKOENIG 258 258

Jean Pierre MONTOCCHIO 492 100 592

Luc PILOT (until December 2006) 168 168

MargaretWONGPINGLUN 607 607

Total Non-executive 8,679 260 8,939

PhilippeA.FORGET 11,620 - 11,620

Pierre-GuyNOEL 12,392 - 12,392

Antony R. WITHERS 9,930 - 9,930

Total Executive 33,942 33,942

Total (Non-executive and Executive) 42,621 260 42,881

Net fees from companies where executive directors serve as representatives of MCB Ltd. are paid to the Bank.

2007Rs ‘000

2006Rs ‘000

Executive:

Full-time 13,158 11,606

Non-executive 490 60

13,648 11,666


Senior Management Profile

The profiles of Pierre-Guy NOEL, Antony R. WITHERS and

PhilippeA.FORGETappearintheDirectors’Profilessection.

Jean-François DESVAUX DE MARIGNY – Age 53

Fellow member of the Institute of Chartered Accountants in

England and Wales. Following several years of experience

asanauditorinEurope,hejoinedtheMCBin1986.Hewas

involved in the launching of the Stock Exchange of Mauritius

in 1989. He has strongly participated in the development of

the MCB’s regional network and is a director of a number of

subsidiariesandassociatesof theGroup.He ispresently

responsible for the Group’s finances and also acts as

secretary to the Board of Directors, the Audit Committee,

the Conduct Review Committee and the Supervisory and


Marc LAGESSE - Age 44

Holds a BSc (Honours) in Statistics and Economics from

the University College London (UCL) and an MBA from the

London Business School. After graduating from UCL, Marc

spent twelve years on the London International Financial

Futures Exchange, the last eight of those as an own account

trader in interest rate derivatives. He returned to Mauritius

in 1996 to manage the Mauritius Fund Ltd., a London listed

closed-end country fund. From 1998 to 2006, Marc was

Managing Director of MCB Investment Management Co.

Ltd. He is currently responsible for the MCB Capital Markets

which comprises the MCB Investment Management Co. Ltd.,

MCB Stockbrokers Ltd., MCB Registry & Securities Ltd., MCB

Capital Partners Ltd. and Multipliant Management Co. Ltd.

Alain LAW MIN – Age 48

Graduated in Economics with a BA (Honours) and is an

Associate member of the Institute of Chartered Accountants

in England and Wales. He also holds an MBA from Cranfield

University. Alain is responsible for the Retail SBU which

includes the branch network, the Private Banking BU and the

Contact Centre BU that manages the Bank’s remote delivery

channels. Prior to his current position, Alain launched leasing,

factoringandprivatebankingservicesandactedasProject

Director for the Business Process Re-engineering exercise

initiatedwithAccenture.BeforejoiningtheMCB,Alainwas

Senior Manager at De Chazal Du Mée’s consulting division.

Jean-Michel NG TSEUNG – Age 39

Graduatedwitha FirstClassHonours inMathematicsat

the Imperial College of Science and Technology, London. He

qualified as a Chartered Accountant out of the London office

of Arthur Andersen in 1990 and was made a partner thereof

in Mauritius in 1997, acting during his last 4 years with

the firm as Head of Audit and Business Advisory division.

Jean-MicheljoinedtheMCBinJuly2003,comingfromErnst

& Young and is currently Head of Corporate.

Michaël J. PIKE - Age 58

Is an Associate of the Chartered Institute of Bankers, UK

andjoinedtheMCBasHeadofRiskManagementinOctober

2005 on a 2-year contract. He has extensive financial and

risk management experience obtained in different senior

management positions in eight different countries over 34

yearswithintheHSBCGroup.

Related Party Transactions

For the purposes of these Financial Statements, parties

areconsideredtoberelatedtotheGroupiftheyhavethe

ability,directlyorindirectly,tocontroltheGrouporexercise

significantinfluenceovertheGroupinmakingfinancial

and operating decisions, or vice versa, or if they and the

Group are subject to common control. Related parties

may be individuals or other entities. On 4 January 2002,

theGuidelineonRelatedPartyTransactionswasissued


3 4 A N N U A L R E P O R T 2 0 0 7

bytheBankofMauritius.ThisGuidelineencompasses3

main elements:

• transactions subject to the related party rules and

requirements;

• limits on transactions with related parties and their

interests; and

• theroleoftheBoardofDirectorsofafinancialinstitution

and its Conduct Review Committee in establishing

and implementing appropriate policies on related

party transactions and administering the process for

handling the transactions.

Infact,theGuidelineismorestringentthantheapplicable

International Accounting Standard (IAS 24) in that a person

holding directly or indirectly 10% or more of the capital or of

the voting rights of the Bank also falls within the definition

of Related Party. As a general rule, all transactions with a

related party must be carried out on terms and conditions

that are at least as favourable to the Bank as market terms

and conditions.

Related Party Transactions include:

• loans,financeleasesandserviceagreements;

• givingaguaranteeonbehalfofarelatedparty;and

• making an investment in any securities of a related

party.

The Guideline imposes limits on exposure to individual

related party and to all related parties in aggregate. Also,

the Bank shall not without the prior written approval of the

Bank of Mauritius:

• engage in transactions with a related party if the

total value of the transactions with the Bank and its

subsidiaries exceeds 2% of its Tier 1 Capital; and

• permitthesumtotalofalltransactionstoallrelated

parties to exceed 25% of its Tier 1 Capital.

The Bank’s procedures require that where transactions with

related parties exceed the materiality criteria established by

the Board and approved by the Bank of Mauritius, approval

by the Conduct Review Committee is sought. In instances

where the above regulatory limits are exceeded, prior

approval from the Bank of Mauritius is sought.

Note 36 to the Financial Statements gives on and off

balance sheet credit facilities to related parties as at 30

June 2007.

At the MCB, all powers of the Board of Directors are

delegated to the Supervisory and Monitoring Committee.

It is the Bank’s view that entities where directors – except

members of the Supervisory and Monitoring Committee

or the Chairperson of the Audit Committee – can exercise

significant influence, do not fall within the scope of the

definition of related parties. Related parties reported in the

Financial Statements include:

• directorsandkeymanagementpersonnel;

• closefamilymembersofalltheabove;

• subsidiaries, associated companies and entities in

which the Bank holds more than a 10% interest; and

• entities in which key directors and key management

personnel and close family members have significant

interest or influence.

Exposure of the Bank’s top six related parties as at 30 June

2007 were Rs 1,482 million, Rs 418 million, Rs 357 million,

Rs 169 million, Rs 132 million and Rs 127 million. These

balances represented 18.0%, 5.1%, 4.3%, 2.1%, 1.6%

and 1.5% respectively of the Bank’s Tier 1 Capital.

None of the loans granted to related parties was non-

performing as at 30 June 2007.


Shareholders Agreement Affecting the

Governance of the Company by the Board

There is currently no such agreement.

Third Party Management Agreement

No such agreement presently exists.

Directors of MCB Subsidiaries

The directors of the Bank’s subsidiaries during FY 2006/07

were as follows:

MCB Madagascar

Jean-FrançoisDESVAUXDEMARIGNY(Chairperson)

Marc DE BOLLIVIER

Jocelyn DE CHASTEAUNEUF

E. Jean MAMET

Marcel RAMANANDRAIBE (resigned in July 2007)

Patrick RAZAFINDRAFITO

Jean Raymond REY (resigned in July 2006)

MCB Moçambique

Pierre-GuyNOEL(Chairperson)

Jean-FrançoisDESVAUXDEMARIGNY

Jorge FERRAZ (appointed in March 2007)

PhilippeA.FORGET

RaoulGUFFLET(appointed in March 2007)

Cyril PROVENÇAL (resigned in December 2006)

MCB Seychelles

Jocelyn AH-YU


GilbertGNANY(resigned in April 2007)

RaoulGUFFLET(appointed in April 2007)

E. Jean MAMET

Pierre-GuyNOEL


MCB International Services Ltd.

Jocelyn AH-YU


Mascareignes Properties Ltd.

Jocelyn AH-YU

Pierre-GuyNOEL


Jacques TENNANT

MCB Investment Management Co. Ltd.

Richard CARRS

MichaëlCOLLYER


PhilippeA.FORGET

MarcLAGESSE

Jean-MichelNGTSEUNG

MCB Stockbrokers Ltd.

F. Jacques HAREL (Chairperson)



MCB Registry & Securities Ltd.

F. Jacques HAREL (Chairperson)



MCB Equity Fund Ltd.

Bertrand DE CHAZAL (Chairperson)


F. Jacques HAREL

E. Jean MAMET


3 6 A N N U A L R E P O R T 2 0 0 7

MCB Capital Partners Ltd.

Ziyad BUNDHUN (appointed in January 2007)


RaoulGUFFLET

ThierryKOENIG

MarcLAGESSE

Bernard YEN

Multipliant Management Co. Ltd.

Bernard D’HOTMAN DE VILLIERS

Bashirali Abdulla CURRIMJEE, G.O.S.K.


Thierry Maurice JAUFFRET

Bernard YEN

MCB Factors Ltd.

Jean-MichelNGTSEUNG(Chairperson)

Alain LAW MIN

E. Jean MAMET

MargaretWONGPINGLUN

MCB Properties Ltd.


PhilippeA.FORGET

Pierre-GuyNOEL



Herbert COUACAUD, C.M.G.

Bashirali Abdulla CURRIMJEE, G.O.S.K.

MichelDOGERDESPEVILLE,C.B.E.

BrunoMARGEOT

Jean-Pierre MONTOCCHIO

Finlease Co. Ltd.



Hervé DUVAL (Jr) (resigned in March 2007)

Jean Michel FELIX

PhilippeA.FORGET

Alain LAW MIN

E. Jean MAMET

BrunoMARGEOT

Jean-MichelNGTSEUNG

Blue Penny Museum

Jean Paul ADAM (resigned in October 2006)


PhilippeA.FORGET

J.GérardHARDY

Jean-Raymond HAREL

Pierre-GuyNOEL


Shareholder Relations and CommunicationThe Board aims to properly understand the information

needs of all shareholders and places great importance

on an open and meaningful dialogue with all those

involved with the Company. It ensures that shareholders

are kept informed on matters affecting the MCB. Besides

official press communiqués and occasional letters to

shareholders where appropriate, the Bank’s website

is used to provide relevant information. Open lines of

communication are maintained to ensure transparency

and optimal disclosure. All Board members are requested

to attend the Annual Meeting, to which all shareholders

are invited.

Material Clauses of the Constitution

The constitution of the MCB provides that no shareholder

can own more than 4% of the Bank’s issued capital

without prior approval from the Board of Directors.

Shareholding Profile

Ownership of ordinary share capital by size of shareholding

and the ten largest shareholders as at 30 June 2007 are

given in the following tables:

Largest shareholdersNumber of

shares owned%

Holding

State Street Bank and Trust Co. (A/C The Africa Emerging Markets Fund)

9,909,807 3.96

The Mauritius Union Assurance Company Ltd.

9,316,715 3.72

The Anglo-Mauritius Assurance Society Ltd.

6,775,882 2.71

Promotion and Development Ltd. 6,203,600 2.48

POLICY Ltd. 5,765,803 2.30

SSLN c/o SSB Boston Old Mutual Life Assurance Co. (South Africa) Ltd.

4,346,535 1.74

La Prudence Mauricienne Assurances Limitée

4,064,343 1.62

Pictet et Cie. (A/C Blakeney LP) 3,861,264 1.54

Rose Hill Transport Ltd. 3,256,490 1.30

SSL c/o SSB Boston Investec Africa Fund

2,841,157 1.13

Size of shareholding Number of Shareholders

Number of shares owned % Holding

1-500 shares 10,740 1,270,907 0.51

501-1,000 shares 1,216 902,235 0.36

1,001-5,000 shares 2,009 4,943,916 1.97

5,001-10,000 shares 642 4,666,433 1.86

10,001-50,000 shares 1,050 24,811,230 9.91

50,001-100,000 shares 279 19,771,776 7.90

Above 100,000 shares 353 194,009,098 77.49

Total 16,289 250,375,595 100.00


3 8 A N N U A L R E P O R T 2 0 0 7

Dividend Policy

The MCB aims to supply its shareholders with ongoing returns in the form of a stable and relatively predictable level of

dividends. Interim dividends are declared in November, based on best estimates of half-yearly results to 31 December. As

from2007/08,thefinaldividendwillbedeclaredbytheBoardjustbeforetheendofthefinancialyear,whenthetrendin

Groupprofitabilitywillhavebeenevenmorefirmlyestablished,andpaidtowardstheendofJuly.Keydividendratiosover

the past five years are as shown below:

FY 2002/03 FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07

Dividend per share (Rs) 1.50 1.70 1.90 2.12 2.90

Dividend cover (Number of times) 2.12 3.23 3.25 3.49 3.40

Dividend yield (%) 5.3 4.8 4.7 3.8 2.8

Performance of MCB Share Price vis-à-vis the market

Share Price Information

The stock market achieved an outstanding performance in FY 2006/07 with relevant indices being pushed to new heights.

The SEMDEX grew by some 70% over the period to reach 1,433.07 at end June 2007. Likewise, SEMTRI, the total return

index, showed strong dynamism, expanding by 77.4% in rupee terms over the past financial year to close at 3,691.60 on

30 June 2007.

Reflecting market confidence in our institution, the MCB share price has outperformed the market during FY 2006/07 with a

substantial rise of 83.9%. The share price broke through the psychological level of Rs 100 on 9 January 2007 and reached

Rs 103 as at end June 2007, thereby sustaining its leading market capitalisation which stood at Rs 25.8 billion. The MCB

price has pursued its appreciation during the early months of FY 2007/08 with a 15.8% increase from the beginning of July

2007 to mid-September, as compared to a 3.5% growth in the SEMDEX.

3 Ju

ly 2

006=

100

Jul 0

6

Aug

06

Sep

06

Oct

06

Nov

06

Dec

06

Jan

07

Feb

07

Mar

07

Apr 0

7

May

07

Jun

07

Jul 0

7

Aug

07

Sep

07

220

200

180

160

140

120

100

80

MCB Share Price Index SEMDEX (rebased)


Statement of Remuneration PhilosophyThe Board is responsible for the remuneration strategy of

the Bank with related duties delegated to the Nomination

and Remuneration Committee.

The following principles are used to determine the proper

remuneration levels:

• theBankregularlysurveysthemarkettoensurethatits

remuneration packages are competitive;

• remuneration practices are being restructured to

provide clearer differentiation between individuals with

regard to performance; and

• strongincentivesarecreatedforsuperiorperformance.

Remuneration is reviewed after taking cognisance of market

norms and practices as well as additional responsibilities

placed on directors and employees.

Thecurrentjobgradingsystemispresentlybeingreviewed

toinjectmoreflexibilitythereinthroughamorefunctional

approach.

Employee Share Option SchemeFollowing the shareholders’ approval during the last Annual

Meeting and clearance by the authorities, the Bank introduced

an Employee Share Option Scheme (ESOS) at the end of 2006

with a view to further aligning the interests of its employees

with those of shareholders. Besides fostering congruence

betweenorganisationalandindividualobjectives,thescheme

also provides an opportunity for participating employees to

share in the growth and prosperity of MCB. All the employees

of the Bank have thus been granted options to allocate up to

25% of their annual performance bonus towards buying MCB

shares with a vesting period of three years. 529,718 options

were thus granted in January 2007 of which 298,102 have

already been exercised as summarised in the table below:

Management Other employees TOTAL

Number of options granted in December 2006 122,341 407,377 529,718

Initial option price (Rs) 83.50 75.00

Number of options exercised to date 98,730 199,372 298,102

Value (Rs ‘000) 8,248 14,975 23,223

Percentage exercised 80.7 48.9 56.3

Number of employees 25 759 784

Available for the 4th window and expiring in mid-October 2007 23,611 208,005 231,616

November 2007 Declaration of interim dividend and release of first quarter results to 30 September 2007

December 2007 Annual Meeting of Shareholders

December 2007 Payment of interim dividend

February 2008 Release of half-year results

May 2008 Release of results for the 9-month period to 31 March 2008

June 2008 Declaration of final dividend

July 2008 Payment of final dividend

September 2008 Release of full-year results to 30 June 2008

Timetable – Important Forthcoming Events


4 0 A N N U A L R E P O R T 2 0 0 7

Corporate Social Responsibility

The MCB’s Contribution to Sustainable

Development

At the MCB, it is believed that the success of a company

rests on continuous awareness and hard work to ensure that

its responsibilities towards all stakeholders are properly

discharged. As such, the Bank has, for decades, recognised

the need to be socially involved and supportive of the wider

community’s needs and is well known for its active support

of worthy causes through multiple activities.

In line with the decision taken last year, the Board of

Directors has adopted the policy of allocating 1% of the

previous year’s pre-tax profits to the Company’s Corporate

SocialResponsibility(CSR)projects.Asaresult,anamount

of Rs 20 million was spent during FY 2006/07 in respect of

suchprojectsinthefollowingmainsectors:

The highest proportion of the CSR budget was allocated

to a national campaign initiated by the MCB against

Chikungunyawiththeobjectiveofraisingawarenessamong

the population, particularly at primary school level. The

initiative benefited from the collaboration of the Ministry of

Health and Quality of Life as well as that of Education and

Human Resources, while 26 sponsoring enterprises provided

financial support with every rupee thereby contributed

complemented by matching funding from the MCB for an

aggregateprojectcostofsomeRs15million.Buildingon

the wide-ranging support of various stakeholders, including

the keen participation of staff members, the campaign

turned out to be a commendable success.

Education remains the priority area of the CSR programme

with nearly one third of the total budget having been

allocated to this area in the last financial year on the back

of support provided to many educational and vocational skill

programmes. For instance, in addition to being involved in a

wide-ranging Education Scheme aimed at pupils in under-

privileged regions, the MCB contributes towards shaping

the country’s elite through the award of annual scholarships

for tertiary education.

Structure and Purpose

The CSR structure has been revamped during FY 2006/07

notably with the setting up of a dedicated business unit

within the Communication SBU to ensure the proper

implementation of the Group’s approved CSR policy. This

unit is, amongst others, responsible to assess the relative

merits ofprojectproposals in collaborationwith theCSR

Committee, comprising staff members from various

quarters, and submit them for validation to the Executive

CSR Committee, which is composed of members of the

Board of Directors.

Furthermore, the MCB has always benefited from the diligence

and support of its staff members, who enthusiastically

volunteer for noble causes as illustrated by the Chikungunya

Rs ‘000

Education 6,645

Poverty Alleviation 3,565

Environment 9,560

o/w Chikungunya Campaign 7,404

Art, Culture and National Heritage 230

Total 20,000

Corporate Social Responsibility (CSR) is the

commitment of businesses to contribute to

sustainable economic development by working with

employees, their families, the local community and

society at large to improve their lives in ways that

are good for business and for development.

Source: The International Finance Corporation(Private Sector Development; The World Bank)


campaign, the success of the in-house blood donation and

the participation of employees in Royal Raid 2007 in order

to raise funds for Friends in Hope Association, amongst

others. In addition to hands-on involvement, employees also

bring their financial contribution to philanthropic actions.

For instance, 300 employees have established ‘standing

orders’ amounting to Rs 400,000 annually, hitherto used to

financeprojectsthroughMCBEducationalScheme.

The CSR programme of the MCB will continue to lay

significant emphasis on education and poverty alleviation

with other main areas of involvement being environment,

sportsandarts&culture.TheobjectivesoftheCSRpolicy

will be geared towards achieving alignment with existing

businessobjectives,properlyevaluatingprojects,fostering

partnerships, optimally allocating resources, establishing

a structured employee volunteering programme and

communicating strategically. In the Bank’s endeavour to

improve the effectiveness of the CSR process, an “appel à

projets”willbelaunched,whichshouldresultincommunity

needs being better identified, evaluated and addressed.

Some Examples of Support

Education:

• MCBEducationScheme

› Covering teacher and parent training programmes,

the physical uplifting of teaching environments and

the supply of basic school supplies, in especially

deprived situations (mainly around ZEP schools &

alternativeeducationprojects)

› Partnership with private and governmental bodies

for the ZEP programme, particularly at Nicolay

GovernmentSchool

› Participationinthe“BridgetheGapprogramme”

founded by the Ministry of Education and Human

Resources

• MCBFoundation–provisiononanannualbasisofa

full scholarship for overseas study over a three-year

period based on performance at the local Higher School

Certificate examination

• MCB Rodrigues Scholarship scheme – granting

of a scholarship to students from Rodrigues for

undergraduate degree at the University of Mauritius

Poverty alleviation:

• PILS–SIDAWAREProjectinvolvingfinancingofseveral

types of educational booklets which will be distributed

as support teaching material during training and public

awareness campaigns throughout the island

• Supporttorehabilitationcentres

• FriendsinHope–contributiontotheoperatingexpenses

of its “centre d’apprentissage et de réinsertion sociale”

• APEIM – contribution to salaries of an occupational

therapist & funding of the respite unit at the Bonne

Mère Centre

• SOSFemmes–oneyearofwagesfortwoprofessionals

working with the centre

Environment:

• PreventioncampaignagainstChikungunya

• MauritiusWildlifeFoundation–financialsupporttothe

conservationprojectofbiodiversityofRoundIsland

National Heritage:

• NationalHeritageFund–contributiontotheprojectfor

the preservation and restoration of Ile de la Passe

No political donations were made during the year.


4 2 A N N U A L R E P O R T 2 0 0 7

Auditors’ FeesThe fees paid to the auditors (inclusive of VAT) were:

Fees for Other Services

Integrated Sustainability ReportingThe MCB is committed to the highest standards of integrity

and ethical conduct in dealing with all its stakeholders.

Staff at all levels adhere to the Bank’s Code of Conduct and

the national Code of Banking Practice while epitomising our

core values in their daily activities, thereby upholding the

organisation’s unique culture. Reasonable grievances and

disciplinary procedures are in place to enable enforcement

of the codes.

The Bank has developed and implemented social, health

and environmental policies and practices that in all

material respects comply with existing legislative and

regulatory frameworks. The health and safety of staff

and visitors are of paramount importance to us and all

reasonable measures are taken to ensure a sound and

healthy working environment.

The MCB is an equal opportunity employer and does not

discriminate in any way with regard to race, religion or

gender. Employment opportunities are openly advertised.

Group Bank

2007 2006 2007 2006

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Audit fees paid to:

BDO De Chazal Du Mée 9,846 7,779 9,200 7,475

Other firms 3,232 2,209 - -

Group Bank

2007 2006 2007 2006

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Fees for other services provided by:

BDO De Chazal Du Mée 1,927 3,966 1,819 3,904


Company Secretary


I certify that, to the best of my knowledge and belief, the company has filed with the Registrar of Companies all such returns

as are required of the company under the Companies Act 2001 in terms of section 166(d).

Company Secretary’s Certificate


Company Secretary

Head Office9 – 15, Sir William Newton Street

Port Louis

28 September 2007

4 4 A N N U A L R E P O R T 2 0 0 7

Management Discussion and Analysis

“ The redesign of the Port Louis Main Branch seeks to offer to the customer a facilitated access to the Bank’s services.”

Management Discussion and Analysis

4 6 A N N U A L R E P O R T 2 0 0 7

HighlightsThe leadership position of the MCB was reaffirmed

in FY 2006/07 with another remarkable performance

achieved despite a challenging environment. Indeed, profit

attributable to the equity holders of the parent company

increased by 23.9% to reach some Rs 2,460.8 million,

while earnings per share, boosted by the buy-back, in

December 2006, of the 11.25% stake of Lloyds TSB Bank

plc, increased by 31.6% to Rs 9.74. Additional comfort can

be derived from the fact that good financial results were

obtained from all lines of business, reflecting the balanced

growth of the Group. Meaningfully, income from foreign

sources and non-bank financial services contributed, for

the first time, to more than 50% of consolidated profit,

testifying to the success of the strategy adopted by the

Group to diversify its markets and products. In this respect,

alongside actively pursuing the implementation of market

development initiatives with a clear emphasis on adapting

the Bank’s offerings to the evolution of the operating

environment and customer expectations, the MCB is

in the course of restructuring its investment services

activities with a view to reinforcing its leadership position

in the provision of financial services on the domestic

front. Furthermore, a strong focus was again given to

the overseas expansion strategy notably through greater

market penetration in the region and a reinforcement of

the MCB franchise through the extension of its brand to all

foreign banking subsidiaries.

To sustain the business development initiatives, several

actions were taken during the course of FY 2006/07 to reinforce

capacity and enhance operational efficiency, considerable

attention being given to human resource development. As such,

a major training initiative, namely the culture development

programmes under the theme ‘Moving Customer Boundaries’,

was undertaken and particular emphasis was given to the

training of branch staff and account executives, aimed

at ensuring continuous improvement in customer service.

Substantial investments are being made in the renovation

of branches to allocate more floor space to customers, to

provide them with better performing self-service delivery

channels and give them easier access to services like the Call

Centre and secure Internet Banking. The core banking system

of the MCB is being reviewed and will be changed in order

to improve the Bank’s capacity to provide a wider range of

services more efficiently. In addition, the introduction of Teller

Cash Recyclers (TCRs), a first in Mauritius, will automate and

quicken the handling of cash, confirming the reputation of

the Group as a prime-mover in using technology to enhance

customer service. Besides, conscious of the importance of

sound risk management, the MCB has extended major efforts

towards compliance and implementation of best practices,

with a significant milestone being reached in April 2007 when

the Bank achieved a satisfactory state of readiness under the

Basel II Standardised Approach.

The continued strong performances of the Group over the past

few years and its established foothold in the banking sector

have contributed to enhance its image on the international

scene, thereby reinforcing the brand value. The MCB remains

the only local bank among the top 1,000 global banks, as per

‘The Banker’ July 2007 publication, while Moody’s Investors

Service has upgraded the MCB’s financial strength rating

in April 2007. Moreover, the MCB became the first foreign

institution to issue a subordinated bond through the Bond

Exchange of South Africa, which was rated by Moody’s at Aa3

on the South African National Scale.

Robust financial fundamentals, bright prospects and

the enhanced image of the MCB as well as the buy-back

of the stake of Lloyds TSB Bank plc have contributed to

generate additional value for shareholders. Indeed, the


MCB share price once again outperformed the market with

a substantial rise of 83.9% over FY 2006/07, leading to an

increase in its market capitalisation to Rs 25.8 billion –

that is, USD 820 million – at the end of the last financial

year, by far the highest on the Stock Exchange of Mauritius.

Whilst insistently espousing initiatives aimed at enhancing

shareholder value, the Group attaches high importance to

furthering a performance culture. In this respect, the MCB

became, during FY 2006/07, the first local company to

launch a share ownership plan for its entire staff, linked

to performance. Under this Employee Share Option Scheme,

employees are granted options to purchase MCB shares for

the equivalent of 25% of their respective annual performance

bonuses, thus enabling them to participate in the growth

and prosperity of the Bank. This should contribute to further

promote employee motivation and foster congruence with

organisational goals. Besides, the Group continues to

be very active in terms of Corporate Social Responsibility

(CSR), with 1% of the preceding year’s pre-tax profits being

allocated to such initiatives. A key undertaking during the

last financial year has been the island-wide campaign

against Chikungunya, which involved a large number of

Bank staff and proved to be largely successful.

External Forces ReviewLegal and Institutional Environment

The last financial year was, in many respects, a landmark in

the development of the country’s institutional environment.

Of particular significance, the Budget exercise in June 2006

set the stage for enhancing national competitiveness notably

through a streamlining of procedures, promoting openness

and economic diversification, improving macroeconomic

management and, meaningfully, relieving fiscal pressure

on businesses. The philosophy of the Government was

reaffirmed and even reinforced in the last Budget speech

with, amongst others, an accelerated reduction in corporate

and personal income taxes to a single rate of 15%

effective FY 2007/08. In the same breath, the forthcoming

Competition Act should further encourage economic

efficiency by fostering a more market-oriented environment.

The enhanced operating environment has already started

yielding benefits in terms of improved economic growth and

is expected to help sustain buoyant activity levels over the

medium term, thereby generating additional opportunities

for the Bank. On the fiscal front, while the lower tax

environment will be beneficial to the MCB’s results, these

potential savings in future years will however be somewhat

tempered by the introduction of a special levy on profitable

banking institutions.

Regarding the monetary policy framework, commendable

efforts have been made by the authorities to strengthen

the existing set-up by better integrating economic

fundamentals in the decision-making process with the

objective of achieving price stability and ensuring balanced

growth. In this context, as from December 2006, the Repo

rate replaced the Lombard rate as the signalling rate for

monetary policy to more effectively reflect underlying forces

in the short term money market. Moreover, the Monetary

Policy Committee (MPC) was set up in April 2007 as provided

for by the Bank of Mauritius Act 2004. Following the Finance

Act 2007 and in line with international best practice, this

institution has now been granted independence for the

formulation and determination of monetary policy. On a

different note, reflective of the policy to further open up

the market, Government of Mauritius treasury bills are now

sold over the counter while there are plans to modify the

existing primary dealer system to enable participation from

a greater number of operators.

In line with the efforts made by the authorities in the past

few years to upgrade the legislative framework for financial

Management Discussion and Analysis continued

4 8 A N N U A L R E P O R T 2 0 0 7

services, the Borrowers Protection Act 2007 was voted

this year to promote fairer practices between lenders and

borrowers and reduce information asymmetries in respect

of financial intermediation transactions, amongst others.

Going forward, the Group will continue to exploit opportunities

generated by a more conducive operating environment

linked to enhancements in relevant legislations.

Macroeconomic Review

Notwithstanding lingering external challenges and

prevailing domestic imbalances, the economy in 2006 was

marked by some positive signs of burgeoning buoyancy

amidst an apparent improvement in business confidence,

partly fuelled by the far-reaching reform programme

initiated at national level and aimed at revamping the

economic model to sharpen the country’s competitiveness.

Indeed, invigorated by a turnaround in some key sectors

and sustained expansion in established drivers, economic

growth strengthened to 5.0% last year with expansion

excluding sugar standing at 5.3%, representing increases

of 2.7 and 2.5 percentage points respectively over the

performance of 2005. Reflecting continued momentum

in early 2007, overall growth on a financial year basis is

estimated to have risen from 3.6% in FY 2005/06 to 5.2%

in FY 2006/07.

Encouragingly, barring subdued performances in the sugar

and tourism sectors, growth was generally broad-based in

2006. Thus, after the setbacks suffered in the four preceding

years, the export-oriented industry registered a growth rate

of 4.6%, boosted by a surge in fish-related exports and a

relative pick-up in the textile and apparel sector following

restructuring initiatives undertaken for some years. The

construction sector also staged a determined rebound

with a 5.2% expansion reflecting resilient residential and

non-residential building work mainly associated with the

construction of hotels and projects under the Integrated

Resort Scheme (IRS). Similarly, whilst expansion in the

trade sector was slightly lower than in 2005 in line with

a reduced consumption growth, the domestic-oriented

industry bounced back from a stagnant performance and

grew by 4.1% on the back of relatively brisk activities

related to a widened small and medium enterprise (SME)

base. The business and financial services sector sustained

a commendable evolution, driven by strong expansion in

the banking and business activities segments, while the

transport, storage and communications sector maintained

its high growth path with activity therein being upheld

by the good performance in the field of Information and

Communication Technology (ICT).

On the other hand, the sensitivity of the tourism sector

to exogenous shocks was illustrated last year when a

Chikungunya-induced slowdown was registered in spite of

further opening up of air access and reinforced marketing

efforts. In effect, tourist arrivals grew by only 3.6%, a modest

performance for the sector considered as being one of the

most promising engines of growth for future years. This

episode highlighted just how dependent the country is on

foreign perceptions in an era of instantaneous information

flows and underlines the importance of upholding the brand.

On the whole, however, the prospects of the sector remain

bright as demonstrated by a surge in tourist arrivals this

year. As for the sugar sector, it maintained a declining trend

with a contraction of 2.9% in 2006 reflecting unfavourable

climatic conditions and a further drop in area harvested to

some extent linked to the rationalisation process. Whilst

some headway has been made with respect to transforming

the sugar industry into a competitive cane cluster, a growing

cause for concern as deadlines loom remains the persistent

difficulties of stakeholders to discuss and conclusively

agree on critical issues.


Upbeat activity in the tertiary sector, in the seafood hub and

among SMEs contributed to a drop in the unemployment

rate from 9.6% in 2005 to 9.1% last year, but the conditions

in the labour market remain soft despite the perception of

enhanced economic prospects. In fact, bolstering growth

capabilities and consistently reducing the joblessness rate

critically hinge on the effectiveness of strategies to promote

investment whose level is still viewed as being inadequate.

Although an improvement was observed in the Gross Domestic

Fixed Capital Formation to Gross Domestic Product (GDP)

ratio from 21.4% in 2005 to 24.4% in 2006, it was to a large

extent attributable to the purchase of aircraft to the tune of

Rs 5.7 billion. Exclusive of the latter, the ratio went up by only

20 basis points to 21.6%, underscoring a further decline in

real public sector investment following efforts to control

Government expenditure. However, the notable real increase

of above 15% last year in private investment, stimulated

by opportunities in tourism and IRS projects among others,

and the significant rise in Foreign Direct Investment to

Rs 7.2 billion are developments which augur well for the

future particularly considering efforts undertaken to enhance

the business framework. On the other hand, the ability of the

economy to mobilise sufficient resources to boost productive

capacity could be constrained by the poor savings rate, as

gauged by the Gross Domestic Savings to GDP ratio of 15.0%

in 2006, thereby highlighting the growing importance of

foreign capital in a gap-plugging role.

Keeping inflation at bay has been a major challenge in the last

financial year in view of numerous price shocks both locally

and internationally. Indeed, one-off budgetary measures in

2006 and increases in the international prices of oil and

basic food commodities as well as a relative weakening of

the rupee against major currencies on an annual average

basis have concurrently contributed to a surge in inflation to

10.7% as at June 2007. Though the inflation rate is expected

to decline mainly due to base effects, it should remain quite

high in the short term on account of persisting pressures

and, hence, should be carefully watched considering the

potential damaging impact that can otherwise ensue.

As regards public finances, fiscal reforms through tax

administration measures and restraint on spending have

supported a drop in the budget deficit as a percentage of

GDP which, nonetheless, overshot the targeted level by 30

basis points to stand at 4.3% in FY 2006/07. Overruns in

interest payments and in current transfers and subsidies

Selected growth rates (Year 2006)

-3.0 +6.0 +9.0+0.0 +3.0

Business activities

Transport, storage & communications

Banking

Construction

Wholesale & retail trade

Insurance

Social & general public services

Export-oriented industry

Non-sugar agriculture

Domestic-oriented industry

Electricity, gas & water

Hotels & restaurants

Sugar

%


5 0 A N N U A L R E P O R T 2 0 0 7

were, among others, the main explanatory items. Laudably,

a fall in the public sector debt to GDP ratio was also observed

but it still imposes a high burden in terms of servicing.

On the external front, a considerable deterioration in the

balance of trade, prompted by the purchases of aircraft

and worsening terms of trade – consequent to commodity

price hikes on global markets and depreciation in the

effective rate of the rupee on average – largely outweighed

a robust growth in gross tourism receipts, thus leading to a

significant rise in the current account deficit in FY 2006/07.

However, the overall balance of payments posted a surplus

of Rs 6.6 billion to some extent due to notable investment

inflows partly linked to IRS projects and purchases of

securities. These flows have provided support to the local

currency particularly in the early part of 2007 when the

rupee regained some vitality after having lost a notable

portion of its value last year.

The appreciable level of portfolio investment made by

foreigners in the country over the last financial year largely

accrued with respect to Government securities in the wake

of an important rise in the returns on treasury bills as

gauged by an increase to 10.72% in the annual average

Bank rate as compared to 6.94% in FY 2005/06. Whilst

the upward movement in the yields of treasury bills partly

reflected increases in the Lombard rate by 50 basis points

in July 2006 and one percentage point in September 2006,

the Bank rate continued to soar in late 2006 and early

2007 to peak at 13.38% in February last. This compounded

expectations of further monetary tightening generated by

persistent and mounting inflationary pressures. However,

a hike in the Repo rate, which became the key policy rate

in December 2006, only occurred in July 2007 with the

magnitude of the increase standing at a significant 75 basis

points. The Bank rate, nonetheless, maintained a downward

trend triggered a few months earlier, sparking concerns

about the possibility of outward capital flows. Looking

ahead, considering the various opposing forces at play, the

Central Bank faces a serious challenge to strike the right

balance through its monetary policy stance between price

stability and general growth cum investment objectives. At

the broader level, though the recovery process seems to be

on a satisfactory pathway, the authorities should build on

the growing impetus and pursue its restructuring exercise

in a timely and coherent fashion, whilst guarding against

conflicting signals that may dampen business mood.

Market Environment

In line with higher lending rates by commercial banks

following the tighter monetary policy, a slowdown was

registered in the loan portfolio growth of the banking sector

during FY 2006/07 with credit to the economy increasing

by 10.3% to Rs 141.5 billion as at 30 June 2007 as

compared to an expansion of 14.0% over FY 2005/06. The

lower credit growth was mainly prompted by significant

reductions in loans to public nonfinancial corporations as

well as to the agricultural and fishing sector on the back

of the rationalisation process in the sugar industry. On the

other hand, upbeat outlooks in sectors such as construction

(including housing), tourism and financial and business

services have contributed to substantial increases in

advances to these segments. Likewise, loans relating to

infrastructure witnessed a considerable rise chiefly linked

to power generation projects while the appreciable hike in

respect of the personal and professional segment reflects

sustained efforts of banks to further develop the retail

banking business.

On the funding side, the banking sector observed a noteworthy

growth of 26.3% in total deposits during FY 2006/07, spurred

by a remarkable increase of 37.7% in foreign currency


deposits against the backdrop of the robust performance

of the global business sector. Rupee-denominated deposits,

however, grew at a slightly lower pace as compared to the

previous year in spite of the general increase in interest

rates. In particular, savings deposits achieved a moderate

rise of 6.5% as opposed to 9.2% in the preceding year in

line with the downward trend in the national savings to

GDP ratio and a possible change in consumer preference in

favour of alternative modes of investment in the wake of the

introduction of a 15% tax on interest income.

On the whole, the general liquidity position of the banking

sector declined in the last financial year though remaining

high as gauged by the liquid asset to local currency deposit

ratio of some 39% as at 30 June 2007. This situation

continues to stimulate competition at the level of credit

in particular with pressures emanating both within the

banking industry and from non-bank financial institutions.

Banks have generally adopted an aggressive approach by

stepping up their marketing initiatives especially geared

towards the retail segment to consolidate and increase their

market shares. Besides, several institutions have furthered

their presence on the market place through new branches

and automated distribution channels in order to increase

proximity to their customers. In spite of this increasingly

challenging environment, the MCB has clocked a potent

performance in terms of both credit to the economy and

local currency deposits, supported by measures aimed at

enhancing efficiency and better responding to customer

needs and expectations.

Going forward, whilst the perceived improvement in the

economic environment and institutional developments could

provide interesting business opportunities, competition

Credit to the Economy

SectorsJune 06

Rs mJune 07

Rs mChange

%Agriculture and fishing 7,844 6,852 (12.7)

Export-oriented industry 7,073 6,824 (3.5)

Domestic-oriented industry 7,903 8,121 2.8

Tourism 15,340 17,883 16.6

Transport 1,681 1,772 5.4

Construction (including Housing) 19,475 22,917 17.7

Traders 17,713 19,736 11.4

Information & Comm. Technology 492 599 21.7

Financial & business services 13,344 15,813 18.5

Infrastructure 2,833 4,137 46.0

Global Business Licence Holders 8,907 10,158 14.0

Personal & Professional 11,943 14,311 19.8

Public Nonfinancial Corporations 8,938 6,904 (22.8)

Others 4,892 5,512 12.7

Total 128,378 141,539 10.3

Deposits in the Banking Sector

Types of DepositsJune 06

Rs mJune 07

Rs mChange

%Rupee 136,000 148,214 9.0

Savings 70,671 75,292 6.5

Demand 14,707 16,736 13.8

Time 50,622 56,186 11.0

Foreign currencies 208,441 286,940 37.7

Total 344,441 435,154 26.3


5 2 A N N U A L R E P O R T 2 0 0 7

should swell further considering inter alia the proactive

stance of financial institutions vying for productive

ventures, the ongoing integration of the banking system

and the coming into operation of new players. Against this

background, the Bank will pursue its efforts to strengthen

and deepen its customer base with due attention given to

the quality of its portfolio and to the judicious sourcing of

funds. Moreover, the MCB will continuously seek to increase

the contribution of non-bank financial services to its overall

performance and extend its involvement in the region to

further widen its revenue base.

Operations ReviewOn the strength of strategic initiatives undertaken in past

years, whether relating to business development, such as

horizontal and vertical diversification, or in terms of internal

capacity and efficiency, notably through the business

process re-engineering exercise, the MCB has achieved a

noteworthy financial performance during FY 2006/07 across

its various lines of business. Stimulated by the payoff of

its bold past decisions, the Group has continued to invest

at different levels to ensure the sustainability of robust

profitability growth and even aim for superior returns over

the longer term in line with its strategic plan. In effect, the

breadth and depth of international operations have been

extended while, on the non-bank financial services front,

investment services are being restructured for greater focus

and efficiency. On the domestic front, due attention is being

paid to improving market knowledge and enhancing customer

service, notably through human resource development

programmes, supported by major enhancements in the

physical and technological infrastructure. Regarding the

latter in particular, a major bank-wide initiative relates to

the decision to replace the core banking system by one with

improved functionalities and flexibility, commensurate with

the Group’s growth and efficiency ambitions.

Lines of Business

Corporate

Amid fierce competition, the MCB has maintained its lead

in the Corporate Banking business which continues to

post appreciable growth despite increasing pressure on

margins and a still subdued investment climate. Of note

is a significant increase in net interest margins, reflecting

the improved quality of the loans and advances portfolio

and the result of efforts made over the last few years in

improving the Bank’s credit risk management process.

Revenue figures for all other product and service categories

also increased healthily.

During FY 2006/07, customers have constantly been at the

centre of our attention, preoccupation and priorities. In the

wake of the recent streamlining of the credit management

process, Corporate account executives have been freed

from a number of back office duties allowing them to more

proactively listen to and address the rising expectations of

customers in a fast-evolving business environment. Efforts

have also been dedicated to providing a seamless service

to customers by ensuring that an optimal mix of products

and services across the Bank is provided to them as well

as by focusing on the effective management of customer

relationships.

Knowledge being an instrumental driver of growth in the

banking business, the Corporate Banking Business Unit

(BU) continues to harness customer information towards

improving service quality and strengthening client

relationships. Indeed, one of the key initiatives during the

year under review has been the refining of the customer

segmentation model, which is expected to:

• ensure that the organisation structure is properly

geared towards addressing the varying needs of the

different segments of Corporate customers portfolio;


• improvetheBank’stargetingandexploitationofgrowth

opportunities; and

• actasanenablerforneeds-basedproductdevelopment

and tailoring of banking solutions.

The Bank has again invested proactively in the professional

development of its personnel in the Corporate Banking BU

with the aim of honing their technical and interpersonal

acumen and enhancing their field effectiveness. Targeted

training sessions, in-house as well as externally, have

contributed to sharpen staff technical and service skills.

In FY 2007/08, the Corporate Banking BU is poised to

capitalise on some large scale IRS projects as well as

some important developments in the hospitality sector,

with a consolidation of its leading position in traditional

business niches. Other main avenues of opportunities

lie in the ongoing restructuring of the sugar sector,

energy generation projects, land-based oceanic industry,

construction, real estate, seafood hub, Freeport operations

and ICT among others.

To meet the challenges of the coming years, the Bank will

pursue the implementation of innovative products and

services, the strengthening of client relationships, investment

in new enabling technologies and in human resources, further

enhancement of its operational efficiency and the continuous

improvement of its risk management framework.

Retail

The financial performance of the retail function over

FY 2006/07 has been above targeted levels, the

organisation starting to reap the benefits of ongoing

efforts to enhance commercial proactiveness while

improving customer service and relationship. Business

processes have been further streamlined for efficiency

while bearing in mind the need to uphold stringent risk

management standards. In all its endeavours, MCB Retail

has maintained a strong focus on staff development,

instrumental in meeting its business objectives. Indeed,

branch staff are the primary recipients of the enterprise-

wide culture development programme which, coupled with

an ambitious physical layout upgrade initiative, will ensure

a significant improvement in customer experience.

In a challenging market environment, the retail function

has maintained its marketing and commercial efforts.

Further vendor schemes and company-specific customer

acquisition programmes have been launched successfully.

As regards IRS projects, the MCB has been at the forefront of

the ‘Marché International des Professionels de l’Immobilier’

(MIPIM) fair in France to promote its financing schemes

and banking services with respect to property acquisition

by foreigners. Presence in other fairs such as the Salon

de la Maison and SME Trade Fair has brought a string

of additional commercial opportunities while helping to

reinforce customer relationships with targeted segments.

In-branch product promotion events, in particular the ‘Anou

Cozé’ campaign, have also been privileged occasions for

strengthening rapport with customers whilst matching their

needs with the extensive range of MCB products and services.

In addition, to better meet the growing expectations of the

medium to high net worth segments of retail customers,

strong emphasis has been placed on increasing the

frequency of customer contacts and continuously monitoring

satisfaction with banking products and services. During the

last financial year, branch staff have again been very active

in promoting community activities. The success of the

Chikungunya campaign within primary schools is largely

attributable to the comprehensive participation of the staff

of the Bank’s extensive branch network in coordinating the

distribution of prevention packs.


5 4 A N N U A L R E P O R T 2 0 0 7

A major development regarding the retail function relates

to the redesign of the Port Louis Main Branch in line with

recommendations made by Allen International and anchored

on multiple objectives aimed at supporting business growth.

In the first place, it should help enhance customer experience

through increased comfort and floor space in addition to the

introduction of greeters, which has been largely successful

in channelling clients, managing queues, addressing service

issues and promoting alternative channels for bank operations.

Moreover, the new layout should facilitate sales and assist in

better responding to customer needs notably via dedicated

areas for specific segments. Efficiency in service delivery

should also be fostered with the launch of TCRs coupled with

the centralisation of back office processes. Another aim of the

project is to promote the use of remote delivery channels, for

instance, through the new self-service lobby and the provision

of Internet Banking access in various areas of the branch,

thereby effectively combining technological innovations with

modern designs. Besides, the enhanced work environment

should boost employee motivation, leading to an improvement

in productivity and customer service. Whilst the benefits of

the New Branch Concept are already perceptible, increasing

dividends are expected to flow in future periods as the various

phases of the programme are rolled out and extended to

selected branches.

Cards

Following its restructuring and centralisation in 2006, the

Cards Strategic Business Unit (SBU) posted outstanding

results in FY 2006/07, with gross operating margin almost

doubling. The Bank marked its comeback on both the

issuing and acquiring markets, re-establishing itself as the

dominant player.

The acquiring business reaped the benefits of the positive

momentum of the tourism sector, in respect of which

the Bank capitalised on its exclusive partnerships with

American Express and Diners Club to achieve a competitive

edge. The MCB’s mobile Point of Sale (POS) working on a

GPRS network, yet another first in Mauritius, allowed the

deployment of terminals in a timely and efficient fashion

while providing enhanced flexibility and convenience to

merchants.

The MCB offers a comprehensive range of card payment

solutions, including fleet cards, credit cards and debit

cards, to cater for both the individual and corporate

segments. Regular card usage promotions have boosted

card utilisation at POS and have been successful in

gradually shifting consumers’ behaviour with, for instance,

debit card spending at POS posting a healthy 33% growth

over FY 2006/07. A customer-focused marketing approach

has been adopted as gauged by the suite of additional

benefits packaged with MCB cards to enhance the value

proposition. In this line of thought, Gold credit cards have

been revamped to include a comprehensive annual multi-

trip travel insurance cover and a host of exclusive offers at

selected merchant partners. A Discount Offer programme

was also launched whereby MCB cardholders can enjoy

special benefits at over fifty commercial outlets.

In November 2006, in partnership with MasterCard, the MCB

launched an online payment gateway to offer e-commerce

merchants a secured payment solution for processing

online transactions. The e-commerce platform is a turnkey

package that is easily implemented and which comes with

a user-friendly back office merchant administration module

that allows e-commerce merchants to view and track their

online sales. Merchants subscribing to this service are also

automatically registered for MasterCard SecureCode and

Verified by Visa, which provide another layer of security and

hence protect them from fraudulent chargebacks. The new


e-commerce platform also allows merchants to tap into the

opportunities offered by the internet, the fastest growing

sales channel.

Another milestone in card operations at the MCB was

reached in April 2007 when all credit cards were migrated

to a new card system. This enhanced IT platform has

allowed the organisation to offer additional card features

to customers while streamlining operations. A dedicated

collections team has been set up to actively monitor and

manage delinquency ratios, which are kept under control.

MCB Cards also boasts the lowest chargeback rates in the

Central Europe Middle East Africa (CEMEA) region.

All in all, the Cards SBU has positioned itself to become a

key growth generator for the MCB in the years to come.

International Operations

During the financial year ended 30 June 2007, a substantial

rise was witnessed in foreign exposures of the MCB, whose

presence in the region was further consolidated, thus paving

the way for the Group to become the obvious banking and

financial services provider in the region.

On the map of already covered territories, one of the

key initiatives over the last financial year has been the

rebranding of the two banking subsidiaries that operated in

Mozambique and Madagascar under the UCB trade name

into MCB Moçambique and MCB Madagascar respectively.

The Group is also looking at the expansion of its current

network in the region and is planning to open a branch in

the Maldives.

The Group is concurrently prospecting for business

opportunities in Africa in order to increase the share of

foreign-sourced income. To this end, significant revenue

streams should be derived from the active development

of risk sharing agreements with top tier banks financing

commodities trading within and outside of Africa. Moreover,

the forthcoming launch of an Africa Representative Office in

South Africa will contribute to promote the whole spectrum

of MCB banking and investment services with Southern

African Development Community (SADC) and Common

Market of Eastern and Southern Africa (COMESA) countries.

A particular focus will be placed on promoting payments

solutions, re-issuance of trade-related instruments and

cards processing with second-tier banks in Eastern and

Sub-Saharan Africa, with the ultimate aim of becoming a

‘bank for banks’ in Sub-Saharan Africa.

On the organisation side, the International Division has been

structured with dedicated desks, the main one being the

Syndications Desk that has already demonstrated the Group’s

ability to originate, structure and distribute large projects

while being an active Lead Arranger for finance raising for

corporates in the Indian Ocean region and in Africa.

In considering ventures in the region and beyond, risk

mitigation will remain at the forefront of the expansion

strategy. The Group has further consolidated its risk

appetite setting and management framework taking into

account the need for further portfolio diversification and

the underlying complexity of the different environments in

which international operations are being developed.

Non-Bank Financial Services

The share of non-bank financial services in Group profit

recorded an appreciable rise in FY 2006/07, underpinned

by strong profitability growth in the majority of related

subsidiaries. Besides the start of operations in July 2006 of

MCB Factors Ltd. and a change in status from associated

company to subsidiary of Fincorp Investment Ltd., a prominent


5 6 A N N U A L R E P O R T 2 0 0 7

development in this segment during the year under review

relates to progress made in respect of investment services.

Indeed, the restructuring of the Capital Markets businesses of

the Group namely MCB Investment Management, MCB Capital

Partners, MCB Registry & Securities, MCB Stockbrokers

and Multipliant Management Company, together with the

support team from Investor and Securities Services, is almost

complete. It is intended that these businesses be regrouped

under a new subsidiary, MCB Capital Markets Ltd. (MCBCM)

and permission is being sought from the Bank of Mauritius

to that effect. MCBCM will be operationally independent

from the Bank, and the staff and teams of all the MCBCM

subsidiaries will henceforth be part of the Group but will no

longer be Bank employees. Provided all regulatory approvals

are obtained from the relevant authorities, MCBCM should be

fully operational by late 2007 with 2008 being marked out as

a year of new product and service development for existing

and new client base.

Delivery Channels

Further initiatives have recently been taken towards

endowing the Bank with an optimal delivery channel

framework that will help uphold its business strategies

in an efficient manner. Hence, the Bank pioneered the

implementation of TCRs in Mauritius reflecting its

commitment to remain at the forefront of technology. This

launch in a real in-branch environment represented a

major milestone in the Bank’s efforts to optimise customer

experience at the Bank as it enables tellers to promptly

and accurately deposit, count, verify, authenticate,

secure, dispense and balance all denominations of notes,

in an open comfortable environment while improving

operating efficiency.

In the same vein, the redesign of the Port Louis Main Branch

is being rolled out in phases with the objective of offering

to the customer a facilitated access to the Bank’s services

alongside creating a more conducive working environment

and ensuring that business units are able to respond

to market opportunities more efficiently. In addition, the

increase in the number of ATMs and their transfer to the

new self-service lobby has greatly improved access to the

Bank’s customers. Furthermore, in line with its customer-

oriented strategy, the MCB has launched its first ‘stand

alone’ ATM in partnership with ATM Solutions, a South

African leader in providing retail ATMs. This new service will

provide the Bank’s valued customers with more convenient

and accessible off-site cash withdrawal facilities against a

small fee. The project, which has been launched on a pilot

phase, is earmarked to become an important component of

the delivery service channel bringing banking services closer

to the customers’ doorsteps in line with their expectations

while maintaining a high quality service standard.

The efforts undertaken to promote the utilisation of remote

delivery channels have been positively acknowledged by

customers as gauged by the sustained growth in the volume

of transactions over the last three years. Besides, a major

source of satisfaction has been the surge in the number

of registered customers for Internet Banking to 18,368 as

at 30 June 2007, representing an increase of 24.5% as

compared to one year earlier while the number of Telephone

Automated transactions as a % of total transactions

90

85

80

75

70

June 03 June 07June 06June 05June 04

%


Banking customers increased by 3.7% over this period to

reach 20,940. Building on the appreciable performance

achieved by remote delivery channels, further enhancements

will be brought to Internet Banking, Call Centre, Telephone

Banking and ATM operations, amongst others, while new

channels will be sought to provide customers with a more

convenient banking experience and user-friendly service

whilst ensuring cost efficiency.

Financial ReviewPerformance Against Objectives

Volume of transactions (‘000)

2004/05 2005/06 2006/07

Automated Teller Machines 25,567 27,875 30,700

Merchant Point of Sale 4,386 5,246 6,198

Internet Banking 133 187 237

Phone Banking 9 10 9

Objectives for FY 2006/07 Performance in FY 2006/07 Objectives for FY 2007/08

Return on average equity (ROE)

Maintain return on Tier 1 Capital at similar levels as in FY 2005/06 (21.4%).

Return on Tier 1 Capital increased to 24.0%. This rise was helped by the buy-back of 31.7 million shares.

This ratio should climb further towards the 25% mark with the full-year effect of the reduced number of shares in issue.

Return on average assets (ROA)

ROA expected to increase marginally above 2.15%.

ROA of 2.35% achieved for the year. An improvement is expected in ROA over FY 2006/07.

Operating income

Growth in net interest income is expected to exceed 12% on the back of a comfortable rise in average loan book and better overall yields on Government stocks. Income from foreign exchange transaction will stagnate but a good performance from fee income will contribute to a double-digit growth in operating income.

Net interest income rose by 14% for the Bank and nearly 17% for the Group. Loan book growth was in line with expectations and yields on Government paper were much more in line with commercial market rates. Fee income grew by 17% for the Bank and 33% at Group level while income from foreign exchange transactions were substantially higher than expected leading to a 25% rise in Group operating income.

Net interest income to rise by more than 15% as a result of the expected strong growth in average loan book. Non-interest income growth to approach 20%, with good contributions from cards business, trade and project finance transactions.

Operating expenses

With FY 2006/07 bearing the full impact of last year’s recruitment drive and as a consequence of a significant capital expenditure budget, operating costs are expected to closely follow income growth.

Operating expenses were in line with budgeted figures, with increases of 18% for the Group and of 14% for the Bank.

FY 2007/08 will bear the brunt of the inflation-linked salary increases of July 2007. Additionally, infrastructure and system costs will contribute to an expected rise in expenses exceeding 15%.


5 8 A N N U A L R E P O R T 2 0 0 7

Objectives for FY 2006/07 Performance in FY 2006/07 Objectives for FY 2007/08

Cost to income ratio

Cost to income ratio to remain at around the same level as in the previous year (49.8%).

In view of the much better performance on the revenue side, cost to income ratio fell to 47.5%.

Cost to income ratio to improve slightly as a result of revenue growing at a faster pace than costs.

Loans and advances growth

The delays noted in the implementation of certain projects will give a boost to new disbursements in the coming year. Growth rate of average loan book expected to increase to around 8.5%.

Average loan book grew by 8.2%, very much following expected trends.

The Bank has very ambitious expectations for FY 2007/08, with several large projects coming on stream. This will help boost the foreign currency loan book by some 50%, giving rise to an overall loan portfolio growth exceeding 15%.

Deposits growth

Deposits to continue to grow at around 10% in a continuing liquid environment.

Growth of 11.2% in average deposits, with a spectacular jump of 36% in foreign currency deposits.

Growth of around 9% in deposits, again with a bias on foreign currency resources which should help our regional expansion plans.

Asset quality

It is hoped that risk policies put in place over the last three years will push the NPL ratios towards 7% on a gross basis and 3% on a net basis.

Group NPLs represented 7.0% of total loans at 30 June 2007 and net NPLs were stable at 3.1% of net loans.

Barring unexpected events, reduce the gross ratio of NPLs by one percentage point and bring down the ratio of net NPLs to below 3%.


Review by Financial Priority Area

Results

Robust performances were registered in FY 2006/07 at

both Bank and Group levels, with profit attributable to

equity holders of the parent rising by 19.6% and 23.9%

respectively to reach Rs 1,921.4 million and Rs 2,460.8

million. Appreciable increases were recorded across all

the major revenue-generating lines, with a particularly

sizeable rise in profit arising from dealing in foreign

currencies. The share of foreign-sourced income in the

Group’s after-tax profit increased noticeably to 38.6%

including contributions from foreign subsidiaries and

associate. The local non-bank entities also posted a rising

share of the Group’s profitability in line with the strategy

of assertively promoting non-bank financial services.

Besides, the notable profitability growth was underpinned

by improving cost efficiency and asset quality, as reflected

by declines in the cost to income and NPLs to gross loans

ratios. Going forward, in spite of heightened competitive

pressures, the Group is expected to capitalise on the

renewed buoyancy in the economic environment while

continuing to expand its horizons to further consolidate

its financial fundamentals at all levels as delineated in

its strategic plan.

Net Interest Income

Interest income of the Bank in FY 2006/07 shot up by 28.8%

to reach Rs 8,068.2 million, mainly driven by a significant

increase in interest revenue on loans in concurrence with an

appreciable rise in the loan book and an upward movement

in interest rates. A notable contribution also ensued from

receipts on placements with other banks which more than

doubled in the wake of the issue of subordinated debt whose

proceeds should be judiciously deployed to support the

MCB’s expansion strategy in the period ahead. On the other

hand, notwithstanding an annual average increase in the

Bank rate, interest income on investment in securities grew

at a modest rate of 1.9% as greater lending opportunities

resulted in a lower volume of securities.

Interest expense rose at a substantial rate of 39.8% to

stand at Rs 5,041.7 million for the financial year under

review following a growth of 9.0% in deposits and a higher

cost of funds in accordance with a more restrictive monetary

policy stance. Consequently, the net interest income (NII) for

the Bank increased by 13.9% over the last financial year,

contributing to a rise of 16.8% in Group NII to Rs 3,612.7

million. As such, net interest margin edged up by 12 and 22

basis points to 3.68% and 4.03% respectively for the Bank

and the Group, reflecting more productive lending operations.

Similarly, the corresponding ratios for NII to average total

assets rose to 3.32% and 3.45% respectively.

Bank

Group

Note: As from FY 2003/04, figures reflect non-consolidation of BFCOI

9876543210

115110105100959085807570

FY2002/03

FY2003/04

FY2004/05

FY2005/06

FY2006/07

Interest Income Interest Expense Growth Index - NII (right scale)

Rs bn

FY 2

002/

03 =

100

9876543210

14013513012512011511010510095

FY2002/03

FY2003/04

FY2004/05

FY2005/06

FY2006/07

Interest Income Interest Expense Growth Index - NII (right scale)

Rs bn

FY 2

002/

03 =

100


6 0 A N N U A L R E P O R T 2 0 0 7

Other Income

The Bank achieved a very satisfactory growth of 25.9% in

non-interest income during FY 2006/07. Profit arising from

dealings in foreign currencies increased substantially in a

context of normal market conditions, following the severe

downturn experienced in FY 2005/06 due to tight liquidity

in the market. Furthermore, fee income and commissions

showed a sharp upward trend, fuelled by buoyant activity

in respect of trade finance as well as major increases in

fees related to project finance and credit cards. Against this

background and bolstered by a substantial growth of 46.7%

in the share of income from associated companies, non-

interest income at Group level expanded at an accelerated

rate of 38.2% to reach Rs 2,652.9 million in FY 2006/07.

Non-Interest Expense

Reflecting upbeat business activity, operating expenses of

the Bank went up by 13.9% to reach Rs 2,273.8 million

during FY 2006/07, with a notable rise being recorded in

costs related to systems and infrastructure. Staff costs

and employee benefits increased by 11.4% on account

of continued efforts to reinforce human resources and

provisions linked to early retirement while depreciation

charges and amortisation of computer software costs

also increased by notable rates of 13.0% and 10.2%

respectively on the back of continued investment in

Information Technology. At Group level, non-interest

expenses grew at a higher rate of 18.0% to Rs 2,782.2

million reflecting substantial investment in physical

infrastructure and the impact of consolidating Fincorp

Investment Ltd. as a subsidiary.

Operating Profit

Solid revenue growth relative to expenses has resulted in a

marked decline in the cost to income ratio at both Bank and

Group levels by 1.8 and 2.3 percentage points respectively

to 45.9% and 47.5%. As such, operating profit before

provisions posted a strong rise of 22.2% to Rs 2,682.0

million for the holding company and a significant expansion

of 31.2% at the consolidated level to Rs 3,483.5 million,

supported by the contribution from associated companies.

Even after factoring in a rise in the allowance for credit

impairment, partly due to a growing loan portfolio, a

healthy performance was recorded in respect of operating

profit, which reached Rs 2,311.4 million for the Bank and

Rs 3,107.5 million for the Group in FY 2006/07, representing

increases of 22.9% and 33.1% respectively as compared to

the previous financial year.

Profit Attributable to Shareholders

In line with the significant rise in operating profit and after

taking into consideration the impact of the newly introduced

levy on bank profits, the tax charge for the year surged to

Cost to income ratio%

60

55

50

45

40FY

2002/03FY

2003/04FY

2004/05FY

2005/06FY

2006/07

Group Bank

Operating profit before provisionsRs bn4.03.53.02.52.01.51.00.50.0

FY2002/03

FY2003/04

FY2004/05

FY2005/06

FY2006/07

Group Bank


Rs 389.9 million and Rs 560.8 million at Bank and Group

levels respectively. Consequently, profit of the Bank for the

year increased by 19.6% to reach Rs 1,921.4 million while

attributable profits at Group level expanded by 23.9% to

stand at Rs 2,460.8 million in FY 2006/07. Benefiting from the

impact of the reduced number of shares in issue following the

buy-back of 31.7 million shares in December 2006, earnings

per share soared by 31.6% to Rs 9.74 per share.

Liabilities

Capital resources

Notwithstanding the appreciable increase in profit for the

year, Group shareholders’ funds expanded by a relatively

moderate 9.3% to reach Rs 13.5 billion as at 30 June 2007,

reflecting a significant rise in dividend payments to Rs 723.3

million, and, in particular, the buy-back and cancellation of

shares held by Lloyds TSB Bank plc during the year under

review. On the other hand, Group reserves were positively

impacted by fair value gains of Rs 500 million, mostly

reflecting revaluation of MCB Equity Fund’s quoted portfolio

of shares. Taking into consideration the reduced number of

shares, the net asset value per share rose substantially to

stand at Rs 56.87 at the end of FY 2006/07 compared to

Rs 45.95 one year earlier. Regarding capital adequacy, the

equity to total assets ratio of the Group declined marginally

to 12.2% while the risk-weighted capital adequacy ratio

rose to 15.7% at the end of the last financial year in spite

of the share buy-back given solid profit growth and support

from Tier 2 capital in the form of subordinated debt.

Deposits and borrowings

Aided by higher interest rates, total deposits at Bank level

grew by a notable 9.0% to attain Rs 75.4 billion as at June

2007 despite heightened competition for funds and the

dampening effect of the introduction of the specific tax on

interest income. Foreign currency deposits, in particular,

recorded a remarkable growth while savings deposits,

which account for nearly 50% of total deposits, witnessed

an increase of 7.8% to reach Rs 36.4 billion. At Group

level, total deposits at the end of June 2007 amounted to

Rs 85.2 billion, corresponding to a growth of 10.3%.

As regards borrowings, the MCB raised ZAR 350 million in

the form of subordinated debt through the Bond Exchange

of South Africa, the proceeds of which were swapped

in US dollars, while a repayment of USD 27 million was

made with respect to a line of credit from the African

Development Bank.

Profit attributable to shareholders

Rs bn

2.5

2.0

1.5

1.0

0.5

0.0FY

2002/03FY

2003/04FY

2004/05FY

2005/06FY

2006/07

Group Bank

Deposits

Rs bn

Group Bank

9080706050403020

June 03 June 04 June 05 June 06 June 07


6 2 A N N U A L R E P O R T 2 0 0 7

Assets

Loans and advances

Partly reflecting an improvement in the business

environment, gross loans and advances increased by

10.2% at Bank level in FY 2006/07, up from a growth

of 5.8% achieved in the previous financial year. As

such, the Bank’s overall loans figure stood at Rs 64.1

billion as at 30 June 2007, 10.5% of which related to

Segment B activities, that is, those essentially directed

towards the provision of international financial services

that give rise to foreign-sourced income. The growth in

the loan portfolio was fairly balanced across the main

industry groups with loans and advances to the tourism,

construction, trade and personal and professional

sectors being key contributors. Conversely, advances to

the agricultural sector and the export-oriented industry

contracted by 10.5% and 4.0% respectively. In line with

the performance at holding company level, the Group

posted an 11.9% rise in gross loans and advances to

Rs 69.1 billion as at 30 June 2007.

Investment in Government securities

After numerous years of expansion, investment in

Government securities for the Bank observed a noteworthy

28.9% drop to Rs 10.6 billion as at 30 June 2007,

highlighting better liquidity deployment towards more

productive ventures. Accordingly, the liquid assets to

deposit ratio of the Bank declined over FY 2006/07 albeit

remaining at a comfortable level of 19.4%. Likewise,

investment in Government securities at Group level

decreased by 27.8% to Rs 13.3 billion, bringing its liquid

assets to deposit ratio to 22.9%.

Provisioning and Asset Quality

Non-performing loans (NPLs) for the Group represented

7.0% of total loans as at 30 June 2007, down from

7.7% one year ago. Corresponding figures for the Bank

were 7.37% and 8.0% respectively. This positive trend,

which has seen the NPL percentage fall from around

10% to present levels in about three years, is, however,

tampered by lengthy recovery procedures prevailing

both in Mauritius courts and in other jurisdictions. On a

more positive side, the increasingly tight risk monitoring

environment at MCB has contributed to a marked slow

down in the rate of deterioration of performing loans, this

being evidenced by a levelling out of NPLs in absolute

terms. Furthermore, the ratio of net NPLs to net loans for

the Bank has stayed at around 3.3% during the year, a

Gross loans and advances

Loan portfolio mix - Bank

Rs bn

Group Bank

ICT 1.0%

Financial and business services 6.3%

Personal and professional 10.9% DOI 7.2%

Tourism 15.2%

Traders 17.2%

Others 9.2%

Agricultural and fishing 7.3%

EOI 5.6%

Transport 1.9%

Construction 14.5%

Infrastructure 3.6%

70

60

50

40

30

20June 03 June 04 June 05 June 06 June 07


quite satisfactory level with the cover ratio of NPLs by

specific provisions falling slightly to 57.6%, from 61.7%

last year, following the write-off of some irrecoverable

loans against provisions. The uncovered portion of the NPL

portfolio is more than adequately covered by collateral

held by the Bank, suitably written down in value to reflect

market parameters and delays in recovery.

Additionally, the Bank, in conformity with the Bank of

Mauritius Guideline on Credit Impairment Measurement

and Income Recognition, recognises the varying degrees

of risk attached to the different components of its loan

portfolio. Loans have been analysed by sectors, each sector

having similar characteristics and a statistical provision

has been assigned to each sector based on past loss

experience and current attributes and outlook. This portfolio

provision was increased by Rs 40.6 million for the year to

reach Rs 439 million at 30 June 2007.

The charge for credit impairment at the level of the Bank

(excluding portfolio provision), was Rs 330 million for the

year, an increase of Rs 48 million over the previous year.

This is explained essentially by the necessity to improve

cover on existing, generally long outstanding, loans to take

into account changes in net present value of collaterals in a

context of rising interest rates.

Risk Concentration

Credit concentration of risk by industry sectors refers to

total credit facilities including guarantees, acceptances and

other similar commitments extended by the Group to any one

customer or group of closely-related customers for amounts

aggregating more than 15% of the capital base, classified

by industry sectors.

Net NPLs as a % of net loans

Group Bank

%

Credit concentration of risk by industry sector

Property 6.3%

Traders 9.4%

Agriculture &fishing 13.5%

EPZ 13.5%

Tourism 12.8%

Parastatal 16.5% Others 10.1%

Other manufacturing 10.2%

Entities outsideMauritius

7.7%

June 03 June 04 June 05 June 06 June 07

7

6

5

4

3

2


6 4 A N N U A L R E P O R T 2 0 0 7

Foreign Subsidiaries

One of the prime targets in diversifying out of Mauritius

was to do so in such a way as to spread risks. This ensures

that a tough year in any one particular jurisdiction is,

in all probability, compensated by the resilience of the

other countries of presence. The last financial year again

illustrated the point.

MCB Moçambique

This subsidiary did not have a very good year. Its balance

sheet contracted as a result of the non recurrence of some

substantial trade finance operations. The loan portfolio

decreased by some 27% to reach MTN 807 million at 30

June 2007. Concurrently, results were affected by a fall in

commissions receivable together with important charges

for credit impairment. Contribution to Group profits fell by

some 38% to Rs 30 million for the year to 30 June 2007.

While operations in Mozambique continue to be affected

by a difficult economic and regulatory environment, MCB

Moçambique will be striving to offer the same high level

of service to its customers. In order to be closer to the

latter, the Bank will be opening a new branch in Matola,

an industrial suburb of Maputo, before the end of 2007.

The current year (2007/08) should see a return to more

reasonable levels of credit impairment, leading in turn to

increased profitability.

MCB Madagascar

The balance sheet of the Malagasy subsidiary has grown

in a very satisfactory manner during the FY 2006/07,

especially in the second semester, with total assets

reaching MGA 147 billion at 30 June 2007, an increase of

20% over a year. During the same period, the loan book

grew by 37% to reach MGA 83 billion at year end.

Asset growth was, however, not matched by a corresponding

rise in net interest income as the latter part of calendar

year 2006 saw a spectacular fall in Treasury Bills rates,

triggered by an over-liquid market. Concurrently, operating

costs rose by more than 20% during the period, the result

of a combination of inflation-linked price increases and a

change in VAT rules which led to a substantial drop in the

deductible tax element of expenses.

Net results for the year to 31 December 2006, at

MGA 5.2 billion, were only marginally up on 2005 while

those for the first six months of 2007 reached MGA 2.4

billion, a 13% increase over the corresponding period.

Contribution to MCB Group profits for the year went up by

15% to Rs 62 million.

Prospects are relatively good, with the economy showing

encouraging signs of picking up pace. Several major

infrastructure and mining projects have been announced,

some of which are already under way. This flux of investment

has led to much improved liquidity locally and to relative

stability on the foreign exchange market. MCB Madagascar is

pursuing its prudent expansion strategy aimed at providing

quality service to its essentially corporate customer base. In

this context, a new branch was opened in Mahajunga, on the

west coast of Madagascar, in March 2007.

MCB Seychelles

This subsidiary achieved much improved results for the year

to 31 December 2006, with profits after tax reaching SCR 19

million, a 35% increase over 2005. The current financial year

has started on an even better footing, half year results to 30

June 2007 having exceeded SCR 13 million. The situation

in the Seychelles seems to be brightening, with a surge of

investment in the tourism sector in a context of gradual

economic liberalisation, improved liquidity on the historically


tight foreign exchange market and the readjustment of the

local currency to more competitive levels.

The MCB Seychelles Group, which includes Mascareignes

Properties Ltd., a subsidiary owning the headquarters of the

bank in Mahé, contributed Rs 157 million to consolidated

profits to 30 June 2007, nearly a two-fold increase from last

year. Prospects for the future look encouraging.

Local Subsidiaries

MCB Investment Management Co. Ltd. (MCBIM)

MCBIM had an exceptional year ended 30 June 2007,

realising profit after tax of Rs 20.4 million, representing

a growth of 99% over the previous year’s figure of Rs 10.3

million. Revenues rose by 66% to Rs 34.2 million whilst

administrative expenses, including salaries and performance

bonuses, increased by 33% to Rs 12.2 million. Operating

margin thus increased from 53% to 63%. This remarkable

performance was driven by particularly strong growth in the

local equity portfolios, solid growth in US dollar terms from

overseas portfolios, the significant depreciation of the rupee

and large exceptional fees on two specific advisory deals.

Assets under management grew by 40% to Rs 7.8 billion as

at 30 June 2007, fuelled by market growth and to a lesser

extent, new mandates won.

Assets under management continue to be well balanced

between local and foreign markets with mandates generally

showing an equity bias, explained mostly by the long term

nature of larger clients’ investment objectives. Results

for 2008 are expected to be slightly lower than this year,

although on excluding the two exceptional deals mentioned

above, growth should be in double digits. Portfolios have

weathered the market turbulence of July and August 2007

with satisfying resilience, vindicating the defensive bias of

our investment style.

The investment team at MCBIM remains committed

to delivering superior risk adjusted returns and an

outstanding service.


The Fund had a very satisfactory year, posting fair value

gains (unrealised) of just over Rs 400 million. The portfolio

grew from Rs 1.17 billion to Rs 1.91 billion during the year

under review, with major new investments being made in

a hotel project in Mauritius and a Canadian fibre optic

network provider developing a project in Reunion Island.

The Fund has an authorised size of Rs 3 billion and it is

anticipated that a further Rs 500 million thereof may be

drawn down in the course of FY 2007/08 for investment in a

variety of different projects in Mauritius and the region.

The Fund made a profit of Rs 42.3 million for the year, up

from Rs 19.3 million for the 13½-month previous period,

represented mostly by dividends from its portfolio of listed

holdings. Total management and other fees of Rs 7 million

were paid during the year and the Fund made a profit on

disposal of listed shares of Rs 9.9 million.

MCB Capital Partners Ltd. (MCBCP)

MCBCP is the investment manager of MCB Equity Fund. The

year was eventful for MCBCP as it has recruited a full team

of investment analysts, moved into new premises and made

significant new investments on behalf of the Equity Fund.

MCBCP derives its revenues from fees charged to the Fund,

which rose from Rs 6 million (for the period 19 April 2005 to

30 June 2006) to Rs 10 million for the year to 30 June 2007.

Operating profit made a corresponding leap to Rs 5 million

from Rs 0.5 million and profit after tax rose to Rs 3.8 million

from Rs 0.4 million.


6 6 A N N U A L R E P O R T 2 0 0 7

The Group sees significant potential for MCBCP to expand

its network of contacts within the region and to generate

increased deal flow for the Fund.

MCB Registry & Securities Ltd. (MCBRS)

MCBRS achieved satisfactory growth in revenues of 13.9%,

finishing the year with a total income of Rs 12.6 million.

Profit for the year grew to Rs 3.3 million from Rs 2.4 million

in FY 2005/06, corresponding to a rise of some 40%.

These favourable results were delivered in the face of

stiffer competition for the company’s corporate registry

services. Going forward, it is believed that the company’s

reputation for professional and efficient service will

continue to win it new mandates. Increased corporate

activity such as rights and bonus issues should also allow

the company to grow revenues.

MCB Stockbrokers Ltd. (MCBSB)

MCBSB had a very good year, posting growth in revenues

of 166% to Rs 19.5 million and a consequent rise in profit

after tax of 152% to Rs 13.0 million. In fact, a non-recurring

deal during the year relating to the buy-back of Lloyds TSB

Bank plc stakes in the MCB and Fincorp, helped boost

earnings considerably.

MCBSB has continued to develop its brokerage activities

and recruited a research analyst during the year to enable

the company to deliver more value added services. The

stock market was again characterised by the strong

interest from overseas investors for the leading Mauritian

companies. The company is taking steps to increase its

share of this market and FY 2007/08 should see the first

fruits of these efforts.

Multipliant Management Co. Ltd. (MMC)

MMC was added to the Capital Markets arm of the

Group in September 2006 when it was purchased from

Fincorp. MMC manages the four retail funds under the

Penny Unit Trust Umbrella, namely Multipliant General

Fund, The Penny Indexed Fund, The Penny Yield Fund

and The MFL Fund. Assets under management of MMC

within these four funds increased by 29.7% to a total of

Rs 701.3 million as at 30 June 2007. Accordingly, turnover

increased from Rs 5.3 million in FY 2005/06 to Rs 6.6

million in FY 2006/07, contributing to a rise in profit

after taxation from Rs 0.4 million to Rs 0.7 million. The

removal of tax relief on investments in unit trusts in the

2006 budget had an adverse effect on the sales of new

units but strategies are being developed by the Capital

Markets team to increase the profile and distribution of

the funds.

MCB Properties Ltd.

This subsidiary essentially owns a number of buildings

housing banking premises of the MCB Group. Profit for

the year to 30 June 2007 was Rs 5.3 million excluding an

amount of Rs 21.5 million representing profits realised

on the sale of properties during the year but which were

accounted for in the 2005/06 accounts as negative goodwill

arising on acquisition.

Blue Penny Museum

This company, which runs the museum located in the Caudan

Waterfront, has been funded by a capital contribution of

Rs 1 million and shareholders’ loans of Rs 21.9 million from

the MCB. It is not structured as a profit making entity but

represents part of the Group’s contribution to the safeguard

and protection of the national heritage.


MCB Factors Ltd.

MCB Factors Ltd. has recorded an important increase

in activity over FY 2006/07 culminating into a profit of

some Rs 26 million. MCB Factors Ltd. provides a full

sales ledger administration service to its customers

inclusive of funding against assignment of their trade

receivables. The services provided greatly facilitate

clients’ administration of their credit sales ledger while

simultaneously providing much needed cash to manage

their business and meet their financial commitments.

Over FY 2007/08, it is expected that MCB Factors Ltd. will

increase its range of services to cater more systematically

to the needs of the export market as well as to offer full

factoring domestically.


Following the buy-back by this company of the 14% stake

previously held by Lloyds TSB Bank plc and the subsequent

cancellation of the shares, Fincorp Investment Ltd., in which

MCB previously owned 49.5% of the share capital, has now

become a subsidiary of MCB, with the latter holding 57.6%

of Fincorp’s capital.

Fincorp again had a very good year, with consolidated

profits reaching Rs 300 million, a jump of 51% over the

year. Fincorp’s main investments performed well. Finlease,

a 100% subsidiary of the company, providing leasing

services, posted a profit of Rs 48.4 million, slightly lower

than that of the previous year. This result, deemed to be

satisfactory by the Board, was achieved in an increasingly

competitive environment and an unfavourable market for

interest rates. Lease receivables grew by some 20% during

the year to reach Rs 1,844 million as at 30 June 2007.

Indications for the coming year point towards a double

digit growth in assets and results.

Promotion and Development (PAD), an associate in which

Fincorp has a stake of 46.4%, achieved a remarkable

performance for the current year, with attributable profits

growing by 69% to reach Rs 489 million at 30 June 2007.

While operating results were similar to those of 2005/06,

this year’s profits were boosted by realised profits on sale of

equities and by a substantial rise in the contribution from

Médine Sugar Estate, a 30% associate company of PAD.

The buy-back of the Lloyds TSB Bank plc shares, which cost

Fincorp Rs 203 million, was partly financed by the sale of

certain non-core investments, this operation generating a

profit of Rs 46.2 million in the books of Fincorp. The Group

share of this profit was cancelled on consolidation, the

investments sold having been purchased by the MCB Equity

Fund, a wholly owned subsidiary of MCB.

Net asset value per share of Fincorp at year end was

Rs 29.78, an increase of 21% over the year. While the

shares are still traded at a discount of some 35% to book

value, there has been a major adjustment to prices since

30 June 2006, with some value unlocked to shareholders,

mainly following the announcement of the purchase of

Lloyds TSB Bank plc shares in September 2006.

Associated Companies

Banque Française Commerciale Océan Indien (BFCOI)

The activities of this associate, a joint venture with Société

Générale, have progressed in a very satisfactory manner. It

is constantly gaining market share in Reunion Island, its

principal place of business, through an expanding branch

network and dynamic marketing of an increasing range of

products, while operating costs are being well contained.

Loans to customers have reached EUR 990 million as at

30 June 2007, a growth of 24% over a year.


6 8 A N N U A L R E P O R T 2 0 0 7

Results for the calendar year 2006 were, at EUR 10.8

million, 22% up over 2005 and the first six months of 2007

have been equally satisfying with profits after tax reaching

EUR 6.1 million. Contribution to MCB’s Group profits for

the year to 30 June 2007 amounted to Rs 241 million, a

progression of 24.8% over the previous year.

Prospects for the coming years are good. However, BFCOI’s

growth could be curtailed by the severe capital ratio

imposed upon it by the French regulatory authorities. While

it is true that the Bank’s capacity to lend is restricted by this

obligation to maintain inordinately high levels of capital,

the Board of BFCOI remains confident that the imposed

capital adequacy ratio will be brought down to levels more

in line with international practice and corresponding to the

Bank’s risk profile.

Capital StructureIn line with its objective of enhancing shareholder value, the

MCB proceeded, during the financial year under review, with

the buy-back of 31.7 million shares held by Lloyds TSB Bank

plc at a price of Rs 45 per share, representing a significant

discount on the then ruling market price. The deal was

completed as a ‘block trade’ in December 2006 and the shares

were subsequently cancelled. In parallel, in October 2006, the

Bank launched a programme to raise finance on the Bond

Exchange of South Africa for an amount of ZAR 1.0 billion. The

initial bond issue amounted to ZAR 350 million, which was

entirely swapped in US dollars, in the form of subordinated

debt which qualified for Tier 2 supplementary capital. The

bond issue gave a new access to international markets and

raised the profile of MCB and Mauritius within the Southern

African Development Community (SADC) region.

During 2007, the Bank introduced the Employee Share Option

Scheme, thereby providing an opportunity to all employees to

share in the growth and prosperity of the MCB and fostering

congruence with organisational goals. The shares were issued

from the Treasury shares bought back over the last 3 years

under the share buy-back programme. Out of the 529,718

options granted, staff have so far exercised 298,102 at prices

ranging from Rs 75.00 to Rs 86.50.

Whilst promoting the interest of its stakeholders, the MCB

continues to maintain its capital structure within prudential

and supervisory limits. Regulatory requirements with respect

to banks’ capital structure in Mauritius are set by the Bank

of Mauritius through its Guidance Notes on Risk-Weighted

Capital Adequacy Ratio, which adapts the substance of

the 1988 Basel Capital Accord to the local banking sector.

Based on the Accord, capital adequacy is gauged by the ratio

of the sum of the risk-weighted assets and risk-weighted

off-balance sheet exposures of a bank to the latter’s capital

base. Whilst the Basel Committee has set the minimum

capital adequacy ratio at 8%, national authorities have

some leeway in fixing higher levels and the Bank of Mauritius

has set the lower limit for this ratio at 10%.

For the purpose of assessing capital adequacy, capital is

divided into Tier 1 (core) Capital and Tier 2 (supplementary)

Capital. Tier 1 Capital, which consists primarily of share

capital, additional paid-in capital, retained earnings and

hybrid capital components, provides the most stable and

readily available support to a bank against unforeseen

losses. Tier 2 Capital is less permanent in nature,

consisting primarily of profit participation rights, long-term

subordinated debt, unrealised gains on listed securities

and other inherent loss allowances.

Subsequent to the intensive consultative process triggered

by the objective of revising the capital adequacy framework

towards further strengthening the soundness and stability


of the international banking system, the New Capital Accord

(Basel II) was released by the Basel Committee on Banking

Supervision on 26 June 2004. Whereas the 1988 Basel

Capital Accord focuses on the capital base of banks, Basel II

emphasises the measurement and management of key

banking risks including credit risk, market risk and operational

risk. As such, it is meant to better reflect the underlying

risks in banking and is thus expected to foster stronger risk

management practices within the banking industry. The risk

management framework proposed in Basel II seeks to ensure

that the strategies formulated by a bank are clearly linked to

its appetite for risk, so that its capital resources are managed

at an optimum level to support both its risk and strategic

objectives. Basel II is anchored on three pillars, namely:

Pillar 1: minimum capital requirements - Whilst key

elements of the 1988 Accord have been retained with

respect to capital adequacy namely the general requirement

for banks to hold total capital equivalent to at least 8% of

their risk-weighted assets, the revised framework entails

significantly more risk-sensitive capital requirements that

are both conceptually sound and adaptable to the existing

supervisory and accounting systems in individual member

countries. Modifications to the definition of risk-weighted

assets have two primary elements: substantive changes

to the treatment of credit risk relative to the 1988 Accord

and the introduction of an explicit treatment of operational

risk that leads to a measure of this category of risk being

included in the denominator of the calculation of the capital

ratio. Another major feature of Basel II is that it enables a

greater use of internal risk assessments by banks.

Pillar 2: supervisory review process discusses the key

principles of supervisory review, risk management guidance

and supervisory transparency and accountability produced

by the Committee with respect to banking risks. This includes

guidance relating to the treatment of interest rate risk in

the banking book, credit risk, operational risk and enhanced

cross-border communication and co-operation. In addition

to ensuring that banks have adequate capital to support all

the risks in their business, the supervisory review process

of the New Accord aims at encouraging them to develop

and use better risk management techniques. The forward-

looking approach to capital adequacy supervision fostered

by Basel II should facilitate subsequent adjustments to the

framework to reflect market developments and advances in

risk management practices.

Pillar 3: market discipline is intended to complement

the minimum capital requirements (Pillar 1) and the

supervisory review process (Pillar 2) through the alignment

of supervisory disclosures to international and domestic

accounting standards. Basel II endeavours to foster market

discipline by developing a set of disclosure requirements

which will allow market participants to assess key pieces

of information on the scope of application, capital, risk

exposures, risk assessment processes and, hence, the

capital adequacy of the institution. It is deemed that such

disclosures have particular relevance under the revised

framework, given that increased reliance on internal

methodologies gives banks more discretion in assessing

capital requirements.

While promoting improvements in risk management and

regulatory capital allocation, the new capital adequacy

framework poses significant implementation challenges

for both supervisors and banks. Nonetheless, conscious of

the importance of good risk management, the MCB stepped

up its efforts to ensure compliance with the best practices

in this area and achieved, by the beginning of the second

quarter of 2007, a satisfactory state of readiness in the

implementation of the Basel II Standardised Approach


7 0 A N N U A L R E P O R T 2 0 0 7

to credit risk, operational risk and market risk. This has

enabled the Bank to promote enhanced risk awareness

at all levels of the organisation and to align its minimum

capital requirements more closely to the specific risks.

Capital allocation has, as a result, become more sensitive

to risk and reflects an enhanced assessment of return

against risk, thus further improving the strategic decision-

making process.

The table below shows the components of Tier 1 and Tier 2 Capital for the Bank and the capital adequacy ratios for both the

Bank and the Group.

June 07Rs m

June 06Rs m

June 05Rs m

I: CAPITAL BASE

Paid up or assigned capital 2,504 2,821 2,821

Share Premium 16 0 0

Statutory Reserve 2,083 1,832 1,583

General Reserve 0 165 165

Other disclosed free reserves, including undistributed balance in Income Statement 3,772 3,937 3,213

Current year's retained profit 1,198 1,038 973

Fully paid bonus shares issued by capitalising property revaluation reserves -966 -966 -966

Share buy-back: Treasury Shares -384 -393 -393

TIER 1 Capital (A) 8,223 8,434 7,396

Reserves arising from revaluation of fixed assets 0 0 0

Reserves arising from revaluation of investments 740 335 256

Subordinated debt 1,411 0 0

Fully paid bonus shares issued by capitalising property revaluation reserves 966 966 966

TIER 2 Capital (B) 3,117 1,301 1,222

TOTAL (GROSS) CAPITAL A+B 11,340 9,735 8,618

Investments in banking subsidiaries and associates in Mauritius and overseas -893 -893 -893

Lending to subsidiary and associate banks in Mauritius or overseas -428 -400 -359

Other deductions -22 -22 -22

TOTAL (NET) CAPITAL 9,996 8,420 7,344

II: WEIGHTED RISK ASSETS

Weighted amount of on-balance sheet assets 65,317 56,911 52,440

Weighted amount of off-balance sheet exposures 8,364 8,071 6,294

Weighted risk assets for operational risk 6,648 6,133 5,920

Aggregate net open foreign exchange position 6 538 278

TOTAL WEIGHTED RISK ASSETS (BANK) 80,335 71,653 64,932

TOTAL WEIGHTED RISK ASSETS (GROUP) 91,966 78,476 71,293

III: B.I.S RISK ADJUSTED RATIO

BANK 12.44 11.75 11.31

GROUP 15.65 15.24 13.88


Risk Weighted On-Balance Sheet Assets Jun-07 Jun-06 Jun-05

Amount (Rs m)

Weight (%)

Weighted Amount (Rs m)



Cash, balances with the central bank, holdings of Govt. of Mauritius and Bank of Mauritius securities, and claims guaranteed or collateralised by such securities 16,455 0 0 0 0

Claims on central governments and central banks 1,086 0-100 1,086 764 893

Cash items in the process of collection 381 20 76 93 59

Claims on banks 12,173 20-100 2,857 1,742 471

Residential mortgages 6,279 50 3,139 2,759 2,119

Claims on non-bank private sector 47,973 100 47,973 43,235 41,262

Investments in corporate shares and securities 6,136 100 6,136 4,695 4,286

Other assets 4,048 100 4,048 3,623 3,350

65,317 56,911 52,440

Risk Weighted Off-Balance Sheet Exposures Jun-07 Jun-06 Jun-05

Nominal Amount (Rs m)

Credit Conversion Factor (%)

Credit Equivalent

Amount (Rs m)

Weight (%)




Financial guarantees 2,007 100 2,007 0-100 1,170 1,840 1,674

Acceptances 0 100 0 0-100 0 0 0

Other guarantees 8,524 50 4,262 0-100 4,220 3,396 2,984

Documentary credits 4,269 20 854 20-100 791 594 529

Outstanding loans commitment 4,367 50 2,183 100 2,183 2,242 1,107

8,364 8,071 6,294

Risk Weighted Assets for Operational Risk (Rs m) Jun-07 Jun-06 Jun-05

Average gross income for last 3 years 4,432 4,190 3,946

Capital charge (15%) 665 613 592

Equivalent Risk Weighted Assets 6,648 6,133 5,920

Risk Weighted Assets and Off-Balance Sheet Exposures


7 2 A N N U A L R E P O R T 2 0 0 7

Risk ReportA significant milestone was reached in April 2007 when

MCB announced that it had achieved a satisfactory state

of readiness under the Basel II Standardised Approach.

In addition, significant improvements have been made

in the areas of Physical Security and IT access controls

as well as in Business Continuity Planning. Besides, the

Group Risk SBU has been reorganised with effect from

1 July 2007 notably to facilitate the implementation of

Basel II.

Basel II

Adherence to the principles of the Basel II Standardised

Approach has contributed to enhanced risk management

through the implementation of robust policies in the areas

of credit risk, operational risk and market risk of the Bank.

Regarding the overseas subsidiaries within the MCB Group,

the Basel II Standardised Approach is to be adopted for

credit and market risk. The overseas subsidiaries will

however initially be adopting the Basic Indicator Approach

for Operational Risk.

Approach To Credit Risk

The Bank has adopted the Standardised Approach to

credit risk, including the Simple Approach to Credit

Risk Mitigation and the Current Exposure Method for

Counterparty Credit Risk. The MCB has commenced

efforts to develop the capacity to progress towards the

Internal Ratings-Based (IRB) Approach for Credit Risk

in line with the New Basel Capital Accord and is also in

the process of implementing Moody’s Financial Analyst

for the assessment of the credit ratings of its corporate

customers. The use of historical internal ratings and

default data will enable the Bank to estimate the

probability of default as required in the measurement of

credit risk according to the IRB method.

Approach To Operational Risk

The Standardised Approach to operational risk has allowed

the Bank to classify its activities in the eight business lines

defined by the guidelines – that is, Corporate Finance, Trading

and Sales, Retail Banking, Commercial Banking, Payment

and Settlements, Agency Services, Asset Management

and Retail Brokerage – allowing it to calculate capital

adequacy in accordance with the Standardised Approach.

The staff of the Bank have also received comprehensive

training on processes and procedures for operational risk

management and successfully embraced the changing

culture of risk awareness, ensuring that operational risk is

being adequately addressed.

Approach To Market Risk

The MCB has the ability to fully comply with the major

requirements set out in the Proposal Paper on Measurement

and Management of Market Risk published by the Bank of

Mauritius in January 2007. Whilst broadly in line with the

Market Risk Amendment, the Paper also specifies a level of

trading book significance for market risk capital reporting

under the trading book rules, and allocates specific attention

to the assessment of capital to support interest rate risk in the

banking book. The MCB policy is to ensure that its exposure

both to interest rate risk in the banking book (and across the

combined banking and trading books) and to liquidity risk is

included in the risk monitoring and reporting framework to

Senior Management and relevant Board Committees.

Group Risk Structure

The Group Risk SBU has undergone a number of changes

to focus even better on Credit Risk, Operational Risk and

Market Risk with effect from 1 July 2007. The change in the

Group Risk structure aims at facilitating the implementation

of the Basel II Risk framework which will further involve

systematic changes in the Bank’s policies, procedures


and systems as well as ongoing refinements in the capital

allocation among these three main risk categories.

With effect from 1 July 2007, the Heads of Group

Compliance BU (which includes AML/Fraud Prevention),

Information Security Management and Legal report to the

Chief Executive (Group) on Group matters and to the Chief

Executive (Banking) on Bank matters. The Head of Security

reports to the Chief Executive (Banking) in order to enable

a closer alignment of the security function between the

development of the Bank and the identification of security

risks. Besides, the Head of Group Compliance still has

direct access to the Risk Monitoring Committee.

Group Internal Audit SBU will, as was the case previously,

continue to report directly to the Audit Committee whilst

ensuring that all internal audit reports are submitted to

both General Management and to Business Units Heads for

their input in relation to issues requiring attention.

A new Risk, Compliance, Legal and Security Committee has

also been established under the chairmanship of the Chief

Executive (Banking) and meets monthly to ensure that

there exists proper communication between the various

risk functions.

Risk Monitoring Committee (RMC)

The RMC has principal responsibility for the monitoring of

the risk portfolios at the Bank, set against the agreed risk

appetites. This committee comprises three independent

non-executive directors, two executive directors and the

Head of Group Risk and meets on a regular basis to ensure

an effective link between the Board and the day-to-day

operations of the Bank.

Group Compliance

ISMPhysical Security

Legal

Board

Supervisory and Monitoring Committee Audit Committee

Group Internal Audit SBU

Group Risk SBU General Management

Credit Risk Market RiskOperational

Risk


Risk Management Structure


7 4 A N N U A L R E P O R T 2 0 0 7

Credit Risk

Credit Risk is defined as ‘the risk of loss arising from the

non-performance by a customer, client or counterparty in

any of its financial obligations towards the MCB ’.

Credit Risk Governance

In order to provide for a proper and prudent segregation of

duties within the credit risk management architecture of

the MCB in accordance with applicable regulation and best

practice, executive responsibility for credit risk management

is delegated by the Supervisory and Monitoring Committee

(SMC) to the Chief Executive (Banking).

The SMC is the nominated Board committee responsible

for the normal chain of operational command and control

delegated to line management in respect of credit risk

through the promulgation of a comprehensive credit policy.

As regards the responsibility of the RMC in respect of credit

risk, one of its primary functions is the independent review

and reporting to the Board on the implementation of related

management policy and its effects upon relevant portfolios

of the MCB.

Thus, the Board of the MCB has ultimate control and

oversight of credit risk management as well as of credit risk

policy and its deployment via the SMC, the Chief Executive

(Banking) and the Executive Credit Committee. It also has

access through the RMC to analysis and reporting from a

source which is functionally independent from the risk-

taking business units.

Credit Risk Management

The comprehensive credit risk management practices within

the MCB form an integral part of its business activities,

aiming at maximising business opportunities with its

customers whilst following the prudent and consistent

credit policies of the Bank. The effective identification,

measurement, monitoring and control of the credit risk

associated with the Bank’s lending activities extensively

contribute towards maintaining the credit exposures

within the parameters set by the Group Credit Risk Policy’s

approach to risk management.

An effective dual control structure to authorise

transactions in excess ensures that the Bank’s exposure

to credit risk is closely monitored. The well established

delegation powers and the comprehensive credit policies

of the Bank ensure that credit decisions are conducted

through a sound credit process and in the best interest

of shareholders, in line with the Bank’s risk appetite and

required return on capital.

Credit Risk Measurement

The MCB has adopted the Standardised Approach to

calculate its credit risk capital, whereby appropriate risk

weights are applied to the on-balance and off-balance

sheet exposures in line with the Guideline on Standardised

Approach to Credit Risk issued by the Bank of Mauritius

and as required by the New Basel II framework. The eligible

collaterals are used to reduce the credit risk capital

required by the Bank accordingly.

The RMC is responsible to carry out a regular review of

the credit risk capital reports to monitor the utilisation of

capital against the Bank’s risk appetite. The RMC’s role

is also to ensure that the Group has adequate capital

at all times to provide for its growth and to support

unexpected losses. Any significant departure from the

set allocation and from the budgeted return on capital

having a negative impact on the Bank is escalated to the

appropriate Board committees.


Credit Risk Mitigation

The MCB uses appropriate forms of risk mitigation to

reduce or transform risk exposures. Accepted credit

risk mitigation techniques used within the MCB include

security/collateral, netting, guarantees and credit

derivatives, all of which contribute to a reduction in the

MCB’s credit risk for any exposure where such instruments

are available. The credit risk mitigation instruments are

evaluated periodically to ensure their continuing validity

and value.

Credit Risk Concentration

Credit risk concentrations involve large exposures to groups

of connected clients. These groups refer to companies

which are legally or economically connected in such a way

that individual borrowers within the group would encounter

repayment problems if a single one of them encountered

financial difficulties.

The MCB’s credit portfolio is diversified by industry and the

Bank regularly monitors the credit risk concentration to

ensure that its risk-bearing capacity is not endangered.

Country Exposure Limit Model

Country risk refers to the financial risks relating to the

political, economic, or social instability of the country of the

borrower. Increased lending to borrowers in a given country

can lead to correspondingly high losses for the Bank if

country risks materialise. The MCB therefore endeavours to

limit its risk exposures to any single country according to its

risk appetite for international exposures.

In line with the strategy to increase its regional presence,

the MCB has developed a new country exposure limit model

to measure, monitor, and control country risk exposures

in a timely manner. The risk appetite for the country

exposure limit is approved annually by the SMC, but may

be adjusted during the year to reflect new opportunities

and changes in the countries’ risk profile, in consultation

with the Strategy, Research and Development SBU and the

Group Risk SBU. The explicit formulation of such a risk

strategy aids in the early detection of deviations from

the planned course and in initiating the corresponding

countermeasures in a timely manner.

Operational Risk

Operational risk is defined as ‘the risk of loss resulting from

inadequate or failed internal processes, people and systems

or from external events’.

Operational Risk Management

The management of operational risk is, explicitly or

implicitly, a strategic component of organisational

performance. As the business activities of the MCB

grow in diversity and sophistication, the set of varied

accompanying risks require the Bank to reinforce its

operational risk strategy. This involves the prompt

identification, assessment, review and control of

operational risk through strengthened policies and

procedures, standards of business ethics and systems of

internal control.

The adoption of the principles of the Basel Accord has been

instrumental in heightening the awareness and the need

for a more comprehensive approach to the management of

operational risk.

Operational Risk Governance

The operational risk framework emanates from explicit

principles of governance defined by the Board and operates

under an overarching set of standards delineated within the

Group Operational Risk Policy.


7 6 A N N U A L R E P O R T 2 0 0 7

The ongoing oversight of operational risk at Group level is

exercised by the Operational Risk and Compliance Committee

(ORCC), chaired by the Chief Executive (Banking). Regular

operational risk reports submitted to ORCC highlight the

status of the Bank’s operational risk profile, historical

losses and the control environment. The information from

ORCC is tabled at the RMC, which reports to the Board on

all risk issues that could have an impact on the operations

or reputation of the Bank.

Operational Risk Framework

The operational risk management framework ensures the

consistent and comprehensive identification, assessment,

monitoring, controlling and mitigation of operational risks,

including through appropriate insurance.

The framework supports the enhanced knowledge sharing

of significant aspects of operational risk and provides

heightened potential for both risk and loss reduction.

Process improvement through quality management,

robust disaster recovery plans and business continuity

management, as well as tighter controls of outsourcing

are important levers within the MCB in its search for

positive results. In addition, ongoing communication and

training help to foster an appropriate operational risk

awareness culture.

The qualitative requirements of the operational risk

framework encompass better and improved risk

identification, risk management and the establishment

of a sound system of internal controls. The quantitative

criteria include capital calculation and systematic bank-

wide collection of loss data.

The responsibilities of the independent operational risk

functions, in addition to monitoring and oversight, include:

• theset-upofacentralisedoperationalincidentandloss

database and the extraction of management reports

identifying failures in or improvements to processes

and controls;

• the bank-wide identification and management

of operational risk through risk and control self-

assessments; and

• theidentification,monitoringandreportingofasetof

Key Risk Indicators.

Business Continuity Management

The MCB is actively establishing and updating plans

for ensuring the continuity of business in the event of a

significant disruption, leading to the reduction in the risk of

interruption of services. It has, with the help of consultants,

successfully delineated and identified the key activities,

functions and resources to support the essential features

for comprehensive and effective business continuity plans.

Market Risk

Market Risk is defined as ‘the risk of gain or loss arising from

activities undertaken in, or impacted by, financial markets

generally. This includes both ‘Market Price Risk’ as well as

ancillary risk such as liquidity and funding (liability) risk’.

The framework for market risk is set out by the Group Market

Risk Policy (GMRP), which is a Board-approved sub-policy

of the Group Risk Policy. The GMRP covers the policies,

principles and main functional responsibilities in relation

to the management of market risk to be applied within the

MCB Group.


Market Risk BU

Within the Group Risk SBU, the Market Risk BU (MRBU)

acts as the primary risk control and risk-monitoring

function related to market risk activities on behalf of the

MCB. The core function of MRBU is to exercise overall

control and monitoring of market risk (including credit

and operational risk arising from market risk activities)

within the MCB, collate market-risk related information

from overseas subsidiaries and non-bank financial

services activities of the Group. It also plays an important

role in assisting with the provision of balance sheet and

market risk analysis information to the Asset and Liability

Committee (ALCO).

Asset And Liability Committee

The purpose of ALCO is to ensure that the overall asset/

liability and market risk mix, within the MCB, including

its subsidiaries, is constantly managed within limits set

by the GMRP, and in accordance with guidelines laid down

by the Bank of Mauritius. Further, its purpose is to identify

new areas of risk which might appear, either to exploit

such risks for profit or to manage any potential negative

impact on the business.

ALCO is chaired by the Chief Executive (Banking) and is

attended by key members of Senior Management. Timely

and diverse information on such aspects as market risk and

balance sheet management is provided by the reporting

team from the Finance SBU and Market Risk BU. In addition,

the reporting of the capital requirement for Market Risk is

done to the RMC on a monthly basis.

Interest Rate Risk

Interest rate risk is defined as ‘the exposure of the Bank’s

financial condition to adverse movements in interest rates’.

One of the main sources of interest rate risk arises due

to timing differences between the interest reset dates of

bank assets, liabilities and off-balance sheet positions.

The MCB manages interest rate risk in the trading and

non-trading books (i.e. across the whole balance sheet)

by setting Gap and Cumulative Mismatch targets based

on a maturity/repricing schedule. The purpose of these

targets is to set benchmarks within which it is intended

to limit the amount of interest rate exposure at different

points in the interest rate maturity spectrum.

The interest rate (repricing) risk exposure arising within the

banking book is monitored by MRBU and the consolidated

information reported to ALCO on a regular basis.

Foreign Exchange Risk

Foreign exchange risk is defined as ‘the risk that the Bank’s

foreign currency positions will be adversely affected with

the movements in exchange rates between one currency

and another’.

The MCB manages foreign exchange/currency risk (FX

risk) as a whole, whether arising from its day-to-day

trading decisions or embedded within the balance sheet.

For trading activities involving FX risk, the MCB allocates

trading limits which specify the maximum trading

position. The foreign currency risk target structure for FX

risk in the balance sheet or otherwise from the general

banking activities within the Group across all currencies

and on a consolidated basis is formulated in terms of

both the official regulatory limit of Bank of Mauritius

and internal limit/target. Overall exposure to FX risk is

monitored on an ongoing basis by MRBU for internal

reporting to ALCO.


7 8 A N N U A L R E P O R T 2 0 0 7

Liquidity Risk

Liquidity risk is defined as ‘the risk that, at any time, the

MCB does not have sufficient realisable financial assets to

meet its financial obligations as they fall due’.

The MCB Treasury BU is responsible for the day-to-day

management of liquidity risk, operating within targets and

limits as set and reviewed on a regular basis by ALCO and

approved ultimately by the Board.

The liquidity policy of the MCB, which is in line with the Bank

of Mauritius Guideline on Liquidity, is designed to ensure

that the Bank can meet its financial obligations as they fall

due in the normal course of business and that it maintains

an adequate stock of highly liquid assets to enable it to

meet unexpected funding needs at short notice. To these

ends, the MCB policy states three mutually reinforcing ‘lines

of defence’:

• Cash Flow Management - whereby the MCB manages

expected inflows and outflows of funds according to

their scheduled maturity by setting targets to manage

the maximum mismatch allowed between maturing

assets in different time-bands into the future.

• Liquid Assets Portfolio – whereby the MCB maintains

a stock of immediately realisable assets which it can

use to raise funds at short notice to meet unexpected

outflows of funds or to replace expected inflows of funds

which do not materialise for any reason.

• Diversification of Liability Base – whereby the MCB

maintains a spread of liabilities across different

categories of depositor, and fully exploits the funding

potential of the wholesale markets. Besides, the MCB

seeks to restrict its dependency on any one depositor by

capping its share of total deposits at 2%, in line with

Bank of Mauritius guideline.

Internal Audit

During the year under review, the Internal Audit function

of the MCB has undergone some important changes

particularly following the appointment, effective 1 January

2007, of a Head of Group Audit. In line with the National

Code of Corporate Governance, he reports to the Audit

Committee for direction and accountability and to Executive

Directors for administrative interface and support.

In fact, with a view to establishing a strategically focused

Internal Audit function, various initiatives have been taken.

These include:

• wideningthescopeanddepthoftheauditthrougha

risk based approach;

• facilitating business risks workshops throughout the

Group; and

• theuse of technology suchasComputer AidedAudit

Techniques (CAAT) and an audit automated software.

The testing and review of the internal control framework,

taking into consideration the work of other stakeholders

such as external auditors, is carried out based on an audit

plan approved by both Executive Directors and the Audit

Committee, designed to inter alia:

• assess the achievement of organisational objectives

and control adequacy thereof;

• evaluate the relevance, reliability and integrity of

management information;

• appraiseutilisationofresources;

• assessinventoryandsafeguardingofassets;

• ascertain the extent of compliance with established

policies, procedures and instructions and recommend

improvements thereto to prevent waste and fraud; and

• adviseinaconsultingcapacityonsystemsofcontrols

and other accounting and operational matters.


Results of audit assignments are distributed to the

relevant internal stakeholders as well as to the Executive

Directors using a much improved communication

protocol. Recommendations are presented to the Audit

Committee with clear indications of the status of their

implementations.

The necessary framework has been built during the past nine

months to enable this SBU to progressively position itself

as an ‘independent, objective assurance and consulting

activity designed to add value and improve an organisation’s

operations. It helps an organisation accomplish its objectives

by bringing a systematic, disciplined approach to evaluate

and improve the effectiveness of risk management, control,

and governance processes’ as per the Institute of Internal

Auditors’ recommendations.

Physical Security

Physical security relates to the safeguarding of employees,

customers and other assets, so far as is reasonably

practical, from potential risk or hazard at all times. The

cornerstone of security is people safety.

It is the MCB’s objective to provide appropriate levels

and standards of protection for people and assets to

either eliminate security risks or reduce their frequency of

occurrence and severity.

The Security BU assumes responsibility for Safety and

Health operations and a fully compliant programme is being

implemented. A staff and visitor access control operation has

been implemented in the MCB Centre and plans are on target to

further enhance the system. During the last financial year, the

Main Vault operation moved into custom-built accommodation

in the new Phase III development at the MCB Centre and new

security systems were incorporated into the design.

Security practices and procedures continue to be developed

and implemented in the branch and ATM network. CCTV

systems at 66 locations, monitoring activity at ATMs

and other strategic areas within the branch network, are

currently being installed.

The MCB’s declared priority of the preservation of life and the

protection of its assets is being achieved in a coordinated

and proactive manner by the anticipation of events in the

medium term; an ongoing programme to define risk and

identify threats, hazards and exposures; formalising and

implementing, on a phased basis, all practical safety

and security measures based on foresight and reasonable

care, the monitoring of adherence thereto; and a continual

re-assessment of security in relation to the operating

environment in light of changing conditions.

Information Security Management (ISM)

The ISM BU is assessing all information systems within the

MCB in order to obtain, per system, an information security

risk map. The internal security review is now a yearly exercise

and is currently underway for year 2007. Additionally, the

ISM BU has, through external suppliers, initiated external

security reviews of internet-exposed servers.

The business continuity process is on track and a Business

Continuity Management exercise that follows internationally

recognised best practices has been undertaken so as

to create Continuity Plans to provide an overall control

mechanism that will handle any disaster.

A complete review of the MCB’s main IT systems access

rights is underway. This exercise will be extended to all of

the MCB’s IT systems and aims to ensure that all accesses

to systems within the Bank are based on two standards of

practice: separation of duties and least privilege. Besides,


8 0 A N N U A L R E P O R T 2 0 0 7

a material blind spot identified during the course of the

year was expeditiously and comprehensively dealt with.

ISM has further enhanced its Information Security advisory

role and, as such, has been fully involved in major projects

undertaken by the MCB. In addition, briefing sessions have

been held to further upgrade the Information Security culture

within the organisation and, at the same time, to promote

the appropriate awareness of Information Security risks.

Compliance

Compliance risk is defined as ‘the risk arising from failure

to comply with all applicable laws, regulations, codes of

conduct and standards of good practice governing the

conduct of an organisation’s business in the countries in

which it operates’. It is a composite risk made up of the

risk of legal or regulatory sanctions, financial loss, or loss

to reputation. These risks are inter-related but for any

financial services group such as the MCB, reputational risk

is of particular concern.

Function and Process

It is the objective of the MCB’s compliance function to

provide adequate support to Management with a view to

ensuring that the business activities of the Group and that

of its employees are, at all times, compliant with all local

regulatory requirements and operate within international

best practice standards. As such, this function helps

to protect the reputation of the MCB and enables it to

demonstrate to regulators in all jurisdictions in which it

operates that it is a fit and proper operator.

Within the MCB Group, the Compliance function facilitates

the management of compliance risk by establishing

compliance policies and standards; providing an

independent reporting mechanism to the Board;

participating in the review and approval of new business

initiatives, products, services and systems; fostering good

relations with regulators; and assisting the establishment

of a homogeneous and coherent global compliance function

across all subsidiaries of the MCB Group. The key areas of

the MCB Group Compliance Coverage, in each jurisdiction

in which it operates, are the laws and regulations; codes

of conduct and good practice; key business ethics and

values; and reputational risk.

Compliance Assurance Process Under Basel

Prior to publishing its state of readiness to comply with the

Standardised Approach to credit, operational and market

risk in April 2007, the MCB’s compliance function validated

the Configuration Management Documents of each of the

Bank’s Basel work streams and performed the necessary

verifications as part of its Compliance Assurance process,

in line with the requirements of both Basel II and the Bank

of Mauritius.

Legal

The Legal SBU, spearheaded by the Group In-House Lawyer,

has been reorganised and is now fully operational. The

implementation of its main functions is already completed

and the centralisation of all legal matters which is one of

its key objectives has already been addressed. All legal

matters are directed exclusively to the Legal SBU through a

new streamlined process.

As a major supporting SBU to the lines of business, the

Legal SBU is present in the early stages of the strategic

decision-making process, thus facilitating the achievement

of the Bank’s business objectives by identifying high legal

risks, educating the business on potential legal risks

associated with new business transactions and managing

existing matters.


A particular responsibility of the Group Legal SBU is

also to extend the coverage and congruence of the legal

function across the MCB Group as well as the presentation

of bi-annual litigation returns from local and overseas

subsidiaries.

The Way ForwardThe vision statement of the MCB Group epitomises

its ambitions to create shareholder value through the

diversification of its financial services offerings and

regional expansion. In line with this objective and building

on the initiatives undertaken over the last years, the

Group will continue to reinforce its market positioning,

within an ever more competitive environment, by offering

quicker, cheaper and more comprehensive services to its

increasingly sophisticated customers domestically as well

as internationally. As such, efforts are being pursued to

consolidate the three pillars of service excellence: staff,

processes and information technology.

The MCB will continue to invest in human resource

development with focused initiatives in order to maintain

high quality standards and deliver to the expectations

of customers. This implies enhancing both soft skills

and technical training. In parallel, relevant professional

studies are being subsidised alongside the setting up of

a scheme to recruit promising graduate trainees. The MCB

remains an employer of choice and, as illustrated by the

successful launch of the Employee Share Option Scheme,

it will pursue its efforts to attract and retain talent while

promoting staff motivation through appropriate incentive

and reward schemes.

The review of business processes is geared towards

providing more user-friendly and cost-effective products

and services to customers within a modern, efficient and

risk-compliant set-up. A more differentiated approach is

being adopted across the business lines with emphasis on

product development and the upgrading of service delivery

capabilities. In this context, an ambitious programme

has been initiated within the retail network, which will

result into a clearer demarcation of service offerings for

the different customer segments. The development of

electronic delivery channels is an ongoing process with the

forthcoming deployment of more offsite ATMs, a revamped

cards offering and enhancements to mobile phone and

Call Centre services. In parallel, a new business model is

being investigated with a view to more clearly segregating

the Group’s front and back-office services and enhancing

customer experience at all contact points. Besides, the

MCB will shortly invest in the construction of one of the

most modern buildings in the region in the Ebène Cybercity

to accommodate most of its technologically-intensive

services and some staff training amenities.

Innovation has been a key element of the Group’s

development strategies as reflected by a string of market

firsts. Going forward, the setting up of a new core banking

system will greatly facilitate the upgrading of service

delivery both through the traditional and electronic

banking channels and increase ability to be proactive.

In effectively selecting a world class suite for its banking

services, careful attention has been paid to the need to

set up a system that will enhance product development

capabilities and give added flexibility to the business

lines in providing quick and cost-effective services

while facilitating data mining. The increased utilisation

of document scanning and electronic transmission

technologies with even greater emphasis on straight-

through processing will, in the wake of the core banking

system project, create more scope for enhanced service

and cost efficiency.


8 2 A N N U A L R E P O R T 2 0 0 7

As regards business development, whereas domestic

banking activities remain the mainstay of the Group’s

profitability, it is exciting to note that the local and

foreign subsidiaries are at the forefront of development

strategies and are showing excellent growth potential.

On the domestic front, increasing contributions to Group

earnings are expected to emanate from its leasing and

factoring arms as well as through Capital Markets.

While competition in the markets for financial products

and services is becoming increasingly intense, the

Group is confident that, with its staff commitment and

experience, it will build a strong value proposition for its

different customers. The forthcoming periods will be quite

challenging for the domestic subsidiaries with plans to

more effectively utilise existing and new delivery channels

notably through extensive communication and marketing

campaigns. In addition, the investment services offering

will be gradually tailored to better meet the needs of the

retail and corporate segments while being more readily

available via the Bank’s network.

On the international front, the Group has set challenging

goals to grow its asset portfolio within the parameters set

by the Board of Directors. This will require sustained efforts

to tap into business opportunities as they unfold in the

region and beyond and to consolidate market knowledge.

The setting up of the Maldives Branch and the opening

of the South African Representative Office are important

milestones in further developing the Group’s ability to

detect and exploit business development potential in

the region. In parallel, the synergistic potential between

the Head Office and the established foreign subsidiaries

is being boosted with ongoing exchanges aimed at

replicating product and service offering within the Group

based on specific local market potential. Another key

objective is to develop the MCB as a ‘bank for banks’

in the region with the provision of payment and other

back-office services to less well endowed regional and

African banks. In addition, the Group will capitalise on

its extensive relationship network, in particular that of its

correspondent banks, to take advantage of joint financing

opportunities. The regional expansion strategies will

undoubtedly necessitate a continued focus on building

credibility on the international scene.

The effective implementation of these strategies should

equip the Group with the necessary means to stand up to

the challenges lying ahead, in the process promoting the

interests of its stakeholders. Building on its robust financial

fundamentals and organisational capabilities, the MCB is

confident that, whilst broadening its regional activity, it can

make further strides in bolstering its standing as a prime

financial service provider and a key player in the socio-

economic development of the country.

Pierre-Guy NOEL

Chief Executive (Group)Antony R. WITHERS

Chief Executive (Banking)

Financial Statements

“ Income from foreign sources and non-bank operations contributed, for the first time, to more than 50% of consolidated profit.”

8 4 A N N U A L R E P O R T 2 0 0 7


The Group Financial Statements and the Financial Statements for the Bank’s operations in Mauritius presented in this report have been

prepared by Management, which is responsible for their integrity, consistency, objectivity and reliability. International Financial Reporting

Standards as well as the requirements of the Banking Act 2004 and the guidelines issued thereunder have been applied for the year ended

30 June 2007 and Management has exercised its judgement and made best estimates where deemed necessary.

The Bank has designed and maintained its accounting systems, related internal controls and supporting procedures to provide reasonable

assurance that financial records are complete and accurate and that assets are safeguarded against loss from unauthorised use or

disposal. These supporting procedures include careful selection and training of qualified staff, the implementation of organisation and

governance structures providing a well-defined division of responsibilities, authorisation levels and accountability for performance, and the

communication of the Bank’s policies, procedures manuals and guidelines of the Bank of Mauritius throughout the Bank.

The Bank’s Board of Directors, acting in part through the Audit Committee, Conduct Review Committee and Risk Monitoring Committee, which

comprise, principally, independent directors who are not officers or employees of the Bank, oversees Management’s responsibility for financial

reporting, internal controls, assessment and control of major risk areas, and assessment of significant and related party transactions.

The Bank’s Internal Auditor, who has full and free access to the Audit Committee, conducts a well-designed programme of internal audits.

Pursuant to the provisions of the Banking Act, the Bank of Mauritius makes such examination and inquiry into the operations and affairs of

the Bank as it deems necessary.

The Bank’s external auditors, BDO De Chazal Du Mée, have full and free access to the Board of Directors and its committees to discuss the

audit and matters arising therefrom, such as their observations on the fairness of financial reporting and the adequacy of internal controls.

Statement of Management’s Responsibility for Financial Reporting

J. Gérard HARDY

DirectorPresident of the board

Bertrand DE CHAZAL

DirectorChairman Audit Committee

Pierre-Guy NOEL



8 6 A N N U A L R E P O R T 2 0 0 7

Report of the Auditors

To the Shareholders of the Mauritius Commercial Bank Ltd.Independent Auditors’ Report to the Members

This report is made solely to the members of The Mauritius Commercial Bank Ltd (the “Bank”), as a body, in accordance with Section 205 of

the Companies Act 2001. Our audit work has been undertaken so that we might state to the Bank’s members those matters we are required to

state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility

to anyone other than the Bank and the Bank’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Report on the Financial Statements

We have audited the financial statements of The Mauritius Commercial Bank Ltd and its subsidiaries (the “Group”) and the Bank’s separate

financial statements on pages 88 to 163 which comprise the balance sheets at June 30,2007 and the income statements, statements

of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other

explanatory notes.

Directors’ Responsibility for the Financial Statements

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial

position of the Group and of the Bank and for the preparation and fair presentation of these financial statements in accordance with

International Financial Reporting Standards and in compliance with the requirements of the Companies Act 2001 and Banking Act 2004.

This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of

financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting

policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with

International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The

procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Bank’s

preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the

appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating

the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion

In our opinion, the financial statements on pages 88 to 163 give a true and fair view of the financial position of the Group and of the Bank

at June 30, 2007, and of their financial performance and their cash flows for the year then ended in accordance with International Financial

Reporting Standards and comply with the Companies Act 2001.

Report on Other Legal and Regulatory Requirements

Companies Act 2001

We have no relationship with, or interests in, the Bank or any of its subsidiaries, other than in our capacity as auditors, tax and business

advisers and dealings in the ordinary course of business.

We have obtained all information and explanations we have required.

In our opinion, proper accounting records have been kept by the Bank as far as it appears from our examination of those records.

Banking Act 2004

In our opinion, the financial statements have been prepared on a basis consistent with that of the preceding year and are complete, fair and

properly drawn up and comply with the Banking Act 2004 and the regulations and guidelines of the Bank of Mauritius.

The explanations or information called for or given to us by the officers or agents of the Bank were satisfactory.

The Financial Reporting Act 2004

The directors are responsible for preparing the Corporate Governance Report and making the disclosures required by Section 8.4 of the Code

of Corporate Governance of Mauritius (“Code”). Our responsibility is to report on these disclosures.

In our opinion, the disclosures in the Corporate Governance Report are consistent with the requirements of the Code

BDO DE CHAZAL DU MEE

Chartered Accountants

Per Jacques Pougnet - FCA

28th September 2007Port LouisMauritius

8 8 A N N U A L R E P O R T 2 0 0 7

Balance Sheets as at 30th June 2007

GROUP BANK2007 2006 2005 2007 2006 2005

Notes Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000AssetsCash resourcesCash and balances with Central Banks 3 6,235,477 5,509,108 4,867,674 4,042,455 4,015,691 3,481,887Balances with banks and interbank loans 4 345,645 214,156 - 147,802 204,565 -Balances with banks abroad 4 9,863,254 6,480,484 1,073,063 9,987,990 6,622,201 1,044,609

16,444,376 12,203,748 5,940,737 14,178,247 10,842,457 4,526,496Securities and other investmentsSecurities 5 13,252,182 18,364,266 16,422,090 10,573,779 14,874,838 13,557,949Other investments - available-for-sale 7 3,535,001 1,824,931 1,148,290 1,334,009 622,177 745,207 - derivative financial instruments 7 23,795 16,125 28,102 23,795 16,125 28,102Investments in associates 8 5,281,108 3,256,832 2,318,127 875,530 872,151 830,802Investments in subsidiaries 9 - - - 2,126,099 1,766,732 826,959

22,092,086 23,462,154 19,916,609 14,933,212 18,152,023 15,989,019Loans Personal and credit cards 14,761,071 11,385,708 10,761,022 12,969,386 11,085,228 9,646,552Business 47,550,037 44,595,234 43,052,205 44,475,277 41,316,947 40,741,152Governments 126,636 6,366 16,619 - - -Entities outside Mauritius 6,652,786 5,736,880 4,434,864 6,652,786 5,736,880 4,556,394

69,090,530 61,724,188 58,264,710 64,097,449 58,139,055 54,944,098Less allowances for credit impairment (3,245,882) (3,358,912) (3,142,049) (3,158,304) (3,270,487) (3,061,816)

6 65,844,648 58,365,276 55,122,661 60,939,145 54,868,568 51,882,282OtherGoodwill and other intangible assets 10 288,302 354,111 326,200 229,201 314,138 288,337Property, plant and equipment 11 3,443,069 3,036,585 2,537,961 2,449,780 2,193,777 2,102,935Deferred tax assets 12 15,844 31,980 84,774 15,096 31,647 84,284Other assets 13 2,014,397 1,955,893 1,303,140 1,771,334 1,600,962 1,273,689

5,761,612 5,378,569 4,252,075 4,465,411 4,140,524 3,749,245110,142,722 99,409,747 85,232,082 94,516,015 88,003,572 76,147,042

The notes on pages 100 to 163 form part of these financial statements.Auditors’ report on pages 86 and 87.

Pierre-Guy NOEL




GROUP BANK2007 2006 2005 2007 2006 2005

Notes Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000Liabilities and Shareholders’ EquityDepositsPersonal 61,893,853 56,951,011 51,476,168 57,229,612 53,748,473 48,751,177 Business 20,973,361 17,801,612 15,613,470 16,418,950 13,709,024 12,263,458 Governments 758,576 1,449,191 1,088,671 252,469 753,478 233,749 Banks 1,531,833 993,046 735,568 1,536,428 997,600 735,568

15 85,157,623 77,194,860 68,913,877 75,437,459 69,208,575 61,983,952 BorrowingsBorrowings from the Bank of Mauritius 840,329 1,056,122 1,203,518 840,329 1,056,122 1,203,518 Borrowings from other banks in Mauritius

and banks abroad 3,938,310 5,184,415 2,187,721 4,284,574 5,380,538 2,260,531 Subordinated debt 1,411,108 - - 1,411,108 - -

14 6,189,747 6,240,537 3,391,239 6,536,011 6,436,660 3,464,049 OtherOther liabilities 16 3,475,399 3,245,244 1,928,998 2,918,087 2,671,798 1,688,215 Outstanding lease obligations 18 - 6,366 11,418 2,327 6,133 10,994 Proposed dividend - - 273,818 - - 273,818 Current tax liabilities 383,833 271,598 370,112 327,374 239,501 317,829 Deferred tax liabilities 12 21,732 616 5 - - -

3,880,964 3,523,824 2,584,351 3,247,788 2,917,432 2,290,856 Capital and reserves attributable to the ordinary equity

holders of the parentShare capital 19 2,503,756 2,821,105 2,821,105 2,503,756 2,821,105 2,821,105 Reserves and surplus 4,589,731 3,703,209 2,688,757 2,738,331 2,406,662 2,131,738 Retained earnings 6,765,698 6,203,437 5,116,005 4,436,959 4,605,968 3,847,881

13,859,185 12,727,751 10,625,867 9,679,046 9,833,735 8,800,724 Less treasury shares (384,289) (394,080) (393,789) (384,289) (392,830) (392,539)

13,474,896 12,333,671 10,232,078 9,294,757 9,440,905 8,408,185 Minority interest 1,439,492 116,855 110,537 - - - Total equity 14,914,388 12,450,526 10,342,615 9,294,757 9,440,905 8,408,185

110,142,722 99,409,747 85,232,082 94,516,015 88,003,572 76,147,042 Contingent LiabilitiesAcceptances, guarantees, letters of credit, endorsements

and other obligations on account of customers, and foreign exchange contracts 25,892,067 16,707,977 17,721,531 24,663,631 15,888,362 16,526,633

Commitments 4,487,776 4,622,812 2,288,704 4,366,559 4,484,731 2,213,040 Assets pledged against facilities granted by

the Bank of Mauritius - 1,014,515 970,680 - 1,014,515 970,680 Tax assessment 201,762 182,880 163,998 201,762 182,880 163,998 Other 1,071,586 782,368 888,792 995,853 765,011 874,372

20 31,653,191 23,310,552 22,033,705 30,227,805 22,335,499 20,748,723

These financial statements were approved for issue by the Board of Directors on the 28th September 2007.

J. Gérard HARDY

DirectorPresident of the board

Bertrand DE CHAZAL

DirectorChairman Audit Committee

9 0 A N N U A L R E P O R T 2 0 0 7

GROUP BANK2007 2006 2005 2007 2006 2005

Notes Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000Interest incomeInterest on loans 7,068,108 5,494,526 4,398,156 6,475,536 5,057,539 4,076,108 Interest on investment in securities 1,232,702 1,157,577 1,117,467 1,012,713 994,082 926,732 Interest on placements with other banks 637,596 254,336 156,871 579,994 211,544 118,268

21 8,938,406 6,906,439 5,672,494 8,068,243 6,263,165 5,121,108 Interest expenseInterest on deposits (4,889,524) (3,449,997) (2,569,000) (4,616,568) (3,296,931) (2,433,582)Interest on borrowings from banks and financial institutions (428,923) (350,365) (163,969) (418,632) (296,272) (152,734)Other interest expense (7,229) (12,889) (18,317) (6,457) (12,230) (17,516)

22 (5,325,676) (3,813,251) (2,751,286) (5,041,657) (3,605,433) (2,603,832)Net interest income 3,612,730 3,093,188 2,921,208 3,026,586 2,657,732 2,517,276 Other incomeFee income and commissions 23 1,108,301 835,757 695,075 839,650 716,235 606,709 Profit arising from dealing in foreign currencies 987,138 670,908 820,341 863,657 596,670 753,241 Share of income of associated companies 414,392 282,390 230,398 - - - Dividend income 23 82,713 58,829 49,739 221,374 149,875 233,219 Net gain on sale of securities 9,903 30,051 284 - 58,995 11,650 Other 50,439 41,275 50,271 4,464 10,283 28,408

2,652,886 1,919,210 1,846,108 1,929,145 1,532,058 1,633,227 Operating income 6,265,616 5,012,398 4,767,316 4,955,731 4,189,790 4,150,503 Non-interest expenseSalaries and human resource development (1,280,699) (1,122,296) (1,000,892) (1,166,005) (1,035,480) (907,518)Employee benefits (63,337) (67,782) (81,645) (63,337) (67,782) (81,645)Depreciation (303,730) (236,127) (193,521) (217,780) (192,736) (177,437)Amortisation of intangible assets (110,935) (97,178) (94,243) (106,003) (96,158) (93,858)Other (1,023,457) (834,453) (883,093) (720,655) (603,366) (697,145)

24 (2,782,158) (2,357,836) (2,253,394) (2,273,780) (1,995,522) (1,957,603)Operating profit before provisions 3,483,458 2,654,562 2,513,922 2,681,951 2,194,268 2,192,900 Allowance for credit impairment 25 (375,928) (320,154) (372,528) (370,598) (313,203) (359,280)Operating profit 3,107,530 2,334,408 2,141,394 2,311,353 1,881,065 1,833,620 Exceptional items - 78,675 - - 37,800 - Profit before tax 3,107,530 2,413,083 2,141,394 2,311,353 1,918,865 1,833,620 Income tax expense 26 (560,822) (399,632) (456,348) (389,932) (311,802) (349,360)Profit after tax 2,546,708 2,013,451 1,685,046 1,921,421 1,607,063 1,484,260 Impairment/amortisation of goodwill - - (5,867) - - - Profit for the year 2,546,708 2,013,451 1,679,179 1,921,421 1,607,063 1,484,260

Attributable to :-Ordinary equity holders of the parent 2,460,845 1,986,423 1,657,889 1,921,421 1,607,063 1,484,260 Minority interest 85,863 27,028 21,290 - - -

2,546,708 2,013,451 1,679,179 1,921,421 1,607,063 1,484,260

Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the parent after exceptional items (Rs) 29 9.74 7.40 6.16

Basic and diluted earnings per share for profit attributable to the ordinary equity holders of the parent before exceptional items (Rs) 29 9.74 7.11 6.16


Income Statements for the year ended 30th June 2007


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9

3,08

1 -

- 1

84,1

53

832

,946

1

,289

,822

2

,122

,768

Pr

ofit f

or th

e ye

ar -

- -

- -

- -

2,4

60,8

45

2,4

60,8

45

85,

863

2,5

46,7

08

Tota

l rec

ogni

sed

inco

me

for t

he ye

ar-

--

555

,712

9

3,08

1 -

-2,

644,

998

3,29

3,79

11,

375,

685

4,66

9,47

6Di

vide

nds

28 -

- -

- -

- -

(723

,335

) (7

23,3

35)

(33,

675)

(757

,010

)Tr

ansf

er to

gen

eral

ban

king

rese

rve

- -

- -

- -

622

(6

22)

- -

- Tr

ansf

er to

sta

tuto

ry re

serv

e -

- -

- -

250

,000

-

(250

,000

) -

- -

Shar

es b

ough

t bac

k an

d ca

ncel

led

by th

e Gr

oup

(317

,349

) -

1,2

50

- -

- -

(1,1

13,4

49)

(1,4

29,5

48)

(1,3

26)

(1,4

30,8

74)

Empl

oyee

sha

re o

ptio

ns e

xerc

ised

- 1

6,25

2 8

,541

-

- -

- -

24,

793

- 2

4,79

3 At

30t

h Ju

ne 2

007

2,5

03,7

56

16,

252

(384

,289

) 1

,517

,128

4

01,2

42

2,0

82,5

78

572

,531

6

,765

,698

13

,474

,896

1

,439

,492

14

,914

,388

The n

otes

on p

ages

100

to 1

63 fo

rm p

art o

f the

se fi

nanc

ial s

tate

men

ts.

Audi

tors

’ rep

ort o

n pa

ges 8

6 an

d 87

.

Statement of Changes in Equity for the year ended 30th June 2007

9 2 A N N U A L R E P O R T 2 0 0 7

Statement of Changes in Equity for the year ended 30th June 2007Sh

are

Shar

e Tr

easu

ryCa

pita

lSt

atut

ory

Gene

ral

Reta

ined

Tota

l C

apita

l P

rem

ium

S

hare

s R

eser

ve

Res

erve

B

anki

ng

Ear

ning

s Re

serv

eNo

teRs

’000

Rs’0

00Rs

’000

Rs’0

00Rs

’000

Rs’0

00Rs

’000

Rs’0

00BAN

KAt

1st

July

200

4 2

,821

,105

-

(350

,993

) 4

7,18

2 1

,332

,578

4

57,2

70

3,4

70,8

09

7,7

77,9

51

Effe

ct o

f IA

S 8

- -

- -

- -

(299

,950

) (2

99,9

50)

As re

stat

ed 2

,821

,105

-

(350

,993

) 4

7,18

2 1

,332

,578

4

57,2

70

3,1

70,8

59

7,4

78,0

01

Tran

sfer

on

disp

osal

of i

nves

tmen

ts -

- -

(11,

454)

- -

- (1

1,45

4)Fa

ir va

lue

gain

-

- -

9,8

22

- -

- 9

,822

Ne

t exp

ense

reco

gnis

ed d

irect

ly in

equ

ity -

- -

(1,6

32)

- -

- (1

,632

)Pr

ofit f

or th

e ye

ar

- -

- -

- -

1,4

84,2

60

1,4

84,2

60

Tota

l rec

ogni

sed

(exp

ense

)/inc

ome

for t

he ye

ar -

- -

(1,6

32)

- -

1,4

84,2

60

1,4

82,6

28

Divi

dend

s28

- -

- -

- -

(510

,898

) (5

10,8

98)

Tran

sfer

to g

ener

al b

anki

ng re

serv

e -

- -

- -

46,

340

(46,

340)

- Tr

ansf

er to

sta

tuto

ry re

serv

e -

- -

- 2

50,0

00

- (2

50,0

00)

- Pu

rcha

se o

f tre

asur

y sha

res

- -

(41,

546)

- -

- -

(41,

546)

At 3

0th

June

200

5 2

,821

,105

-

(392

,539

) 4

5,55

0 1

,582

,578

5

03,6

10

3,8

47,8

81

8,4

08,1

85

Tran

sfer

on

disp

osal

of i

nves

tmen

ts -

- -

(36,

571)

- -

- (3

6,57

1)Fa

ir va

lue

gain

reco

gnis

ed d

irect

ly in

equ

ity

- -

- 3

1,52

5 -

- -

31,

525

Net e

xpen

se re

cogn

ised

dire

ctly

in e

quity

- -

- (5

,046

) -

- -

(5,0

46)

Profi

t for

the

year

-

- -

- -

- 1

,607

,063

1

,607

,063

To

tal r

ecog

nise

d (e

xpen

se)/i

ncom

e fo

r the

year

- -

- (5

,046

) -

- 1

,607

,063

1

,602

,017

Di

vide

nds

28 -

- -

- -

- (5

69,0

06)

(569

,006

)Tr

ansf

er to

gen

eral

ban

king

rese

rve

- -

- -

- 2

9,97

0 (2

9,97

0) -

Tran

sfer

to s

tatu

tory

rese

rve

- -

- -

250

,000

-

(250

,000

) -

Purc

hase

of t

reas

ury s

hare

s -

- (2

91)

- -

- -

(291

)At

30t

h Ju

ne 2

006

2,8

21,1

05

- (3

92,8

30)

40,

504

1,8

32,5

78

533

,580

4

,605

,968

9

,440

,905

Fa

ir va

lue

gain

reco

gnis

ed d

irect

ly in

equ

ity

- -

- 6

5,41

7 -

- -

65,

417

Profi

t for

the

year

-

- -

- -

- 1

,921

,421

1

,921

,421

To

tal r

ecog

nise

d in

com

e fo

r the

year

- -

- 6

5,41

7 -

- 1

,921

,421

1

,986

,838

Di

vide

nds

28 -

- -

- -

- (7

23,3

35)

(723

,335

)Tr

ansf

er to

sta

tuto

ry re

serv

e -

- -

- 2

50,0

00

- (2

50,0

00)

- Sh

ares

bou

ght b

ack

and

canc

elle

d by

the

Bank

(317

,349

) -

- -

- -

(1,1

17,0

95)

(1,4

34,4

44)

Empl

oyee

sha

re o

ptio

ns e

xerc

ised

- 1

6,25

2 8

,541

-

- -

- 2

4,79

3 At

30t

h Ju

ne 2

007

2,5

03,7

56

16,

252

(384

,289

) 1

05,9

21

2,0

82,5

78

533

,580

4

,436

,959

9

,294

,757

The n

otes

on p

ages

100

to 1

63 fo

rm p

art o

f the

se fi

nanc

ial s

tate

men

ts.

Audi

tors

’ rep

ort o

n pa

ges 8

6 an

d 87

.


Cash Flow Statements for the year ended 30th June 2007

GROUP BANK2007 2006 2005 2007 2006 2005

Notes Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000Net cash flows from trading activities 31 3,365,649 3,615,927 2,264,230 2,898,742 3,216,461 2,042,806

Net cash flows from other operating activities 32 5,024,226 2,248,394 (2,807,184) 4,180,147 2,435,644 (2,642,806)

Dividends received from associates 11,898 45,235 48,049 - - -

Dividends paid (723,335) (842,824) (479,599) (723,335) (842,824) (479,599)

Dividends paid to minority shareholders in subsidiaries (33,675) (20,098) (19,547) - - -

Income tax paid (431,917) (447,467) (410,523) (285,508) (337,493) (301,248)

Net cash flows from operating activities 7,212,846 4,599,167 (1,404,574) 6,070,046 4,471,788 (1,380,847)

Investing activities

Purchase of investments (1,017,721) (688,991) (88,720) (648,052) (232,595) (40,950)

Proceeds from sale of investments 47,238 67,103 54,442 1,637 65,809 9,552

Investment in subsidiaries - - - (318,422) (515,001) (347,589)

Acquisition of subsidiary, net of cash acquired 34 (8,403) (25) - (11,425) (14,625) -

Purchase of property, plant and equipment (602,000) (493,473) (705,710) (477,319) (298,584) (322,581)

Purchase of intangible assets (33,471) (114,337) (235,328) (30,752) (111,142) (231,703)

Proceeds from sale of property, plant and equipment 83,600 1,880 18,322 8,000 4,722 8,000

(1,530,757) (1,227,843) (956,994) (1,476,333) (1,101,416) (925,271)

Net cash flows before financing 5,682,089 3,371,324 (2,361,568) 4,593,713 3,370,372 (2,306,118)

Financing

Purchase of treasury shares - (291) (42,796) - (291) (41,546)

Employee share options exercised 22,743 - - 22,743 - -

Subordinated loan to subsidiary - - - (4,785) (21,870) -

Proceeds from subordinated debt 1,474,126 - - 1,474,126 - -

Share buy back (1,430,626) - - (1,434,444) - -

Capital element of finance lease rental payments (1,835) (5,052) (7,092) (3,806) (4,861) (6,953)

64,408 (5,343) (49,888) 53,834 (27,022) (48,499)

Increase/(Decrease) in cash and cash equivalents 5,746,497 3,365,981 (2,411,456) 4,647,547 3,343,350 (2,354,617)

Cash and cash equivalents at 1st July 2006 5,963,211 2,549,498 5,002,507 4,405,797 1,062,447 3,417,064

Effect of foreign exchange rate changes (43,971) 47,732 (41,553) - - -

Cash and cash equivalents at 30th June 2007 33 11,665,737 5,963,211 2,549,498 9,053,344 4,405,797 1,062,447


9 4 A N N U A L R E P O R T 2 0 0 7

General Information

The Mauritius Commercial Bank Limited (“the Company”) is a public company incorporated by Royal Charter in 1838 and registered as

limited liability company on 18th August 1955. Its registered office is situated at 9-15, Sir William Newton Street, Port Louis, Mauritius.

The Mauritius Commercial Bank Limited was one of the first group of companies to be listed on The Stock Exchange of Mauritius.

The main activities of the Company and those of its subsidiaries (“the Group”) consist in providing a whole range of financial services in the

Indian Ocean region and beyond.


Index to Notes to the Financial Statements

1 Accounting Policies 100

(a) Basis of presentation

(b) Basis of consolidation

(c) Foreign currency translation

(d) Derivative financial instruments and hedging 101

(e) Offsetting financial instruments

(f) Interest income and expense

(g) Fees and commissions

(h) Sale and repurchase agreements

(i) Investment securities

(j) Trading securities 102

(k) Loans and provisions for loan impairment

(l) Goodwill

(m) Property, plant and equipment 103

(n) Computer software development costs

(o) Finance leases - where the company is the lessee

(p) Accounting for leases - where company is the lessor

(q) Cash and cash equivalents 104

(r) Provisions

(s) Employee benefits

(t) Deferred tax

(u) Borrowings

(v) Acceptances

(w) Segment reporting

Notes Pages

9 6 A N N U A L R E P O R T 2 0 0 7

continued


2 Financial Risk Management 105

(a) Strategy in using financial instruments

(b) Credit risk

(c) Market risk

(d) Currency Risk

- Concentration of assets, liabilities and off-balance sheet items 106-109

(e) Interest rate risk 109

- Interest sensitivity of assets and liabilities-repricing analysis 110-113

- Average interest rate by major currencies for monetary financial instruments 114

(f) Liquidity risk 115

- Maturities of assets and liabilities 115-118

(g) Fair values of financial assets and liabilities 118

3 Cash and balances with Central Banks 119

4 Due from other banks

5 Securities 120

6 Loans 121

(a) Loans comprise the following

(b) Remaining term to maturity

(c) Movements in allowances for credit impairment

(d) Allowances for credit impairment by industry sectors 122

(e) Credit concentration of risk by industry sectors 123

(f) Loans outside Mauritius

7 Other investments 124

(a) Available-for-sale

(b) Derivative financial instruments

8 Investments in associates 125

Notes Pages


9 Investments in subsidiaries 126

10 Goodwill and other intangible assets

(a) Goodwill

(b) Other intangible assets

11 Property, plant and equipment 127-129

12 Deferred tax (liabilities)/assets 130

13 Other assets

14 Due to other banks

15 Deposits 131

(a) Deposits comprise the following


16 Other liabilities

17 Employee benefits assets 132-133

18 Outstanding lease obligations 134

19 Share capital and treasury shares

20 Contingent liabilities 135

(a) Instruments

(b) Commitments

(c) Assets pledged against facilities granted by the Bank of Mauritius

(d) Tax assessment

(e) Other

Notes Pages

9 8 A N N U A L R E P O R T 2 0 0 7

continued


21 Interest income 136

22 Interest expense

23 Other income

(a) Fee income and commissions

(b) Dividend income

24 Non-interest expense 137

25 Allowance for credit impairment

26 Income tax expense 138

27 Prior year adjustment

28 Dividends

29 Earnings per share 139

(a) Basic earnings per share

(b) Diluted earnings per share

30 Capital commitments

31 Net cash flows from trading activities 140

32 Net cash flows from other operating activities

33 Analysis of the balances of cash and cash equivalents as shown in the Balance Sheets 141

34 Acquisition of subsidiary


35 Segment information 142

- Geographical segments 142-144

- Business segments 145-147

36 Related party transactions 148-149

37 Segmental reporting - Bank 150

Balance Sheets 150-151

Income Statements 152

(a) Securities 153-154

(b) Loans 155

(i) Remaining term to maturity

(ii) Credit concentration of risk by industry sectors

(iii) Movements in allowances for credit impairment 156

(iv) Allowances for credit impairment by industry sectors 157-160

(c) Other Assets 161

(d) Deposits

(i) Personal, business and governments

(ii) Banks

(e) Other liabilities 162

(f) Contingent liabilities

(i) Instruments

(ii) Commitments

(iii) Assets pledged against facilities granted by the Bank of Mauritius

(iv) Tax assessment

(v) Other

(g) Other income 163

(i) Fee income and commissions

(ii) Dividend income

(h) Allowance for credit impairment

1 0 0 A N N U A L R E P O R T 2 0 0 7

Notes to the Financial Statements for the year ended 30th June 2007

1. Accounting Policies

The principal accounting policies adopted in the preparation of these financial statements are set out below:

(a) Basis of presentationThe financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and instructions, Guidelines and Guidance notes issued by the Bank of Mauritius, in so far as the operations of the Bank are concerned.

Where necessary, comparative figures have been amended to conform with changes in presentation, or in accounting policies in the current year.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain property, plant and equipment, available-for-sale investment securities, financial assets and liabilities held-for-trading and all derivative contracts.

Certain standards, amendments to published standards and interpretations have been issued that are mandatory for accounting periods beginning on or after 1 January 2007 that the Group has not early adopted.

Except for IFRS 7, Financial Instruments Disclosures, the Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures (effective for annual periods beginning on or after 1 January 2007), and IFRS 8, Operating segments (effective for annual periods beginning on or after 1 January 2009), these standards, amendments and interpretations are not relevant to the Group’s operations.

IFRS 7, IFRS 8 and the Amendment to IAS 1 are disclosure requirements only and will not when adopted, affect the results of the Group.

(b) Basis of consolidation(1) SubsidiariesThe consolidated financial statements include the Balance Sheet of the Bank and that of its subsidiaries as at 30th June. Subsidiaries are those companies and other entities in which the Group, directly or indirectly, has power to exercise control over financial and operating policies.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated Income Statement from the date on which effective control is transferred to the Group, up to the date of their disposal which is the date on which the parent ceases to have control. The purchase method of accounting is used to account for the acquisition of subsidiaries. Intragroup balances, transactions, unrealised profits and losses are eliminated on consolidation.

In the separate financial statements of the Bank, the investment in subsidiaries is initially recognised at cost (which includes transaction costs). Subsequently, where the recoverable amount of the investment is less than the carrying value, an impairment loss is immediately recognised in the Income Statement.

(2) AssociatesInvestments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill. Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associates. The Group Income Statement reflects the Group’s share of post-tax profits of associates. It is not practicable for adjustments to be calculated in cases where the associates have used accounting policies other than those adopted by the Bank for like transactions and events in similar circumstances.

In the separate financial statements of the Bank, the investment in associated companies is accounted at cost (which includes transaction costs). The carrying amount is reduced to recognise any impairment in the value of the individual companies.

(c) Foreign currency translation‘The foreign subsidiaries’ Balance Sheets are translated to Mauritian Rupees using the closing rate method. Their Income Statements and cash flows are translated at the average rate for the year. Any resulting exchange differences are taken to the Translation Reserve. On disposal of a foreign entity, such exchange differences are recognised in the Income Statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Trading transactions denominated in foreign currencies are accounted for at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities expressed in foreign currencies are reported at the rate of exchange ruling at the Balance Sheet date. Differences arising from reporting monetary items are dealt with through the Income Statement.

T H E M A U R I T I U S C O M M E R C I A L B A N K L T D . 1 0 1

1. Accounting Policies (Continued)

(d) Derivative financial instruments and hedgingDerivative financial instruments include foreign exchange contracts and currency swaps. These are initially recognised in the Balance Sheet at cost (which includes transaction costs) and subsequently remeasured at their fair value. Fair values of derivatives between two external currencies are based on interest rate differential between the two currencies. Fair values of forwards involving Mauritian Rupees are based on treasury bills rate or LIBOR. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The Bank’s derivative transactions, while providing effective economic hedges under the Group’s risk management policies, do not qualify for hedge accounting under the specific rules of IAS 39 and are therefore treated as derivatives held for trading with fair value gains and losses reported in the Income Statement.

The fair values of derivative financial instruments held for trading are disclosed in note 7(b).

(e) Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

(f) Interest income and expenseInterest income and expense are recognised in the Income Statement for all interest bearing instruments on an accrual basis using the effective yield method based on the actual purchase price. Interest income includes coupons earned on fixed income investment and trading securities and accrued discount and premium on treasury bills and other discounted instruments. When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

(g) Fees and commissionsFees and commissions are generally recognised on an accrual basis when the service has been provided. Loan processing fees which are charged as a front end fee are taken directly to income.

(h) Sale and repurchase agreementsSecurities sold subject to linked repurchase agreements (“repos”) are retained in the Balance Sheet as Government securities and Treasury bills and the counterparty liability is included in amount due to other banks or deposits, as appropriate.

Securities purchased under agreements to resell (“reverse repos”) are recorded as amount due from other banks or loans and advances, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of repos agreements using the effective yield method.

(i) Investment securitiesThe Group classifies its investment securities as held-to-maturity or available-for-sale assets. Management determines the appropriate classification of its investments at the time of the purchase. Investment securities with fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classified as available-for-sale.

Investment securities are initially recognised at cost (which includes transaction costs). Available-for-sale listed financial assets are subsequently remeasured at fair value based on quoted bid prices. Fair values for unlisted equity securities are estimated using maintainable earnings or net assets bases refined to reflect the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment.

Held-to-maturity investments are carried at amortised cost using the effective yield method, less any provision for impairment.

A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset’s carrying amount and the present value of expected future cash flows discounted at the financial instruments original effective interest rate. By comparison, the recoverable amount of an instrument measured at fair value is the present value of expected future cash flows discounted at the current market rate of interest for a similar financial asset.

Interest earned while holding investment securities is reported as interest income. Dividends receivable are included separately in dividend income when a dividend is declared.

All regular way purchases and sales of investment securities are recognised at trade date which is the date that the Group commits to purchase or sell the asset. All other purchases and sales are recognised as derivative forward transactions until settlement.

1 0 2 A N N U A L R E P O R T 2 0 0 7


continued


(j) Trading securitiesTrading securities are securities which were either acquired for generating a profit from short-term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading securities are initially recognised at cost, (which includes transaction costs) and measured at subsequent reporting dates at fair value. All related realised and unrealised gains and losses are recognised in the Income Statement for the year.

(k) Loans and provisions for loan impairmentLoans originated by the Bank by providing money directly to the borrower (at draw down) are categorised as loans by the Bank and are carried at amortised cost, which is defined as the fair value of cash consideration given to originate these loans as is determinable by reference to market prices at origination date. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction.

All loans and advances are recognised when cash is advanced to borrowers. An allowance for loan impairment is established if there is the objective evidence that the Bank will not be able to collect all amounts due according to the original contractual terms of the loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of the loans.

The loan loss provision also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the balance sheet date. These have been estimated upon the historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the related provision for impairment; subsequent recoveries are credited to the provision for loan losses in the Income Statement.

Statutory and often regulatory loan loss reserve requirements that exceed these amounts are dealt with in the general banking reserve as an appropriation of retained earnings.

If the amount of the impairment subsequently decreases due to an event occuring after the write-down, the release of the provision is credited as a reduction of the provision for loan losses.

(l) GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in Intangible Assets.

Negative goodwill represents the excess of the fair value of the Group’s share of net assets acquired over the cost of acquisition and is recognised in the Income Statement.

Goodwill on acquisition of associates is included in investments in associates.Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

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. Goodwill arising on acquisition prior to March 31, 2004 is accounted for at the carrying amount and tested for impairment in accordance with IAS 36.



(m) Property, plant and equipmentProperty, plant and equipment are carried at historical cost or at revalued amounts less accumulated depreciation.

Revaluation surpluses are credited to reserves. Any subsequent decrease is first charged to reserves.

Thereafter, decreases are charged to the Income Statement to the extent that the decrease exceeds any amount formerly held in reserves in respect of the same asset.

Land and buildings are revalued on a regular basis by qualified independent valuers.

Depreciation is calculated to write down the cost or amount of the valuation of such assets to their residual values on a straight-line basis over their estimated useful lives as follows:

Buildings 50 yearsComputer and other equipment 5 - 10 yearsOther fixed assets 5 - 15 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are recognised as income or expense in the Income Statement.

Repairs and renewals are charged to the Income Statement when the expenditure is incurred.

(n) Computer software development costsCosts associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with identifiable and unique software products controlled by the Bank and the Group and will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include staff costs of the software development team and an appropriate portion of relevant overheads.

Expenditure that enhances or extends the benefits of computer software programmes beyond their original specifications and lives is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives but not exceeding a period of five years.

(o) Finance leases-where the company is the lesseeAssets acquired under finance leases are accounted for at the present value of the minimum lease payments and depreciated over their estimated useful lives. A corresponding liability is recorded as outstanding lease obligations.

Lease payments are apportioned between the liability and the finance charge so as to achieve a constant periodic rate of interest on the outstanding lease obligations.

(p) Accounting for leases - where company is the lessorFinance leasesWhen assets are sold under a finance lease, the present value of the lease payments is recognised as a receivable, the amount being equal to the net investment in the leases after specific provision for bad and doubtful debts in respect of all identified impaired leases in the light of periodical reviews. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.

Lease income is recognised over the term of the lease using the net investment method,which reflects a constant periodic rate of return.

Operating leasesAssets leased out under operating leases are included in plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar assets. Rental income is recognised on a straight line basis over the lease term.

1 0 4 A N N U A L R E P O R T 2 0 0 7


continued


(q) Cash and cash equivalentsFor the purposes of the Cash Flow Statements, cash and cash equivalents comprise cash and balances with Central Banks and amounts due to and from other banks. A further breakdown of cash and cash equivalents is given in notes 3, 4 and 33 to the financial statements.

(r) ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

(s) Employee benefitsThe Group operates a number of defined benefit and defined contribution plans throughout the region.

The defined benefit plan is fully funded. The assets of the funded plan are held independently and administered by the MCB Superannuation Fund. The pension costs are assessed in accordance with the advice of qualified actuaries using the projected unit credit method. The Group’s contributions are charged to the Income Statement in the year to which they relate. The main assumptions made in the actuarial valuation of the pension fund are listed in note 17 to the financial statements.

(t) Deferred taxDeferred tax is provided for, using the liability method, on all taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

The principal temporary differences arise from depreciation of property, plant and equipment, provisions for impairment losses on loans and advances and provisions for employee benefits.

The rates enacted or subsequently enacted at the balance sheet date are used to determine deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

(u) BorrowingsBorrowings are recognised initially at ‘cost’, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost and any difference between net proceeds and the redemption value is recognised in the Income Statement over the period of the borrowings using the effective yield method.

(v) AcceptancesAcceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from the customers . Acceptances are disclosed as liabilities with corresponding contra-assets.

(w) Segment reportingA segment is a distinguishable component of the Group that is engaged either in providing products or services within a particular economic environment (geographical segment) or in providing products or services which is subject to risks and rewards that are different from those of other segments (business segment). Segments with a majority of revenue earned from sales to external customers and whose gross income, operating profit or assets are 10 per cent or more of all the segments are reported separately.

Inter segment services are charged at prime commercial rates.

The Group’s results and assets relate predominantly to financial services within a particular economic environment and is mainly organised on a geographical basis.

Detailed analyses of segment reporting are shown in note 35 to the financial statements.


2. Financial Risk Management

(a) Strategy in using financial instrumentsThe use of financial instruments is a major feature of the Bank’s operations. It has been the Bank’s policy to take deposits from customers at variable rates mostly by investing these funds in a wide range of assets.

The Bank also seeks to raise its interest margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standing. The Bank’s exposures are not restricted to just on-balance sheet loans and advances but, also, to guarantees and other commitments such as letters of credit, performance and other bonds.

(b) Credit riskCredit risk arises when customers or counterparties are not able to fulfill their contractual obligations. Credit Risk Management at the Bank is under the responsibility of the Credit Risk Business Unit (CRBU). The CRBU has the task of reviewing the Bank’s credit policies and guidelines to ensure that best lending practices are upheld at all times. Risk assessments are carried out to assist in portfolio management decisions including exposure levels and the constitution of required provisions.

Credit related commitmentsThe main purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank to pay a third party, on behalf of its customers up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer term commitments generally have a greater degree of credit risk than shorter term commitments.

(c) Market riskMarket risk arises from activities undertaken in or impacted by financial markets generally. This includes the risk of gain or loss arising from the movement in market price of a financial asset or liability as well as ancillary risks such as liquidity and funding risk. The market risk management policies at the Bank are set by the Risk Committee of the Board and executive management of this class of risk is delegated to the Asset and Liability Committee (ALCO). The Market Risk Business Unit (MRBU) plays a central role in monitoring and controlling market risk activities. It is the aim of MRBU to ensure that market risk policies and guidelines are being effectively complied with and that limits are being observed.

(d) Currency riskCurrency Risk is defined as the risk that movements in foreign exchange rates adversely affect the value of the Bank’s foreign currency positions. Exposure resulting from trading activities is monitored through the use of targets and limits. Limits are given to the individual trader and monitored by the Treasury Manager. Such limits include daily, monthly, half-yearly and yearly stop losses. Exposure resulting from non-trading activities is managed through the Asset Liability Management framework, with reference to guidelines and policies set and approved by ALCO and the Board Risk Monitoring Committee.

1 0 6 A N N U A L R E P O R T 2 0 0 7


continued

2. Financial Risk Management (continued)

(d) Currency risk (continued)

Concentration of assets, liabilities and off-balance sheet items

GroupAt June 30, 2007Assets EURO USD GBP MUR OTHER TOTAL

RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Cash and balances with Central Banks 23,910 16,969 7,379 3,988,807 5,390 4,042,455Balances with banks and interbank loans 27,783 20,019 - 100,000 - 147,802Balances with banks abroad 3,282,221 4,584,477 1,536,090 - 585,202 9,987,990Securities - - - 10,573,779 - 10,573,779Other investments - available-for-sale - 622,500 - 711,509 - 1,334,009 - derivative financial instruments 2,759 1,797 2,314 15,309 1,616 23,795Investments in associates 2,199,454 - - 3,081,654 - 5,281,108Loans 3,447,400 8,918,551 341,108 51,212,009 178,381 64,097,449Goodwill & other intangible assets - - - 229,201 - 229,201Property, plant and equipment - - - 2,449,780 - 2,449,780Deferred tax assets - - - 15,096 - 15,096Other assets 39,480 115,829 16,355 1,592,624 7,046 1,771,334

9,023,007 14,280,142 1,903,246 73,969,768 777,635 99,953,798Less allowances for credit impairment (3,158,304)

96,795,494Subsidiaries 13,347,228Total assets 110,142,722

Liabilities Deposits 6,497,243 6,757,229 2,395,642 59,300,743 486,602 75,437,459 Borrowings from Bank of Mauritius - - - 840,329 - 840,329 Borrowings from other banks in Mauritius and banks abroad 6,435 4,258,664 44 - 19,431 4,284,574 Subordinated debt - 1,411,108 - - - 1,411,108 Other liabilities 142,787 425,216 39,824 1,633,525 676,735 2,918,087 Outstanding lease obligations - - - 2,327 - 2,327 Current tax liabilities - - - 327,374 - 327,374

6,646,465 12,852,217 2,435,510 62,104,298 1,182,768 85,221,258 Subsidiaries 10,007,076 Total liabilities 95,228,334

Net on-balance sheet position 2,376,542 1,427,925 (532,264) 11,865,470 (405,133) 14,732,540 Less allowances for credit impairment (3,158,304)Subsidiaries 3,340,152

14,914,388

Off balance sheet net notional position (106) 1,728 1,720 5,646 703 9,691 Credit commitments 4,777,265 12,290,251 883,476 10,020,774 1,058,424 29,030,190 Subsidiaries 1,349,653

30,379,843





BankAt June 30, 2007Assets EURO USD GBP MUR OTHER TOTAL

RS '000 RS '000 RS '000 RS '000 RS '000 RS '000Cash and balances with Central Banks 23,910 16,969 7,379 3,988,807 5,390 4,042,455Balances with banks and interbank loans 27,783 20,019 - 100,000 - 147,802Balances with banks abroad 3,282,221 4,584,477 1,536,090 - 585,202 9,987,990Securities - - - 10,573,779 - 10,573,779Other investments - available-for-sale - 622,500 - 711,509 - 1,334,009 - derivative financial instruments 2,759 1,797 2,314 15,309 1,616 23,795Investment in associates 428,346 - - 447,184 - 875,530Investment in subsidiaries - - - 2,126,099 - 2,126,099Loans 3,447,400 8,918,551 341,108 51,212,009 178,381 64,097,449Goodwill & other intangible assets - - - 229,201 - 229,201Property, plant and equipment - - - 2,449,780 - 2,449,780Deferred tax assets - - - 15,096 - 15,096Other assets 39,480 115,829 16,355 1,592,624 7,046 1,771,334

7,251,899 14,280,142 1,903,246 73,461,397 777,635 97,674,319Less allowances for credit impairment (3,158,304)Total assets 94,516,015

Liabilities Deposits 6,497,243 6,757,229 2,395,642 59,300,743 486,602 75,437,459Borrowings from Bank of Mauritius - - - 840,329 - 840,329Borrowings from other banks in Mauritius and banks abroad 6,435 4,258,664 44 - 19,431 4,284,574Subordinated debt - 1,411,108 - - - 1,411,108Other liabilities 142,787 425,216 39,824 1,633,525 676,735 2,918,087Outstanding lease obligations - - - 2,327 - 2,327Current tax liabilities - - - 327,374 - 327,374Total liabilities 6,646,465 12,852,217 2,435,510 62,104,298 1,182,768 85,221,258

Net on-balance sheet position 605,434 1,427,925 (532,264) 11,357,099 (405,133) 12,453,061Less allowances for credit impairment (3,158,304)

9,294,757

Off balance sheet net notional position (106) 1,728 1,720 5,646 703 9,691Credit commitments 4,777,265 12,290,251 883,476 10,020,774 1,058,424 29,030,190

1 0 8 A N N U A L R E P O R T 2 0 0 7


continued




Group EURO USD GBP MUR OTHER TOTALAt June 30, 2006 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000

Total assets 6,335,566 11,069,003 2,190,767 71,680,472 616,200 91,892,008Total liabilities 5,065,137 11,342,829 2,132,230 59,547,336 475,135 78,562,667Net on-balance sheet position 1,270,429 (273,826) 58,537 12,133,136 141,065 13,329,341Less allowances for credit impairment (3,270,487)

10,058,854Subsidiaries 2,391,672

12,450,526

Off balance sheet net notional position (1,976) 112 817 7,192 1,661 7,806 Credit commitments 2,376,014 6,856,955 597,546 9,482,501 1,060,077 20,373,093 Subsidiaries 957,696

21,330,789

Bank At June 30, 2006Total assets 5,347,510 11,069,003 2,190,767 72,050,579 616,200 91,274,059 Total liabilities 5,065,137 11,342,829 2,132,230 59,547,336 475,135 78,562,667 Net on-balance sheet position 282,373 (273,826) 58,537 12,503,243 141,065 12,711,392 Less allowances for credit impairment (3,270,487)

9,440,905

Off balance sheet net notional position (1,976) 112 817 7,192 1,661 7,806 Credit commitments 2,376,014 6,856,955 597,546 9,482,501 1,060,077 20,373,093





Group EURO USD GBP MUR OTHER TOTALAt June 30, 2005 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000

Total assets 6,325,742 6,709,645 347,423 66,094,148 392,266 79,869,224 Total liabilities 4,192,788 6,283,737 1,683,915 55,089,327 489,090 67,738,857 Net on-balance sheet position 2,132,954 425,908 (1,336,492) 11,004,821 (96,824) 12,130,367 Less allowances for credit impairment (3,061,816)

9,068,551 Subsidiaries 1,274,064

10,342,615

Off balance sheet net notional position 8,224 1,236 (39) 18,504 (696) 27,229 Credit commitments 2,757,175 6,584,655 560,126 8,001,771 835,946 18,739,673 Subsidiaries 1,270,562

20,010,235

Bank At June 30, 2005Total assets 5,632,045 6,709,645 347,423 65,681,173 838,572 79,208,858 Total liabilities 4,192,788 6,283,737 1,683,915 55,089,327 489,090 67,738,857 Net on-balance sheet position 1,439,257 425,908 (1,336,492) 10,591,846 349,482 11,470,001 Less allowances for credit impairment (3,061,816)

8,408,185

Off balance sheet net notional position 8,224 1,236 (39) 18,504 (696) 27,229 Credit commitments 2,757,175 6,584,655 560,126 8,001,771 835,946 18,739,673

(e) Interest rate riskInterest rate risk refers to the potential variability in the Bank’s financial condition owing to changes in the level of interest rates. It is the Bank’s policy to apply variable interest rates to lending and deposit taking. Fixed interest rates are applied to deposits in foreign currencies; however maturities in this regard are only short-term.

1 1 0 A N N U A L R E P O R T 2 0 0 7


continued


(e) Interest rate risk (continued)

Interest sensitivity of assets and liabilities - repricing analysis

Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2007 1 month months months months years years bearing TotalAssets RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Cash and balances with Central Banks - - - - - - 4,042,455 4,042,455Balances with banks and

interbank loans 100,000 - - - - - 47,802 147,802

Balances with banks abroad 6,095,745 3,559,447 - - - 140,362 192,436 9,987,990

Securities 1,641,214 2,390,207 1,124,603 3,042,437 1,183,383 1,191,935 - 10,573,779

Other investments

- available-for-sale - - - 622,500 - - 711,509 1,334,009

- derivative financial instruments - - - - - - 23,795 23,795

Investments in associates - 428,346 - - - - 4,852,762 5,281,108

Loans 52,260,734 6,633,412 552,111 897,937 698,025 2,698,224 357,006 64,097,449

Goodwill & other intangible assets - - - - - - 229,201 229,201

Property, plant and equipment - - - - - - 2,449,780 2,449,780

Deferred tax assets - - - - - - 15,096 15,096

Other assets - - - - - - 1,771,334 1,771,334

60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 14,693,176 99,953,798

Less allowances for credit impairment (3,158,304)

96,795,494

Subsidiaries 13,347,228

Total assets 110,142,722

Liabilities

Deposits 66,913,394 1,610,082 279,294 211,373 145,463 15,597 6,262,256 75,437,459

Borrowings from Bank of Mauritius - - - - 590,741 249,588 - 840,329Borrowings from other banks

in Mauritius and banks abroad 81,567 4,201,875 - - - - 1,132 4,284,574

Subordinated debt - - 1,411,108 - - - - 1,411,108

Other liabilities - - - - - - 2,918,087 2,918,087

Outstanding lease obligations 2,327 - - - - - - 2,327

Current tax liabilities - - - - - - 327,374 327,374

66,997,288 5,811,957 1,690,402 211,373 736,204 265,185 9,508,849 85,221,258


Total liabilities 95,228,334

On balance sheet interest sensitivity gap (6,899,595) 7,199,455 (13,688) 4,351,501 1,145,204 3,765,336 5,184,327 14,732,540



14,914,388




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

Bank Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2007 1 month months months months years years bearing TotalAssets RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Cash and balances with Central Banks - - - - - - 4,042,455 4,042,455Balances with banks and

interbank loans 100,000 - - - - - 47,802 147,802

Balances with banks abroad 6,095,745 3,559,447 - - - 140,362 192,436 9,987,990

Securities 1,641,214 2,390,207 1,124,603 3,042,437 1,183,383 1,191,935 - 10,573,779

Other investments

- available-for-sale - - - 622,500 - - 711,509 1,334,009

- derivative financial instruments - - - - - - 23,795 23,795

Investments in associates - 428,346 - - - - 447,184 875,530

Investment in subsidiaries - - - - - - 2,126,099 2,126,099

Loans 52,260,734 6,633,412 552,111 897,937 698,025 2,698,224 357,006 64,097,449

Goodwill & other intangible assets - - - - - - 229,201 229,201

Property, plant and equipment - - - - - - 2,449,780 2,449,780

Deferred tax assets - - - - - - 15,096 15,096

Other assets - - - - - - 1,771,334 1,771,334

60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 12,413,697 97,674,319



Liabilities

Deposits 66,913,394 1,610,082 279,294 211,373 145,463 15,597 6,262,256 75,437,459

Borrowings from Bank of Mauritius - - - - 590,741 249,588 - 840,329Borrowings from other banks

in Mauritius and banks abroad 81,567 4,201,875 - - - - 1,132 4,284,574

Subordinated debt - - 1,411,108 - - - - 1,411,108

Other liabilities - - - - - - 2,918,087 2,918,087

Outstanding lease obligations 2,327 - - - - - - 2,327

Current tax liabilities - - - - - - 327,374 327,374

Total liabilities 66,997,288 5,811,957 1,690,402 211,373 736,204 265,185 9,508,849 85,221,258

On balance sheet interest sensitivity gap (6,899,595) 7,199,455 (13,688) 4,351,501 1,145,204 3,765,336 2,904,848 12,453,061


9,294,757

1 1 2 A N N U A L R E P O R T 2 0 0 7


continued




Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2006 1 month months months months years years items Total

RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Total assets 53,556,173 14,652,616 3,758,194 4,275,548 4,302,505 2,302,798 9,044,174 91,892,008


On balance sheet interest sensitivity gap (6,222,292) 1,702,371 2,454,527 3,823,503 3,649,726 1,797,216 6,124,290 13,329,341


10,058,854


12,450,526

BankAt June 30, 2006

Total assets 53,556,173 14,652,616 3,758,194 4,275,548 4,302,505 2,302,798 8,426,225 91,274,059


On balance sheet interest sensitivity gap (6,222,292) 1,702,371 2,454,527 3,823,503 3,649,726 1,797,216 5,506,341 12,711,392


9,440,905





Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-interest At June 30, 2005 1 month months months months years years items Total


Total liabilities 55,661,313 5,862,450 361,350 262,438 1,221,902 2,085,577 2,283,827 67,738,857

On balance sheet interest sensitivity gap (6,469,838) (1,611,305) 3,648,862 3,798,876 4,693,666 1,756,112 6,313,994 12,130,367


9,068,551


10,342,615


Total assets 49,191,476 4,251,145 4,010,212 4,061,314 5,915,568 3,841,689 7,937,454 79,208,858

Total liabilities 55,661,313 5,862,450 361,350 262,438 1,221,902 2,085,577 2,283,827 67,738,857

On balance sheet interest sensitivity gap (6,469,837) (1,611,305) 3,648,862 3,798,876 4,693,666 1,756,112 5,653,627 11,470,001


8,408,185

1 1 4 A N N U A L R E P O R T 2 0 0 7


continued

Financial Risk Management (continued)


Average interest rate by major currencies for monetary financial instrument

Bank EURO USD GBP & OTHERS MUR

At June 30, 2007 % % % %

Assets

Cash and balances with Central Banks n/a n/a n/a n/a

Balances with other banks in Mauritius and banks abroad 3.74 5.65 5.34 11.02

Securities n/a n/a n/a 8.31

Available-for-sale investments n/a 4.90 n/a 8.38

Loans 6.02 8.38 5.27 11.39

Liabilities

Deposits 2.65 4.57 4.59 6.99

Borrowings from Bank of Mauritius n/a n/a n/a 5.47

Borrowings from other banks in Mauritius and banks abroad 3.11 5.88 4.72 5.41

Bank EURO USD GBP & OTHERS MUR

At June 30, 2006 % % % %

Assets

Cash and balances with Central Banks n/a n/a n/a n/a

Balances with other banks in Mauritius and banks abroad 2.75 5.54 4.38 6.86

Securities n/a n/a n/a 6.86

Available-for-sale investments n/a n/a n/a 5.05

Loans 4.75 7.34 4.58 9.55

Liabilities

Deposits 1.59 3.55 3.99 5.52

Borrowings from Bank of Mauritius n/a n/a n/a n/a

Borrowings from other banks in Mauritius and banks abroad 1.95 4.85 3.53 5.14



(f) Liquidity riskLiquidity risk can be defined as the risk of a funding crisis, notably a lack of funds to meet immediate or short term obligations in a cost-effective way.

There are two aspects of liquidity risk management a) cash flow management to ensure a balanced inflow and outflow of funds on any one specific day b) the maintenance of a stock of liquid assets to ensure that the Bank has a constantly available store of value, which can be utilised in the event of an unexpected outflow of funds. The MCB has a documented liquidity policy compliant with the Bank of Mauritius Guideline on Liquidity. The Bank Treasury manages liquidity in accordance with this policy, on a day-to-day basis.

Maturities of assets and liabilitiesGroup Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2007 1 month months months months years years items TotalAssets RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Cash and balances with Central Banks 2,948,856 - - - - - 1,093,599 4,042,455Balances with banks

and interbank loans 147,802 - - - - - - 147,802Balances with banks abroad 6,416,670 2,845,155 - - - 714,292 11,873 9,987,990Securities 1,641,214 2,390,207 1,124,603 3,042,437 1,183,383 1,191,935 - 10,573,779Other investments

- available-for-sale - - - 622,500 - - 711,509 1,334,009- derivative financial instruments - - - - - - 23,795 23,795

Investments in associates - - - - - - 5,281,108 5,281,108Loans 21,098,918 3,607,998 591,112 2,299,621 6,453,273 29,999,851 46,676 64,097,449Goodwill & other intangible assets - - - - - - 229,201 229,201Property, plant and equipment - - - - - - 2,449,780 2,449,780Deferred tax assets - - - - - - 15,096 15,096Other assets - - - - - - 1,771,334 1,771,334

32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 11,633,971 99,953,798Less allowances for credit impairment (3,158,304)

96,795,494Subsidiaries 13,347,228Total assets 110,142,722

Liabilities Deposits 59,430,424 1,799,655 1,507,490 2,589,613 4,815,683 5,294,594 - 75,437,459Borrowings from Bank of Mauritius - - - - 590,741 249,588 - 840,329Borrowings from other banks

in Mauritius and banks abroad 25,369 1,089,375 - - 989,948 2,178,750 1,132 4,284,574Subordinated debt - - - - - 1,411,108 - 1,411,108Other liabilities - - - - - - 2,918,087 2,918,087Outstanding lease obligations 220 440 429 684 554 - - 2,327Current tax liabilities - - - - - - 327,374 327,374

59,456,013 2,889,470 1,507,919 2,590,297 6,396,926 9,134,040 3,246,593 85,221,258Subsidiaries 10,007,076Total liabilities 95,228,334

Net liquidity gap (27,202,553) 5,953,890 207,796 3,374,261 1,239,730 22,772,038 8,387,378 14,732,540Less allowances for credit impairment (3,158,304)Subsidiaries 3,340,152

14,914,388

1 1 6 A N N U A L R E P O R T 2 0 0 7


continued


(f) Liquidity risk (continued)

Maturities of assets and liabilities (continued)

Bank Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2007 1 month months months months years years items TotalAssets RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 RS '000 Cash and balances with Central Banks 2,948,856 - - - - - 1,093,599 4,042,455Balances with banks

and interbank loans 147,802 - - - - - - 147,802Balances with banks abroad 6,416,670 2,845,155 - - - 714,292 11,873 9,987,990Securities 1,641,214 2,390,207 1,124,603 3,042,437 1,183,383 1,191,935 - 10,573,779Other investments

- available-for-sale - - - 622,500 - - 711,509 1,334,009- derivative financial instruments - - - - - - 23,795 23,795

Investments in associates - - - - - - 875,530 875,530Investments in associates - - - - - - 2,126,099 2,126,099Loans 21,098,918 3,607,998 591,112 2,299,621 6,453,273 29,999,851 46,676 64,097,449Goodwill & other intangible assets - - - - - - 229,201 229,201Property, plant and equipment - - - - - - 2,449,780 2,449,780Deferred tax assets - - - - - - 15,096 15,096Other assets - - - - - - 1,771,334 1,771,334

32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 9,354,492 97,674,319Less allowances for credit impairment (3,158,304)Total assets 94,516,015

Liabilities Deposits 59,430,424 1,799,655 1,507,490 2,589,613 4,815,683 5,294,594 - 75,437,459Borrowings from Bank of Mauritius - - - - 590,741 249,588 - 840,329Borrowings from other banks

in Mauritius and banks abroad 25,369 1,089,375 - - 989,948 2,178,750 1,132 4,284,574Subordinated debt - - - - - 1,411,108 - 1,411,108Other liabilities - - - - - - 2,918,087 2,918,087Outstanding lease obligations 220 440 429 684 554 - - 2,327Current tax liabilities - - - - - - 327,374 327,374Total liabilities 59,456,013 2,889,470 1,507,919 2,590,297 6,396,926 9,134,040 3,246,593 85,221,258

Net liquidity gap (27,202,553) 5,953,890 207,796 3,374,261 1,239,730 22,772,038 6,107,899 12,453,061 Less allowances for credit impairment (3,158,304)

9,294,757





Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2006 1 month months months months years years items Total


Total liabilities (54,698,049) (1,710,395) (1,283,581) (2,490,973) (8,589,996) (6,869,789) (2,919,884) (78,562,667)

Net liquidity gap (25,298,556) 3,465,932 1,624,553 2,243,259 914,815 24,303,938 6,075,400 13,329,341


10,058,854


12,450,526


Total assets 29,399,493 5,176,327 2,908,134 4,734,232 9,504,811 31,173,727 8,377,335 91,274,059


Net liquidity gap (25,298,556) 3,465,932 1,624,553 2,243,259 914,815 24,303,938 5,457,451 12,711,392


9,440,905

1 1 8 A N N U A L R E P O R T 2 0 0 7


continued




Group Up to 1-3 3-6 6-12 1-3 Over 3 Non-maturity At June 30, 2005 1 month months months months years years items Total



Net liquidity gap (24,045,454) 2,645,871 990,337 2,242,008 2,559,537 21,484,074 6,253,994 12,130,367


9,068,551


10,342,615


Total assets 25,737,395 4,263,078 2,478,681 4,572,359 8,639,237 25,914,471 7,603,637 79,208,858


Net liquidity gap (24,045,454) 2,645,871 990,337 2,242,008 2,559,537 21,484,074 5,593,628 11,470,001


8,408,185

(g) Fair values of financial assets and liabilitiesThe fair values of those financial assets and liabilities not presented on the Group’s and the Bank’s balance sheets at their fair values are not materially different from their carrying amounts.


3. Cash and Balances with Central Banks

GROUP BANK2007 2006 2005 2007 2006 2005Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Cash and balances with Central Banks 6,181,829 5,472,555 4,825,889 3,988,807 3,979,138 3,440,102

Foreign currency notes and coin 53,648 36,553 41,785 53,648 36,553 41,785

6,235,477 5,509,108 4,867,674 4,042,455 4,015,691 3,481,887

4. Due from other Banks

Balances with banks and interbank loans 345,645 214,156 - 147,802 204,565 -

Balances with banks abroad 9,863,254 6,480,484 1,073,063 9,987,990 6,622,201 1,044,609

10,208,899 6,694,640 1,073,063 10,135,792 6,826,766 1,044,609

1 2 0 A N N U A L R E P O R T 2 0 0 7


continued

5. Securities

Remaining term to maturity 2007 2006 2005

Within 3 months 3 - 6 months 6 - 12 months 1 - 5 years Over 5 years Total Total TotalRs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

GROUPGovernment stocks 199,688 398,694 2,360,674 4,132,413 412,525 7,503,994 7,573,975 4,712,346

Treasury bills 4,264,003 834,189 649,996 - - 5,748,188 10,790,291 11,709,744

4,463,691 1,232,883 3,010,670 4,132,413 412,525 13,252,182 18,364,266 16,422,090

BANKGovernment stocks 199,688 369,198 2,360,674 2,035,390 339,928 5,304,878 5,014,336 2,350,166

Treasury bills 3,831,733 824,705 612,463 - - 5,268,901 9,860,502 11,207,783

4,031,421 1,193,903 2,973,137 2,035,390 339,928 10,573,779 14,874,838 13,557,949


6. Loans

(a) Loans comprise the following:GROUP BANK

2007 2006 2005 2007 2006 2005Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Personal and credit cards 14,761,071 11,385,708 10,761,022 12,969,386 11,085,228 9,646,552Business 47,550,037 44,595,234 43,052,205 44,475,277 41,316,947 40,741,152Governments 126,636 6,366 16,619 - - -Entities outside Mauritius 6,652,786 5,736,880 4,434,864 6,652,786 5,736,880 4,556,394

69,090,530 61,724,188 58,264,710 64,097,449 58,139,055 54,944,098Less:Allowances for credit impairment (3,245,882) (3,358,912) (3,142,049) (3,158,304) (3,270,487) (3,061,816)

65,844,648 58,365,276 55,122,661 60,939,145 54,868,568 51,882,282

Finance lease receivables included above amount to Rs 1,850 million as at 30th June 2007 (2006 & 2005: nil).


Within 3 months 26,266,750 23,855,412 26,376,522 24,753,592 22,585,034 24,526,417Over 3 months and up to 6 months 182,627 660,078 543,036 591,112 627,017 492,304Over 6 months and up to 1 year 2,972,256 1,522,068 1,220,015 2,299,621 797,568 1,178,206Over 1 year and up to 5 years 17,324,752 14,742,212 11,874,638 14,983,433 13,646,577 11,509,158Over 5 years 22,344,145 20,944,418 18,250,499 21,469,691 20,482,859 17,238,013

69,090,530 61,724,188 58,264,710 64,097,449 58,139,055 54,944,098

(c) Movements in allowances for credit impairment 2007 2006 2005Specific Portfolio TotalRs'000 Rs'000 Rs'000 Rs'000 Rs'000

GROUPProvisions at 1st July 2006 2,038,932 398,200 2,437,132 2,311,098 1,956,772Effect of adopting BOM guideline on credit impairment - - - - 227,900As restated 2,038,932 398,200 2,437,132 2,311,098 2,184,672Effect of consolidating Fincorp Group as a subsidiary 4,448 13,828 18,276 - -Translation differences in respect of subsidiaries 7,812 - 7,812 88 (3,796)Provisions made during the year 391,827 40,600 432,427 407,503 553,901Provisions released during the year (64,083) - (64,083) (85,806) (174,673)Amounts written off (386,548) - (386,548) (195,751) (249,006)Provisions at 30th June 2007 1,992,388 452,628 2,445,016 2,437,132 2,311,098Interest suspense 800,866 - 800,866 921,780 830,951Provisions and interest suspense at 30th June 2007 2,793,254 452,628 3,245,882 3,358,912 3,142,049

BANKProvisions at 1st July 2006 1,970,877 398,200 2,369,077 2,250,130 1,904,718 Effect of adopting BOM guideline on credit impairment - - - - 227,900 As restated 1,970,877 398,200 2,369,077 2,250,130 2,132,618 Provisions made during the year 356,392 40,600 396,992 382,922 530,141 Provisions released during the year (33,978) - (33,978) (68,224) (163,623)Amounts written off (356,781) - (356,781) (195,751) (249,006)Provisions at 30th June 2007 1,936,510 438,800 2,375,310 2,369,077 2,250,130 Interest suspense 782,994 - 782,994 901,410 811,686 Provisions and interest suspense at 30th June 2007 2,719,504 438,800 3,158,304 3,270,487 3,061,816

1 2 2 A N N U A L R E P O R T 2 0 0 7


continued

6. Loans (continued)

(d) Allowances for credit impairment by industry sectors2007 2006 2005

Gross amount of loans

Non performing loans

Specific provision

Portfolio provision

Total provision

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000GROUPAgriculture and fishing 5,566,500 147,811 61,147 45,572 106,719 83,168 76,337Manufacturing 9,234,396 789,928 456,327 71,753 528,080 685,239 542,166

of which EPZ 3,705,815 370,281 200,648 42,500 243,148 388,051 356,121Tourism 10,765,167 132,929 102,620 16,051 118,671 80,299 45,667Transport 1,525,520 28,536 12,544 6,790 19,334 17,137 13,830Construction 9,854,691 781,889 430,450 63,249 493,699 486,768 567,117Traders 12,242,799 1,176,326 802,838 97,051 899,889 855,952 889,791Information and communication technology 701,730 15,638 9,587 8,794 18,381 17,690 14,960Financial and business services 2,985,234 92,080 40,632 6,587 47,219 74,035 42,405Infrastructure 2,396,405 65 35 3,505 3,540 2,404 900Personal 6,895,035 1,214,190 645,124 98,033 743,157 696,997 548,009

of which credit cards 424,520 90,900 75,810 16,700 92,510 86,900 88,362Professional 308,657 157,234 77,997 2,836 80,833 59,507 63,816Media, entertainment and recreational activities 247,054 54,172 51,766 6,008 57,774 144,484 145,287Special certificate holders 666,809 89,973 15,104 1,451 16,555 4,881 29,805Others 5,700,533 151,860 87,083 24,948 112,031 150,351 161,959

69,090,530 4,832,631 2,793,254 452,628 3,245,882 3,358,912 3,142,049

BANKAgriculture and fishing 4,651,286 120,101 39,031 44,100 83,131 80,818 75,730 Manufacturing 8,215,950 757,944 441,505 67,600 509,105 654,449 531,829

of which EPZ 3,611,280 367,681 198,042 42,500 240,542 386,987 350,365 Tourism 9,734,493 128,802 100,330 14,000 114,330 79,640 45,069 Transport 1,246,237 25,983 12,156 6,100 18,256 13,159 10,224 Construction 9,314,223 779,881 428,942 63,000 491,942 486,131 566,223 Traders 11,015,428 1,155,837 780,759 95,800 876,559 821,928 842,751 Information and communication technology 642,740 15,356 9,462 8,400 17,862 17,690 14,960 Financial and business services 4,070,176 88,718 37,821 5,700 43,521 72,862 41,009 Infrastructure 2,317,647 65 35 3,100 3,135 2,404 900 Personal 6,720,941 1,213,070 644,737 97,300 742,037 693,984 545,253

of which credit cards 424,520 90,900 75,810 16,700 92,510 86,900 88,362 Professional 295,560 157,234 77,997 2,700 80,697 59,057 63,382 Media, entertainment and recreational activities 161,797 53,357 51,520 5,400 56,920 144,484 145,287 Special certificate holders 583,044 89,973 15,104 1,100 16,204 4,881 29,805 Others 5,127,927 138,876 80,105 24,500 104,605 139,000 149,394

64,097,449 4,725,197 2,719,504 438,800 3,158,304 3,270,487 3,061,816


6. Loans (continued)

(e) Credit concentration of risk by industry sectorsTotal credit facilities including guarantees, acceptances and other similar commitments extended by the Bank to any one customer or group of closely-related customers for amounts aggregating more than 15% of its capital base, classified by industry sectors.

GROUP2007 2006 2005

Rs’000 Rs’000 Rs’000Agriculture and fishing 2,612,091 2,553,588 3,475,720

Manufacturing 5,533,978 4,698,244 4,118,212

of which EPZ 2,700,609 2,687,849 2,804,533

Tourism 2,679,985 2,544,481 3,914,682

Transport 832 19,709 -

Construction/Property 1,359,659 568,516 539,882

Traders 6,647,451 2,332,708 537,834

Entities outside Mauritius 1,617,382 1,619,602 2,225,898

Others 2,853,427 1,335,576 2,035,111

23,304,805 15,672,424 16,847,339

(f) Loans outside Mauritius

GROUP BANK2007 2006 2005 2007 2006 2005

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000(i) Banks 548,346 425,537 221,358 548,346 425,537 222,087

(ii) Government 1,086,262 754,722 874,800 1,086,262 754,722 874,800

(iii) Other entities 5,018,178 4,556,621 3,338,706 5,018,178 4,556,621 3,459,507

6,652,786 5,736,880 4,434,864 6,652,786 5,736,880 4,556,394

1 2 4 A N N U A L R E P O R T 2 0 0 7


continued

7. Other Investments

(a) Available-for-sale

GROUP BANK2007 2006 2005 2007 2006 2005

Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Quoted

Official list : shares 876,033 394,665 388,536 - - 39,636

Development and Enterprise Market/Over The Counter : shares 143,036 98,548 66,860 - - 51,352

Unquoted

Shares 2,515,932 1,331,718 692,894 1,334,009 622,177 654,219

3,535,001 1,824,931 1,148,290 1,334,009 622,177 745,207

(b) Derivative financial instrumentsThe Group utilises the following derivative instruments to manage its exposure to foreign currency risk:Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions.Currency swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies. Except for certain currency swaps, no exchange of principal takes place. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities.

The fair values of derivatives instruments held are set out below:

GROUP & BANK Contractual/Nominal Fair value Fair valueAmount assets liabilities

Derivatives held-for-trading Rs’000 Rs’000 Rs’000

Year ended 30th June 2007

Foreign Exchange Derivatives

Currency forwards 4,424,633 11,626 14,001

Currency swaps 2,604,885 12,169 102

7,029,518 23,795 14,103




Currency swaps 769,862 195 5,883

3,273,555 16,125 23,931




Currency swaps 2,513,721 14,386 22,848

5,577,353 28,102 55,329


8. Investments in Associates

The Group’s interest in its principal associates are as follows:

BANKCountry Minority

of Assets Liabilities Interest Revenues Profit Holding Costincorporation Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 % Rs'000


Banque Française Commerciale O.I. France 50,723,336 47,343,365 - 3,616,084 473,412 49.99 447,184

Promotion and Development Ltd Mauritius 7,825,557 562,354 809,698 306,321 237,930 46.43 -

Caudan Development Ltd Mauritius 2,634,635 569,937 - 125,733 35,037 5.34 -

Fincorp Investment Ltd Mauritius n/a n/a n/a 214,354 132,136 49.51 -

447,184

Subordinated loan to associate 428,346

875,530



Fincorp Investment Ltd Mauritius 5,455,767 2,536,097 - 270,759 176,645 49.51 24,735

471,919


872,151



Fincorp Investment Ltd Mauritius 3,814,647 2,130,398 - 269,886 222,066 49.51 24,735

471,919


830,802

Except for Banque Française Commerciale Ocean Indien which is unquoted, the other associates are quoted.

BANK2007 2006 2005

Rs’000 Rs’000 Rs’000Market value of quoted investment - 654,399 490,799

Cost of unquoted investment 447,184 447,184 447,184

447,184 1,101,583 937,983

GROUP2007 2006 2005

Rs’000 Rs’000 Rs’000Group share of net assets 4,795,877 2,799,715 1,902,359

Goodwill 56,885 56,885 56,885

Subordinated loan to associate 428,346 400,232 358,883

5,281,108 3,256,832 2,318,127

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continued

9. Investments in Subsidiaries

Country Effective holding BANK of 2007 2006 2005 2007 2006 2005

incorporation % % % Rs’000 Rs’000 Rs’000MCB Equity Fund Ltd Mauritius 100.00 100.00 100.00 1,534,903 1,216,481 364,153MCB Moçambique SA Mozambique 91.28 90.58 90.58 227,653 227,653 227,653MCB Seychelles Ltd Seychelles 100.00 100.00 100.00 211,522 211,522 211,522MCB Factors Ltd Mauritius 100.00 100.00 - 50,000 50,000 -Fincorp Investment Ltd Mauritius 57.56 49.51 49.51 24,735 - -MCB Properties Ltd Mauritius 100.00 100.00 - 14,625 14,625 -MCB Registry and Securities Ltd Mauritius 100.00 100.00 100.00 12,000 12,000 12,000Multipliant Management Co. Ltd Mauritius 100.00 49.51 49.51 11,425 - -MCB Madagascar SA Madagascar 75.00 75.00 75.00 7,131 7,131 7,131MCB Investment Management Co. Ltd Mauritius 62.22 60.00 60.00 3,000 3,000 3,000MCB Capital Partners Ltd Mauritius 100.00 100.00 100.00 1,000 1,000 1,000Blue Penny Museum Mauritius 97.88 97.48 - 950 950 -MCB Stockbrokers Ltd Mauritius 100.00 100.00 100.00 500 500 500

2,099,444 1,744,862 826,959Subordinated loan to subsidiary 26,655 21,870 -

2,126,099 1,766,732 826,959Except for Fincorp Investment Ltd, which is quoted, the other above companies are unquoted.

10. Goodwill and other Intangible Assets

(a) GoodwillGROUP

2007 2006 2005Rs’000 Rs’000 Rs’000

At 1st July 2006 33,501 33,501 35,301Impairment/amortisation during the year - - (1,800)At 30th June 2007 33,501 33,501 33,501

(b) Other intangible assetsGROUP BANK

2007 2006 2005 2007 2006 2005Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Computer SoftwareCostAt 1st July 2006 1,075,499 950,257 715,357 1,058,616 936,722 705,003Transfer from property, plant and equipment 4,421 10,836 159 - 10,836 159Additions 33,471 114,337 235,328 30,752 111,142 231,703Disposals (9,721) (84) (143) (9,710) (84) (143)Exchange adjustment 1,199 153 (444) - - -Effect of consolidating Fincorp Group as a subsidiary 20,118 - - - - -At 30th June 2007 1,124,987 1,075,499 950,257 1,079,658 1,058,616 936,722

AmortisationAt 1st July 2006 754,889 657,558 563,755 744,478 648,385 554,655Transfer from property, plant and equipment 1,753 - - - - -Disposals adjustment (24) (65) (128) (24) (65) (128)Charge for the year 110,935 97,178 94,243 106,003 96,158 93,858Exchange adjustment 309 218 (312) - - -Effect of consolidating Fincorp Group as a subsidiary 2,324 - - - - -At 30th June 2007 870,186 754,889 657,558 850,457 744,478 648,385Net book value 254,801 320,610 292,699 229,201 314,138 288,337TOTAL 288,302 354,111 326,200 229,201 314,138 288,337


11. Property, Plant and Equipment

Assets under Land Computer Other Totalfinance and and other fixedleases buildings equipment assetsRs'000 Rs'000 Rs'000 Rs'000 Rs'000

GROUPCost & valuationAt 1st July 2006 18,613 2,605,861 1,549,173 478,055 4,651,702Additions - 170,305 266,764 164,931 602,000Disposals (67) (79,379) (54,926) (42,670) (177,042)Exchange adjustment - (25,672) (20,617) (2,877) (49,166)Effect of consolidating Fincorp Group as a subsidiary - - 5,459 315,721 321,180Acquisition of subsidiary - - 111 - 111Transfer to other intangible assets - - (2,848) (1,573) (4,421)Transfer (7,089) (30,470) 36,412 1,147 -At 30th June 2007 11,457 2,640,645 1,779,528 912,734 5,344,364

Accumulated depreciationAt 1st July 2006 15,029 289,404 1,059,615 251,069 1,615,117Charge for the year 2,306 56,076 165,079 80,269 303,730Disposal adjustment (65) (11,823) (53,828) (33,450) (99,166)Exchange adjustment - (585) (8,327) (1,648) (10,560)Effect of consolidating Fincorp Group as a subsidiary - - 4,607 89,267 93,874Acquisition of subsidiary - - 53 - 53Transfer to other intangible assets - - (990) (763) (1,753)Transfer (7,089) - 5,942 1,147 -At 30th June 2007 10,181 333,072 1,172,151 385,891 1,901,295Net book valuesAt 30th June 2007 1,276 2,307,573 607,377 526,843 3,443,069

BANKCost & valuationAt 1st July 2006 17,991 1,834,904 1,415,496 400,910 3,669,301Additions - 156,858 224,061 96,400 477,319Disposals (67) (410) (54,429) (28,565) (83,471)Transfer (7,089) - 5,942 1,147 -At 30th June 2007 10,835 1,991,352 1,591,070 469,892 4,063,149

Accumulated depreciationAt 1st July 2006 14,726 222,789 1,014,224 223,785 1,475,524Charge for the year 2,167 27,007 142,973 45,633 217,780Disposal adjustment (65) (28) (53,448) (26,394) (79,935)Transfer (7,089) - 5,942 1,147 -At 30th June 2007 9,739 249,768 1,109,691 244,171 1,613,369Net book valuesAt 30th June 2007 1,096 1,741,584 481,379 225,721 2,449,780

1 2 8 A N N U A L R E P O R T 2 0 0 7


continued

11. Property, Plant and Equipment (continued)


GROUPCost & valuationAt 1st July 2005 29,023 2,135,225 1,420,832 451,688 4,036,768Additions - 187,772 256,598 49,103 493,473Disposals (11) (2,632) (131,523) (46,611) (180,777)Exchange adjustment - 32,740 5,105 1,156 39,001Acquisition of subsidiary - 252,756 - 21,317 274,073Transfer to other intangible assets (10,399) - (1,839) 1,402 (10,836)At 30th June 2006 18,613 2,605,861 1,549,173 478,055 4,651,702

Accumulated depreciationAt 1st July 2005 18,897 203,349 1,030,009 246,552 1,498,807Charge for the year 3,738 36,804 148,095 47,490 236,127Disposal adjustment (8) - (128,744) (50,551) (179,303)Exchange adjustment - 2,775 3,057 399 6,231Acquisition of subsidiary - 46,476 - 6,779 53,255Transfer (7,598) - 7,198 400 -At 30th June 2006 15,029 289,404 1,059,615 251,069 1,615,117Net book valuesAt 30th June 2006 3,584 2,316,457 489,558 226,986 3,036,585

BANKCost & valuationAt 1st July 2005 28,401 1,762,262 1,295,579 374,604 3,460,846Additions - 72,642 185,979 39,963 298,584Disposals (11) - (64,223) (15,059) (79,293)Transfer to other intangible assets (10,399) - (1,839) 1,402 (10,836)At 30th June 2006 17,991 1,834,904 1,415,496 400,910 3,669,301

Accumulated depreciationAt 1st July 2005 18,734 200,239 942,585 196,353 1,357,911Charge for the year 3,598 22,550 127,274 39,314 192,736Disposal adjustment (8) - (62,833) (12,282) (75,123)Transfer (7,598) - 7,198 400 -At 30th June 2006 14,726 222,789 1,014,224 223,785 1,475,524Net book valuesAt 30th June 2006 3,265 1,612,115 401,272 177,125 2,193,777


11. Property, Plant and Equipment (continued)


GROUPCost & valuationAt 1st July 2004 25,807 1,677,276 1,305,494 410,686 3,419,263Additions 3,712 470,327 174,921 60,462 709,422Disposals (496) (9,428) (55,043) (17,062) (82,029)Exchange adjustment - (2,950) (4,381) (2,398) (9,729)Transfer to other intangible assets - - (159) - (159)At 30th June 2005 29,023 2,135,225 1,420,832 451,688 4,036,768

Accumulated depreciationAt 1st July 2004 13,376 181,555 962,994 221,202 1,379,127Charge for the year 5,819 23,211 123,401 41,090 193,521Disposal adjustment (298) (1,220) (51,640) (14,122) (67,280)Exchange adjustment - (197) (4,746) (1,618) (6,561)At 30th June 2005 18,897 203,349 1,030,009 246,552 1,498,807Net book valuesAt 30th June 2005 10,126 1,931,876 390,823 205,136 2,537,961

BANKCost & valuationAt 1st July 2004 25,354 1,629,904 1,206,057 345,586 3,206,901Additions 3,543 134,558 143,758 44,265 326,124Disposals (496) (2,200) (54,077) (15,247) (72,020)Transfer to other intangible assets - - (159) - (159)At 30th June 2005 28,401 1,762,262 1,295,579 374,604 3,460,846

Accumulated depreciationAt 1st July 2004 13,352 177,986 881,978 173,600 1,246,916Charge for the year 5,680 22,253 112,941 36,563 177,437Disposal adjustment (298) - (52,334) (13,810) (66,442)At 30th June 2005 18,734 200,239 942,585 196,353 1,357,911Net book valuesAt 30th June 2005 9,667 1,562,023 352,994 178,251 2,102,935

If the land and buildings were stated on the historical basis, the amounts would be as follows :

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Cost 4,648,539 3,955,870 3,340,937 3,367,324 2,973,469 2,765,015Accumulated depreciation (1,809,816) (1,531,845) (1,423,691) (1,521,890) (1,392,252) (1,282,795)

2,838,723 2,424,025 1,917,246 1,845,434 1,581,217 1,482,220

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continued

12. Deferred Tax (Liabilities)/Assets

The movement on the deferred income tax account is as follows :-

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000At 1st July 2006 31,364 84,769 44,598 31,647 84,284 44,322Provisions for credit impairment - - 37,500 - - 37,500As restated 31,364 84,769 82,098 31,647 84,284 81,822Effect of reduction in tax rate (3,187) - - (3,187) - -Exchange adjustments in respect of foreign subsidiaries 1,129 - - - - -Effect of consolidating Fincorp Group as a subsidiary (10,812) - - - - -Acquisition of subsidiary 102 (520) - - - -Amount utilised during the year - (29,126) - - (29,126) -Income statement (charge)/credit (24,484) (23,759) 2,671 (13,364) (23,511) 2,462At 30th June 2007 (5,888) 31,364 84,769 15,096 31,647 84,284

Deferred tax assets :-Provisions and post retirement benefits 70,388 86,160 90,955 70,388 86,160 90,955Provisions for credit impairment 42,781 42,982 72,560 42,781 42,982 72,560Tax losses carried forward 296 296 296 - - -Accelerated tax depreciation (97,621) (97,458) (79,199) (98,073) (97,495) (79,231)Other provisions - - 162 - - -

15,844 31,980 84,774 15,096 31,647 84,284Deferred tax liabilities :- 21,732 616 5 - - -Accelerated tax depreciation (5,888) 31,364 84,769 15,096 31,647 84,284

13. Other Assets

Balances due in clearing 492,184 655,943 365,086 380,818 464,613 293,507Accrued interest receivable 852,835 577,387 449,329 781,800 526,121 391,971Employee benefits asset (see note 17) 230,165 198,362 179,181 230,165 198,362 179,181Others 439,213 524,201 309,544 378,551 411,866 409,030

2,014,397 1,955,893 1,303,140 1,771,334 1,600,962 1,273,689

14. Due to Other Banks

Borrowings from the Bank of Mauritius 840,329 1,056,122 1,203,518 840,329 1,056,122 1,203,518Borrowings from other banks in Mauritius and banks abroad 3,938,310 5,184,415 2,187,721 4,284,574 5,380,538 2,260,531Subordinated debt 1,411,108 - - 1,411,108 - -

6,189,747 6,240,537 3,391,239 6,536,011 6,436,660 3,464,049


15. Deposits

(a) Deposits comprise the following:GROUP BANK

2007 2006 2005 2007 2006 2005Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Personal 61,893,853 56,951,011 51,476,168 57,229,612 53,748,473 48,751,177Business 20,973,361 17,801,612 15,613,470 16,418,950 13,709,024 12,263,458Governments 758,576 1,449,191 1,088,671 252,469 753,478 233,749Banks 1,531,833 993,046 735,568 1,536,428 997,600 735,568

85,157,623 77,194,860 68,913,877 75,437,459 69,208,575 61,983,952


(i) Personal, business and governmentsDemand deposits 22,127,563 19,574,106 15,856,113 17,667,775 14,827,472 11,919,560Savings deposits 38,218,456 35,346,507 32,005,686 36,350,470 33,715,621 30,543,722Time deposits with remaining term to maturity:

Up to 3 months 6,724,051 5,937,181 6,843,405 5,675,406 5,220,168 6,179,283Over 3 months and up to 6 months 1,797,039 1,809,064 1,839,189 1,507,490 1,280,357 1,326,419Over 6 months and up to 1 year 3,421,566 2,786,136 2,605,433 2,589,613 2,475,128 2,297,599Over 1 year and up to 5 years 9,904,467 9,361,605 7,327,897 8,677,629 9,305,014 7,281,215Over 5 years 1,432,648 1,387,215 1,700,586 1,432,648 1,387,215 1,700,586

23,279,771 21,281,201 20,316,510 19,882,786 19,667,882 18,785,10283,625,790 76,201,814 68,178,309 73,901,031 68,210,975 61,248,384

(ii) BanksDemand deposits 1,241,633 818,479 602,839 1,246,228 823,033 602,839Time deposits with remaining term to maturity:Up to 3 months 290,200 124,567 132,729 290,200 124,567 132,729Over 5 years - 50,000 - - 50,000 -

1,531,833 993,046 735,568 1,536,428 997,600 735,568TOTAL 85,157,623 77,194,860 68,913,877 75,437,459 69,208,575 61,983,952

16. Other Liabilities

Accrued interest payable 1,301,016 1,031,308 720,315 1,237,336 992,598 692,092MCB Superannuation Fund 186,806 364,303 158,415 186,806 364,303 158,415MCB Foundation 12,750 12,750 12,750 12,750 12,750 12,750Derivative financial instruments (note 7 (b)) 14,103 23,931 55,329 14,103 23,931 55,329Interest suspense, impersonal & other accounts 2,761,590 2,734,732 1,813,140 2,250,086 2,179,626 1,581,315

4,276,265 4,167,024 2,759,949 3,701,081 3,573,208 2,499,901Interest suspense shown in note 6(c) (800,866) (921,780) (830,951) (782,994) (901,410) (811,686)

3,475,399 3,245,244 1,928,998 2,918,087 2,671,798 1,688,215

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continued

17. Employee Benefits Assets

GROUP BANK2007 2006 2005 2007 2006 2005

Amounts recognised in Balance Sheets at end of year: Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Present value of funded obligations 2,389,118 2,169,478 1,914,583 2,389,118 2,169,478 1,914,583

Fair value of plan assets (3,092,815) (2,427,893) (2,075,061) (3,092,815) (2,427,893) (2,075,061)

Surplus of plan assets (703,697) (258,415) (160,478) (703,697) (258,415) (160,478)

Unrecognised actuarial gains/(loss) 473,532 60,053 (18,703) 473,532 60,053 (18,703)

Assets shown in note 13 (230,165) (198,362) (179,181) (230,165) (198,362) (179,181)

Amounts recognised in the Income Statements:

Current service cost 94,858 87,065 74,710 94,858 87,065 74,710

Interest cost 212,500 178,316 160,549 212,500 178,316 160,549

Expected return on plan assets (242,923) (197,599) (151,911) (242,923) (197,599) (151,911)

Actuarial gain recognised (1,098) - (1,703) (1,098) - (1,703)

Total included in non-interest expense (note 24) 63,337 67,782 81,645 63,337 67,782 81,645

Movements in (assets)/liability recognised in Balance Sheets:

At 1st July 2006 (198,362) (179,181) 359,100 (198,362) (179,181) 359,100

Total expense as above 63,337 67,782 81,645 63,337 67,782 81,645

Disbursements * - - (543,000) - - (543,000)

Contributions and direct benefits paid (95,140) (86,963) (76,926) (95,140) (86,963) (76,926)

At 30th June 2007 (230,165) (198,362) (179,181) (230,165) (198,362) (179,181)

Actual return on plan assets 657,500 350,288 206,978 657,500 350,288 206,978

The principal actuarial assumptions at end of year:BANK

2007 2006 2005% % %

Discount rate 10.50 10.00 9.50

Expected return on plan assets 10.50 10.00 9.50

Future salary increases ** 9.00 8.50 8.00

Future pension increases 6.00 5.50 5.00

* An injection of Rs 543 million was made by the Bank into the Superannuation Fund during the year to 30th June 2005 to enable the latter to take over the liability for the payment of full CPI index-linked pensions and of a 13th month bonus to all pensioners. Such payments were previously effected by the Bank.

** 9.0% for clerical staff and 8.5% for non-clerical staff.


17. Employee Benefits Assets (continued)

Reconciliation of the present value of funded obligations GROUP & BANK2007 2006 2005

Rs'000 Rs'000 Rs'000Present value of obligation at start of period 2,169,478 1,914,583 1,713,011

Current service cost 94,858 87,065 74,710

Interest cost 212,500 178,316 160,549

Benefits paid (87,718) (84,419) (71,228)

Liability loss - 73,933 37,541

Present value of obligation at end of period 2,389,118 2,169,478 1,914,583

Reconciliation of fair value of plan assets

Fair value of plan assets at start of period 2,427,893 2,075,061 1,319,385

Expected return on plan assets 242,923 197,599 151,911

Employer contributions 95,140 86,963 619,926

Benefits paid (87,718) (84,419) (71,228)

Asset gains 414,577 152,689 55,067

Fair value of plan assets at end of period 3,092,815 2,427,893 2,075,061

Distribution of plan assets at end of year GROUP & BANK2007 2006 2005

% % %Percentage of assets at end of year

Local equities 25 20 24

Local bonds 14 8 8

Property 4 5 4

Loan 3 4 22

Overseas bonds and equities 34 35 39

Other 20 28 3

Total 100 100 100

Where the plan is funded, the overall expected rate of return on plan assets is determined by reference to market yields on bonds and expected yield differences on other types of assets held.

Additional disclosure on assets issued or used by the reporting entity GROUP & BANK2007 2006 2005

% % %Percentage of assets at end of year

Assets held in the entity's own financial instruments 8 6 6

Other assets used by the entity 6 15 8

2007Rs'000

Asset experience gain during the period 414,577

2008Rs'000

Expected employer contributions 103,189

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

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continued

18. Outstanding Lease Obligations

GROUP BANK2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Minimum lease payments:

Up to 1 year 4,422 5,967 1,894 4,221 5,742

Over 1 year and up to 2 years 1,960 4,423 572 1,913 4,221

Over 2 years and up to 5 years 572 2,531 - 572 2,485

6,954 12,921 2,466 6,706 12,448

Less:

Future finance charges (588) (1,503) (139) (573) (1,454)

6,366 11,418 2,327 6,133 10,994

The present value of finance lease liabilities may be analysed as follows:

Up to 1 year 3,975 5,052 1,773 3,787 4,861

Over 1 year and up to 2 years 1,837 3,975 554 1,792 3,787

Over 2 years and up to 5 years 554 2,391 - 554 2,346

6,366 11,418 2,327 6,133 10,994

19. Share Capital and Treasury Shares

Number of shares TotalShare Treasury

Capital SharesBalances at 1st July 2004 282,110,456 (12,645,010) 269,465,446

Purchases - (1,059,400) (1,059,400)

At 30th June 2005 282,110,456 (13,704,410) 268,406,046

Purchases - (7,100) (7,100)

At 30th June 2006 282,110,456 (13,711,510) 268,398,946

Cancellation of shares (31,734,861) - (31,734,861)

Exercise of share options - 298,102 298,102

At 30th June 2007 250,375,595 (13,413,408) 236,962,187

The nominal value of the shares is Rs 10 each.


20. Contingent Liabilities

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000(a) Instruments

Acceptances on account of customers 318,872 178,783 229,311 - - -

Guarantees on account of customers 10,932,402 9,737,078 8,342,386 10,531,399 9,376,142 8,006,064

Letters of credit and other obligations on account of customers 7,097,324 3,104,190 2,864,528 6,707,885 2,910,558 2,573,585

Foreign exchange contracts 7,121,096 3,337,284 5,915,276 7,029,518 3,273,555 5,577,353

Other contingent items 422,373 350,642 370,030 394,829 328,107 369,631

25,892,067 16,707,977 17,721,531 24,663,631 15,888,362 16,526,633

(b) Commitments

Loans and other facilities, including undrawn credit facilities 4,487,776 4,622,812 2,288,704 4,366,559 4,484,731 2,213,040

(c) Assets pledged against facilities granted by the Bank of Mauritius

The carrying amount of assets that have been pledged to secure the liabilities of the Bank are as follows:

Securities issued by Government of Mauritius - 1,014,515 970,680 - 1,014,515 970,680

(d) Tax assessment * 201,762 182,880 163,998 201,762 182,880 163,998

(e) Other

Inward bills held for collection 451,586 397,486 433,872 375,853 380,129 419,452

Outward bills sent for collection 620,000 384,882 454,920 620,000 384,882 454,920

1,071,586 782,368 888,792 995,853 765,011 874,372

31,653,191 23,310,552 22,033,705 30,227,805 22,335,499 20,748,723

* The Bank received in 2005 an income tax assessment relating to the three years ended 30th June 2003.

The Bank objected to that part of the assessment which disputed the deductibility of the loss of Rs 632 million sustained as the result of the fraud of February 2003.

The objection to that assessment has been rejected at this stage and the matter is pending in front of the Assessment Review Committee.

The maximum liability that could arise from this assessment amounts to Rs 202 million, including penalties.

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continued

21. Interest Income

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000

Interest on loans 7,068,108 5,494,526 4,398,156 6,475,536 5,057,539 4,076,108

Interest on investments in securities 1,232,702 1,157,577 1,117,467 1,012,713 994,082 926,732

Interest on placements with other banks 637,596 254,336 156,871 579,994 211,544 118,268

8,938,406 6,906,439 5,672,494 8,068,243 6,263,165 5,121,108

22. Interest Expense

Interest on deposits 4,889,524 3,449,997 2,569,000 4,616,568 3,296,931 2,433,582

Interest on borrowings from banks and financial institutions 428,923 350,365 163,969 418,632 296,272 152,734

Other interest expense 7,229 12,889 18,317 6,457 12,230 17,516

5,325,676 3,813,251 2,751,286 5,041,657 3,605,433 2,603,832

23. Other Income

(a) Fee income and commissions

Trade finance 246,141 194,825 160,849 210,571 152,831 138,005

Corporate finance 230,295 209,057 235,920 218,124 195,998 189,629

Credit card 218,917 174,174 136,488 193,313 156,349 123,152

Guarantees 109,450 127,017 88,384 102,450 120,206 83,208

Management and other fees 303,498 130,684 73,434 115,192 90,851 72,715

1,108,301 835,757 695,075 839,650 716,235 606,709

(b) Dividend income

Income from quoted investments:

Subsidiary - - - 23,796 - -

Associate - - - 11,898 29,745 24,628

Others - 24,483 27,113 - - 6,765

Income from unquoted investments:

Subsidiaries - - - 150,057 90,058 153,433

Associates - - - - - 27,487

Others 82,713 34,346 22,626 35,623 30,072 20,906

82,713 58,829 49,739 221,374 149,875 233,219


24. Non-Interest Expense

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000Salaries and human resource development 1,278,813 1,122,296 1,000,892 1,164,119 1,035,480 907,518Employee benefits 63,337 67,782 81,645 63,337 67,782 81,645Equity settled share-based payments 1,886 - - 1,886 - -Depreciation charge 303,730 236,127 193,521 217,780 192,736 177,437Amortisation of intangible assets 110,935 97,178 94,243 106,003 96,158 93,858Consultancy fees in respect of B.P.R. and related projects - 13,458 101,945 - 13,458 101,945Other operating expenses 1,023,457 820,995 781,148 720,655 589,908 595,200

2,782,158 2,357,836 2,253,394 2,273,780 1,995,522 1,957,603Number of employees at the end of the year 2,267 2,172 2,163 2,025 1,956 1,917

Share-based paymentsOn 26th December 2006, at the Annual Meeting, the shareholders approved the transfer of 13,711,510 shares held as Treasury shares in accordance with the terms of an Employee Share Option Scheme.

The number and weighted average exercise price of share options are as follows:

Weighted avg Number ofexercise price options

Granted during the year 76.82 529,918Exercised during the year 77.82 (298,102)Outstanding and exercisable at 30th June 2007 231,816

The options outstanding at 30th June 2007 have an exercise price in the range of Rs 75 to Rs 83.50 and a weighted average contractual life of 3½ months.

The weighted average share price at the date of exercise for share options exercised during F/Y 06/07 was Rs 110.92.

The fair value of services in return for share options granted is based on the fair value of the share options granted measured by the average market price of the share of the last three months, as may be adjusted by the Board of Directors of the Bank to reflect the impact of changes in the capital structure of the Bank. The fair value at measurement date is Rs 83.50.

25. Allowance for Credit Impairment

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000Provisions for bad and doubtful debts 432,427 407,503 553,901 396,992 382,922 530,141Bad debts written off for which no provisions were made 9,590 2,025 538 9,590 2,015 -Provisions released during the year (64,083) (85,806) (174,673) (33,978) (68,224) (163,623)Recoveries of advances written off (2,006) (3,568) (7,238) (2,006) (3,510) (7,238)

375,928 320,154 372,528 370,598 313,203 359,280

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continued

26. Income Tax Expense

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000Income tax based on the adjusted profits 514,675 374,249 434,710 355,395 286,743 329,116

Deferred tax 27,671 23,759 (2,671) 16,551 23,511 (2,462)

Special levy on banks 19,221 - - 19,221 - -

(Over)/Under provision in previous year (745) 1,624 24,309 (1,235) 1,548 22,706

Charge for the year 560,822 399,632 456,348 389,932 311,802 349,360

The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows:

Profit before tax 3,107,530 2,413,083 2,141,394 2,311,353 1,918,865 1,833,620

Less profit of Associates (414,392) (282,390) (230,398) - - -

2,693,138 2,130,693 1,910,996 2,311,353 1,918,865 1,833,620

Tax calculated at a rate of 22.5% / 25% 605,956 532,673 477,749 520,054 479,716 458,405

Effect of different tax rates 45,964 36,997 21,274 - - -

Impact of:

Income not subject to tax (125,130) (183,533) (84,199) (142,756) (183,356) (125,868)

Expenses not deductible for tax purposes 136,767 96,717 68,794 115,149 98,670 42,428

Tax credits (121,211) (84,846) (51,579) (120,501) (84,776) (48,311)

Special levy on banks 19,221 - - 19,221 - -

(Over)/Under provision in previous year (745) 1,624 24,309 (1,235) 1,548 22,706

Tax charge 560,822 399,632 456,348 389,932 311,802 349,360

27. Prior Year Adjustment

The prior year adjustment is in respect of accounting for preference shares as investment in associates under the equity method rather than available-for-sale financial assets in the books of Promotion and Development Ltd.

28. Dividends

BANK2007 2006 2005

Rs'000 Rs'000 Rs’000Interim paid on 19th December 2006 Rs 1.15 per share 308,659 268,399 237,080

Final paid on 19th June 2007 at Rs 1.75 per share 414,676 300,607 273,818

723,335 569,006 510,898


29. Earnings Per Share

(a) Basic earnings per shareBasic earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number

of ordinary shares outstanding during the year, excluding the weighted average number of ordinary shares purchased by the Bank and held as treasury shares.

GROUP2007 2006 2005

Rs'000 Rs'000 Rs'000

Profit attributable to ordinary equity holders of the parent after exceptional items 2,460,845 1,986,423 1,657,889

Profit attributable to ordinary equity holders of the parent before exceptional items 2,460,845 1,907,748 1,657,889

Weighted average number of ordinary shares (thousands) 252,534 268,399 269,210

Basic earnings per share after exceptional items (Rs) 9.74 7.40 6.16

Basic earnings per share before exceptional items (Rs) 9.74 7.11 6.16

(b) Diluted earnings per shareDiluted earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of

ordinary shares outstanding during the year after adjustment for the effects of all dilutive potential ordinary shares. The Bank has only one category of dilutive potential ordinary shares which is share options.

For share options, the proceeds from these instruments shall be regarded as having been received from the issue of ordinary shares at the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued and the number of ordinary shares that would have been issued at the average market price of ordinary shares during the period shall be treated as an issue of ordinary shares for no consideration.

Profit attributable to ordinary equity holders of the parent after exceptional items 2,460,845 1,986,423 1,657,889

Profit attributable to ordinary equity holders of the parent before exceptional items 2,460,845 1,907,748 1,657,889

Weighted average number of ordinary shares basic (thousands) 252,534 268,399 269,210

Effect of share options in issue (thousands) 10 - -

Weighted average number of ordinary shares diluted (thousands) at year end 252,544 268,399 269,210

Diluted earnings per share after exceptional items (Rs) 9.74 7.40 6.16

Diluted earnings per share before exceptional items (Rs) 9.74 7.11 6.16

30. Capital Commitments

Capital Commitments at 30th June are as follows:

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Expenditure contracted for but not incurred 269,082 200,507 357,592 269,082 200,507 357,592

Expenditure approved by the Board but not contracted for 696,597 363,472 254,622 696,597 363,472 254,622

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continued

31. Net Cash Flows from Trading Activities

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000Operating profit 3,107,530 2,334,408 2,141,394 2,311,353 1,881,065 1,833,620

Increase in interest receivable and other assets (150,463) (337,912) (35,786) (222,364) (136,986) (158,252)

Increase in other liabilities 197,605 1,309,338 269,202 238,974 951,048 291,476

Employee share option expenses 1,695 - - 1,695 - -

Disbursements to Superannuation Fund - - (543,000) - - (543,000)

Cash inflow from exceptional item - 37,800 - - 37,800 -

(Release)/additional provision for employee benefits (31,803) (19,181) 4,719 (31,803) (19,181) 4,719

Charge for credit impairment 432,427 407,503 553,901 396,992 382,922 530,141

Release of provisions for credit impairment (64,083) (85,806) (174,673) (33,978) (68,224) (163,623)

Exchange adjustment (121,602) (50,700) (5,466) (91,132) (41,349) (9,513)

Depreciation 303,730 236,127 193,521 217,780 192,736 177,437

Amortisation of intangible assets 110,935 97,178 94,243 106,003 96,158 93,858

Profit on disposal of property, plant and equipment (5,724) (406) (3,573) (4,464) (552) (2,422)

Impairment of intangible assets 9,697 19 15 9,686 19 15

Preliminary expenses written off - - 468 - - -

Release on disposal of investments - - (53) - - -

Profit on disposal of investments and associates (9,903) (30,051) (284) - (58,995) (11,650)

Share of income of associated companies (414,392) (282,390) (230,398) - - -

3,365,649 3,615,927 2,264,230 2,898,742 3,216,461 2,042,806

32. Net Cash Flows from Other Operating Activities

Net increase in deposits 6,972,671 8,019,033 2,831,523 6,228,884 7,224,623 2,901,943

Net increase in loans and advances (6,923,723) (3,681,945) (4,797,868) (6,433,591) (3,300,984) (4,041,377)

Increase in securities 4,804,174 (1,798,663) (862,814) 4,301,059 (1,316,889) (1,551,183)

Decrease/(Increase) in balances due in clearing 171,104 (290,031) 21,975 83,795 (171,106) 47,811

5,024,226 2,248,394 (2,807,184) 4,180,147 2,435,644 (2,642,806)


33. Analysis of the Balances of Cash and Cash Equivalents as shown in the Balance Sheets

GROUP BANK2007 2006 2005 2007 2006 2005

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs’000ASSETS

Cash and balances with Central Banks 6,235,477 5,509,108 4,867,674 4,042,455 4,015,691 3,481,887

Due from other banks 10,208,899 6,694,640 1,073,063 10,135,792 6,826,766 1,044,609

LIABILITIES

Due to other banks (4,778,639) (6,240,537) (3,391,239) (5,124,903) (6,436,660) (3,464,049)

CASH AND CASH EQUIVALENTS 11,665,737 5,963,211 2,549,498 9,053,344 4,405,797 1,062,447

CHANGE IN YEAR 5,702,526 3,413,713 (2,453,009) 4,647,547 3,343,350 (2,354,617)

34. Acquisition of Subsidiary

On 1st July 2006, the Bank acquired 100% of the share capital of Multipliant Management Co. Ltd. The details of the fair values of the assets and liabilities acquired are as follows :

Rs'000Cash and cash equivalents 3,022

Property, plant & equipment 58

Investments 8,534

Deferred tax assets 102

Other assets 612

Other liabilities (903)

Cost of acquisition 11,425

Less: Intragroup cash flow on acquisition (3,022)

Cash outflow on acquisition 8,403

1 4 2 A N N U A L R E P O R T 2 0 0 7


continued

35. Segment Information

Primary reporting format - geographical segments

Year ended 30th June 2007Group Mauritius Reunion* Seychelles Madagascar Mozambique EliminationsRs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Income:

External gross income 11,176,900 10,085,402 - 543,200 298,786 249,512

Expenses (8,107,834) (7,450,925) - (303,673) (181,554) (171,682)

Operating profit before provisions 3,069,066 2,634,477 - 239,527 117,232 77,830

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

Operating profit 2,693,138 2,263,879 - 250,084 125,003 54,172

Share of income of associated companies 414,392 174,938 239,454 - - -

Profit before tax 3,107,530 2,438,817 239,454 250,084 125,003 54,172

Income tax expense (560,822)

Profit for the year 2,546,708

Other segment items:

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

Investments in associates 5,281,108 3,081,654 2,199,454 - - - -

Goodwill and other intangible assets 288,302

Deferred tax assets 15,844


Segment liabilities 94,822,769 88,153,416 - 6,191,409 1,871,840 1,028,796 (2,422,692)

Unallocated liabilities 405,565


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

Depreciation charge 303,730 253,364 - 34,092 5,068 11,206

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

Impairment charge 9,697

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


35. Segment Information (continued)



Income:


Expenses (6,171,087) (5,608,061) - (251,034) (127,110) (184,882)


Allowance for credit impairment (320,154) (313,203) - 523 114 (7,588)


Exceptional items 78,675 78,675






Segment assets 95,766,824 87,269,072 - 6,555,485 1,638,812 1,563,905 (1,260,450)

Investments in associates 3,256,832 1,421,361 1,835,471 - - - -




Segment liabilities 86,680,641 78,679,876 - 6,406,292 1,336,273 1,445,150 (1,186,950)





Amortisation 97,178 96,158 - 122 898 -

Impairment charge 19


1 4 4 A N N U A L R E P O R T 2 0 0 7


continued




Income:


Expenses (5,004,680) (4,589,268) - (206,738) (109,006) (99,668)


Allowance for credit impairment (372,528) (359,280) - (623) (1,141) (11,484)





Profit after tax 1,685,046

Impairment of goodwill (5,867)



Segment assets 82,502,981 75,073,464 - 5,514,751 1,511,590 1,201,461 (798,285)

Investments in associates 2,318,127 806,949 1,511,178 - - - -




Segment liabilities 74,234,114 67,147,975 - 5,444,690 1,204,272 1,119,223 (682,046)





Amortisation 94,243 93,858 - 22 363 -

Impairment charge 15




Secondary reporting format - business segments

Year ended 30th June 2007GroupRs’000

External gross income:

The Mauritius Commercial Bank Ltd 9,997,388

MCB Madagascar SA 298,786

MCB Moçambique SA 249,512

MCB Seychelles Ltd 543,200

Fincorp Investment Ltd 165,947

Others 234,828

Eliminations (312,761)

11,176,900

Group Net interest Fees and Investment Forex profitincome commissions income and others

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Operating income:

The Mauritius Commercial Bank Ltd 4,955,731 3,026,586 839,650 221,374 868,121

MCB Madagascar SA 218,984 157,881 53,455 - 7,648

MCB Moçambique SA 194,735 131,080 27,317 - 36,338

MCB Seychelles Ltd 465,610 244,822 133,148 - 87,640

Fincorp Investment Ltd 52,493 3,844 38,214 8,875 1,560

Others 213,976 48,517 81,766 39,966 43,727

Eliminations (250,305) - (65,249) (187,502) 2,446

5,851,224 3,612,730 1,108,301 82,713 1,047,480

Share of income of associated companies 414,392

6,265,616

Segment assets 99,076,207 95,541,206 3,535,001

Investments in associates 5,281,108



Unallocated assets 5,481,261


1 4 6 A N N U A L R E P O R T 2 0 0 7


continued









Others 98,757


8,543,259

Group Net interestincome/ Fees and Investment Forex profit

(expense) commissions income and othersRs'000 Rs'000 Rs'000 Rs'000 Rs'000

Operating income:





Others 92,913 (269) 48,172 28,757 16,253

Eliminations (198,280) - (49,210) (119,803) (29,267)

4,730,008 3,093,188 835,757 58,829 742,234


5,012,398

Segment assets 90,758,221 88,933,290 1,824,931















Others 101,449


7,288,204

Group Net interest Fees and Investment Forex profitincome commissions income and others

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Operating income:





Others 101,449 1,959 15,435 22,068 61,987

Eliminations (315,414) - (46,000) (205,548) (63,866)

4,536,918 2,921,208 695,075 49,739 870,896


4,767,316

Segment assets 78,633,778 77,485,488 1,148,290






1 4 8 A N N U A L R E P O R T 2 0 0 7


continued

36. Related Party Transactions

(a) The Group

Associated companies and entities in which the Bank holds more than a 10% interest

Directors and Key Management

Personnel

Enterprises in which Key Directors and Key Management Personnel have

significant interest/influence

Rs'000 Rs'000 Rs'000Loans and AdvancesBalances at 30th June 2006 3,144,997 44,234 160,713Movements relating to directors and managers who retired during the year - (4,647) -Existing loans of new appointees 175,000 76 -Associates now converted into subsidiaries (691,870) - -Other net movements 117,792 16,080 (38,314)Balances at 30th June 2007 2,745,919 55,743 122,399Leases receivableBalance at year end:30th June 2007 N/A N/A 43,718

DepositsBalance at year end:30th June 2005 317,040 85,464 19,665

30th June 2006 300,353 78,085 2,31330th June 2007 49,986 73,091 32,205Off Balance sheet itemsBalance at year end:30th June 2005 22,289 150 1,014

30th June 2006 21,549 350 10,35430th June 2007 6,606 500 403Interest incomeFor the year ended:30th June 2005 126,610 3,294 10,314

30th June 2006 148,738 3,955 16,79830th June 2007 186,168 4,670 18,770Interest expenseFor the year ended:30th June 2005 5,965 3,623 982

30th June 2006 23,433 4,961 92030th June 2007 2,644 5,012 2,430Other incomeFor the year ended:30th June 2005 18,996 188 311

30th June 2006 21,236 129 65930th June 2007 25,393 116 18,655

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.


36. Related Party Transactions (continued)

The figure for “other income” from Associated Companies includes an element, representing management fees charged to associated companies in respect of salaries, notional rental of office space and provision of technical, administrative and other assistance to local Group companies. It also includes an amount of Rs 21.8M, Rs 20.1 M and Rs 13.7 M respectively for 2007, 2006 and 2005 in respect of management fees charged to BFCOI.

Additionally, the Bank has entered into management contracts with its foreign banking subsidiaries and charges management fees based on operating income. These fees represent the re-invoicing of expatriate salaries and benefits, where applicable, as well as management, administrative and technical support provided by MCB. Gross amounts claimed, net of withholding tax in the local jurisdiction, were as follows :

MCB Seychelles 5.88 % of Gross operating income Rs 29.0 MMCB Madagascar 5% of operating income Rs 10.7 MMCB Mozambique 5% of operating income Rs 6.2 M

IT and Systems support to the above three companies is provided by BFCOI who has claimed EUR 288,000, EUR 256,000 and EUR 142,000 from MCB Seychelles, MCB Madagascar and MCB Moçambique respectively. These amounts have been charged to our subsidiaries’ income statements and consolidated in Group non-interest expense.

(b) The BankIn addition to the amounts disclosed in (a) above, the following information relate to subsidiaries of the Bank :

Loans and Deposits Off BalanceAdvances sheet items

Rs’000 Rs’000 Rs’000(i) Balances as at 30th June :

Balance at year end:

30th June 2005 222,322 531,726 897,711

30th June 2006 604,031 513,656 895,331

30th June 2007 1,589,365 718,396 735,354

(ii) Income and expenses :Interest income

Interest expense

Other income

For the year ended:

30th June 2005 15,934 9,983 44,646

30th June 2006 63,270 15,505 42,819

30th June 2007 107,835 44,944 60,044

(c) Key Management personnel compensationRemuneration and other benefits relating to key management personnel,

including directors, were as follows :The Group and the Bank

2007 2006 Rs'000 Rs'000

Salaries and short term employee benefits 81,055 53,723

Post employment benefits 4,897 3,562

Termination and other benefits - 16,520

85,952 73,805

1 5 0 A N N U A L R E P O R T 2 0 0 7


continued

37. Segmental Reporting - Bank

The Bank classifies its assets and liabilities into two segments; Segment A and Segment B. Segment B activity is essentially directed to the provision of international financial services that give rise to “foreign source income”.

Segment B assets will generally consist of placements with and advances to foreign financial institutions, notably associated companies and overseas correspondents. Segment B liabilities will normally arise from deposits, borrowings and funds deposited by non-residents, global business companies and residents.

Segment A activity relates to all banking business other than Segment B activity.

Expenditure incurred by the Bank but which is not directly attributable to its income derived from Mauritius or its foreign source income is apportioned in a fair and reasonable manner.

BALANCE SHEETS as at 30th June 20072007 2006

BANK SEGMENT A SEGMENT B BANK SEGMENT A SEGMENT BNote Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

ASSETS

Cash resources

Cash and balances with Central Banks 4,042,455 4,042,455 - 4,015,691 4,015,691 -

Balances with banks and interbank loans 147,802 147,802 - 204,565 204,565 -

Balances with banks abroad 9,987,990 11,872 9,976,118 6,622,201 8,102 6,614,099

14,178,247 4,202,129 9,976,118 10,842,457 4,228,358 6,614,099

Securities and other investments 37(a)

Securities 10,573,779 10,573,779 - 14,874,838 14,874,838 -

Other investments - available-for-sale 1,334,009 579,734 754,275 622,177 580,866 41,311

- derivative financial instruments 23,795 17,011 6,784 16,125 16,125 -

Investments in associates 875,530 - 875,530 872,151 24,735 847,416

Investments in subsidiaries 2,126,099 1,679,793 446,306 1,766,732 1,320,426 446,306

14,933,212 12,850,317 2,082,895 18,152,023 16,816,990 1,335,033

Loans 37(b)

Personal and credit cards 12,969,386 12,923,934 45,452 11,085,228 11,041,620 43,608

Business 44,475,277 44,433,284 41,993 41,316,947 41,250,130 66,817

Entities outside Mauritius 6,652,786 - 6,652,786 5,736,880 - 5,736,880

64,097,449 57,357,218 6,740,231 58,139,055 52,291,750 5,847,305

Less allowances for credit impairment (3,158,304) (3,102,229) (56,075) (3,270,487) (3,225,598) (44,889)

60,939,145 54,254,989 6,684,156 54,868,568 49,066,152 5,802,416

Other

Goodwill and other intangible assets 229,201 229,201 - 314,138 314,138 -

Property, plant and equipment 2,449,780 2,449,780 - 2,193,777 2,193,777 -

Deferred tax assets 15,096 15,096 - 31,647 31,647 -

Other assets 37(c) 1,771,334 1,587,482 183,852 1,600,962 1,435,052 165,910

4,465,411 4,281,559 183,852 4,140,524 3,974,614 165,910

94,516,015 75,588,994 18,927,021 88,003,572 74,086,114 13,917,458


37. Segmental Reporting - Bank (continued)

BALANCE SHEETS as at 30th June 20072007 2006


LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits 37(d)

Personal 57,229,612 52,441,861 4,787,751 53,748,473 50,250,558 3,497,915

Business 16,418,950 14,467,847 1,951,103 13,709,024 11,972,450 1,736,574

Governments 252,469 252,469 - 753,478 753,478 -

Banks 1,536,428 11,637 1,524,791 997,600 55,763 941,837

75,437,459 67,173,814 8,263,645 69,208,575 63,032,249 6,176,326

Borrowings

Borrowings from the Bank of Mauritius 840,329 840,329 - 1,056,122 1,056,122 -

Borrowings from other banks in Mauritius and banks abroad 4,284,574 57,330 4,227,244 5,380,538 113,049 5,267,489

Subordinated debt 1,411,108 - 1,411,108 - - -

6,536,011 897,659 5,638,352 6,436,660 1,169,171 5,267,489

Other

Other liabilities 37(e) 2,918,087 2,626,930 291,157 2,671,798 2,438,765 233,033

Outstanding lease obligations 2,327 2,327 - 6,133 6,133 -

Current tax liabilities 327,374 327,374 - 239,501 224,276 15,225

3,247,788 2,956,631 291,157 2,917,432 2,669,174 248,258Capital and reserves attributable to the ordinary equity

holders of the parentShare capital 2,503,756 2,503,756 - 2,821,105 2,821,105 -

Reserves and surplus 2,738,331 2,672,914 65,417 2,406,662 2,406,662 -

Retained earnings 4,436,959 4,436,959 - 4,605,968 4,605,968 -

9,679,046 9,613,629 65,417 9,833,735 9,833,735 -

Less treasury shares (384,289) (384,289) - (392,830) (392,830) -

Total equity 9,294,757 9,229,340 65,417 9,440,905 9,440,905 -

94,516,015 80,257,444 14,258,571 88,003,572 76,311,499 11,692,073

CONTINGENT LIABILITIES 37(f)

Acceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and foreign exchange contracts 24,663,631 16,787,824 7,875,807 15,888,362 9,501,721 6,386,641

Commitments 4,366,559 3,193,110 1,173,449 4,484,731 3,539,625 945,106Assets pledged against facilities granted by the

Bank of Mauritius - - - 1,014,515 1,014,515 -

Tax assessment 201,762 201,762 - 182,880 182,880 -

Other 995,853 704,509 291,344 765,011 463,212 301,799

30,227,805 20,887,205 9,340,600 22,335,499 14,701,953 7,633,546

1 5 2 A N N U A L R E P O R T 2 0 0 7


continued


INCOME STATEMENTS for the year ended 30th June 20072007 2006


Interest income

Interest on loans 6,475,536 5,967,545 507,991 5,057,539 4,642,811 414,728

Interest on investment in securities 1,012,713 1,012,066 647 994,082 994,082 -

Interest on placements with other banks 579,994 71,290 508,704 211,544 38,455 173,089

8,068,243 7,050,901 1,017,342 6,263,165 5,675,348 587,817

Interest expense

Interest on deposits (4,616,568) (4,233,456) (383,112) (3,296,931) (3,109,268) (187,663)

Interest on borrowings from banks and financial institutions (418,632) (91,774) (326,858) (296,272) (95,396) (200,876)

Other interest expense (6,457) (6,457) - (12,230) (12,230) -

(5,041,657) (4,331,687) (709,970) (3,605,433) (3,216,894) (388,539)

Net interest income 3,026,586 2,719,214 307,372 2,657,732 2,458,454 199,278

Other income

Fee income and commissions 37(g) 839,650 654,280 185,370 716,235 560,056 156,179

Profit arising from dealing in foreign currencies 863,657 783,854 79,803 596,670 584,327 12,343

Dividend income 37(g) 221,374 111,422 109,952 149,875 82,789 67,086

Net gain on sale of securities - - - 58,995 29,435 29,560

Other 4,464 4,464 - 10,283 10,283 -

1,929,145 1,554,020 375,125 1,532,058 1,266,890 265,168

Operating income 4,955,731 4,273,234 682,497 4,189,790 3,725,344 464,446

Non-interest expense

Salaries and human resource development (1,166,005) (1,123,709) (42,296) (1,035,480) (991,783) (43,697)

Employee benefits (63,337) (63,337) - (67,782) (67,782) -

Depreciation (217,780) (207,116) (10,664) (192,736) (186,805) (5,931)

Amortisation of intangible assets (106,003) (96,527) (9,476) (96,158) (92,032) (4,126)

Other (720,655) (700,208) (20,447) (603,366) (571,810) (31,556)

(2,273,780) (2,190,897) (82,883) (1,995,522) (1,910,212) (85,310)

Operating profit before provisions 2,681,951 2,082,337 599,614 2,194,268 1,815,132 379,136

Allowance for credit impairment 37(h) (370,598) (359,419) (11,179) (313,203) (309,372) (3,831)

Operating profit 2,311,353 1,722,918 588,435 1,881,065 1,505,760 375,305

Exceptional items - - - 37,800 - 37,800

Profit before tax 2,311,353 1,722,918 588,435 1,918,865 1,505,760 413,105

Income tax expense (389,932) (363,887) (26,045) (311,802) (296,577) (15,225)

Profit for the year 1,921,421 1,359,031 562,390 1,607,063 1,209,183 397,880



37(a) SECURITIES

Remaining term to maturity2007

Within 3-6 6-12 1-5 Over TOTAL3 months months months years 5yearsRs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

BANK

Government stocks 199,688 369,198 2,360,674 2,035,390 339,928 5,304,878

Treasury bills 3,831,733 824,705 612,463 - - 5,268,901

4,031,421 1,193,903 2,973,137 2,035,390 339,928 10,573,779

Segment A

Government stocks 199,688 369,198 2,360,674 2,035,390 339,928 5,304,878

Treasury bills 3,831,733 824,705 612,463 - - 5,268,901

4,031,421 1,193,903 2,973,137 2,035,390 339,928 10,573,779

2006Within 3-6 6-12 1-5 Over TOTAL

3 months months months years 5yearsRs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

BANK

Government stocks - - 96,768 4,309,838 607,730 5,014,335

Treasury bills 4,290,561 2,281,117 2,915,746 373,078 - 9,860,502

4,290,561 2,281,117 3,012,514 4,682,916 607,730 14,874,837

Segment A

Government stocks - - 96,768 4,309,838 607,730 5,014,335

Treasury bills 4,290,561 2,281,117 2,915,746 373,078 - 9,860,502

4,290,561 2,281,117 3,012,514 4,682,916 607,730 14,874,837

OTHER INVESTMENTS2007 2006

BANK SEGMENT A SEGMENT B BANK SEGMENT A SEGMENT BRs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Available-for-sale

Unquoted

Shares 1,334,009 579,734 754,275 622,177 580,866 41,311

Derivative financial instruments

Derivatives held-for-trading


Currency forwards 11,626 7,388 4,238 15,930 15,930 -

Currency swaps 12,169 9,623 2,546 195 195 -

23,795 17,011 6,784 16,125 16,125 -

1 5 4 A N N U A L R E P O R T 2 0 0 7


continued37

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37(b) LOANS(i) Remaining term to maturity

2007 2006BANK SEGMENT A SEGMENT B BANK SEGMENT A SEGMENT B

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000Within 3 months 24,753,592 22,724,049 2,029,543 22,585,034 20,928,928 1,656,106

Over 3 months and up to 6 months 591,112 571,585 19,527 627,017 345,940 281,077

Over 6 months and up to 1 year 2,299,621 2,290,771 8,850 797,568 778,817 18,751

Over 1 year and up to 5 years 14,983,433 12,289,796 2,693,637 13,646,577 11,230,391 2,416,186

Over 5 years 21,469,691 19,481,017 1,988,674 20,482,859 19,007,675 1,475,184

64,097,449 57,357,218 6,740,231 58,139,055 52,291,750 5,847,305

(ii) Credit concentration of risk by industry sectors2007 2006


Agriculture and fishing 2,612,091 2,612,091 - 2,553,588 2,553,588 -

Manufacturing 5,533,978 5,533,978 - 4,690,181 4,690,181 -

of which EPZ 2,700,609 2,700,609 - 2,687,849 2,687,849 -

Tourism 2,679,985 2,387,410 292,575 2,889,520 2,544,481 345,039

Transport 832 832 - 19,709 19,709 -

Construction/Property 1,359,659 1,359,659 - 568,516 568,516 -

Traders 6,647,451 6,647,451 - 2,332,708 2,332,708 -

Others 3,830,327 2,853,427 976,900 2,248,357 1,335,576 912,781

22,664,323 21,394,848 1,269,475 15,302,579 14,044,759 1,257,820

1 5 6 A N N U A L R E P O R T 2 0 0 7


continued


37(b) LOANS (continued)

(iii) Movements in allowances for credit impairment2007 2006

Specific Portfolio Total Specific Portfolio TotalRs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

BANK

Provisions at 1st July 2006 1,970,877 398,200 2,369,077 1,883,130 367,000 2,250,130

Provisions made during the year 356,392 40,600 396,992 351,722 31,200 382,922

Provisions released during the year (33,978) - (33,978) (68,224) - (68,224)

Amounts written off (356,781) - (356,781) (195,751) - (195,751)

Provisions at 30th June 2007 1,936,510 438,800 2,375,310 1,970,877 398,200 2,369,077

Interest suspense 782,994 - 782,994 901,410 - 901,410

Provisions and interest suspense at 30th June 2007 2,719,504 438,800 3,158,304 2,872,287 398,200 3,270,487

Segment A

Provisions at 1st July 2006 1,961,989 362,199 2,324,188 1,883,130 367,000 2,250,130

Effect of adopting BOM guideline on credit impairment - - - (8,888) (32,170) (41,058)

As restated 1,961,989 362,199 2,324,188 1,874,242 334,830 2,209,072

Provisions made during the year 350,068 35,738 385,806 351,722 27,369 379,091

Provisions released during the year (33,978) - (33,978) (68,224) - (68,224)

Amounts written off (356,781) - (356,781) (195,751) - (195,751)

Provisions at 30th June 2007 1,921,298 397,937 2,319,235 1,961,989 362,199 2,324,188

Interest suspense 782,994 - 782,994 901,410 - 901,410

Provisions and interest suspense at 30th June 2007 2,704,292 397,937 3,102,229 2,863,399 362,199 3,225,598

Segment B

Provisions at 1st July 2006 8,888 36,001 44,889 - - -

Effect of adopting BOM guideline on credit impairment - - - 8,888 32,170 41,058

Provisions made during the year 6,324 4,862 11,186 - 3,831 3,831

Provisions and interest suspense at 30th June 2007 15,212 40,863 56,075 8,888 36,001 44,889




(iv) Allowances for credit impairment by industry sectors2007

Gross amount Non performing Specific Portfolio Totalof loans loans provision provision provisionRs’000 Rs’000 Rs’000 Rs’000 Rs’000

BANK

Agriculture and fishing 4,651,286 120,101 39,031 44,100 83,131

Manufacturing 8,215,950 757,944 441,505 67,600 509,105

of which EPZ 3,611,280 367,681 198,042 42,500 240,542

Tourism 9,734,493 128,802 100,330 14,000 114,330

Transport 1,246,237 25,983 12,156 6,100 18,256

Construction 9,314,223 779,881 428,942 63,000 491,942

Traders 11,015,428 1,155,837 780,759 95,800 876,559

Information and communication technology 642,740 15,356 9,462 8,400 17,862

Financial and business services 4,070,176 88,718 37,821 5,700 43,521

Infrastructure 2,317,647 65 35 3,100 3,135

Personal 6,720,941 1,213,070 644,737 97,300 742,037

of which credit cards 424,520 90,900 75,810 16,700 92,510

Professional 295,560 157,234 77,997 2,700 80,697

Media, entertainment and recreational activities 161,797 53,357 51,520 5,400 56,920

Special certificate holders 583,044 89,973 15,104 1,100 16,204

Others 5,127,927 138,876 80,105 24,500 104,605

64,097,449 4,725,197 2,719,504 438,800 3,158,304

Segment A


Manufacturing 8,215,828 757,927 441,489 67,599 509,088

of which EPZ 3,611,280 367,681 198,042 42,500 240,542

Tourism 7,864,683 124,437 100,257 11,202 111,459

Transport 1,076,831 25,310 12,156 5,256 17,412

Construction 9,213,209 778,925 428,718 62,715 491,433

Traders 9,127,017 1,154,739 780,264 76,927 857,191



Infrastructure 2,317,596 65 35 3,100 3,135

Personal 6,675,489 1,197,026 631,430 96,932 728,362


Professional 280,694 157,143 77,906 2,405 80,311

Media, entertainment and recreational activities 161,797 53,357 51,520 5,400 56,920


Others 3,546,281 135,283 79,315 16,610 95,925

57,357,218 4,694,765 2,704,292 397,937 3,102,229

1 5 8 A N N U A L R E P O R T 2 0 0 7


continued



(iv) Allowances for credit impairment by industry sectors (continued)

2007Gross amount Non performing Specific Portfolio Total

of loans loans provision provision provisionRs’000 Rs’000 Rs’000 Rs’000 Rs’000

Segment B

Agriculture and fishing 66 66 66 - 66

Manufacturing 122 17 16 1 17

of which EPZ - - - - -

Tourism 1,869,810 4,365 73 2,798 2,871

Transport 169,406 673 - 844 844

Construction 101,014 956 224 285 509

Traders 1,888,411 1,098 495 18,873 19,368

Information and communication technology 418,170 139 137 6,270 6,407

Financial and business services 651,217 3,390 13 3,239 3,252

Infrastructure 51 - - - -

Personal 45,452 16,044 13,307 368 13,675

of which credit cards - - - - -

Professional 14,866 91 91 295 386

Special certificate holders - - - - -

Others 1,581,646 3,593 790 7,890 8,680

6,740,231 30,432 15,212 40,863 56,075







BANK


Manufacturing 8,307,454 814,252 579,049 75,400 654,449

of which EPZ 3,760,338 471,699 331,787 55,200 386,987

Tourism 8,538,005 110,177 67,240 12,400 79,640

Transport 1,300,322 17,192 7,359 5,800 13,159

Construction 8,091,950 765,755 433,231 52,900 486,131

Traders 9,644,300 1,104,726 739,828 82,100 821,928



Infrastructure 1,636,018 4 4 2,400 2,404

Personal 5,566,506 1,190,338 623,784 70,200 693,984


Professional 253,395 140,707 57,257 1,800 59,057

Media, entertainment and recreational activities 148,081 145,602 144,284 200 144,484


Others 4,783,566 167,458 122,400 16,600 139,000

58,139,055 4,651,720 2,872,287 398,200 3,270,487

Segment A


Manufacturing 8,307,262 814,117 578,985 75,399 654,384

of which EPZ 3,760,251 471,638 331,758 55,200 386,958

Tourism 7,080,251 104,193 67,178 10,264 77,442

Transport 993,469 15,172 6,806 4,422 11,228

Construction 7,864,563 762,611 433,231 51,281 484,512

Traders 8,292,959 1,103,432 739,542 69,120 808,662



Infrastructure 1,636,018 4 4 2,400 2,404

Personal 5,522,898 1,173,304 616,064 69,774 685,838


Professional 240,101 140,707 57,257 1,587 58,844

Media, entertainment and recreational activities 148,081 145,602 144,284 200 144,484


Others 4,455,876 167,315 122,352 15,423 137,775

52,291,750 4,621,797 2,863,399 362,199 3,225,598

1 6 0 A N N U A L R E P O R T 2 0 0 7


continued






Segment B

Agriculture and fishing 50 50 46 - 46

Manufacturing 192 135 64 1 65

of which EPZ 87 61 29 - 29

Tourism 1,457,754 5,984 62 2,136 2,198

Transport 306,853 2,020 553 1,378 1,931

Construction 227,387 3,144 - 1,619 1,619

Traders 1,351,341 1,294 286 12,980 13,266

Information and communication technology 594,371 111 102 8,999 9,101

Financial and business services 1,524,761 8 7 7,072 7,079

Personal 43,608 17,034 7,720 426 8,146

of which credit cards 2,006 784 355 61 416

Professional 13,294 - - 213 213

Special certificate holders 5 - - - -

Others 327,690 143 48 1,177 1,225

5,847,305 29,923 8,888 36,001 44,889



37(c) OTHER ASSETS2007 2006


Balances due in clearing 380,818 380,818 - 464,613 464,613 -

Accrued interest receivable 781,800 689,588 92,212 526,121 462,781 63,340

Employee benefits asset 230,165 230,165 - 198,362 198,362 -

Others 378,551 286,911 91,640 411,866 309,296 102,570

1,771,334 1,587,482 183,852 1,600,962 1,435,052 165,910

37(d) DEPOSITSBANK SEGMENT A SEGMENT B BANK SEGMENT A SEGMENT B

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000(i) Personal, business and governments

Demand deposits 17,667,775 14,589,669 3,078,106 14,827,472 12,194,294 2,633,178

Savings deposits 36,350,470 35,007,120 1,343,350 33,715,621 32,719,747 995,874

Time deposits with remaining term to maturity:

Up to 3 months 5,675,406 4,635,568 1,039,838 5,220,168 4,335,813 884,355

Over 3 months and up to 6 months 1,507,490 1,343,863 163,627 1,280,357 1,143,116 137,241

Over 6 months and up to 1 year 2,589,613 2,315,441 274,172 2,475,128 2,298,545 176,583

Over 1 year and up to 5 years 8,677,629 8,134,856 542,773 9,305,014 8,897,756 407,258

Over 5 years 1,432,648 1,135,660 296,988 1,387,215 1,387,215 -

19,882,786 17,565,388 2,317,398 19,667,882 18,062,445 1,605,437

73,901,031 67,162,177 6,738,854 68,210,975 62,976,486 5,234,489

(ii) Banks

Demand deposits 1,246,228 11,637 1,234,591 823,033 5,763 817,270

Time deposits with remaining term to maturity:

Up to 3 months 290,200 - 290,200 124,567 - 124,567

Over 5 years - - - 50,000 50,000 -

1,536,428 11,637 1,524,791 997,600 55,763 941,837

Total 75,437,459 67,173,814 8,263,645 69,208,575 63,032,249 6,176,326

1 6 2 A N N U A L R E P O R T 2 0 0 7


continued


37(e) OTHER LIABILITIES2007 2006


Accrued interest payable 1,237,336 1,125,839 111,497 992,598 863,950 128,648

MCB Superannuation Fund 186,806 186,806 - 364,303 364,303 -

MCB Foundation 12,750 12,750 - 12,750 12,750 -

Derivative financial instruments 14,103 9,663 4,440 23,931 23,931 -

Interest suspense, impersonal & other accounts 2,250,086 2,074,866 175,220 2,179,626 2,075,241 104,385

3,701,081 3,409,924 291,157 3,573,208 3,340,175 233,033

Interest suspense (782,994) (782,994) - (901,410) (901,410) -

2,918,087 2,626,930 291,157 2,671,798 2,438,765 233,033

37(f) CONTINGENT LIABILITIESBANK SEGMENT A SEGMENT B BANK SEGMENT A SEGMENT B

Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000(i) Instruments

Guarantees on account of customers 10,531,399 7,967,194 2,564,205 9,376,142 7,131,063 2,245,079

Letters of credit and other obligations on account of customers 6,707,885 5,817,784 890,101 2,910,558 2,099,825 810,733

Foreign exchange contracts 7,029,518 2,956,820 4,072,698 3,273,555 - 3,273,555

Other contingent items 394,829 46,026 348,803 328,107 270,832 57,275

24,663,631 16,787,824 7,875,807 15,888,362 9,501,721 6,386,641

(ii) Commitments

Loans and other facilities, including undrawn credit facilities 4,366,559 3,193,110 1,173,449 4,484,731 3,539,625 945,106

(iii) Assets pledged against facilities granted by the Bank of Mauritius

The carrying amount of assets that have been pledged to secure the liabilities of the Bank are as follows:

Securities issued by Government of Mauritius - - - 1,014,515 1,014,515 -

(iv) Tax assessment 201,762 201,762 - 182,880 182,880 -

(v) Other

Inward bills held for collection 375,853 298,352 77,501 380,129 348,158 31,971

Outward bills sent for collection 620,000 406,157 213,843 384,882 115,054 269,828

995,853 704,509 291,344 765,011 463,212 301,799

Total 30,227,805 20,887,206 9,340,600 22,335,499 14,701,953 7,633,546



37(g) OTHER INCOME2007 2006


(i) Fee income and commissions

Trade finance 210,571 172,648 37,923 152,831 130,281 22,550

Corporate finance 218,124 192,685 25,439 195,998 186,645 9,353

Credit card fees 193,313 161,707 31,606 156,349 129,740 26,609

Guarantees 102,450 77,554 24,896 120,206 66,208 53,998

Management and other fees 115,192 49,686 65,506 90,851 47,182 43,669

839,650 654,280 185,370 716,235 560,056 156,179

(ii) Dividend income

Income from quoted investments:

Subsidiary 23,796 23,796 - - - -

Associate 11,898 11,898 - 29,745 29,745 -

Income from unquoted investments:

Subsidiaries 150,057 47,081 102,976 90,058 24,666 65,392

Others 35,623 28,647 6,976 30,072 28,378 1,694

221,374 111,422 109,952 149,875 82,789 67,086

37(h) ALLOWANCE FOR CREDIT IMPAIRMENT2007 2006


Provisions for bad and doubtful debts 396,992 385,806 11,186 382,922 379,091 3,831

Bad debts written off for which no provisions were made 9,590 9,590 - 2,015 2,015 -

Provisions released during the year (33,978) (33,978) - (68,224) (68,224) -

Recoveries of advances written off (2,006) (1,999) (7) (3,510) (3,510) -

370,598 359,419 11,179 313,203 309,372 3,831

1 6 4 A N N U A L R E P O R T 2 0 0 7

A Review of the Economic Environment

21 September 2007

“ On the basis of the continuing development of infrastructure and technological access, the ICT industry sustained a double-digit growth.”

1 6 6 A N N U A L R E P O R T 2 0 0 7

A Review of the Economic Environment

The International Context Strong economic performances across the globe have led to

a notable improvement in annual world output growth from

4.9% in 2005 to 5.5% in 2006, underpinned by a favourable

financial environment as well as some relief in oil markets

as from August 2006 following reduced tensions in the

Middle-East and improved demand-supply conditions at

the time. As such, the gross domestic product (GDP) of the

US economy grew by an appreciable rate of 3.3%, largely

anchored on robust consumption patterns associated with

improved job creation, particularly in the services sector,

despite a softening of the housing market. For its part,

the euro area registered its highest expansion rate in six

years at 2.8% as a consequence of economic restructuring

programmes, enhanced business confidence and improving

labour market conditions which contributed to reduce the

joblessness rate in the region to 7.5% as at December

2006, the lowest in more than a decade. Moreover, emerging

market economies made a significant contribution to

the healthy global performance on the back of bullish

investment and solid export performances, with China and

India, in particular, posting remarkable expansion rates of

11.1% and 9.7% respectively.

Latest economic releases indicate that growth in the euro

area, particularly in Germany, has remained above trend

during the first half of 2007. As for the US, after a bleak

first quarter characterised by an annualised growth rate

of 0.6% prompted by a slump in the sub-prime mortgage

sector, it rebounded to expand by 3.4% year-on-year

during the second quarter. Hence, based on recent trends

and geared up noticeably by outturns of emerging market

economies, the world economy should pursue its sturdy

growth momentum with a projected expansion rate of

5.2% in both 2007 and 2008 as per the IMF July updates

to its World Economic Outlook. Though representing upward

revisions of 30 basis points compared to previous forecasts,

these projected growth rates are inferior by a similar margin

to that of last year mostly on account of a decline in the

expected annual expansion of the US economy in 2007

by more than a percentage point to 2.0% in line with

the marked slowdown earlier this year. In the euro area,

though anticipated to fall largely as a result of the gradual

withdrawal of monetary stimulus, growth should remain

appreciable this year at 2.6% given favourable cyclical

conditions linked to the positive impact of broad-based

reforms on economic activity. Other advanced economies

would also depict resilience with Japan projected to witness

an economic recovery in 2007 mainly due to upbeat bank

lending, corporate investment and exports, while the

acceleration of domestic demand in the UK would contribute

to strengthen growth to 2.9% this year despite inflation

worryingly hovering above the 2% target in recent times. On

their part, emerging economic powerhouses notably India

and China would outperform earlier expectations and post

impressive expansion rates in 2007 and 2008 underpinned

by solid domestic and external demand associated with

market reforms and increased international openness. At

other levels, groups of countries that are likely to uphold

their robust growth momentum this year include the ‘Newly

Industrialised Asian Economies’ (4.8%) reflecting strong

export revenues in the electronics sector in particular

and the ‘Commonwealth of Independent States’ (7.6%)

on account noticeably of sturdy growth performances of

energy-exporting countries, especially Russia.

Notwithstanding an overall optimistic prognosis, the

balance of risks to global expansion is somewhat inclined

on the downside. In the first place, in case the projected

soft landing does not satisfactorily materialise, the US sub-

prime mortgage crisis could have large-scale contagious

effects on the local economy as a whole and on global


financial markets, particularly in line with recent indications

that projections for US and global economic expansions for

2008 could be brought down on the basis of the persistence

of credit market woes. Moreover, although inflation on a

worldwide scale has generally been kept under check last

year despite strong global demand, upward risks do currently

exist in various forms notably at the level of commodity

prices following the sustained increase in food prices due

to supply scarcity and growing use of biofuels as well as

in energy prices amidst geopolitical tensions in several

regions of the world. As regards advanced economies in

particular, the tightening of labour markets and downward

pressures on productivity growth could accelerate the

rise in consumer prices, while, in emerging market and

IMF World Economic Outlook ProjectionsAnnual percent change

2004 2005(e) 2006(e) 2007(f) 2008(f)

World output 5.3 4.9 5.5 5.2 5.2

Advanced economies 3.3 2.6 3.1 2.6 2.8

United States 3.9 3.2 3.3 2.0 2.8

Euro area 2.0 1.5 2.8 2.6 2.5

Germany 1.2 0.9 2.8 2.6 2.4

France 2.0 1.7 2.0 2.2 2.3

Italy 1.2 0.1 1.9 1.8 1.7

Spain 3.2 3.5 3.9 3.8 3.4

Japan 2.7 1.9 2.2 2.6 2.0

United Kingdom 3.3 1.8 2.8 2.9 2.7

Other emerging market and developing countries 7.7 7.5 8.1 8.0 7.6

Sub-Saharan Africa 6.0 6.0 5.5 6.9 6.4

Commonwealth of Independent States 8.4 6.6 7.7 7.6 7.1

Russia 7.2 6.4 6.7 7.0 6.8

Developing Asia 8.7 9.2 9.7 9.6 9.1

China 10.1 10.4 11.1 11.2 10.5

India 7.8 9.0 9.7 9.0 8.4

Commodity prices (U.S. dollars)

Oil 30.7 41.3 20.5 (0.8) 7.8

Nonfuel 18.5 10.3 28.4 14.5 (7.8)

Consumer prices

Advanced economies 2.0 2.3 2.3 2.0 2.1

Other emerging market and developing countries 5.6 5.4 5.3 5.7 5.0

(e) estimates (f) forecastsSource : IMF World Economic Outlook - April 2007 and July 2007 Update

1 6 8 A N N U A L R E P O R T 2 0 0 7

A Review of the Economic Environment continued

developing economies, inflation is anticipated to worsen on

average this year, owing mostly to high prices of non-fuel

commodities like metals and agricultural products linked

to their growing demand. For their part, after receding in

the second half of 2006, oil prices resumed a sharp upward

trend early this year, even reaching all-time highs recently,

on the basis of the Lebanon conflict and disruptions to

Nigerian and North Sea output as well as apprehensions

that strong demand would outstrip inventories. Looking

ahead, upside risks to oil prices prevail due to recurrent

factors like supply deficiencies and other disruptions in

major oil-producing countries. At another level, on a longer-

term basis, lingering global imbalances could continue to

hinder global expansion despite continuing improvements

therein in the form, amongst others, of trade liberalisation,

downward pressures on the real effective value of the US

dollar and a more balanced domestic demand growth in

economies at different levels of development.

Evolution of Brent Oil Prices

80

75

70

65

60

55

50

45

40

USD

per

bar

rel

Evolution of key interest rates

%

Jul 0

5

Sep

05

Nov

05

Jan

06

Mar

06

May

06

Jul 0

6

Sep

06

Nov

06

Jan

07

Mar

07

May

07

Jul 0

7

Sep

07

7

6

5

4

3

2

1

0

Bank of England repo rate

Federal funds rate

ECB rate

Jul 0

6

Aug

06

Sep

06

Oct

06

Nov

06

Dec

06

Jan

07

Feb

07

Mar

07

Apr 0

7

May

07

June

07

Jul 0

7

Aug

07

Sep

07


In the financial markets, the generally benign and healthy

environment observed during 2006 has facilitated the

creation of ideal economic conditions, thus contributing

to curtail spillovers from the correction in the US housing

market on both the local and global economies. This year,

worrying concerns have emerged in the form of a tightening

of financial conditions due to the credit and housing market

crisis in the US as well as observed systemic repercussions

on financial markets in several parts of the world including

downturns in debt and equity markets, credit crunch

in monetary systems and sustained retrenchment from

risky assets by investors. However, the financial sector

is anticipated to eventually overcome these fears and

exhibit resilience as demonstrated previously by the

successful containment of the financial market turbulence

that occurred during the February – March 2007 period.

Regarding specific financial segments, advanced economy

equity markets reached close to record highs earlier this

year owing to strong earnings growth, while emerging

bond and equity markets bounced back during the year

to substantially high levels notably on indications of a

prospective loosening of monetary policy in the US. On the

interest rate front, while the key official rate in the euro area

was raised from 2.0% towards the end of 2005 to 4.0%

by June 2007 on the basis of a solid recovery, the Bank of

England lifted up its reference rate from 5.50% to 5.75%

in July last in an attempt to rein in inflation. Conversely,

responding to the housing market downturn and ongoing

worries over its potentially damaging impact on economic

growth, the US Federal Reserve reduced the federal funds

rate by 50 basis points to 4.75% in September 2007. As

such, the expected narrowing interest rate differential

between the US and EU – where further monetary tightening

is expected this year and early 2008 due to medium term

inflationary pressures associated with buoyant activity –

would contribute, in concurrence with uncertainty faced by

the US economy, to prolong the average weakening of the

US dollar. This is expected particularly against the euro and

the pound sterling unless the ongoing economic recovery

process in the US economy proves to be faster and stronger

than expected.

The Regional Context At the regional level, in line with the strong global

economic performance, sub-Saharan Africa sustained

its notable growth momentum in 2006 with an expansion

rate of above 5% for the third year in a row. However, GDP

growth in the region was half of a percentage point lower

than in 2005 following temporary difficulties faced by

oil-exporting countries to expand production in order to

meet growing world demand while oil-importing nations

have benefited from satisfactory harvest and high prices

of non-fuel commodities as well as an appreciable pick

up in consumption and investment against the backdrop

of socio-economic reforms. The growth forecast for 2007

has been noticeably increased from 5.5% to 6.9%,

being mainly attributable to healthy performances in

oil-exporting countries given for instance the coming

on stream of new production facilities in Angola and

Equatorial Guinea. Moreover, other member states would

take advantage of prudent macroeconomic management

and growing demand especially for non-fuel commodities

whose prices have swollen during 2006. Overall, the

economic perspectives for sub-Saharan Africa appear

Exchange Rates on World Markets

Value as at Annual average

30-Jun-06 29-Jun-07FY

2005/06FY

2006/07

USD/GBP 1.8491 2.0063 1.7793 1.9333

USD/EUR 1.2779 1.3520 1.2178 1.3060

JPY/USD 114.51 123.39 114.90 118.56

ZAR/USD 7.1650 7.0440 6.4128 7.1949

1 7 0 A N N U A L R E P O R T 2 0 0 7


bright even though some downside risks prevail notably in

respect of a potential slowdown of global economic growth

and its consequences on oil and other commodity prices

as well as any changing private investor sentiment. With

regard to the Indian Ocean region in particular, GDP growth

rebounded in Madagascar, Mozambique, Seychelles and

Maldives in 2006 and is projected to remain appreciable

this year. The inflation outlook for 2007 is also generally

favourable despite some worrying signs this year for

Madagascar and Seychelles.

Regional Economic Outlook ProjectionsAnnual percent change

Real GDP Growth Consumer Price Inflation

2005(e) 2006(e) 2007(f) 2005(e) 2006(e) 2007(f)

Sub-Saharan Africa

Botswana 6.2 4.2 4.3 8.6 11.3 6.0

Kenya 5.8 6.0 6.2 10.3 14.1 4.1

Madagascar 4.6 4.7 5.6 18.4 10.8 9.6

Mauritius 2.3 5.0 5.7 4.9 8.9 9.0

Mozambique 7.8 8.5 6.8 6.4 13.2 5.9

Namibia 4.2 4.6 4.8 2.3 5.1 5.9

Nigeria 7.2 5.3 8.2 17.8 8.3 7.9

Seychelles 1.2 4.5 5.0 1.0 (0.5) 11.0

South Africa 5.1 5.0 4.7 3.4 4.7 5.5

Tanzania 6.8 5.9 7.3 4.4 5.8 5.5

Uganda 6.7 5.4 6.2 8.0 6.6 5.8

Zambia 5.2 6.0 6.0 18.3 9.1 8.0

Maldives (4.5) 16.1 4.0 3.3 3.5 7.0

(e) estimates (f) forecastsSources:CSO and MCB staff estimates for MauritiusIMF World Economic Outlook April 2007 Database for other countries


The Mauritian EconomyAgainst the background of upbeat growth performance in

our main export markets and a favourable evolution of the

euro vis-à-vis the dollar boosting domestic activity, the

Mauritian economy staged a notable recovery in 2006, with an

expansion rate of 5.0% as compared to 2.3% in the previous

year. Meaningfully, a relative stabilisation was observed in

the textile and clothing industry after years of decline which,

together with a sustained solid performance in the seafood

segment, contributed to a major turnaround in the export-

oriented manufacturing sector. Business and financial

services and transport, storage and communications

were, as in previous years, major contributors to economic

growth while a healthy performance was also achieved in

construction on the strength of investments in Integrated

Resort Scheme (IRS) and tourism related projects, despite a

rather subdued outturn in the latter due to the Chikungunya

scare. In fact, continued strong interest by investors in

tourism underscores the high growth potential of the

sector notwithstanding its multiple vulnerabilities. On the

other hand, another contraction was observed in the sugar

sector in 2006 following adverse weather conditions and a

reduction in area harvested in line with loitering difficulties

in the sector. The expansion rate of the economy excluding

sugar stood at 5.3% last year, up from 2.8% in 2005.

Growth momentum should be maintained this year on the

back of a noticeable upturn in the tourism sector and added

buoyancy in construction as well as textile and clothing.

Continued strong performances in business and financial

services and in transport, storage and communications

should further support economic activity whereas the sugar

sector is projected to post another year of contraction.

Despite the economic recovery, labour market conditions

are expected to remain soft notably on account of lingering

structural rigidities. Whilst some related concerns are being

addressed by the authorities, it might take some time

before a material reduction in the unemployment rate is

achieved. As regards inflation, after stabilising at some 5%

during most of the first semester of last year, it took on a

sharp upward trend since June 2006 to reach 8.9% as at

December last and 10.7% as at June 2007. Some of the

main contributors to this significant rise are the removal

of price subsidies, adverse weather conditions and the

knock-on effects of high commodity prices on international

markets amidst strong global demand and major supply

disruptions coupled with rupee depreciation year-on-year.

Whilst inflation should subside in the latter half of 2007,

to a large extent reflecting base effects, it is expected to

remain elevated partly due to price shocks on international

markets with our forecast being further raised to around 9%

as at December 2007. Although remaining at high levels,

the budget deficit as a proportion of output is encouragingly

on a downward trend, contributing to a decline in the public

sector debt to GDP ratio. On the external front, despite a

significant increase in gross tourism receipts, the current

account deficit worsened considerably in FY 2006/07 owing

mainly to a rapidly rising import bill against the backdrop

Sectoral contribution to GDP (Year 2006)

Sugar 3.6%Non-sugar agriculture 2.8%

Export-oriented industry 7.6%

Domestic-oriented industry 11.6%

Electricity, gas & water 2.0%

Construction 5.6%

Wholesale & retail trade 11.6%

Hotels & restaurants 8.5%

Transport, storage & communications 12.2%

Insurance 2.8%

Banking 6.3%

Other financial intermediation 1.2%

Social and general public services 14.8%

Others incl. Government 3.9%

Business activities 5.5%

1 7 2 A N N U A L R E P O R T 2 0 0 7


Mai

n e

cono

mic

indi

cato

rsIn

dica

tors

Unit

1998

1999

2000

2001

2002

2003

2004

(1)

2005

(1)

2006

(1)

2007

(2)

Popu

latio

nm

id-y

ear,

'000

1,16

11,

175

1,18

71,

200

1,21

01,

223

1,23

41,

244

1,25

31,

261

GDP

at m

arke

t pric

esRs

bn

100

108

120

132

142

157

176

185

206

227

Real

GDP

gro

wth

%

5.8

2.1

9.7

5.2

1.8

4.4

4.8

2.3

5.0

5.7

Real

GDP

gro

wth

(exc

l. su

gar)

%6.

15.

77.

94.

93.

34.

54.

52.

85.

36.

2

GDP

per c

apita

US

D3,

595

3,65

13,

860

3,79

53,

938

4,57

85,

182

5,10

15,

272

5,69

0

GDS

% G

DP24

.923

.325

.626

.625

.224

.722

.016

.515

.014

.4

GDFC

F%

GDP

22.9

27.3

22.9

22.7

21.8

22.6

21.6

21.4

24.4

24.0

Budg

et d

efici

t FY

, % G

DP3.

74.

13.

86.

76.

16.

25.

45.

05.

34.

3

M2

end

June

, % G

DP75

.775

.978

.078

.180

.682

.385

.188

.290

.789

.6

M2

grow

then

d Ju

ne, %

17

.413

.210

.99.

913

.011

.714

.413

.111

.29.

1

Bank

rate

end

June

, %

9.03

12.6

610

.65

11.1

410

.01

8.26

4.74

6.13

7.30

10.9

8

CPI i

nflat

ion

FY, %

5.4

7.9

5.3

4.4

6.3

5.1

3.9

5.6

5.1

10.7

CPI i

nflat

ion

CY, %

6.8

6.9

4.2

5.4

6.4

3.9

4.7

4.9

8.9

9.0

Unem

ploy

men

t rat

e (o

ld b

asis

)m

id-y

ear,

%6.

97.

78.

89.

19.

710

.2-

--

-

Unem

ploy

men

t rat

e (n

ew b

asis

)(a)

avg.

, %-

-6.

76.

97.

37.

78.

49.

69.

19.

1

Bala

nce

of v

isib

le tr

ade

CY, R

s bn

-9.7

-16.

6-1

4.0

-10.

4-1

0.7

-12.

9-2

1.5

-30.

1-4

1.4

-43.

8

Curre

nt a

ccou

nt b

alan

ceFY

, % G

DP-2

.8-1

.5-1

.3+

3.4

+5.

4+

2.4

+0.

8-3

.5-5

.3-7

.3

Over

all B

OPFY

, Rs

bn-2

.3+

0.7

+2.

1+

5.1

+5.

9+

9.1

+3.

2-3

.1-3

.0+

6.6

Net I

nter

natio

nal R

eser

ves

end

June

, USD

m88

089

596

61,

091

1,35

61,

666

1,78

81,

854

2,03

52,

710

Impo

rt co

ver(b

)en

d Ju

ne, w

eeks

22.5

21.7

23.8

29.4

34.9

38.0

37.4

33.2

31.8

37.6

Exte

rnal

deb

t ser

vice

ratio

FY, %

exp

orts

6.8

7.9

7.7

9.7

8.5

8.0

6.5

6.5

8.4

6.7

Exch

ange

rate

(Rs/

USD)

annu

al a

vg.,

mid

-rat

e23

.977

25.1

8326

.251

29.0

1229

.888

28.1

0827

.468

29.2

2031

.153

31.5

80

1) re

vise

d es

timat

es

2) M

CB fo

reca

sts

Note

s:

(a) A

s fro

m 2

004,

a n

ew m

etho

d of

cal

cula

tion

has

been

ado

pted

for m

easu

ring

unem

ploy

men

t on

a qu

arte

rly b

asis

usi

ng re

sults

of t

he C

ontin

uous

Mul

ti-Pu

rpos

e Ho

useh

old

Surv

ey.

Figu

res

for 2

000

to 2

003

have

bee

n re

work

ed o

n th

e ba

sis

of re

sults

obt

aine

d in

the

2004

sur

vey.

(b) B

ased

on

finan

cial

year

impo

rts o

f goo

ds

Sour

ces:

CSO

, MoF

, BoM

and

MCB

sta

ff es

timat

es


of the purchase of aircraft, rupee depreciation on an

annual average basis and high commodity prices globally.

Nonetheless, support from the capital and financial account

contributed to a re-established surplus on the balance

of payments, thereby reinforcing the country’s already

comfortable reserves position. Regarding monetary policy, a

tightening stance has been adopted over the financial year

under review in line with a general increase in interest rates

in key global markets and mounting inflation domestically.

Sectoral Analysis

Sugar

Following a drop in the area of land harvested to 66,732

hectares, unfavourable climatic conditions and a decline in

cane productivity per hectare, sugar production decreased

to 504,857 tonnes in 2006 leading to a contraction of 2.9%

in the sector. Notwithstanding this poor performance and

the decrease of 5% of sugar prices on the EU market,

export revenue rose by 5.7%, underpinned by the fall in the

exchange rate of the rupee against the euro. For FY 2007/08,

owing to detrimental climatic conditions combined with

a further reduction in the cultivation base, sugar output

is anticipated to decline further to 465,000 tonnes,

representing a 7.9% fall as compared to FY 2006/07 and

a shortfall of 12.4% with respect to the average annual

production of some 531,000 tonnes registered over the past

five years. However, export revenue could be upheld by the

expected depreciation of the rupee against the euro on an

annual average basis, the more so that no price reduction

associated with the EU sugar regime reform is scheduled

for the period. Globally, after shedding some 500 jobs and

witnessing a fall in its share of GDP from 4.2% in 2005

to 3.6% in 2006, the economic importance of the sugar

industry, in its present form, would further decline this

year in terms of its contribution to output and employment.

Nonetheless, measures linked inter alia to the targeted

gradual reduction in the area of land under cultivation to

some 63,000 hectares, the centralisation of factories and

the rightsizing of its labour force would contribute towards

the transformation of the sector into a cost-effective

and internationally competitive cane cluster that should

progressively strengthen the multifunctional role and hence

the viability of the sugar-producing segment over time.

The successful reengineering of the sugar industry in the

short to medium term is rendered all the more critical

given that, in addition to the effective price cut on the EU

market, competitive pressures are likely to emanate from

the scheduled dismantling of the sugar protocol following

negotiations on the Economic Partnership Agreements

between EU and ACP states that pertain to liberalisation

arrangements spanning the period January 2008 to October

2015. A major reassuring development in view of the

significant outlays required to finance the restructuring

of the industry has been the EU’s decision to increase the

share of accompanying measures accruing to Mauritius

from 15.0% to 19.4%. Presently, in addition to some

EUR 6.5 million that has already been disbursed as sugar

sector budgetary support, the scheduled payout of a variable

quantum of about EUR 4.5 million under the European

Development Fund would hinge on a set of performance

indicators being met, namely the closure of non-economic

Sugar output and price

Sugar production Price (right scale)

‘000 tonnes Rs’000 per tonne

700

600

500

400

300

200

20

18

16

14

12

102002/03 2003/04 2004/05 2005/06 2006/07

Crop year

1 7 4 A N N U A L R E P O R T 2 0 0 7


factories, the application of a Voluntary Retirement Scheme

as well as the development of a training programme for

retiring workers, and the de-rocking of land. As such, efforts

should be upheld to ensure the frontloading and timely

disbursement of funds with a view to enabling the proper

sequencing and swift realisation of projects. Moreover,

given persistent difficulties encountered by stakeholders

to agree on issues vital to the effective implementation of

the reform programme, consultations should be maintained

and agreement reached without undue delays. The risks of

altogether missing targets set by the EU are very real and

the costs thereof hefty indeed.

Export-Oriented Industry

Despite preferences obtained under the AGOA, the

competitive pressures and uncertainty linked to the

liberalisation of the international market environment

have elicited a four-year decline for the export-oriented

industry which ended with a peak contraction rate of 12.3%

in 2005 in the wake of the phasing-out of the Multi-Fibre

Agreement. Nevertheless, with net exports rebounding

to post an expansion rate of 9.1% mostly flowing from a

substantial upturn in revenue collection on EU markets

pepped up by a strong euro, the export-oriented sector

hosted a noticeable recovery in 2006 with a growth rate of

4.6%, mirroring both improved performances by the textile

and clothing segment as well as a diversification of the

export base. In particular, led by continuing Government

support and private sector investment, exports of fish and

fish-related products rose by an impressive 57.8% last

year after significant growth rates of 11.8% and 40.9%

achieved in 2004 and 2005 respectively, as such adding

further credence to the ambition of turning the seafood

hub into a robust economic pillar. Besides, total exports of

textile and clothing products increased by 13.6% in 2006,

thus possibly evidencing the success of reforms such as

an upgrade in productive capacity encompassing quality

improvement as well as successful vertical integration

and consolidation strategies, greater product and market

diversification, and better supply chain management.

Despite the appreciable overall growth performance, net

job loss in the export-oriented sector accelerated to attain

2,322 between December 2005 and December 2006, driven

by the sizeable reduction in workforce of the wearing apparel

segment in a context where the rationalisation process has

led to a net closure of 34 enterprises.

Though the export-oriented industry is projected to pursue

its recovery this year, a number of issues – that could

materially hurt the optimistic outlook in the short to medium

term if materialised – still warrant attention. In the first

place, downside risks to exports of seafood products

to EU markets exist in the form of concerns expressed

over product quality licensing, continuing freeing up of

global access to markets and depleting sea stocks, while

steadfast adaptation to increasingly stiff price and quality

competition on the EU and US markets in particular is

required from the textile and clothing segment, the more so

considering the scheduled termination in the coming years

of the safeguard mechanisms imposed by these entities to

Export-oriented industry : Employment & exports

100

80

60

40

20

0

35

32

29

26

23

20

Mauritian workers Expatriates Exports (right scale)

2002 2003 2004 2005 2006

Dec; ‘000 Rs bn


limit the shipments of certain categories of Chinese clothing

and apparel products. Overall, provided these concerns are

duly addressed and in line with the prospective launch of

the land-based oceanic industry in 2009, the continuing

diversification and strengthening of the economic base

provides a formidable opportunity for employment creation

and increasing the resilience of economic activity to

idiosyncratic shocks.

Tourism

Against the backdrop of year-on-year contractions in

tourist arrivals in March, May, June and November last

year compared to corresponding periods in 2005 as well

as generally restrained achievements in other months,

the tourism industry grew at a below par rate of 3.5% last

year with total arrivals reaching 788,276. By and large,

this subdued performance was mainly engendered by the

Chikungunya episode that affected foreigners’ view of the

island as a health-safe destination notably in the case

of our major markets namely France and Reunion Island

from where tourist arrivals declined by 17.3% and 10.0%

respectively in 2006. However, some relief emanated from

emerging markets like Italy, Sweden and Malaysia due

to the further opening up of air access and reinforced

marketing efforts. Notwithstanding the relatively poor

arrivals performance, gross tourism receipts increased by

a considerable 24.3% to reach some Rs 32 billion in 2006

on the back of a general depreciation of the rupee against

currencies of our major markets.

For the first six months of 2007, a 20% increase in arrivals

has been noted compared to the corresponding period in

2006 with peaks of 37.5% and 28.6% year-on-year in

March and May respectively. Based on these trends and

considering the expected stimulating impact of the air

access liberalisation process on both established and

emerging markets, the tourism industry is expected to post

a double-digit growth this year with arrivals estimated

at more than 900,000. As such, barring large exogenous

shocks, the tourism sector looks set to firmly position itself

as a major driver of long term economic growth and, hence,

of employment and income creation particularly considering

its significant ripple effect across the economy. In the short

to medium term, a high-calibre performance could be

buttressed by recent Budget proposals in favour of enhanced

strategies including a branding exercise for the Mauritian

destination worldwide, diversified tourism products and

the development of a more coherent national strategy for

tourism development. Proper and prompt attention should

Tourist arrivals by country of residence (Year 2006)

France 23.1%

UK 13.0%

Italy 8.8%

Germany 7.3%Other European 12.6%

South Africa 9.0%

Reunion Island 11.3%

Other African 3.7%

Asia 7.6%

Others 3.6%

Europe 64.8%

Tourist arrivals and receipts

800

600

400

200

0

40

30

20

10

02002 2003 2004 2005 2006

Tourist arrivals Receipts (right scale)

‘000 Rs bn

1 7 6 A N N U A L R E P O R T 2 0 0 7


however be given to infrastructure development as well as

law and order on the basis of recurrent concerns regarding

capacity and security, issues to which the tourism sector is

highly sensitive.

Business and Financial Services

Growth in the business and financial services sector –

of which nearly two-thirds is made up of the financial

intermediation segment and the rest by business

activities consisting inter alia of consultancy, engineering,

accountancy and other professional activities – increased

by nearly one percentage point last year to attain 7.3%.

Underpinned by a more gratifying business environment

linked to the economic recovery process, the banking sector

was a key contributor to this appreciable performance,

expanding by 7.1% in 2006. It should sustain its growth

momentum this year, the more so considering enhanced

business sentiment following budgetary measures. In the

longer term, the sources of growth could prove more varied

and resilient on the basis of the prospective launch of new

banking institutions and further market diversification of

existing ones. Regarding other segments, insurance and

business activities maintained notable growth rates of

5.0% and 8.1% respectively last year, with even better

performances anticipated in 2007.

As regards the stock market, in line with the economic

recovery and improved investor confidence, a bullish trend

was maintained with the SEMDEX soaring by 70.3% over

FY 2006/07 to reach 1,433.07 as at 29 June 2007, and the

total return index, SEMTRI, rising by a hefty 77.4% in rupee

terms over the financial year to close at 3,691.60. Likewise,

the Development & Enterprise Market, which was set up in

August 2006 for companies quoted on the Over-The-Counter

market, small and medium enterprises (SMEs) and newly

set up companies with good growth potential, observed an

uptrend with the DEMEX and DEMTRI growing by 45.4%

and 48.0% respectively from the starting date to the end of

June 2007. Moving forward, on account of various initiatives

aimed at raising both the knowledge of and interest for the

Daily evolution of SEMTRI (in rupee terms)

3700

3500

3300

3100

2900

2700

2500

2300

2100

1900

1700

1500

Jul 0

6

Aug

06

Sep

06

Oct

06

Nov

06

Dec

06

Jan

07

Feb

07

Mar

07

Apr 0

7

May

07

Jun

07

Inde

x: 5

Jul

y 19

89=1

00


stock exchange among the population as well as a generally

favourable short to medium term outlook for the major listed

companies amidst an enhanced economic environment, the

various stock market indices can be expected to prolong

their healthy performances.

Other Main Sectors

Strong consumer demand and expanding Freeport activities

largely accounted for the notable growth rate of 5.1% in the

trade sector in 2006 but a relatively inferior performance

is expected this year due to a slowing down of the real

growth of consumption expenditure against the backdrop

of high consumer price inflation. For its part, the domestic-

oriented industry, after stagnating in 2005, posted a

noticeable recovery last year as translated by a growth rate

of 4.1% prompted by growing economic activity nationwide,

including at the level of SMEs within the context of a more

stimulating incentives set-up. In the foreseeable future,

while downside risks to the performance of the domestic-

oriented sector relate to increasing competition from

imported products as well as likely tightening pressures

on the consumer market linked to price hikes, planned

market liberalisation in various sectors could stimulate its

development over the medium term.

The construction sector rebounded strongly from the 4.4%

contraction in 2005 with a growth rate of 5.2% last year

following major works undertaken with regard to residential

buildings as well as the construction/renovation of hotels

and the development of IRS projects. Notwithstanding

general supply intricacies regarding raw materials and

human resources, the upturn in the construction sector

should be pursued this year, mainly driven by the hotel and

hospitality industry, with extra support expected from the

expansion and launch of textile and clothing enterprises

amongst others. In respect of the transport, storage and

communications sector, expansion in 2006 attained a

noteworthy, albeit declining, rate of 7.3% in line with the

purchase of aircraft and the buoyant performance of the ICT

sector. Indeed, on the basis of the continuing development of

infrastructure and technological access, the ICT industry –

whose contribution to GDP reached 5.8% – sustained a

four-year period of double-digit growth. However, there

remains much scope for more effectively tapping into

the substantial socio-economic benefits attached to the

deployment of technologies.

Savings and Investment

The Gross Domestic Fixed Capital Formation (GDFCF) to

GDP ratio improved from 21.4% in 2005 to 24.4% last

year, largely due to significant outlays in the acquisition of

aircraft and marine vessel. When excluding this item, the

investment ratio almost stagnated at a below par 21.6%.

Nonetheless, some comfort can be taken from the fact

that last year’s performance was driven by a significant

recovery in private sector investment on the back of the

implementation of large scale projects notably related

to tourism and hospitality. As such, the ratio of private

investment to output improved perceptibly in 2006, albeit

remaining subdued at 16.7%, and is expected to increase

further this year amidst enhanced investor confidence

largely generated by an improvement in the business

framework through lower taxes, streamlined regulations

and stronger institutions, amongst others.

For its part, the ratio of Gross Domestic Savings (GDS) to

GDP went down by 1.5 percentage points to stand at 15.0%

last year in line with high nominal growth in consumption

expenditure. The abnormally low savings rate, which is

projected to decline even further this year, has resulted in

a large domestic resource gap of nearly 10% of GDP. This

highlights the importance of attracting foreign investment

1 7 8 A N N U A L R E P O R T 2 0 0 7


to finance capacity building at the level of physical capital,

a prerequisite for enhanced future growth. Encouragingly,

economic reforms embarked upon by the authorities to foster

a more business-friendly environment coupled with a broader

array of opportunities at sectoral level have contributed to a

substantial rise in foreign direct investment flows. Provided

that the restructuring programme is not derailed, these

funds should support the upward trend in GDFCF, thereby

upholding the economic recovery process and providing an

adequately solid platform for boosting domestic financing.

Inflation

The general price level shot up by a significant margin

during the year ending June 2007 reflecting pressures

stemming from developments within the domestic

economy as well as in global markets. As such, the sharp

upward trend in inflation in FY 2006/07 has to some

extent been triggered by the budgetary measures linked

to the increase in excise duties and the replacement of

generalised subsidies on rice and flour by targeted income

support which contributed to a substantial rise in the

sub-index relating to food and alcoholic beverages as

illustrated in the table below. These pressures have been

compounded by the sustained high level of oil prices and

the surge in other commodity prices internationally. Further

fuelling imported inflation has been the depreciation of

the effective exchange rate of the rupee on an annual

average basic albeit tempered by the relative strength of

the local currency particularly against the greenback since

early 2007. On the whole, headline inflation increased at

an uninterrupted pace to reach 10.7% as at June 2007

compared to 5.1% one year earlier.

Movement in CPIDescription Weight in CPI basket % Change (FY 2006/07)

Average Point-to-point

Food and non-alcoholic beverages 299 14.5 19.9

Alcoholic beverages and tobacco 86 16.8 4.4

Clothing and footwear 60 6.9 5.9

Housing, water, electricity, gas and other fuels 96 9.0 4.5

Furnishings, household equip & routine household maint. 80 7.7 6.9

Health 28 5.6 4.0

Transport 139 7.6 4.2

Communication 31 (2.0) 1.9

Recreation and culture 53 6.5 4.4

Education 24 5.9 9.0

Restaurants and hotels 50 17.1 10.3

Miscellaneous goods and services 54 8.2 10.0

TOTAL 1,000 10.7 10.0

Resource gap & FDI

% GDP30

25

20

15

10

5

0

-5

-10

2002 2003 2004 2005 2006

Gross Domestic Savings GDFCF

Resource surplus/gap FDI


Even on excluding factors that are inherently prone to

volatility, the inflation rate witnessed a considerable

rise as gauged by the hike in core inflation over the last

financial year though a relative stabilisation has been

observed during the last months. For instance, core inflation

excluding movements in prices of food and energy items as

well as in administered prices went up steeply from 4.5%

in June 2006 to 7.9% in June 2007. A further indication

of underlying inflationary pressures is the increase in the

GDP deflator by 6.9% in 2006 as compared to 4.3% in

the previous year. Looking ahead, inflation should, barring

major disturbances, adopt a declining course largely due

to a strong statistical effect but also reflecting monetary

policy tightening. Nonetheless, the rate should remain high

on account of more pronounced risks to price stability linked

inter alia to regained volatility in oil markets and heightened

pressures on other commodity prices as a result of tight

supply conditions and strong global demand.

Employment and Wages

As opposed to the sugar and export-oriented manufacturing

sectors where a net employment contraction of some 1,000

was observed in 2006 in line with lingering difficulties

therein and related restructuring initiatives undertaken,

notable job creation occurred in the construction sector

and in the domestic-oriented industry, reflecting their

reinvigorated economic performances, as well as in the

tertiary sector. In fact, the latter cemented its position as

the predominant source of employment in the economy

with remarkable net employment gains of more than 7,000

driven by contributions from the business and financial

services, tourism, trade and education sectors. Overall,

with the relative improvement in the labour market

being reflected by net job creation exceeding the rise in

the labour force by 1,900, the unemployment rate, whilst

remaining high, declined from 9.6% in 2005 to 9.1% last

year, the first downward movement since the early 1990s.

In spite of some encouraging signs of improvement, the

labour market conditions are projected to remain soft for

some time on account of inherent inefficiencies and would

thus warrant close scrutiny in the periods ahead. Indeed,

despite some progress towards reducing information

asymmetries, initiatives to tackle job mismatch and other

structural rigidities linked to the transformation of the

economy will take time to materialise and their success

will hinge upon the timely and effective implementation of

specific human development and legal reforms in addition

to that of broad-based economic programmes.

Labour force and unemployment

%

Mauritian employed Mauritian unemployed

Expatriates Unemployment rate (right scale)

Inflation

%

Core 1: excludes “Food, Beverages, Tobacco” components from Headline inflation

Core 2: excludes Food, Beverages, Tobacco, energy prices and administered prices from Headline inflation

12

10

8

6

4

2

Jul 0

6

Aug

06

Sep

06

Oct

06

Nov

06

Dec

06

Jan

07

Feb

07

Mar

07

Apr 0

7

May

07

Jun

07

Headline Core 1 Core 2

575

525

475

425

375

325

12

10

8

6

4

22002 20042003 2005 2006

‘000

1 8 0 A N N U A L R E P O R T 2 0 0 7


The overall wage rate index grew by 3.8% from September

2005 to September 2006 compared to a 5.0% rise over

the corresponding period one year earlier. Increases in the

respective sub-indices of all industry groups were recorded

with the largest wage rate hike of 9.5% registered in the

construction sector, followed by expansions of 8.3%, 7.0%

and 6.2% in the utilities, tourism, and real estate, renting

and business activities sectors respectively. Conversely,

wages in the health and social work segment witnessed the

lowest expansion rate at a mere 0.3%. With regard to the

contribution to the increase in the general wage rate index,

the manufacturing, mining and quarrying industry group

took top spot in view of its significant weight, accounting

for 1.2 points within the total rise of 5.2 points.

Public Finance

In spite of a reduction in corporate and personal income tax

rates, the authorities managed to reduce the budget deficit

by one percentage point to 4.3% of GDP in FY 2006/07.

Nonetheless, this still constitutes an underperformance of

30 basis points as compared to the announced estimates

owing, amongst others, to a lower than expected increase

in tax revenue, delay in the disbursement of grants by

the EU and higher than anticipated expansion in current

expenditure. The improvement in public finances has

been translated by a year-on-year decline in the share of

public debt to GDP to below 55% in June 2007. Likewise,

after providing for the closing of the Consolidated Sinking

Fund and the inclusion of the domestic debt of public

corporations as per its revised definition, public sector debt

declined by six percentage points to reach 62.8% of GDP as

at June last.

In the context of the National Budget 2007/08, alongside

measures to enhance tax collection and compliance, major

fiscal announcements included the accelerated reduction

in personal and corporate income taxes to 15% and the

imposition of a special levy on profitable banks as from

the current financial year. Reflecting the commitment

towards reinforced fiscal discipline against the backdrop

of the high, albeit declining, public sector debt as well

as its momentous restraint on fiscal manoeuvring, the

budget deficit is projected to further decline to 3.8%

of GDP in FY 2007/08, while the primary balance would

encouragingly shift to a positive figure. In particular, the

revenue account is likely to register an elevated growth

rate of 18.5% due principally to substantial proceeds

Social 51.7%

Public debt interest 17.4%

Economic affairs 9.5%

Social security & welfare 21.6%

Education 13.8%

Health 8.3%

Housing and community amenities 6.9%

Recreation, culture & religion 1.1%

Defence, public order & safety 8.5%

General public services excluding public debt interest 12.9%

Breakdown of Government expenditure (FY 2006/07)

Sectoral breakdown of employment (Year 2006)

Sugar 3.9%

EPZ 12.6%

Construction 9.4%

Trade 15.3%

Domestic-oriented industry 10.4%

Non-sugar agriculture, forestry and fishing 5.9%

Hotels & restaurants 6.2%

Transport, storage & communications 7.1%

Business & financial services and real estate 5.9%

Social & general public services 16.1%

Others 7.2%


of Rs 2.9 billion mostly from the EU representing grants

for general budget and sugar sector support as well as

the anticipated buoyancy effect of purported improved

economic activity with upshots being estimated increases

of 12.1% in receipts of personal income and corporate

taxes and of 9.9% in inflows relating to value added tax.

On the expenditure side, a 15.3% increase is expected

with recurrent expenditure rising by 13.2%, driven in

large part by expenses on wages and salaries, and capital

expenditure surging by a notable 28.1% mostly due to

major public infrastructure works. It is thus reassuring to

take cognisance of the firm commitment of the authorities

to boost the capacity of the country as a consequence

of its insfrastructure reaching its stretch limit following

more buoyant activity. For instance, while the worryingly

large fleet of vehicles – 326,501 as at June 2007 – is

fuelling congestion problems in a context where the road

network has improved only moderately in recent times, the

international competitiveness of the port as well as its

strategic positioning as a regional transshipment hub are

apparently being impaired by capacity constraints linked

to its increasing utilisation by operators – total container

traffic rose by 10.2% over FY 2006/07 – coupled with the

related underdevelopment of underlying infrastructure

support despite ongoing projects.

Looking ahead, to better release resources for enhanced

economic activity, high focus should be placed on tackling

the still high public sector debt situation. Fiscal adjustment

initiatives should therefore be continuously deployed to

trim down the budget deficit to more sustainable levels by

means of a judicious mix of pro-growth initiatives as well

as a bold and more extensive range of budgetary savings.

These may include a rigorous application of the Medium

Term Expenditure Framework and a far more active search

for ‘value for money’ public services.

External Front

External Trade

Symptomatic of an improving export-oriented industry despite

competitive threats linked to world trade liberalisation,

total merchandise exports expanded by 16.9% in 2006. In

particular, after worsening in 2005, the textile and clothing

industry achieved an upturn last year as translated, for

instance, by a growth of 12.3% in exports of articles of apparel

and clothing, while the seafood hub upheld its remarkable

robustness through a rise of 48.8% in revenue associated with

both EPZ and Freeport transactions. For its part, cane sugar

exports expanded despite reduced production and a price cut,

fuelled by the relative strength of the euro. Comparatively,

imports swelled by a larger proportion than exports at a rate of

23.9% mostly on account of a soaring bill for refined petroleum

products, the purchase of aircraft and upward commodity price

movements linked to international market conditions as well

as the depreciation of the effective exchange rate of the rupee

on an annual average basis. Overall, notwithstanding the

substantial rise of some 37.0% in net exports of the Freeport

Zone, uplifted by buoyant trade in seafood and manufactured

articles, the balance of trade deficit significantly deteriorated

from Rs 30.1 billion in 2005 to Rs 41.4 billion last year,

representing an increase in its proportion to GDP from 16.2%

to 20.1% over the corresponding period.

Budget revenue, expenditure & deficit

6050403020100

Rs bn % GDP

Total derived revenue & grants Budget deficit (right scale)

Total derived expenditure & net lending

7654321

2002/03 2003/04 2004/05 2005/06 2006/07

1 8 2 A N N U A L R E P O R T 2 0 0 7


The balance of trade deficit is projected to broaden this

year as gauged by first semester results depicting its

widening to Rs 21.1 billion from Rs 17.7 billion in the

corresponding period of 2006. Export growth would be

driven by appreciable achievements expected in the

seafood and the textile and clothing industries, supported

by a strong euro. On the import side, while a much lower net

outlay in respect of the purchase of aircraft should provide

some relief to the overall bill, excluding Freeport activities,

a sizeable rise should again be registered considering the

general upward movement in oil prices on international

markets since the beginning of the year and pressures

on the cost of some food items and raw materials amidst

supply-side disruptions and growing world demand.

Looking forward, a favourable balance of trade position in

the medium term would hinge on measures to expand the

export base and strengthen its competitiveness. Moreover,

it might be judicious, albeit challenging, to define a long-

term strategy to reduce our dependence on imported food

and energy items given increasingly recurrent price shocks

on international markets.

Balance of Payments

Notwithstanding a solid rise of some 27% in gross tourist

remittances to more than Rs 36 billion during FY 2006/07

as well as a significant increase in the surplus on the

income account, the current account deficit is estimated to

have widened significantly from 5.3% of GDP in FY 2005/06

to 7.3% of GDP in the last financial year, largely on account

of a strong rise in imports on the back of the purchase of

aircraft in the last quarter of 2006. However, the impact

on the balance of payments has somewhat been tempered

by notable investment inflows partly linked to IRS projects

and purchases of securities. Overall, a surplus of around

Rs 6.6 billion is estimated on the balance of payments in

Imports by country of origin (Year 2006)

Exports by country of destination(Year 2006)

UAE 11.4%

USA 8.3%

UK 32.4%

Other European Countries 16.7%

Others 13.7%

France 12.6%

Malagasy Rep. 4.8%

France 14.2%

Germany 4.0%

Italy 2.6%

Hungary 3.5%

Finland 2.4%UK 2.5%

Other European countries 7.0%

USA 2.0%

South Africa 7.3%

Australia 2.7%Others 6.2%

India 13.6%

China 8.6%

Saudi Arabia 3.4%

UAE 2.9%

Japan 2.8%

Malaysia 2.6%

Other Asian countries 11.7%

Asia 45.6%

Balance of trade

Exports (f.o.b) Imports (c.i.f) Balance of trade

Rs bn120100806040200

-20-40-60

2002 2003 2004 2005 2006


FY 2006/07. This has led to a consolidation of our reserves

position to some Rs 85.3 billion as at June 2007, representing

an import coverage of 8.7 months based on imports of

goods for FY 2006/07, compared to 7.3 months a year

earlier. In the foreseeable future, the likelihood of sustaining

a surplus on the balance of payments would, in the first

place, be boosted by projected large net inflows related

to capital investment projects while additional support

could over time emanate from a healthier current account

balance if efforts for enhanced national competitiveness

are effectively and promptly materialised.

External Debt

Although expanding by 8.2% year-on-year to reach

Rs 28.4 billion as at June 2007, the total external debt stock

declined as a percentage of GDP from 13.4% to 13.2%

over the last financial year. In contrast to Government

and private sector debt which rose by 46.3% and 19.4%

respectively over the period, external debt held by public

corporations dwindled by 14.0%, causing its share of total

stock to decline from 59.7% to 47.5%. For its part, external

debt servicing fell by 10.4% to reach Rs 8.8 billion in

FY 2006/07, with capital repayments of Rs 7.7 billion and

the remainder comprising interest payments as well as

management and service charges. Consequently, the debt

service ratio, expressed as a percentage of exports of goods

and services, decreased from 8.4% to 6.7%, thus easing

an already low external debt burden.

Interest Rates and Currency

Major reforms contributing towards greater flexibility and

effectiveness of the monetary framework were brought about

during the last financial year. Effective at a rate of 8.5% per

annum in December 2006 when it replaced the Lombard

rate, the Repo rate now acts as the underlying signalling

mechanism for the monetary policy stance, backed by a two-

pillar approach based on an analysis of short-run economic

and long-run monetary risks to medium term price stability

as well as sustainable economic growth. In the same breath,

the Monetary Policy Committee was launched in April 2007

and was thereafter granted independence through the

Finance Act 2007 for the formulation and determination of

monetary policy.

An overall monetary tightening stance was adopted by the

Bank of Mauritius in 2006 as reflected by dual increases

of the Lombard rate by 50 basis points in July and by one

percentage point to 13% in September against a general

background of heightened inflationary pressures, monetary

tightening bias in international markets and continued

decline in the value of the rupee. In the same vein, the Repo

rate was raised by 75 basis points to 9.25% in July 2007,

Current account

Balance of payments and import cover

Balance (Rs bn) % GDP

420

-2-4-6-8

-10-12-14-16-18

2002/03 2003/04 2004/05 2005/06 2006/07

10

8

6

4

2

0

-2

-42002/03 2003/04 2006/072004/05 2005/06

BOP (Rs bn) Import cover (months)

1 8 4 A N N U A L R E P O R T 2 0 0 7


attributable to delicate short to medium term inflationary

pressures mostly triggered by rising commodity prices and

the anticipated pressures on domestic currency linked

to likely hikes in comparable benchmark rates abroad.

Partly reflecting the tighter monetary stance, the Bank

rate increased from 6.94% in FY 2005/06 on an annual

average basis to 10.72% in the last financial year with

a peak of 13.38% in February last following a continued

surge therein in late 2006 and early 2007. It nonetheless

pursued a downward trend in recent months – namely

fuelled by short-supply of treasury bills – despite the

upward movement in the Repo rate, implying declining

cost of Government debt as opposed to higher interest

rates on credit to the economy. Moving forward, a more

neutral monetary policy stance should be maintained

over the short term at least, with influences for tightening

such as relatively high inflation expectations, improving

economic growth and rising interest rates abroad being

fairly balanced by concerns over a still low investment level

and downside risks to the recovery process as well as by

the foreseen decline in inflation.

Despite being relatively contained on account of policy

tightening, broad money supply, M2, increased by a notable

9.1% over FY 2006/07 backed by a rise of 10.0% in banking

sector claims on the private sector in line with expanding

economic activity and by a hike of 38.3% in net foreign

assets. As such, as at June 2007, M2 stood at Rs 193.6

billion, representing 89.6% of GDP.

Evolution of Lombard rate, Repo rate, Bank rate and MCB Prime Lending rate

Jul 0

5

Sep

05

Nov

05

Jan

06

Mar

06

May

06

Jul 0

6

Sep

06

Nov

06

Jan

07

Mar

07

May

07

Jul 0

7

Sep

07

%

16

14

12

10

8

6

4

2

0

Lombard rate

Repo rateMCB Prime Lending rate

Bank rate

Money supply (end of period)

200

160

120

80

40

0

95

90

85

80

75

70

Rs bn %

2002/03 2003/04 2004/05 2005/06 2006/07

M2 M2/GDP (right scale)


After depreciating significantly during the first half of

FY 2006/07 against the backdrop of tight liquidity in the

foreign currency market mostly linked to large merchandise

imports as well as perceived speculative activity, the

rupee recouped part of the loss vis-à-vis major currencies

over the January to May 2007 period, being supported

by inflows related to FDI as well as portfolio investment

to a large extent prompted by high yields on Government

securities. With the general intrinsic strength of the euro

and pound sterling on international markets subsequently

contributing to an appreciation of these currencies against

the rupee, the effective exchange rate of the domestic

currency should depreciate on an annual average basis

this year despite the relative weakness of the dollar and

substantial capital inflows.

Selling rates of main currencies vis-à-vis the rupeeValue as at Annual average

30-Jun-06 29-Jun-07 FY 2005/06 FY 2006/07

USD 31.00 32.02 30.59 32.64

GBP 56.98 64.13 54.48 63.54

EUR 39.72 43.04 37.30 43.04

JPY(100) 27.08 26.06 26.69 27.89

ZAR 4.47 4.61 4.89 4.64

Evolution of the rupee USD GBP Euro

Inde

x: 3

Jul

y 20

06 =

100

Jul 0

6

Aug

06

Sep

06

Oct

06

Nov

06

Dec

06

Jan

07

Feb

07

Mar

07

Apr 0

7

May

07

Jun

07

120

115

110

105

100

95

90

1 8 6 A N N U A L R E P O R T 2 0 0 7


ConclusionWith Mauritius bearing the brunt of a triple trade shock in the form first of a loss of relative preferences of export-

oriented industries on international markets, second the reform of the EU sugar regime and third unrelentingly high oil

prices, macroeconomic fundamentals started to deteriorate some time back, triggering apprehensions about potentially

systemic and longer-term repercussions on the socio-economic environment at large. The mounting international

openness of the Mauritian economy, whilst carving out solid growth-enhancing avenues notably through FDI inflows

and related knowledge spillovers in addition to the usual benefits of free trade, implies higher complexity in mitigating

macroeconomic risks given the increased induced interplay of numerous exogenous parameters. Reassuringly, the

authorities have responded with a comprehensive reform programme starting noticeably with the National Budget

2006/07 which included pro-business measures with for instance a strengthening of the institutional base, the move

towards a milder fiscal regime and economic diversification initiatives. Though economic growth was somewhat

re-ignited last year, associated policy trade-offs and the persistence of other macroeconomic imbalances tempered the

overall favourable sentiment.

Reminiscent of pledges expressed to transform Mauritius into a resilient multi-pillar economy, the 2007/08 Budget

upheld the philosophy of its predecessor and even accelerated the scheduled implementation of some measures,

thereby perceivably improving business sentiment and enhancing short- and medium-term macroeconomic growth

prospects. On the fiscal side, in addition to salutary major infrastructure outlays scheduled to rejuvenate the physical

ability of the country to uphold its growth ambitions, ongoing fiscal consolidation programmes, though requiring

reinforcement, would facilitate the transition towards a less burdensome public debt position and thus a more efficient

participation of the Government in the creation of wealth. Besides, structural reforms geared towards the expansion

and strengthening of economic activity should contribute to enhance business prospects, thus yielding considerable

support to the sustainable job creation objective as well as to a material improvement in living standards.

However, the nation-wide restructuring strategy will not attain optimal economic efficiency unless more effective

and efficient measures are implemented to address lingering macroeconomic hiccups and imbalances. For instance,

despite comforting developments on the legal front with regard to the recent public disclosure of the Employment

Relations Bill and the Employment Rights Bill, the tight labour market environment necessitates in-depth and broad-

based corrective measures materialising in an opportune way if the overriding objective of shoring up human capital

development and improving the quality of the business environment is to be achieved. Moreover, following recurrent

concerns pertaining to the deficiency of the national physical infrastructure to adequately support ambitious growth

objectives, pledges expressed by the authorities to invest substantially in capital resources should be fulfilled without

undue delays, the more so bearing in mind the generally non-negligible lag period between the execution of projects

and the harvest of desired outcomes. At another level, further progress in achieving market efficiency is required

on several fronts by inter alia striving for public sector efficiency and revitalising the domestic market through its

responsible liberalisation. From a more generic perspective, given various impediments to the successful roll-out of


declared policy intentions lately, the authorities should ensure that the implementation agenda spreads out without

undue delays, policy reversals or contradictory signals, and instead be accompanied by clear targets and milestones

with the underlying objective of preserving, or even better, stimulating higher levels of investor confidence and, hence,

upholding the recovery momentum.

Overall, notwithstanding positive strides in the bid to re-engineer the economy back to a high growth pathway, it

is essential that all-encompassing remedies be uncompromisingly focused on strategies to address enduring

endogenous limitations to growth. This should facilitate the restitution of economic fundamentals to a more solid state

and thereby alleviate their vulnerability to exogenous shocks, particularly within an increasingly hostile international

trade environment. Simultaneously, in order to spur the endorsement of the complex and often sensitive reforms by the

population at large and thus to reap maximum dividends from a smooth execution process, flexible and tailor-made

social adjustment programmes, including training and welfare schemes, should duly support the agents involved in

the socio-economic development process. All in all, hefty challenges should be continuously matched by responses of

a similar mould.


1 8 8 A N N U A L R E P O R T 2 0 0 7

SOURCESBank of Mauritius, Annual Report and various publications

Central Statistics Office, Economic and Social Indicators and Reports

Energy Information Administration

International Monetary Fund, World Economic Outlook

Mauritius Chamber of Agriculture, Various statistics

Ministry of Finance and Economic Development, Budget Speech, Draft Recurrent & Capital Budgets, various publications

and pronouncements

Stock Exchange of Mauritius, Various publications

MCB Strategy, Research and Development SBU, Staff estimates

ABBREVIATIONSACP African, Caribbean and Pacific

AGOA Africa Growth and Opportunity Act

CPI Consumer Price Index

DEM Development & Enterprise Market

DEMEX DEM Price Index

DEMTRI DEM Total Return Index

EPZ Export Processing Zone

FDI Foreign Direct Investment

GDFCF Gross Domestic Fixed Capital Formation

GDP Gross Domestic Product

GDS Gross Domestic Savings

ICT Information and Communication Technology

IMF International Monetary Fund

IRS Integrated Resort Scheme

SEM Stock Exchange of Mauritius

SEMDEX SEM Price Index

SEMTRI SEM Total Return Index

SME Small and Medium Enterprise

Administrative Information

“ The MCB Group has been actively diversifying its range of services locally and regionally.”

A Review of the Economic Environment continuedAdministrative Information

1 9 0 A N N U A L R E P O R T 2 0 0 7

The Mauritius Commercial Bank Ltd. - Mauritius

Head Office - Port Louis

9-15 Sir William Newton Street - Port LouisPostal Address: P.O. Box 52 - Port Louis Republic of MauritiusTelephone: (230) 202 5000 Fax: (230) 208 7054Swift Code: MCBLMUMUEmail address: [email protected]: www.mcb.mu

Representative Office - Paris

5 Rue des Mathurins - 75009 ParisTelephone: (33) (1) 41 45 95 50Telefax: (33) (1) 41 45 99 88Email address: [email protected]

Local Subsidiaries

MCB Investment Management Co. Ltd.

6th Floor Travel HouseSir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5515 Telefax: (230) 210 5260Email address: [email protected]: www.mcbim.com

MCB Registry & Securities Ltd.

Raymond Lamusse Building9-11 Sir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5397 - Telefax: (230) 208 1167

MCB Stockbrokers Ltd.

Raymond Lamusse Building9-11 Sir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5427 - Telefax: (230) 208 9210Email address: [email protected]

MCB Factors Ltd.

MCB Centre9-15 Sir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 6150 Telefax: (230) 208 5082Email address: [email protected]

Multipliant Management Co. Ltd.

6th Floor Travel HouseSir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5522 Telefax: (230) 211 3592Email address: [email protected]: www.thepennyunittrust.com

MCB Capital Partners Ltd.

4th Floor Travel HouseSir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 213 5959 Telefax: (230) 213 5961Email address: [email protected]: www.mcbcapitalpartners.com


c/o MCB Capital Partners Ltd.4th Floor Travel HouseSir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 213 5959 Telefax: (230) 213 5961Email address: [email protected]: www.mcbcapitalpartners.com

Blue Penny Museum

Le Caudan WaterfrontPort Louis - Republic of MauritiusTelephone: (230) 210 8176 - Telefax: (230) 210 9243Email address: [email protected]: www.bluepennymuseum.com


MCB Properties Ltd.

13-15 Sir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5138 - Telefax: (230) 208 2807


9-11 Sir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5000 - Telefax: (230) 208 0248

Finlease Co. Ltd.

5th Floor Travel HouseSir William Newton StreetPort Louis - Republic of MauritiusTelephone: (230) 202 5504 - Telefax: (230) 208 9056Email address: [email protected]

Foreign Banking Subsidiaries

The Mauritius Commercial Bank (Seychelles) Ltd.

Head Office - Victoria

Caravelle House - Manglier Street - P.O. Box 122 Victoria - Mahé - SeychellesTelephone: (248) 284 555 Telefax: (248) 322 676Swift Code: MCBLSCSCEmail address: [email protected]: www.mcbseychelles.comManaging Director: Mr. Jocelyn Ah-Yu

The Mauritius Commercial Bank (Moçambique) SA

Head Office - Maputo

400 Ave Friedrich Engels - C.P. 2063 Maputo - MozambiqueTelephone: (258 21) 49 99 00 and (258 21) 48 19 00 - Telefax: (258 21) 49 86 75Swift Code: MCBLMZMAEmail address: [email protected]: www.mcbmozambique.comGeneral Manager: Mr. Robert Cantin

The Mauritius Commercial Bank (Madagascar) SA

Head Office - Antananarivo

Rue Solombavambahoaka Frantsay 77Antsahavola - B.P. 197 - Antananarivo 101Telephone: (261 20 22) 272 62 Telefax: (261 20 22) 322 82 Swift Code: MCBLMGMGEmail address: [email protected]: www.mcbmadagascar.comGeneral Manager: Mr. Marc de Bollivier

Foreign Associate

Banque Française Commerciale Océan Indien

Head Office - Réunion

60 Rue Alexis de Villeneuve97400 Saint DenisTelephone: (262) 40 55 55 Telefax: (262) 21 21 47Swift Code: BFCORERXEmail address: [email protected]: www.bfcoi.com

Paris Branch

5 Rue des Mathurins - 75009 ParisTelephone: (33) (1) 41 45 95 95 Telefax: (33) (1) 41 45 99 88Swift Code: BFCOFRPPEmail address: [email protected]: www.bfcoi.com

Mayotte

Route de l’Agriculture - 97600 MamoudzouTelephone: (269) 61 10 91 Telefax: (269) 61 17 40Swift Code: BFCOYTYTEmail address: [email protected]: www.bfcoi.com


1 9 2 A N N U A L R E P O R T 2 0 0 7

Branch Network

Mahebourg

Mauritius

Rodrigues

Pereybère

Mont Choisy Grand Bay

Goodlands

Triolet

Plaine des Papayes

Pamplemousses

Rivière du Rempart

Lalmatie

Flacq

Belle Mare

Bel Air

Montagne Blanche

Mahebourg Rose Belle

Plaine Magnien

SSR International Airport

Rivière des Anguilles

Chemin Grenier

Le Morne

Rivière Noire

Flic en Flac

Floréal

Vacoas

La Caverne

Candos Pont Fer Phoenix Quatre Bornes

Curepipe Road

Curepipe

Trianon

Rose HillStanley

Beau Bassin

Réduit

Saint Pierre

Jules Koenig

Bell Village SSR

Edith Cavell

Plaine Verte Port Louis

Caudan

Port Mathurin

Plaine Corail

Key

Satellites

Main Branches

Counters

Bureaux de Change

2007 in Retrospect

1 9 4 A N N U A L R E P O R T 2 0 0 7

Tonga Soa MCB MadagascarMCB Madagascar replaces Union Commercial Bank and broadens the horizons of our customers in Madagascar.

Teller Cash RecyclersThe MCB is proud to pioneer the use of De La Rue Teller Cash Recyclers (TCR) in Mauritius. TCRs reduce waiting times in branches as they can swiftly deposit, count, verify, authenticate, secure, dispense and balance all denominations of notes - a first in Mauritius.

MCB Tour de Maurice Cycliste 2006The MCB was the Main Sponsor of the 25th edition

of Tour de Maurice Cycliste.

Rodrigues ScholarshipJean Patrick Nancy won the MCB Rodrigues Scholarship 2006. MCB is sponsoring his studies at the University of Mauritius.

2007 in Retrospect

MCB FoundationMCB Foundation 2007 has been endorsed to Ms. Arvinda Angeli Pem former student of the Queen Elizabeth College. She will be studying Management (Accounting and Finance) at the University of Manchester, UK.

Cpe ScholarshipThe welfare of our staff is of utmost importance. Sumaiya, Aniqa, Didier, Annabelle, Aurélien, Velena, Sandrine and Nicholas won the MCB CPE Scholarships reserved for children of employees with the best results at the CPE exams in 2006.

Anou Koze - WinnersAlways close to our customers: the first of Anou Koze, the MCB Retail roadshow, was held simultaneously at 10 Winners supermarkets in March 2007.

Cyclo Tour 2007Sponsored by MCB, the Cyclo Tour 2007 was organized by The Ministry of Youth and Sports in conjunction with the National Youth Council to encourage youngsters to care about the environment.

2007 in Retrospect

Cash ExpressMCB launched Cash Express in collaboration with ATM Solutions. This fee-paying ATM brings convenience literally to the doorstep of our customers and the public at large, including tourists.

Jeux des Iles De L’ocean Indien 2007The MCB Group was an official sponsor of the Jeux des Iles de l’Océan Indien 2007 in Madagascar, of Club Mauritius and Team Seychelles.

Moving Customer BoundariesThe entire MCB staff followed the culture development

programme lead by Managing The Service Business (MSB), a British company, between May and June 2007.

2007 in Retrospect

MCB Curepipe / Anou Kozé Throughout the year, the public has had the opportunity to know more about our products and services by visiting our branches during Anou Kozé open days. Photo illustrates Anou Kozé at MCB Curepipe.

Mauritius For AfricaMCB sponsored the Mauritius For Africa International Trade Fair held in June 2007 - yet another way of putting forward our regional stature and our commitment of transforming Mauritius into a hub for the Indian Ocean.

Management Workshop - Culture ProgrammeA busy week-end for the management at Le Maritim Hotel in April kick-starts

the Culture Development Programme.

Self service lobbyAnother market first: our Self Service lobby blends all our remote channels, namely ATMs, Internet and Phone Banking.

SME FAIRMCB confirmed its reputation as a major backer of SMEs by becoming the Main Sponsor of the SME Fair for the second consecutive year.

MCB Majunga (Inauguration)Our latest branch: MCB Madagascar opened an outlet in Mahajanga in March 2007.

Mauritius Golf Open 2006Sponsored by MCB, the 13th edition of Mauritius

Golf Open held at Belle Mare Plage Hotel in December 2006 was a success.

Concept and Design: MOSAIC ADVERTISING

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