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annual reportThe Mauritius Commercial Bank Ltd.

30 June 2008

The Mauritius Commercial Bank Ltd. 2

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.

Annual Report 2008 3

Table of Contents

Group Financial Summary 4

MCB Group Structure 6

Corporate Profile 7

MCB Board and Management 10

Report of the Directors 13

Corporate Governance Report 21

Management Discussion and Analysis 55

Financial Statements 113

› Statement of Management’s Responsibility for Financial Reporting 115

› Report of the Auditors 116-117

› Balance Sheets 118-119

› Income Statements 120

› Statement of Changes in Equity (Group) 121

› Statement of Changes in Equity (Bank) 122

› Cash Flow Statements 123

› General Information 124

› Index to Notes to the Financial Statements 125-128

› Notes to the Financial Statements 129-189

A Review of the Economic Environment 191

Administrative Information 223

Local Branch Network 227

2008 in Retrospect 229

2008 2007 2006 2005 2004Income Statement (Rs m)Operating profit 3,820 2,693 2,052 1,911 1,846 Exceptional items - - 79 - (96)Profit after tax 3,886 2,547 2,013 1,685 1,521 Profit attributable to shareholders 3,694 2,461 1,986 1,658 1,488

Balance Sheet (Rs m)Total assets 132,972 110,143 99,410 85,232 81,266 Total loans (net) 77,629 65,845 58,365 55,123 51,322 Total deposits 106,978 85,158 77,195 68,914 66,277 Shareholders' funds 16,346 13,475 12,334 10,232 9,355 Tier 1 capital *14,704 **11,913 **10,139 **8,657 **7,869 Risk-weighted assets *110,301 91,965 78,471 71,293 67,421

Performance Ratios (%)Return on average total assets 3.0 2.3 2.2 2.0 1.9 Return on average equity 24.8 19.1 17.6 16.9 16.8 Return on average Tier 1 capital 27.8 22.3 21.1 20.1 20.0 Non-interest income to operating income 44.2 38.3 34.6 35.6 36.8 Loans to deposits ratio 75.6 81.1 80.0 84.5 81.5 Cost to income ratio 43.2 47.5 49.8 49.7 51.3

Capital Adequacy Ratios (%)Capital & reserves/Total assets 12.3 12.2 12.4 12.0 11.5 BIS risk adjusted ratio *16.9 **17.2 **15.2 **13.9 **13.6 of which Tier 1 *13.3 **13.0 **12.9 **12.1 **11.7

Asset QualityNon-performing loans (Rs m) 4,692 4,833 4,750 4,712 5,102 NPL ratio (%) 5.8 7.0 7.7 8.1 9.4 Allowance for loan impairment losses (Rs m) 3,196 3,246 3,359 3,142 2,717 Provision coverage ratio (%) 68.1 67.2 70.7 66.7 53.3

Investor DataEarnings per share (Rs) 15.58 9.74 7.40 6.16 5.49 Earnings yield (%) 9.1 9.5 13.2 15.3 15.5 Price earnings ratio (times) 11.0 10.6 7.6 6.5 6.5 Net assets value per share (Rs) 68.90 56.87 45.95 38.12 34.72 Dividends per share (Rs) 4.55 2.90 2.12 1.90 1.70 Dividend yield (%) 2.6 2.8 3.8 4.7 4.8 Dividend cover (times) 3.4 3.4 3.5 3.2 3.2

Market DataMarket capitalisation (Rs m) 43,065 25,789 15,798 11,369 10,015 Market price per share (Rs) High 195.00 109.00 58.00 41.20 38.50 Low 101.00 56.00 40.30 34.00 25.00 Closing (Year end) 172.00 103.00 56.00 40.30 35.50

*Computed along the lines of Basel II **Comparatives have been restated to ensure comparability except for risk-weighted assets.

Group Financial Summary


Local Bank 43.5%

Sources of Group profit (FY 2007/08)

Local Non-Bank 21.1%

Foreign 35.4%

Recurring Earning Power = Pre-provision profit excluding net gain on sale of securities to average assets

4

3

2

1

0

3.5

3.0

2.5

2.0

1.5

Recurring earning power

Jun 04 Jun 05 Jun 06 Jun 07 Jun 08

Pre-provision profit Recurring earning power (right scale)

Rs b

n

%


50

40

30

20

10

0

Market capitalisation and EPS

Rs b

n

Rs

Market capitalisation Earnings per share (right scale)

Loans, deposits and assets

Rs b

n

Gross loans Deposits Total assets


150

120

90

60

30

0Jun 04 Jun 05 Jun 06 Jun 07 Jun 08

Net asset value per share

80

60

40

20

0

Rs

%

Profit Return on average equity (right scale)


Rs b

n

4

3

2

1

0

Profit attributable to shareholders

28

24

20

16

12

20

16

12

8

4

0


Figures refer to effective holding of MCB Ltd.

Subsidiaries Associates

MCB Capital Markets Ltd. 90.00%

MCB Investment Services Ltd. 90.00%

MCB Stockbrokers Ltd. 90.00%

MCB Investment Management Co. Ltd. 66.19%

MCB Registry & Securities Ltd. 90.00%

MCB Fund Managers Ltd. 90.00%

MCB Capital Partners Ltd. 90.00%

MCB Equity Fund Ltd. 100.00%

MCB Factors Ltd. 100.00%

Fincorp Investment Ltd. 57.56%

Finlease Co. Ltd. 57.56%

Promotion & Development Ltd. 26.72%

MCB Properties 100.00%

Blue Penny Museum 97.88%

MCB Madagascar 75.00%

MCB Moçambique 95.00%

MCB Seychelles 100.00%

MCB International Services 100.00%

Mascareignes Properties 100.00%

Banque Française Commerciale Océan Indien Réunion, Mayotte & Paris

49.99%

Maldives Branch

Representative Offices Johannesburg & Paris

The MCB Group

MCB BANK

LOCAL SUBSIDIARIES & ASSOCIATES

FOREIGN ENTITIES

Corporate Banking

Retail Banking

Cards

International Operations


corporate profile

The MCB is one of the leading banking and financial services groups in sub-Saharan Africa

The Group employs some 2,500 people in five lines of business:

Corporate banking The MCB is the undisputed leader in this segment with a market share of over 40% on the basis

of a long-established presence at the forefront of the national economic development process particularly through its involvement in flagship projects.

Retail banking Underpinned by a wide-ranging delivery channel network including 42 strategically located

branches and 144 ATM locations, the MCB boasts commanding market shares of around 40% in rupee deposits and retail loans.

Cards The MCB is the leading local bank on both the acquiring and issuing fronts with an extensive merchant network of over 4,000 points of sale and a share of some 50% of cards issued locally.

International operations Besides being present in 8 countries overseas through its subsidiaries, associated company,

foreign branch and representative offices, the Group continues to expand its outbound activities through participation in numerous ventures across the globe while a unit dedicated to Global Business has been launched to tap the potential thereof.

Non-bank financial services Reflecting its diversification strategy domestically, the MCB is engaged in non-core banking financial services which encompass factoring, leasing, equity financing and investor services such as fund and investment management, stock broking and registry services.

The Group’s core values are integrity, customer care, teamwork, innovation, knowledge and excellence.

The MCB dedicates 1% of its pre-tax profit to its comprehensive corporate social responsibility programme.

Corporate Profile

regional bank in terms of profitability1st

Eco Austral Spécial 100 Premières Entreprises de l’Océan Indien

on the Stock Exchange of Mauritius with 25% of the total market capitalisationNo. 1

As at June 2008 – market capitalisation of Rs 43.1 billion (USD 1.6 billion)

• 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

Moody’s ratings

To be the obvious choice for financial services in the region and beyond

Our Vision

in The Banker’s Top 1000

World Banks

local bank

September 2008 The Banker July 2008 issue

with a market capitalisation of over USD 1 bn

domestic company

The The


Board of Directors

› 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)

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

Edgar JULLIENNE (Independent)

Thierry KOENIG

Pierre-Guy NOEL (Executive)

Antony R. WITHERS (Executive)

Margaret WONG PING LUN (Independent)

› Secretary to the Board Jean-François DESVAUX DE MARIGNY


Committees of the Board

› Supervisory and Monitoring Committee J. Gérard HARDY (Chairperson)

› Members E. Jean MAMET

Pierre-Guy NOEL

Antony R. WITHERS

Philippe A. FORGET

› Secretary Jean-François DESVAUX DE MARIGNY

› Audit Comitee Bertrand DE CHAZAL (Chairperson)

› Members Anil CURRIMJEE

E. Jean MAMET

Margaret WONG PING LUN


› Risk Monitoring Committee E. Jean MAMET (Chairperson)

› Members Pierre-Guy NOEL

Antony R. WITHERS

Thierry KOENIG

› Alternate Philippe A. FORGET (to Pierre-Guy Noël or Antony R. Withers)

› Secretary Denis MOTET

› Nomination and Remuneration Committee J. Gérard HARDY (Chairperson)

› Members Herbert COUACAUD, C.M.G.

Navin HOOLOOMANN, C.S.K.

Edgar JULLIENNE (also acts as Secretary)

› Conduct Review Committee Margaret WONG PING LUN (Chairperson)

› Members Bertrand DE CHAZAL

J. Gérard HARDY



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

Eddy JOLICOEUR Head - Group Human Resources (as from August 2008)

Marc LAGESSE Head - Capital Markets

Alain LAW MIN Head - Retail

Jean-Michel NG TSEUNG Head - Corporate

› Senior Managers Paul CORSON Deputy Head - Corporate

Jean Philippe COUVE DE MURVILLE Group Chief Engineer (as from July 2008)

Jean-Marie D'ESPAGNAC Head - Private Banking

Marc DESMARAIS Head - Human Resources (until May 2008)

Jean Michel FELIX Head - Group Internal Audit

Raoul GUFFLET Head - International

Andrew HEATHCOTE-MARKS Head - Organisation & Systems

Angelo LETIMIER Head - Cards

Denis MOTET Head - Group Risk

Jean-Marie STEPHEN Head - Banking Products

› Managers Jocelyn AH-YU Managing Director - MCB Seychelles

Koomaren CUNNOOSAMY Team Leader - Corporate

Hemandra Kumar HAZAREESING Team Leader - Corporate

Vinoba Devi LALLAH Banking Products

Roselyne LEBRASSE-RIVET Head - Legal

Steve LEUNG SOCK PING Head - Marketing

Bhavish NAECK Head - Financial Management

Cyril PERRIER Head - Compliance

Kreshna RAMDHONY Corporate (retired in October 2007)

Jocelyn THOMASSE Head - Network (retired in August 2008)

André WONG TING FOOK Head - Accountancy

› Advisers Cyril PROVENÇAL Adviser - Regional Development (retired in July 2008)

Jacques TENNANT Property, Premises & Equipment

report of the directors

Sharing a sense of purpose and dedication


Report of the Directors

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 2008.

OverviewFaced with increasing competition locally and in a

context of uncertainty and volatility in international

financial markets, the MCB Group has achieved yet

another remarkable year, with Group profit growing

by 50%.

• Group profit attributable to MCB shareholders

broke through the Rs 3.5 billion mark to reach

Rs 3,694 million while Earnings per Share were

up 60% to Rs 15.58. Even on excluding a non-

recurrent profit of Rs 425 million from the sale of

shares by the MCB Equity Fund Ltd., profits grew

by a notable 33%.

• Thesharepriceincreasedby67.0%duringthe

year,followingan83.9%increaseinFY2006/07,

toreachRs172asat30June2008withmarket

capitalisation as at that date standing at Rs 43.1

billion, equivalent to USD 1.6 billion. The recent

international financial crisis and volatility affecting

equity markets worldwide also impacted our

share price which has somewhat retreated since

toaroundRs157.

• The Group has achieved sustained growth in

all its main lines of business while containing

operating expenses to reasonable levels, leading

to a substantial improvement in the cost to

income ratio.

• The major portion of Group revenues now

originate from foreign sources including banking

subsidiaries and from non-bank activities, these

segments having grown by 40% compared to

26% for local banking activities on excluding

non-recurring gains on the sale of securities.

• InfurtheranceofourvisiontopositiontheGroup

as a leading regional financial services provider,

- the MCB local subsidiaries involved in

investor services have been regrouped under

the umbrella of MCB Capital Markets Ltd.;

- a new branch has been opened in the

Republic of Maldives;

- a representative office has been opened in

Johannesburg, South Africa; and

- the MCB has successfully pioneered the

installation of Teller Cash Recyclers in its

retail operations while the Port Louis Main

Branch has been redesigned to improve

customer experience and service.

• During the financial year, the MCB has

implemented the Basel II Standardised Approach

to risk.

• As in previous years, the MCB continued to

assume its social responsibility towards the

community having this year devoted Rs 23.5

million towards financing Corporate Social



Responsibilityprojects,ofwhichRs15.8million

related to the education sector.

A detailed review of this year’s achievements and

realisations is given in the ‘Management Discussion

and Analysis’ on pages 55 to 112.

Activities and ResultsThe Group has sustained its momentum of high growth

duringFY2007/08withactivitiesandresultsshowing

significant progress.

Net interest income of the Group went up by 15.3% to

Rs 4,166 million, while at Bank level, it rose by 21.2%

toRs3,667million.

Other income registered significant increases

of 47.7% and 40.2% at Group and Bank levels

respectivelytoRs3,305millionandRs2,704million.

Strong performances were achieved in respect of

foreign exchange profits and fee income, which both

grew by 24% at Group level. Even on excluding the

non-recurring profit realised on sale of shares held by

the MCB Equity Fund Ltd. in Sun Resorts Ltd., other

incomefortheGroupgrewbyarobust28.7%.

Overall,operatingincomereachedRs7,471millionfor

theGroupandRs6,371millionatBanklevel,posting

increasesof27.7%and28.6%respectively.

Operatingexpensesincreasedby15.9%and17.3%

at Group and Bank levels to Rs 3,225 million and

Rs2,667millionrespectively,withmajordriversbeing

costs associated to human resource development and

capital expenditures, reflecting the MCB’s efforts to

invest in future capacity.

Allowance for credit impairment increased by 13.3%

to Rs 426 million for the Group and by 10.2% to Rs 408

million for the Bank, of which more than Rs 80 million

were in respect of statistical portfolio provisions.

Profit before tax rose by 42.6% to Rs 3,296 million at

Bank level and by 43.6% to Rs 4,461 million at Group

level, with a notable contribution from associated

companies which grew by 54.6% to Rs 641 million.

Income tax charges went up marginally at both Group

andBanklevelstoRs575millionandRs395million

respectively, inclusive of a charge of Rs 88 million

in relation to the special levy applicable to banks

operating in Mauritius.

Profit attributable to ordinary holders of the MCB

Ltd. rose by 50.1% to Rs 3,694 million, leading to an

increase of 60% to Rs 15.58 in Group Earnings per

Share. Excluding the sale of the Sun Resorts shares,

a large non-recurring item, profit growth was still

remarkable at 32.8% for the Group.

This excellent performance of the MCB, amidst fierce

competition, worsening global economic conditions



and a strengthening rupee in the second half of

the financial year, testifies to the soundness of the

Group’s expansion strategies and bold accompanying

investment programmes aimed, among others,

at diversifying products and markets, enhancing

customer service, fostering efficiency and improving

risk management.

The share of income from foreign sources and non-

bank activities increased further to 56.5%. Excluding

the profit on sale of Sun Resorts shares, it still

maintained an upward trend to reach 51.8%.

Total assets of the Group reached Rs 133.0 billion as

at 30 June 2008 as compared to Rs 110.1 billion one

year earlier. A marked improvement was also observed

in asset quality, as gauged by a notable drop in non-

performingloanstogrossloansfrom7.0%to5.8%at

Grouplevelandfrom7.4%to6.0%atBanklevel.

Dividends and Capital ResourcesAn interim dividend of Rs 1.65 per share was declared

and paid in December 2007 while a final dividend

of Rs 2.90 per share was declared by the Board in

June 2008 and paid in July. As such, overall dividend

per share in FY 2007/08 was 56.9% up from the

previous financial year. Total dividends paid during

theyearunderreviewamountedtoRs1,079million,

with undistributed profits of Rs 2,615 million carried

to reserves. Capitalisation levels remained strong,

with Group shareholders’ funds increasing by 21.3%

to reach Rs 16.3 billion as at 30 June 2008 and the

risk-adjustedcapitaladequacyratiostandingatavery

comfortable 16.9%, as per Basel II definitions.

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.

ProspectsThe current world economic outlook is rather bleak

due to the current financial crisis, the threat of

recession in the Western countries, tightening of

credit, high inflation and volatile commodity prices.

While the economic foundations of Mauritius have

been reinforced in the last two years, the extent of

the global financial turmoil and its spill-over effects

could pose a serious test to the country in coming

periods. Nonetheless, the MCB is well geared to rise

up to challenges in its operating environment on the

strength of solid fundamentals as reflected by sound

profitability, liquidity and capitalisation levels.

Overall, the MCB Group remains cautiously optimistic

for the coming year. The strategy of diversification of its

activities at local, regional and international levels, which

has, for the most part, led to the current positive trend



in results, will be further pursued while at the same time

ensuring the best quality of service to its customers.

Simultaneously, the MCB will continue to improve its

equipment, systems and processes while favouring

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

whileitsultimateobjectivewillremainthatofproviding

ever-increasing value to its shareholders.

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 while ensuring that:

the Financial Statements fairly present the state

of affairs of the Group and of the Bank, as at the

financial year end, and the results of its operations

and cash flow for that period; and they have been

prepared in accordance with and comply with

International Financial Reporting Standards as

well as the requirements of the Banking Act 2004

and the guidelines issued thereunder. Directors

are also responsible for safeguarding the assets

of the Group and of the Bank and hence for

taking reasonable steps for the prevention and

detection of fraud and other irregularities. Other

main responsibilities of the Directors include

assessment of the General Management’s

performance relative to corporate objectives,

overseeing the implementation and upholding of

the Code of Corporate Governance and ensuring

timely and comprehensive communication to all

stakeholders on events significant to the Group.

The Board of the MCB, recognising that the MCB

Group, as a financial organisation, encounters risk



in every aspect of its business, has put in place the

necessary committees to manage such risks, as

required by Basel II. The Board, whilst approving

risk strategy, appetite and policies, has delegated

the formulation thereof and the monitoring of their

implementation to the Risk Monitoring Committee.

The structures, processes and methods through which

the Board gains assurance that risk is effectively

managed, are fully described in the ‘Management

Discussion and Analysis’ section of this report.

In line with its commitment to enhance risk awareness

and to improve corporate governance, the Bank has,

during the financial year, successfully completed the

implementation of Basel II Standardised Approach.

AuditorsThe Auditors, BDO De Chazal Du Mée, have

expressed their willingness to continue in office and

a resolution proposing their re-appointment will be

submitted to the Annual Meeting.

AcknowledgementsThe Board wishes to express its appreciation to the

Group’s Management and staff for their continued hard

work during the past year and to congratulate everyone

for the exceptional financial results achieved.

We would also like to place on record our thanks to

our fellow members of the Board for their support and

contribution.

APPROVED BY THE BOARD OF DIRECTORS AND

SIGNED ON ITS BEHALF

J. Gérard HARDY Bertrand DE CHAZALPresident Director Chairman Audit Committee

corporate governance report

Lending a hand to budding pioneers


Corporate Governance ReportStatement on Corporate Governance 24

Directorate and Management 26

› Board of Directors 26

› Senior Management 39

Related Party Transactions 41

Shareholders/Third Party Agreements 42

Directors of MCB Subsidiaries 42

Shareholder Relations and Communication 45

› Material Clauses of the Constitution 45

› Shareholding Profile 45

› Dividend Policy 46

› Share Price Information 47

Statement of Remuneration Philosophy 48

Important Forthcoming Events 48

Employee Share Option Scheme 48

Auditors’ Fees and Fees for Other Services 49

Integrated Sustainability Reporting 50

Corporate Social Responsibility 50

Corporate Governance Report


Statement on Corporate GovernanceCorporate governance involves a set of relationships

between a company’s management, its board, its

shareholders and other stakeholders. Effective

corporate governance practices are essential to

achieving and maintaining high levels of public

trust and confidence in the banking system.

The Board of the MCB is fully committed to

attaining and 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.

The Company’s constitution provides that the

minimum number of directors shall be twelve and

the maximum number eighteen. In accordance

with the constitution, the Board has all the powers

necessary for managing, directing and supervising

the management of the business and affairs of

the Company. The Board is ultimately responsible

for the affairs of the Company. The methods

through which the Board exercises its powers and

discharges its responsibilities are set out in the

MCB Board Charter which provides, among others,

for the following:

• thecompositionof theBoardwithpreferablya

majority of independent non-executive directors;

• the Chairperson of the Board must be an

independent non-executive director;

• thecreationofBoardCommittees;

• acorporatecodeofconductaddressinginter alia

issues relating to conflicts of interests;

• theestablishmentofstrategicobjectives;

• the appointment and remuneration policy of

members of the General Management;

• theexistenceofclearlinesofresponsibilityand

accountability throughout the organisation;

• theprovision to theshareholdersof timelyand

transparent information relating to material

events; and

• the communication to the shareholders and

the public of accurate financial results in a

timely manner.

Board approval is specifically required for, amongst

other important matters, modifying the Company’s

constitution, issuing fresh capital or buying back

its own shares, declaring dividends, acquiring

or divesting sizeable stakes in subsidiaries or

associated companies, and establishing the

remuneration of directors and managers.

The Board presently comprises 12 directors, 3

executives and 9 non-executives, of whom 6 are

independent. The President and Vice President of the

Board are independent non-executive directors.



The Board has created five Board Committees to

help it in carrying out its duties and responsibilities:

the Supervisory and Monitoring Committee, the

Audit Committee, the Conduct Review Committee,

the Nomination and Remuneration Committee, and

the Risk Monitoring Committee.

Each committee has its own charter which has been

approved by the Board. Through the deliberations and

reporting of its various committees, the Board ensures

that Management’s daily actions are in line with the

Board’s objectives and regulatory requirements.

The Board and Senior Management of the MCB are

required by the Bank of Mauritius, the Financial

Services Commission and corporate governance

best practices to demonstrate, inter alia, to the

satisfaction of the regulatory authorities, a clear

structure of policy and systems of control emanating

directly from the Board, which manifestly identify

and manage the risks inherent in the businesses of

the MCB. To this end, the Board has approved the

Group Risk Policy relating to credit risk, operational

risk and market risk.

In line with such requirements, there is a clear

separation between the executive role of day-to-

day decisions relating to credit and the Board’s role

of setting out the credit policy and ensuring that,

through an adequate organisational structure and

proper control and reporting systems, the business

is effectively run in accordance with such policy.

Regarding risk management, the Bank is compliant

with the Basel II Standardised Approach. The Bank

has adopted 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 line with this

objective, the Bank issued a Code of Conduct in

February 2002, based on the model code of the Joint



Economic Council, as appropriately adapted to meet its own specific needs. In addition, the Bank complies

with the Code of Banking Practice issued by the Bank of Mauritius in 1998, adheres to the Mauritius

Bankers Association Code of Banking Practice issued in 2007 and subscribes to the Code of Corporate

Governance for Mauritius, which was issued in October 2003.

The directors continuously review the implications of corporate governance best practices and are of

the opinion that the Bank complies with the requirements of the Code of Corporate Governance in all

material aspects.

Directorate and ManagementBoard of Directors

Directors’ Profiles

The Board is composed of 12 members comprising 9 non-executive directors, of whom 6 are independent,

and 3 executive directors. The average age of the Board is 57 years.

Independent 50% (6)

Executive 25% (3)

Others 25% (3)

Board structure and composition

The profiles of the directors are provided hereafter.



J. Gérard HARDY - Age 64

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 years with KPMG before spending

17 years with the IP Group, which he left as Deputy Managing Director to

set up his own consultancy firm. In 2001, he returned to Mauritius.

He was first 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, Chairperson of the Supervisory

and Monitoring Committee and of the Nomination and Remuneration

Committee and a member of the Conduct Review Committee.

E. Jean MAMET - Age 65

Certified Accountant since 1975, he has worked for

40 years in the field of auditing, before retiring in 2003

as Senior Partner of Ernst & Young in Mauritius.

He was first appointed to the Board at the shareholders’

meeting of December 2003. He is currently Vice President

of the Board, Vice Chairperson of the Supervisory and

Monitoring Committee, Chairperson of the Risk Monitoring

Committee and a member of the Audit Committee.

Directorship in other listed companies

United Basalt Products Ltd.

IPRO Growth Fund Ltd.



Herbert COUACAUD, C.M.G. - Age 60

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. He is a member

of the Nomination and Remuneration Committee.


Fincorp Investment Ltd.

New Mauritius Hotels Ltd.

Rogers & Co. Ltd.

Anil CURRIMJEE - Age 46

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

and an MBA from the London Business School (1988).

He is a director of a number of companies within the

Currimjee 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.

He was first appointed to the Board in 2002.

He is a member of the Audit Committee.


Mauritius Development Investment Trust Ltd.



Philippe A. FORGET - Age 58

Holder of a BSc (First Class Honours) in Computational

and Statistical Science from the University of Liverpool

and an MSc (with distinction) in Management & Operational Research

from the Imperial College of Science and Technology, London.

After working as an economist for 2 years for the Food & Allied Group,

he joined the Bank in 1978 and was appointed Assistant General Manager

in 1996. Philippe A. Forget is a board member of several companies of the MCB

Group and has been the Chairperson of MCB Moçambique until March 2006.

He was first appointed to the Board at the shareholders’ meeting

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

Committee and also acts as alternate to the Chief Executive (Group)

or Chief Executive (Banking) in the Risk Monitoring Committee.

Bertrand DE CHAZAL - Age 67

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. He was first appointed to the

Board at the shareholders’ meeting of October 2004.

He is Chairperson of the Audit Committee and

a member of the Conduct Review Committee.


Caudan Development Ltd.

Promotion and Development Ltd.



Navin HOOLOOMANN, C.S.K. - Age 49

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 local construction project

management and cost management consultancy firm with

subsidiary offices in the Seychelles and India.

He was first appointed to the Board at the shareholders’

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

and Remuneration Committee.

Edgar JULLIENNE - Age 65

A Honours graduate in Civil Engineering from

Loughborough College obtained in 1965,

he is a member of the UK Institute of Civil Engineers

and has practised since 1973 as an engineer

in the UK, South Africa and finally Mauritius.

He ended his active professional career as Executive

Director of General Construction Co. Ltd.

He was first appointed to the Board at the

shareholders’ meeting of December 2003.

He is a member of the Nomination and

Remuneration Committee.



Pierre-Guy NOEL - Age 52

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. between 1981 and 1992, when he joined

the Bank as Planning and Development Consultant. He was appointed

General Manager of the Bank in 1996 and was, in July 2005,

appointed Chief Executive (Group). Pierre-Guy Noël is a board member in

several companies of the MCB Group acting either as Chairperson or

Director namely in Banque Française Commerciale Océan Indien,

MCB Moçambique and MCB Seychelles.

He was first appointed to the Board at the shareholders’ meeting

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

Monitoring Committee and of the Risk Monitoring Committee.

Thierry KOENIG - Age 50

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.

He is a member of the Risk Monitoring Committee.



Antony R. WITHERS - Age 54

Heads the banking operations of the MCB as the Chief Executive (Banking) since

April 2006 and is the holder of an MA in 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 an

array of high level responsibilities in a number of institutions. These include Citibank,

Bank of Montreal, S.G Warburg & Co. Ltd., UBS Securities Ltd., Commerzbank A.G

and, lately Lloyds TSB Bank plc where he was Director and Global Head of Financial

Institutions & International Trade Finance. Since November 2006, Antony Withers

acts as the Chairman of the Mauritius Bankers Association. He was first appointed

to the Board at the shareholders’ meeting of December 2006. He is a member of the

Supervisory and Monitoring Committee and of the Risk Monitoring Committee.

Margaret WONG PING LUN - Age 54

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 department of a local firm of accountants,

she joined the University of Mauritius in 1991 where

she is a lecturer in Accounting and Finance.

She is a member of the Listing Executive Committee of

the Stock Exchange of Mauritius.

She was first appointed to the Board at the

shareholders’ meeting of October 2004.

She is currently Chairperson of the Conduct Review

Committee and is a member of the Audit Committee.



Committees of the Board of Directors

The composition of the committees of the Board of

Directors appears on page 11 of the Annual Report.

Supervisory and Monitoring Committee

The committee is, subject to any decision which the

Board may take from time to time, competent to

exercise all or any powers, authorities and discretions

vested in or exercisable by the Board other than those

set out in the Seventh Schedule of the Companies Act

2001 and those relating to the appointment of senior

officers who, when appointed, shall form part of the

General Management of the Bank.

The committee is chaired by the President of the

Board of Directors. The other members are: the Board

Vice President, the Chief Executive (Group), the Chief

Executive (Banking) and the Deputy Chief Executive

(Banking). The Company Secretary is the secretary of

the committee which meets weekly.

The committee’s role and responsibilities include:

• submittingtotheBoardthedevelopmentstrategy

of the Group;

• setting out the corporate values and principal

policies, including the credit policy, in respect of the

conduct of the business;

• ensuring that the organisation structure is best

suited to the implementation and realisation of such

policies and strategy while providing for clear lines

of responsibility and accountability;

• delegating authority to the Chief Executives and

supervising the delegation of authority by the

Chief Executives to the members of the General

Management;

• ensuringthatadequatesuccessionplanning

exists at senior executive level;

• liaisingwithalltheBoardCommittees;

• reviewing the yearlybudget, thequarterly results

and yearly financial statements to be submitted to

the Board;

• proposingthedividendpolicy;

• monitoringstrategicalliancesandmajor litigation

issues; and

• ensuringthattheBoardispermanentlyinformedof

the running of the affairs of the Group.

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 the quarterly

results and annual financial statements before these

are approved by the Board. The activities of the Audit

Committee include regular reviews and monitoring of

the following:

• the effectiveness of the Bank’s internal financial

control and risk management systems;



• the effectiveness of the internal audit function;

• the independence of the external auditors

and the assessment of the external auditors’

performance;

• the remuneration of the external auditors and

their supply of non-audit services;

• the Bank’s procedures for ensuring compliance

with laws and regulations relevant to financial

reporting and with its internal code of business

conduct; and

• specific issues where the committee considers

action or improvement is needed.

In carrying out its responsibilities, the committee

meets regularly with the Executive Management

of the Bank and receives regular reports from

both internal and external auditors. Separate

sessions are held with both sets of auditors

at least once a year, without Management

being present. The committee has satisfied its

responsibilities for the year in compliance with

its terms of reference.

Risk Monitoring Committee

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

Group Risk acts as secretary and the Deputy Chief

Executive (Banking) acts as an alternate to the

Chief Executive (Group) or to the Chief Executive

(Banking), in their absence.

The principal responsibility of the Risk Monitoring

Committee 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 the committee reports to the Board,

in a timely manner, on all risk issues that could

have an impact on the operations or reputation

of the Bank.

Nomination and Remuneration Committee

The committee, consisting of four 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 2008, the committee

met seven times with respect to:

• reviewing the Company’s remuneration policy

concerning senior executives and managers;

• determining and submitting to Board ratification

individual remunerations for the top executives and

managers in line with the aforementioned policy;

• reviewing individual promotions proposals,

by Chief Executives, to and within General

Management and making recommendations to

the Board thereon;

• reviewingtheoverallperformanceoftheBoard;

• reviewingtheDirectors’remuneration;

• undertaking the selection and making

recommendations in respect of new Board

members and the composition of the Board

Committees; and

• reviewing the proposals received for the

subsidiaries’ Boards and making recommen-

dations thereon/ratifying them.

Conduct Review Committee

The committee, chaired by a non-executive director,

currently comprises two other non-executive

directors. The Company Secretary acts as secretary

to the committee. The committee meets four

times a year and is responsible for monitoring and

reviewing related party transactions, their terms

and conditions, and ensuring the effectiveness of

established procedures and compliance with the

Bank of Mauritius Guidelines.

The mandate of the committee includes:

•ensuringthatprocedureshavebeenestablished

by Management to comply with the requirements

of the Guidelines;

• implementing the materiality criteria falling

under the definition of related party transactions

and reviewing all transactions that are not

immaterial; and

• periodicallyreviewingtheexistingproceduresto

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 2007/08.

Board of Directors

Board Committees

Supervisory and

MonitoringAudit Risk

MonitoringNomination and Remuneration

Conduct Review

Number of meetings held 12 39 4 3 7 3

Meetings attended

J. Gérard HARDY 11 35 - - 7 1

E. Jean MAMET 12 34 4 3 - -

Herbert COUACAUD, C.M.G. 9 - - - 6 -

Anil CURRIMJEE 9 - 4 - - -

Bertrand DE CHAZAL 8 - 3 - - 3

Philippe A. FORGET 10 35 - 2 - -

Patrick GIBLOT DUCRAY (until December 2007)

2 - - 1 - -

Sanjiv GOBURDHUN (until December 2007)

5 - - 1 - 1

Navin HOOLOOMANN, C.S.K. 9 - - - 7 -

Edgar JULLIENNE 12 - - - 7 -

Thierry KOENIG 9 - - 2 - -

Jean Pierre MONTOCCHIO (until December 2007)

4 - - - 3 1

Pierre-Guy NOEL 11 27 - 1 - -

Antony R. WITHERS 11 28 - 3 - -

Margaret WONG PING LUN 12 - 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 following tables give the interests of the directors

in the share capital of the Bank and Fincorp Investment

Ltd. as well as transactions in MCB shares by directors

who have served during the year. None of the directors

had any interest in the equity of subsidiaries of the

Bank other than Fincorp Investment Ltd.

Number of shares

Interests in MCB shares as at 30 June 2008 Direct Indirect

J. Gérard HARDY 2,500 -

E. Jean MAMET 149,000 166,300

Herbert COUACAUD, C.M.G. 11,683 274,044

Anil CURRIMJEE 5,025 6,669

Bertrand DE CHAZAL 500 11,000

Philippe A. FORGET 36,198 13,500

Navin HOOLOOMANN, C.S.K. 55,910 800,029

Edgar JULLIENNE 46,500 357,561

Thierry KOENIG 17,579 866

Pierre-Guy NOEL 876,732 28,302

Antony R. WITHERS 26,870 -

Margaret WONG PING LUN 500 9,900

Transactions in MCB shares during the year

Number of shares

purchased

Number of shares sold

Philippe A. FORGET 9,823 -

Edgar JULLIENNE 19,300 -

Thierry KOENIG 10,455 -

Pierre-Guy NOEL 11,870 -

Antony R. WITHERS 11,870 -

Shares purchased by Philippe A. Forget, Pierre-Guy Noël and Antony R. Withers represent options granted under the Employee Share Option Scheme.

Number of shares

Interests in Fincorp Investment Ltd. 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. - 562,200

Pierre-Guy NOEL 750,166 32,250



Directors’ Remuneration

Remuneration and benefits received by directors during the financial year were as follows:

From the Holding Company

From Subsidiaries

Total

Directors Rs ‘000 Rs ‘000 Rs ‘000

J. Gérard HARDY 2,388 - 2,388

E. Jean MAMET 1,882 105 1,987

Herbert COUACAUD, C.M.G. 492 38 530

Anil CURRIMJEE 529 - 529

Bertrand DE CHAZAL 812 90 902

Patrick GIBLOT DUCRAY (until December 2007)

246 - 246

Sanjiv GOBURDHUN (until December 2007)

330 - 330

Navin HOOLOOMANN, C.S.K. 492 - 492

Edgar JULLIENNE 492 - 492

Thierry KOENIG 408 - 408

Jean Pierre MONTOCCHIO (until December 2007)

324 - 324

Margaret WONG PING LUN 726 15 741

Total Non-executive 9,121 248 9,369

Philippe A. FORGET 13,822 - 13,822

Pierre-Guy NOEL 16,118 - 16,118

Antony R. WITHERS 15,684 - 15,684

Total Executive 45,624 - 45,624

Total (Non-executive and Executive) 54,745 248 54,993

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



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.

Senior Management

Profiles

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

and Philippe A. FORGET appear in the Directors’

Profiles section.

Jean-François DESVAUX DE MARIGNY - Age 54

Fellow member of the Institute of Chartered

Accountants in England and Wales. Following

several years of experience as an auditor in

Europe, he joined the MCB in 1986. He was

involved in the launching of the Stock Exchange

of Mauritius in 1989. He has strongly participated

in the development of the MCB’s regional network

and is a director of a number of subsidiaries and

associates of the Group. He is presently responsible

for the Group’s finances and also acts as secretary

to the Board of Directors, the Audit Committee, the

Conduct Review Committee and the Supervisory

and Monitoring Committee.

Eddy JOLICOEUR - Age 51

Holder of a BA (Honours) in Economics and Social

Policy & Administration from the University of Kent

and an MSc in Human Resources Management from

the University of Surrey, Eddy has known a fulsome

career spanning the breadth of the sugar industry

namely Deep River-Beau Champ (1983-1990), Mon

Desert Alma (1990-1999) and Médine (1999-2000).

Eddy joined Rogers & Co. Ltd. in 2000 where he has

been the Chief Human Resources Executive until he

joined the Bank in August 2008 as Head of Human

Resources.

Marc LAGESSE - Age 45

Holds a BSc (Honours) in Statistics and Economics

from the University College London (UCL) and

an MBA from the London Business School. After

graduating from UCL, Marc spent twelve years on the

London International Financial Futures Exchange,

the last eight of those as an own account trader in

interest rate derivatives. He returned to Mauritius in

1996 to manage the Mauritius Fund Ltd., a London

listed closed-end country fund. From 1998 to 2006,

Marc was Managing Director of MCB Investment

Management Co. Ltd. He is currently responsible

for the MCB Capital Markets Ltd., a subsidiary of

2008 2007

Rs ‘000 Rs ‘000

Executive (Full-time) 27,467 13,158

Non-executive 759 490

28,226 13,648



the MCB Group, which comprises the MCB Fund

Managers Ltd., MCB Investment Services Ltd., MCB

Registry & Securities Ltd., MCB Stockbrokers Ltd.,

MCB Capital Partners Ltd. and MCB Investment

Management Company Ltd.

Alain LAW MIN - Age 49

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, the

Business Banking BU and the Remote Banking BU

that manages the Bank’s remote delivery channels.

Prior to his current position, Alain launched leasing,

factoring and private banking services and acted

as Project Director for the Business Process

Re-engineering exercise initiated with Accenture.

Before joining the MCB, Alain was Senior Manager

at De Chazal Du Mée’s consulting division.

Jean-Michel NG TSEUNG - Age 40

Graduated with a First Class Honours in Mathematics

at the Imperial College of Science and Technology,

London. He qualified as a Chartered Accountant

out of the London office of Arthur Andersen in 1990

and was made a partner thereof in Mauritius in

1997, acting during his last 4 years with the firm as

Head of the Audit and Business Advisory division.

Jean-Michel joined the MCB in July 2003, coming

from Ernst & Young and is currently Head of

Corporate.

MCB Ltd.Fincorp

Investment Ltd.MCB Capital Markets Ltd.

Number of shares as at 30 June 2008 Direct Indirect Direct Indirect Direct Indirect

Jean-François DESVAUX DE MARIGNY 271,543 274,538 - 133,225 - -

Marc LAGESSE 2,994 - - - 83,334 -

Alain LAW MIN 98,452 595 41,070 - - -

Jean-Michel NG TSEUNG 7,885 - - - - -

Senior Management’s Interests in Shares

The interests of senior management in the share capital of the Bank and its subsidiaries at the end of the

financial year are given below.



Related Party TransactionsFor the purposes of these Financial Statements, parties

are considered to be related to the Group if they have

the ability, directly or indirectly, to control the Group or

exercise significant influence over the Group in making

financial and operating decisions, or vice versa, or if

they and the Group are subject to common control.

Related parties may be individuals or other entities.

On 4 January 2002, the Guideline on Related Party

Transactions was issued by the Bank of Mauritius. This

Guideline encompasses 3 main elements:

• transactions subject to the related party rules

and requirements;

• limits on transactions with related parties and

their interests; and

• the role of the Board of Directors of a financial

institution and its Conduct Review Committee in

establishing and implementing appropriate policies

on related party transactions and administering the

process for handling the transactions.

In fact, the Guideline is more stringent than the

applicable International Accounting Standard (IAS

24) in that a person holding directly or indirectly

10% or more of the capital or of the voting rights of

the Bank also falls within the definition of Related

Party. As a general rule, all transactions with a

related party must be carried out on terms and

conditions that are at least as favourable to the

Bank as market terms and conditions.

Related Party Transactions include:

• loans,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.

The Bank shall not without the prior written approval

of the Bank of Mauritius:

• engageintransactionswitharelatedpartyifthe

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 34 to the Financial

Statements gives on- and off- balance sheet credit

facilities to related parties as at 30 June 2008.

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,associatedcompaniesandentitiesin

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

• entitiesinwhichkeydirectorsandkeymanagement

personnel and close family members have significant

interest or influence.

The Guideline on Related Party Transactions is

currently being reviewed by the Bank of Mauritius.

It is expected that the updated version, which will be

released shortly, will greatly simplify and rationalise

reporting procedures and requirements.

Aggregate exposure of related parties, excluding

exposure of the Bank to subsidiary companies,

amounted to Rs 3,557 million (on-balance sheet) and

Rs 310 million (off-balance sheet), which represented

respectively 4.4% and 0.7% of Group loans and

Group contingent liabilities as at 30 June 2008.

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

30 June 2008 were Rs 1,415 million, Rs 642 million,

Rs 489 million, Rs 339 million, Rs 241 million and

Rs 197 million. These balances represented 14.0%,

6.4%, 4.9%, 3.4%, 2.4% and 2.0% respectively of

the Bank’s Tier 1 Capital.

None of the loans granted to related parties was

non-performing as at 30 June 2008.

Shareholders/Third Party AgreementsThere are currently no third party agreements nor any

shareholders agreement affecting the governance of

the Company by the Board.

Directors of MCB SubsidiariesThe directors of the Bank’s subsidiaries during

FY 2007/08 were as follows:

MCB MADAGASCAR

Jean-François DESVAUX DE MARIGNY (Chairperson)

Marc DE BOLLIVIER

Jocelyn DE CHASTEAUNEUF (resigned in March 2008)

Raoul GUFFLET

E. Jean MAMET

Pierre-Guy NOEL (appointed in March 2008)

Patrick RAZAFINDRAFITO

MCB MOÇAMBIQUE

Pierre-Guy NOEL (Chairperson)

Jean-François DESVAUX DE MARIGNY

Jorge FERRAZ

Philippe A. FORGET

Raoul GUFFLET



MCB SEYCHELLES

Jocelyn AH-YU


Raoul GUFFLET

E. Jean MAMET

Pierre-Guy NOEL

MCB INTERNATIONAL SERVICES LTD.

Jocelyn AH-YU


MASCAREIGNES PROPERTIES LTD.

Jocelyn AH-YU

Raoul GUFFLET

E. Jean MAMET

Pierre-Guy NOEL

MCB EQUITY FUND LTD.

Bertrand DE CHAZAL (Chairperson)

Jocelyn DE CHASTEAUNEUF

F. Jacques HAREL

E. Jean MAMET

MCB CAPITAL MARKETS LTD.

Bertrand DE CHAZAL

Marc LAGESSE

E. Jean MAMET

Pierre-Guy NOEL

Jeremy PAULSON-ELLIS

MCB FUND MANAGERS LTD.

Bashirali Abdulla CURRIMJEE, G.O.S.K. (Chairperson)

Bernard D’HOTMAN DE VILLIERS


Thierry Maurice JAUFFRET

Bernard YEN

MCB INVESTMENT SERVICES LTD.

Marc LAGESSE

Pierre-Guy NOEL

Vimal ORI

Akesh UMANEE

MCB REGISTRY & SECURITIES LTD.

F. Jacques HAREL (Chairperson)


Marivonne OXENHAM

MCB STOCKBROKERS LTD.

F. Jacques HAREL (Chairperson)


Raj TAPESAR

MCB CAPITAL PARTNERS LTD.

Marc LAGESSE (Chairperson)

Ziyad BUNDHUN

Raoul GUFFLET

Thierry KOENIG

Bernard YEN



MCB INVESTMENT MANAGEMENT

COMPANY LTD.

Richard CARRS

Michaël COLLYER


Philippe A. FORGET

Marc LAGESSE

Jean-Michel NG TSEUNG

MCB FACTORS LTD.

Jean-Michel NG TSEUNG (Chairperson)

Alain LAW MIN

E. Jean MAMET

Margaret WONG PING LUN

MCB PROPERTIES LTD.


Philippe A. FORGET

Pierre-Guy NOEL

FINCORP INVESTMENT LTD.

Jean Pierre MONTOCCHIO (Chairperson)

Herbert COUACAUD, C.M.G.

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


Michel DOGER DE SPEVILLE, C.B.E.

Bruno MARGEOT

FINLEASE CO. LTD.

Jocelyn DE CHASTEAUNEUF (Chairperson)


Jean Michel FELIX

Philippe A. FORGET

Alain LAW MIN

E. Jean MAMET

Bruno MARGEOT

Jean Pierre MONTOCCHIO

Jean-Michel NG TSEUNG

BLUE PENNY MUSEUM


Philippe A. FORGET

J. Gérard HARDY

Pierre-Guy NOEL



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

With the constitution of the MCB being amended

at the Annual Meeting held in December 2007 to

remove the ceiling on the number of shares that a

shareholder may possess, there is now no clause of

the constitution deemed material to be disclosed.

Shareholding Profile

Ownership of ordinary share capital by size of

shareholding and the ten largest shareholders as at

30 June 2008 are given in the following tables:

Size of shareholding Number of shareholders Number of

shares owned% Holding

1-500 shares 11,080 1,341,565 0.54

501-1,000 shares 1,430 1,065,505 0.42

1,001-5,000 shares 2,206 5,383,389 2.15

5,001-10,000 shares 674 4,890,478 1.95

10,001-50,000 shares 1,087 25,794,644 10.30

50,001-100,000 shares 261 18,870,695 7.54

Above 100,000 shares 352 179,888,583 71.85

The MCB Ltd. (Treasury shares) 1 13,140,736 5.25

Total 17,091 250,375,595 100.00



Dividend Policy

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

predictable dividend path. Interim dividends are declared in November, based on best estimates of half-

yearly results to 31 December while the final dividends are announced by the Board just before the end of

the financial year, when the trend in Group profitability is more firmly established, and paid towards the end

of July. Key dividend ratios over the past five years are as shown below:

Largest shareholders Number of shares owned % Holding

The Mauritius Union Assurance Company Ltd. 9,029,440 3.61

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

9,009,807 3.60

The Anglo-Mauritius Assurance Society Ltd. 6,697,394 2.67

POLICY Ltd. 5,655,803 2.26

Promotion and Development Ltd. 5,000,000 2.00

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

4,346,535 1.74

La Prudence Mauricienne Assurances Limitée 3,977,543 1.59

Pictet et Cie. (A/C Blakeney LP) 3,365,264 1.34

Rose Hill Transport Ltd. 3,151,490 1.26

National Pensions Fund 3,027,545 1.21

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

Dividend per share (Rs) 1.70 1.90 2.12 2.90 4.55

Dividend cover (Number of times)

3.23 3.25 3.49 3.40 3.42

Dividend yield (%) 4.8 4.7 3.8 2.8 2.6



Share Price Information

The MCB share price achieved a notable performance during the last financial year to rise by 67.0%, driven

by solid financial results and positive investor sentiment, largely outperforming the SEMDEX which went up

by 28.5% over the same period. In the process, the MCB has consolidated its leadership position with a total

market capitalisation of Rs 43.1 billion as at 30 June 2008, accounting for more than 25% of the overall market.

The appreciation of the MCB share price was more pronounced during the first semester of FY 2007/08 with

an outstanding 86.4% increase recorded between 1 July 2007 and 18 February 2008 as compared to a rise of

46.6% in the SEMDEX over the corresponding period. Subsequently, however, the MCB share price became more

volatile and evolved mainly on a downward trend in line with the overall stock market performance, potentially

reflecting a more prudent attitude adopted by investors, partly attributable to developments on the international

scene and growing challenges faced by some economic sectors. This tendency has been maintained during the

early months of FY 2008/09 with the MCB share price contracting by 10.6% from 1 July to 15 September 2008.

200

180

160

140

120

100

80

Jul 0

7

Aug

07

Sep

07

Oct 0

7

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr 0

8

May

08

Jun

08

Jul 0

8

Aug

08

Sep

08

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

MCB Share Price Index SEMDEX (rebased)

2 Ju

ly 2

007

= 10

0



Statement of Remuneration Philosophy The Board is responsible for the remuneration

strategy of the Bank with related duties delegated

to the Nomination and Remuneration Committee

and thence, to General Management.

In order to attain proper remuneration levels, the

main guiding principles are that:

• theBankregularlysurveysmarketconditionsin

order to ensure that its remuneration packages

are competitive and motivating;

• remunerationpracticesarereviewedand,where

appropriate, restructured in order to provide clear

differentiation between individuals with regard to

performance; and

• strong incentives are created for superior

performance.

Remuneration packages are shaped by a number

of factors including qualifications, skills scarcity,

past performance, market norms and practices,

responsibilities shouldered and experience.

The current job grading system is in the process of

being reviewed in order to favour more flexibility

by way of a more functional approach, in the main

through broadbanding.

Important Forthcoming Events

Employee Share Option SchemeSince 2006, the Bank has been operating an

Employee Share Option Scheme for its entire

staff whereby employees are granted options –

exercisable through four specific time windows

over a one-year period – to acquire shares at

discounted prices for a total amount of up to 25%

of their annual performance bonus, with a vesting

period of three years. The objectives of this scheme

are to enhance staff motivation through additional

incentives while aligning their interests with those

of the business, notably by promoting commitment

and improved individual performance. In November

2007, 455,049 options were granted, of which

more than 50% have already been taken up before

the final window, as detailed in the following table.

November 2008Declaration of interim dividend and release of first quarter results to 30 September 2008

November 2008 Annual Meeting of Shareholders

December 2008 Payment of interim dividend

February 2009 Release of half-year results

May 2009Release of results for the 9-month period to 31 March 2009

June 2009 Declaration of final dividend

July 2009 Payment of final dividend

September 2009Release of full-year results to 30 June 2009

Management Other employees TOTAL

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

Option price (Rs) 83.50 - 88 75 - 79 -

Percentage exercised 91.3 56.0 64.2

Number of options granted in November 2007 105,400 349,649 455,049

Initial option price (Rs) 119 107 -

Number of options exercised to date 85,754 150,881 236,635

Value (Rs ‘000) 10,223 16,210 26,433


Number of employees 22 584 606

Available for the 4th window and expiring in mid-October 2008

19,646 198,768 218,414



Group Bank

2008 2007 2008 2007

Rs ‘000 Rs ‘000 Rs ‘000 Rs ‘000

Audit fees paid to:

BDO De Chazal Du Mée 11,291 10,124 10,048 9,200

Other firms 2,843 3,232 - -

Fees for other services provided by:

BDO De Chazal Du Mée 1,622 1,959 1,412 1,819

Auditors’ Fees and Fees for Other Services

Management Other employees TOTAL

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

Option price (Rs) 83.50 - 88 75 - 79 -


Number of options granted in November 2007 105,400 349,649 455,049

Initial option price (Rs) 119 107 -

Number of options exercised to date 85,754 150,881 236,635

Value (Rs ‘000) 10,223 16,210 26,433


Number of employees 22 584 606

Available for the 4th window and expiring in mid-October 2008

19,646 198,768 218,414



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.

In December 2007, the MCB signed the United

Nations Global Compact, the world’s largest

voluntary corporate citizenship initiative. The

Global Compact initiative requires companies to

embrace, support and enact within their sphere

of influence, a set of core values in the areas of

human rights, labour standards, environment and

anti-corruption. The MCB fully supports the ten

principles of the Global Compact and is committed

to making them part of its strategy, culture and

day-to-day operations. Besides, the Bank ensures

public accountability and transparency through

regular and clear communications with its

stakeholders.

Corporate Social Responsibility A bank with a heart

The MCB has always had the interests of the

community and the environment at heart. Since

its foundation in 1838, a long time before the term

‘Corporate Social Responsibility’ (CSR) had even

been coined, it has been involved in activities

designed to contribute to the welfare of society

at large.

To serve the communities in which it operates

even more efficiently, the MCB revamped its CSR

structure in 2007 with the creation of a dedicated

business unit within the Group’s Communication

Strategic Business Unit (SBU). On the basis of an

explicit vision, CSR activities were revitalised during

FY 2007/08 with the implementation of a focused

plan involving the use of the branch network for

a more active participation at the local level. The

aim is to make a perceptible difference in people’s

lives by working closely with the community and



ensuring that CSR funds are allocated to those in

need via a more direct channel.

In line with a policy decision taken in 2005, the

MCB dedicates 1% of the Bank’s pre-tax profit

to CSR activities with priority areas identified to

maximise efficiency. For the year ended June

2008, an amount of Rs 23.5 million was spent

in respect of projects as detailed in the following

table. No political donations were made during

the year.

In April 2008, an ‘Appel à Projets’ was launched,

inviting all non-governmental organisations (NGO) and

individuals supported by NGOs to submit their projects.

This operation has been a success with 188 projects

received, of which 30 have been approved for a total

sum of Rs 5.6 million.

As the Group expands regionally, it is extending

its CSR activities to other presence countries.

During FY 2007/08, for example, the MCB made

significant donations to the victims of cyclone Yvan

in Madagascar and also supported the Indian Ocean

Island Games in Antananarivo as an official sponsor.

Some Examples of Support

Education

• In addition to being involved in the MCB

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 (MCB

Foundation and MCB Rodrigues Scholarship)

Poverty alleviation

• NaturalDisasters–promptsupporttovictimsof

cyclone Yvan in Madagascar and torrential rains

in Mauritius by providing food and educational

materials

• Rehabilitation of drug addicts – outreach

programme for young people at Lakaz A and

follow-up of female addicts at Idriss Goomany

Centre while empowering their families

• Association Kinouété – providing counselling

and training to female detainees to renew

dysfunctional relationships with family members,

in anticipation of future release

• APEIM – financial help for the construction

of new building to accommodate mentally

disabled children

• LinktoLife–supportandcounsellingtocancer

patients and their families

Rs ‘000

Education 15,818

Poverty Alleviation 5,225

Environment 1,192

Sports 436

Others 849

Total 23,520



Environment

• Mauritian Wildlife Foundation - conservation of

biodiversity on Round Island

Arts, Culture & National Heritage

• National Heritage Fund – contribution to the

preservation and restoration of Ile de la Passe

• Blue Penny Museum – The MCB has always

shown a keen interest in the preservation of

national heritage and has built up a rich collection

of historical documents and works of art. In this

connection, free guided tours were organised

in order to share this cultural wealth with over

3,000 primary pupils

• National Arts Competition – partnership with

the Ministry of Education for all primary and

secondary students

Sports

• MCB Football Academy (MCBFA) – The first

academy was launched on 12 July 2008 at

Saint Hilaire. This innovative project has been

designed to enhance the lives of children aged

between 7 and 11 who live in high-risk areas.

The members of MCBFA meet every Saturday

for training sessions wherein football skills

and sports values are taught. Their academic

education is also followed up and their parents

are given counselling if need be. The aim is

to provide the children with an environment

conducive to their personal development. Six

MCB Football Academies should be created in

different areas (including one in Rodrigues) by

the end of FY 2008/09

Staff Involvement

• SettingupoftheMCB’sGreenTeam–withover

100 members already, this team dedicated to the

safeguard and enhancement of the environment

has been active during the past financial year:

- campaigns initiated to improve plastic bottle

disposal and collection;

- visit to Ile Aux Aigrettes in collaboration with

Mauritius Wildlife Foundation; and

- suggesting practical solutions within the MCB

• MCBFA–presenceofMCBstaffeverySaturday

morning at St Hilaire and Poste de Flacq for

training sessions

• FriendsinHope–participationintheRoyalRaid

2008 to raise funds

• MCBblooddonationday

• Sourire de Noël 2007 – financial contribution

by employees for the benefit of children of SOS

Children’s Villages and Caritas Mauritius


Company Secretary


Company Secretary’s Certificate

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

Head Office

9 – 15, Sir William Newton Street

Port Louis

29 September 2008

management discussion and analysis

Tailoring solutions founded on expertise and experience


Management Discussion and AnalysisHighlights 58

External Forces Review 60

› Legal and Institutional Environment 60

› Macroeconomic Review 62

› Market Environment 66

Review of MCB Operations 68

› Local Banking Business 69

› International Operations 74

› Non-Bank Activities 78

Financial Review 83

› Performance Against Objectives 83

› Review by Financial Priority Area 85

Capital Structure 93

Risk Report 97

› Group Risk Structure 97

› Risk Monitoring Committee 98

› Credit Risk 98

› Operational Risk 100

› Market Risk 102

› Internal Audit 104

› Physical Security 105

› Information Security Management 105

› Compliance 106

› Legal 107

Basel II 108

› Scope of Application 108

› Credit Risk Capital 108

› Operational Risk Capital 109

› Market Risk Capital 110

› Risk Appetite and Stress Testing 110

Forward Together 110

Management Discussion and Analysis


HighlightsThe Group has once again achieved excellent financial

results, with attributable earnings increasing by some

50% to reach Rs 3.7 billion. Even on excluding non-

recurring profit of some Rs 425 million arising from the

sale of investments by MCB Equity Fund in Sun Resorts

Ltd., overall profits were significantly up by 32.8%.

All major lines of business showed good progress,

ensuring robust foundations for profitability growth

despite the dampening impact of unfavourable market

developments on the results of some subsidiaries. The

contribution of income from foreign sources and non-

bank operations to overall Group results rose to 56.5%,

albeit boosted by the profit on sale of Sun Resorts

shares. When excluding this item, the proportion still

stood at an appreciable level of 51.8%, reflective of

the continued success of our diversification strategy.

The performance of the Group is all the more

commendable in view of the challenging operating

environment prevailing. While the economic situation

in Mauritius has remained positive overall, it has been

increasingly put under stress by soft conditions on the

international front namely relating to the twin crises

in commodity and financial markets with adverse

consequences thereof being felt domestically in

terms of mounting inflation and trade deficits as

well as restraints on economic growth. Heightened

uncertainties created by the unfolding of highly

damaging financial upheavals currently are seriously

denting business sentiment and activity worldwide

and might be indicative of tougher times ahead for

the country. Besides challenges in the economy, there

has been some reshaping of the banking landscape

with the coming into operation of new players and the

consolidation of some existing ones. Compounded by

an increase in the liquidity level in the banking sector,

these developments have meant that margins have

been constantly under pressure. In the same breath,

the contribution of income from foreign sources to

group profit - though maintaining a notable expansion -

has been dampened by country specific challenges and

particularly, by a market strengthening of the Mauritian

rupee on forex markets over the financial year.

The Group’s ability to withstand adverse shocks in the

environment is testimony to the judiciousness of the

growth strategies being entrenched in various areas

including business development, customer service

and relationship, staff training, cost efficiency and risk

management, supported by initiatives to bolster the

physical and technological infrastructure.

Regarding business development, the MCB has

pursued its strategy of diversifying its products

and markets. For instance, our regional presence

was reinforced with the opening of a full-fledged

branch in Maldives as well as the extension of the

branch network in Mozambique and the setting

up of a representative office in Johannesburg to



better prospect the African market. In addition to the

replication of local products and services in our foreign

subsidiaries, such as Internet Banking in Mozambique

and MCB Refill (mobile recharge) in Seychelles, Master

Risk Participation Agreements have been concluded

with a range of international banks generating largely

fee-based income. Moreover, in view of appealing

growth opportunities foreseen in the Global Business

sector, a dedicated unit has been set up to develop

related business while, in line with the ‘Bank for

Banks’ initiative, the MCB has recently concluded a

joint venture with a Moroccan, Dubai-based company

for card processing needs of smaller banks, both

local and foreign. The Bank has also made significant

progress towards becoming the first SWIFT Member

Concentrator in this region of the world. Regarding

non-bank financial services, the last financial year

was marked by the regrouping of subsidiaries offering

investor services under MCB Capital Markets Ltd.

A major business development initiative recently

launched by the latter relates to the creation, in

partnership with the British firm G.H. Financials, of

a company through which global financial futures

trading will be introduced in Mauritius early next year.

Reflecting the Group’s endeavour to continuously

move customer boundaries, the Port Louis Main

Branch has been completely remodelled and has set

fresh standards in terms of customer experience. The

redesign programme will be gradually extended to the

whole retail network. Customer service training has also

been reinforced following onto the culture development

programme undertaken in the previous financial year.

Besides, for the first time in Mauritius, Teller Cash

Recycling machines have been successfully installed

and operated, resulting in enhanced security and a

far more congenial retail environment, in addition to

improving efficiency levels by up to 20%. Productivity

gains have also emanated from further automation

of Internet Banking services and the centralisation

of back-office processes. Moreover, in line with

its objective of promoting good risk management

practices, the Bank is continuously upgrading related

tools and techniques and has, during the year under

review, consolidated its reporting structure in respect

of various risk aspects while enhancing its country

limits monitoring framework, amongst others.

Within a dynamic operating environment characterised

by rapidly changing socio-economic conditions, fast

evolving technology, growing customer sophistication

and aggressive competition, sustained and solid

growth can only be achieved through sensible

strategising and judicious investments. The Group

has thus always laid particular emphasis on building

capacity for the future. On the technology front,

Temenos T24 has been selected as the Bank’s new

core banking operating system, with a project team

working towards full roll-out by mid 2009. The new

system, which provides 24/7 functionality, should



enhance capabilities notably in terms of product

development and time to market. Physical capacity

will also be significantly enhanced with the planned

construction, next to the Ebène Cyber City, of a

landmark building scheduled to be completed by 2010.

Furthermore, conscious of the challenge of obtaining

sufficient skilled resources to accommodate superior

growth over the medium to long term, the Bank has

launched a graduate recruitment programme, which

will be broadened in future periods.

The sustained strong financial results of the Group

as well as ongoing initiatives to push performance

even further up have contributed to lasting

recognition of the MCB both in Mauritius and

abroad. Indeed, testifying to market confidence

in the institution and the value created for

shareholders, the MCB share price increased by

67% over FY 2007/08, considerably outperforming

the market, while dividend per share rose by 57%.

The Group has by far the largest capitalisation on

the Stock Exchange of Mauritius – Rs 43.1 billion,

corresponding to USD 1.6 billion, as at 30 June

2008 – and, after joining the league of companies

with market capitalisation exceeding one

billion dollars, is set to achieve more prominent

milestones. On the world stage, the MCB remains

the only Mauritian bank among the top 1,000

global banks as per The Banker’s rankings, and

has even progressed 59 places in the past year.

The MCB continues to be closely involved in the

community with an illustration of its strong

commitment being the recent implementation of the

‘My Words, My World ’ project, a highly successful

national campaign promoting literacy through the

distribution of educational packs to primary school

students in Mauritius, Rodrigues and Agaléga.

Moreover, the launch this year of the innovative

project, MCB Football Academy, aimed at fostering the

personal development of the youth in less privileged

areas via the medium of sport and pedagogical

follow-up, has been widely acclaimed.

External Forces ReviewLegal and Institutional Environment

The regulatory and legislative framework of the

financial services sector has again undergone

numerous changes in FY 2007/08, designed inter

alia to broaden its scope, reinforce its soundness and

improve transparency. Noteworthy developments

relate to Islamic financial arrangements with

amendments brought to the Banking Act 2004

to allow for the introduction of Islamic banking

business and to the Finance Act 2008 to enable non-

bank deposit-taking institutions to engage in such

activities. Moreover, guidelines were issued by the

Bank of Mauritius (BoM) in June 2008 to foster an

adequate framework for the licensing of prospective

operators in this area as well as the terms and

conditions governing their functioning.



Further progress has been achieved in connection

with the implementation of the Basel II Capital Accord

within the banking sector with, for instance, the

establishment of various guidelines notably in respect

of the scope of application of Basel II and eligible

capital. The MCB fully endorses the relevant guiding

principles and, after attaining a satisfactory state of

readiness regarding the migration of the Standardised

approaches in 2007, it has proceeded with further

refinements to allow a timely and closer alignment

of its minimum capital requirements to specific risks

associated with different types of assets.

In its efforts to adapt the banking sector to evolving

exigencies, the BoM has come up with various

proposals for upgrading some of the prescribed rules

partly drawing on recommendations emanating from

the Financial Sector Assessment Program mission

carried out jointly by the IMF and World Bank in the

recent past. As such, largely as part of ongoing

improvements undertaken in the field of credit risk

management, draft revised guidelines have been

prepared on credit concentration limits and related

party transactions. In addition, with the aim of

promoting Mauritius as a sound and reputable financial

centre, the Guidance Notes on Anti-Money Laundering

and Combating the Financing of Terrorism for Financial

Institutions have been updated in July 2008. Besides,

in order to enable market participants to better assess

the financial conditions, performances, business

activities, risk profile and management practices of

financial institutions, a revised Guideline on Public

Disclosure of Information was issued in July last with

effect as from 31 December 2008. This will enhance

the comprehensiveness, relevance and accuracy

of information to be disclosed in annual reports and

financial statements.

As regards the technological infrastructure, the BoM

is currently working on a Cheque Truncation project

with the aim of facilitating the clearing and settlement

of cheques using their images. Furthermore, with

e-banking business gaining momentum in the industry

and considering new challenges it represents for

stakeholders, the BoM recently issued a draft revised

guideline on Internet Financial Services with a view to

mitigating the risks involved in delivering products and

services via electronic means. At the regional level,

the BoM is contributing to the development of the

COMESA Regional Payment and Settlement System

which will provide a single gateway for central banks

in the region for the payment and settlement of trades,

in the process reducing the costs of transactions and

the time taken for settlement as well as enhancing the

security of payments.

In the non-bank financial services, the year was

marked by the coming into force of the Securities Act

and new rules with regard to the licensing and conduct

of investment businesses as well as regulations



pertaining to Collective Investment Schemes.

Reflecting the Government’s commitment to diversify

financial services and in order to boost the image of

Mauritius as a globally-integrated and leading regional

financial centre, a licence has been issued by the

Financial Services Commission in February 2008 to

allow for the setting up of a Commodity Exchange

which is expected to be operational soon. As for the

Stock Exchange of Mauritius, a landmark development

is its scheduled inclusion in the Dow Jones Wilshire

Global Index Family as from October 2008, evocative of

its enhanced international reputation and credibility.

Macroeconomic Review

Buttressed by an ambitious reform programme put

in place by the authorities against the backdrop of

exogenous shocks mainly relating to an erosion of

international market access and surging commodity

prices, the ongoing economic upturn in Mauritius

was generally sustained and reinforced during 2007

despite lingering domestic rigidities. In particular,

the economy managed to achieve an appreciable

real Gross Domestic Product (GDP) growth of 5.4%,

propelled by the broadly creditable achievements

of various established sectors. On excluding sugar

production, economic growth reached an even more

laudable rate of 6.1% in 2007, that is around half of

a percentage point higher than the preceding year’s

outturn. However, emerging hints of a softening of the

domestic economic environment have been noted

towards the closing months of 2007 and onto 2008

on the basis of testing economic conditions in our key

export markets amidst the enduring financial turmoil,

elevated international commodity prices, the volatility

of the domestic currency, and persisting domestic

imbalances. In the periods ahead, prospects could

be marred by deteriorating exogenous conditions

notably relating to the dampening effect of the

current global financial crisis on the performance of

our main export markets and on investor sentiment.

Indeed, the already visible signs of damage on some

areas of the Mauritian economy could quite rapidly

spread out and amplify if the current financial crisis

on the global scene were to prolong to the extent of

crippling advanced economies over the medium term.

Against this background, though major breakthroughs

notably in terms of sectoral diversification, fiscal

consolidation and an enhancement of the operating

framework have contributed to reinforce key

fundamentals, further headway in enhancing the

country’s competitiveness is deemed essential

towards warding off impending shocks.

At sectoral level, satisfactory progress achieved with

respect to the reengineering of the sugar industry

bodes well for the creation of a multifunctional cane

cluster in the near future, assuming the reform

programme unfolds in a timely and comprehensive

manner. In 2007 though, sugar output declined further

following a reduction in area harvested and highly


unfavourable weather conditions. In the same vein,

the domestic oriented industry registered a negative

growth rate last year with stiffer competition emanating

from imported goods expected to remain a drag on

the development of the segment in the near future

unless operational capabilities therein are promptly

and significantly bolstered. These performances were

largely outweighed by the commendable rates at which

several sectors expanded last year, thereby ensuring a

broad-based and thus robust foundation for nationwide

output growth. A major source of satisfaction has been

the accelerated growth of 8.0% achieved by the export

oriented manufacturing sector after a string of subdued

performances. The upturn was in large part driven by a

strong rebound in the textile and clothing segment with

challenges principally regarding trade liberalisation

being rather successfully met by an emphasis on an

efficient supply chain and an effective satisfaction

of customer requirements. Nonetheless, the sector

experienced a marked slowdown towards the end of

2007 – reflecting a downturn in export markets and a

shift in the hitherto broadly favourable exchange rate

dynamics – and is expected to register a subdued

performance in 2008 within the context of worsening

conditions in the operating environment. The robust

performance achieved by the export oriented sector

last year was also supported by a solid outcome in

the seafood segment, which pursued its emergence

as a new pillar of the economy on the basis of a

considerable rise in exports of fish and fish-related

Selected growth rates (Year 2007)

ConstructionHotels & restaurants

Business activitiesTextile

BankingTransport, storage & communications

InsuranceWholesale & retail trade

Food manufacturing (excl. sugar)Electricity, gas & water

Social & general public servicesNon-sugar agricultureManufacturing excl. sugar, food & textileSugar

-16 -12 -8 -4 0 +4 +8 +12 +16 %

2004 2005 2006 2007(1) 2008(2)

1: revised estimates 2: MCB forecasts

GDP growth GDP growth excl. sugar

7

6

5

4

3

2

1

0

%

GDP growth rate



activities segments on the back of generally healthy

economic conditions at the national level as well

as a diversification of service offerings and market

segments by operators. The transport, storage and

communications sector also upheld its noteworthy

expansion path with a growth rate of 7.8%, bolstered

by another double-digit expansion in Information and

Communication Technology (ICT) activities. In fact, real

growth in value added has been supported by further

progress regarding ICT infrastructure and access,

though concerns generally persisted with respect to

the cost and speed of international connectivity and

the reliability of communication networks. Regarding

the trade sector, a fairly satisfactory performance

was achieved on the basis of rising per capita income

and overall favourable economic activity. However, a

deceleration in the growth pattern was noted mostly

due to the negative impact of heightened inflationary

pressures on real final consumption expenditure, a

development that should continue to have a weighing-

down effect this year despite positive support to

expenditure being derived from the Pay Research

Bureau payout to Government employees.

The key contribution of investment growth to

the nationwide economic momentum is worth

highlighting, as gauged by a notable expansion

of 8.6% – which works out to an impressive rate

of 17.0% when excluding aircraft acquisition – in

gross domestic fixed capital formation last year,

products in line with infrastructure development

and market diversification. Another major achiever in

the secondary sector was the construction industry

which, in spite of elevated prices of raw materials and

human resource constraints, posted an impressive

growth rate of 15.2% in 2007 – a near tripling of the

preceding year’s performance – on account of an array

of projects materialising in the fields of hospitality and

property development, manufacturing, and wholesale

and retail trade amongst others.

The tertiary sector also had a largely positive influence

on economic activity last year with various services

activities achieving appreciable growth performances.

In particular, the tourism industry posted a remarkable

growth of over 15% in arrivals on the strength of an

expansion in capacity linked to air access liberalisation

and sustained marketing efforts, in addition to positive

base effects resulting from the dampening impact

of the Chikungunya episode on the demand for the

Mauritian destination in 2006. Nevertheless, lower-

than-targeted arrivals growth recorded for the first

semester of 2008 tend to put into perspective the

multiple vulnerabilities facing the sector despite its

harnessed competitiveness, and are a harbinger of a

possibly below par performance for the year against

the backdrop of rather bleak prospects globally. The

business and financial services sector maintained

its growth impetus last year, again propelled by

favourable developments in the banking and business



resulting in a prominent rise of 80 basis points in

the investment ratio to 25.1% of GDP. Whilst this

is still deemed to be somewhat short of required

standards for materially shoring up medium to long

term growth capabilities, comfort can be taken from

the increasing share of private sector investment

in the total by virtue of a sizeable growth of 24%

therein, linked to relatively high outlays in residential

and non-residential projects. Furthermore, more

robust economic foundations at the national level in

the last two years, underpinned by rising growth and

investment rates, and multi-pronged micro-strategies

for further facilitating job creation contributed to

a fall in the unemployment rate to 8.5% in 2007

from 9.1% in the preceding year, thereby marking a

salutary reversal in a hitherto stubborn upward trend.

Whilst the first quarter of 2008 further confirmed

the downward movement of the joblessness rate,

the labour market is still regarded as rather soft,

thus indicating that additional reforms are required

for raising the competency base of the labour force

and enhancing its adaptability to shifting dynamics,

reducing skills mismatch, and improving labour

mobility. Another field of achievement relates to

public finances, with the budget deficit declining by

50 basis points to 3.8% of GDP in FY 2007/08 on the

heels of initiated fiscal consolidation efforts, whilst

the primary balance – that is, the budget balance

before interest payments – shifted to the positive side,

providing the basis for a decline in public debt ratios.

On a less encouraging note, headline inflation remained

elevated in the last financial year despite adopting a

generally declining trend subsequent to its June 2007

peak of 10.7%. Indeed, in spite of a sustained firming

up of the domestic currency, the average change in

the consumer price index remained relatively high at

8.8% as at December last and again in June 2008,

largely due to the pass-through effects of mounting

international prices of food and energy items on

average. As it stands, inflation is set to pursue an

upward movement in future months and could reach

double-digits by December 2008. On the external front,

the balance of trade deficit worsened to Rs 51.3 billion

in 2007 owing to a significant rise in imports following

major hikes in international commodity prices. The

trend which followed through in the first semester of

2008 was reflected in an increase of 55% in the trade

deficit, prompted by a continuously high import bill and

a notable drop in domestic exports on the back of the

relative strength of the rupee and economic slowdown

in key markets. As a result, the current account

deficit remains elevated despite buoyant tourism

receipts and favourable income and current transfers

accounts. Nonetheless, the balance of payments

has encouragingly been in a surplus position on the

strength of substantial net capital and financial inflows

partly fuelled by foreign direct investment related to

Integrated Resort Scheme (IRS) projects, highlighting

our increasing dependence upon the perception of

foreign investors about the country, its institutions and



its higher profiled decisions. Against the background

of a positive balance of payments situation, the rupee

strengthened against major currencies on a point-to-

point basis in the last financial year, with the gains

being more distinct against the US dollar and the

pound sterling in line with their intrinsic weaknesses

internationally.

Owing to persistent inflationary pressures

domestically and a general tightening of monetary

policy internationally, the Bank of Mauritius raised the

Repo rate by 75 basis points to 9.25% in July 2007.

However, with growing downside risks to growth

largely emanating from dampened prospects in key

export markets partly linked to the spill-over effects of

the sub-prime crisis in the US and in view of a sustained

appreciation of the local currency, the policy stance

was altered leading to the keynote rate being trimmed

down by a cumulative 125 basis points in the first five

months of 2008 to 8% as at May last. More recently,

considering a worsening inflation outlook, monetary

tightening returned on the agenda with the reference

rate being raised to 8.25% and the cash reserve ratio

lifted from 4% to 6%, marking a rather unexpected

and blunt reversal in the trend to shift away from

direct monetary control. In the periods ahead, though

the need to fend off serious inflationary pressures

could at first sight support the need for raising the

benchmark interest rate, the effectiveness of such a

stance for combating price changes is yet to be clearly

demonstrated in a context where domestic inflation

is in large part being caused by exogenous factors.

The potentially detrimental impact on various areas of

the real sector also needs to be carefully scrutinised

before any decision is taken, particularly considering

an increasingly testing international environment.

Market Environment

Reflective of a sustained, albeit still delicate, upturn

in economic activity, the level of lending by the banking

sector evolved appreciably over the past financial year,

with credit to the economy expanding by 18.1% in

FY 2007/08, as compared to a growth of 10.3% one

year earlier, to attain Rs 167.1 billion as at 30 June

2008. The expansion in credit has been rather broad-

based as gauged by the double-digit expansion rates

registered in several areas. The main driver of this

notable overall performance has been the construction

sector, largely backed by the housing segment, in

line with the increasing number of residential and

commercial projects as well as integrated resort

development schemes underway. Credit to tourism

also recorded a healthy performance, boosted by

numerous ventures being implemented to capture

the potential of the sector. Other major contributors

to the growth in overall loans and advances include

the financial and business services and the personal

and professional segments as well as the agricultural

sector on account of major restructuring initiatives

within the sugar industry. On the other hand, credit to


traders fared rather poorly in part due to a dampened

performance of the sector.

The banking sector also experienced a substantial

increase of 23.4% in deposits during FY 2007/08 on

the strength of a considerable rise in foreign currency

deposits, which account for more than two thirds of total

deposits principally due to Global Business activities.

Local currency deposits also grew noticeably during

the past financial year, notwithstanding a general

decline in interest rates on a point-to-point basis.

Demand deposits, in particular, rose at an accelerated

pace in line with the increased level of economic

activity, while savings deposits achieved a significant

expansion of 18.1% in FY 2007/08 as opposed to a

moderate rise of 6.5% in the preceding year.

Overall, the general liquidity position of the banking

sector improved significantly during the past

financial year, with the liquid assets ratio based on

rupee-denominated deposits rising to 43.3% as at

30 June 2008 up from 38.7% one year earlier. This

tendency continues to kindle competition at the

level of credit, with banks as well as other financial

institutions adopting aggressive strategies aimed at

consolidating and deepening their market penetration,

niche targeting being often favoured. In particular,

commercial initiatives have been sparked off in

the retail segment as evidenced by the continuous

promotion of products and services namely pertaining

Credit to the Economy

Sectors June 07Rs m

June 08Rs m

Change%

Agriculture and fishing 6,852 9,248 35.0

Export oriented industry 6,824 8,454 23.9

Domestic oriented industry 8,121 8,851 9.0

Tourism 17,883 24,038 34.4

Transport 1,772 956 (46.1)

Construction of which Housing

22,91715,967

29,95718,616

30.7 16.6

Traders 19,736 20,054 1.6

Information & Comm. Technology 599 925 54.4

Financial & business services 15,813 18,820 19.0

Infrastructure 4,137 5,125 23.9

Global Business Licence Holders 10,158 11,264 10.9

Personal & Professional 14,311 16,693 16.6

Public Nonfinancial Corporations 6,904 7,768 12.5

Others 5,512 4,960 (10.0)

Total 141,539 167,111 18.1

Deposits in the Banking Sector

Types of Deposits June 07 Rs m

June 08 Rs m

Change %

Rupee 148,214 175,162 18.2

Savings 75,292 88,943 18.1

Demand 16,736 22,339 33.5

Time 56,186 63,881 13.7

Foreign currency 286,940 361,915 26.1

Total 435,154 537,077 23.4



to personal advances, housing loans and credit cards.

Moreover, some banks have been expanding their

branch network and remote delivery channels with a

view to furthering their presence on the domestic

market while others are extending their operations to the

region so as to diversify their income sources. Besides,

the banking landscape has been slightly reshaped

with the entry of new operators in the market.

Despite the competitive environment, the MCB has

achieved satisfactory performances in balance sheet

growth, underpinned by initiatives pursued to uphold

its leading position on the market, notably geared

towards product and market development, enhancing

service quality, promoting efficiency and improving

portfolio management amongst others. Going forward,

the pursuit of its multi-pronged growth strategy

should enable the MCB to avail itself of emerging

opportunities and maintain its leadership position

in spite of heightened competitive pressures from

established as well as new players.

Review of MCB OperationsAll major lines of business have made appreciable

headway during FY 2007/08 notably in terms of

volume growth and efficiency. Moreover, set against

the success of past initiatives, the Group is moving up a

gear to ensure that performance standards are further

enhanced going forward. Indeed, the diversification

strategy has been actively pursued with the MCB

enlarging its regional footprint alongside launching

new business lines and enriching its range of products

and services. The reinforced profit model also lays

particular importance on Group synergy by means

of enhanced and mutually beneficial interactions

between its entities particularly through cross-selling

and referrals business. In the same vein, renewed

emphasis has been placed on better understanding

customer needs and on excellence in service delivery

with the implementation of a comprehensive training

programme involving almost all employees of the

Bank. Besides, efforts have been stepped up to

attract, develop and retain adequate human resource

capabilities to sustain growth with a key focus on

fostering a performance culture within the Group.

The physical and technological infrastructure are

also being modernised in line with our development

ambitions. Indeed, the implementation of a major

redesign programme and the deployment of Teller

Cash Recyclers (TCRs) were successfully completed at

the Port Louis Main Branch (PLMB), and are now being

extended to other areas in the network. Works have

also already started in respect of the construction of

a landmark environment-conscious building near the

Ebène Cyber City that will house various departments

with a view to accommodating future business

expansion. One of the most significant projects

currently underway relates to the replacement of the

core banking system of the Bank with a project team

working toward full roll-out by mid-2009. Temenos T24,



a state-of-the-art product selected as the new operating

system, boasts appealing flexibility and scalability

features which should provide the organisation with

an edge in its strategies for the future.

Local Banking Business

Corporate

During the last financial year, the Bank has confirmed

its status as a privileged partner of economic agents

in their development endeavours, thereby reinforcing

its long-established presence at the forefront of the

national income creation process. In particular, the

MCB has again been closely involved in various flagship

projects spanning the restructuring of the sugarcane

cluster to the hospitality, IRS, property development

and construction sectors amongst others. In fact, the

Bank has fared relatively well in fending off mounting

competitive pressures in the corporate segment

notably emanating from the aggressive stance of

existing competitors and the entry of new players.

The loan book of the Corporate Banking Business Unit

(BU) increased by an appreciable 12% on a point-

to-point basis over FY 2007/08, though the rise was

lower on an average basis given that many of the

disbursements occurred in the latter half of the year.

Gross operating margin improved by more than 20%

over the corresponding 12-month period, underpinned

by growing non-interest income generating operations

as well as enhanced operational efficiency and

improvement in risk management practices.

Recognising the strengthening of client relationship

as a key performance driver, the Corporate Banking

BU laid high emphasis during the year on fostering

greater customer proximity by way of increased and

prompt interaction to support business development

and diversification. Concurrently, it has pursued the

implementation of its segmentation model as part of

its efforts to better identify the needs of customers

for a superior service delivery. The process has led

to the migration of several of its smaller clients to the

Business Banking BU within the Retail segment which

has restructured its operations to cater for the specific

needs of this business segment. These initiatives were

complemented by measures undertaken to enhance

visibility of MCB offerings on the marketplace notably

through participation in various major events and the

launch of an MCB Corporate Banking brochure as well

as tailored and targeted marketing.

Mindful of the significance of an adequate operational

framework in upholding strategy execution, the

Corporate Banking BU has continued to enhance staff

aptitudes and adapt the structure and processes to

market realities. In particular, it has further invested

in human capital to sharpen the knowledge, skills

and competencies of its staff with both in-house and

external training programmes in respect of customer

service, key industries and targeted specialist fields.

Moreover, a new structure is being set up to serve the

more complex requirements of its corporate customers



by offering structured and tailored solutions. Besides,

further headway has been achieved in operational

efficiency by means of more effective interfaces

between the back and front office operations.

Significant strides are also likely to be realised in terms

of capacity building to support the growth strategy of

the business line with the planned implementation of

the new core banking system.

Prospecting into an opportunity-clad yet competition-

laden future with business potential in various areas

– such as sugar-related activities, energy generation,

property development and hospitality including IRS,

land-based oceanic industry, seafood hub, Freeport

operations, textile and ICT – the Corporate Banking BU

will diligently exploit openings in order to consolidate

and diversify its market base. Aligning its capabilities to

the breadth of its ambitions, it will continue to strive for

service excellence, to provide innovative and tailored

solutions to customers whilst optimising operational

efficiency, continuously improving risk management

and enhancing its human resource proficiency.

Retail

The carefully designed strategy of MCB Retail

coupled with a focus on effective implementation has

translated into an excellent financial performance over

FY 2007/08 as gauged by average loans and deposits

growth of 19% and 11% respectively, contributing to

a higher than targeted increase in gross operating

margin therein. Indeed, the sustained dynamism

observed within this line of business at the Bank

brings to light the judiciousness of the differentiation

strategy adopted against the backdrop of a testing

operating environment characterised by high liquidity,

inflationary pressures and the aggressive stance of

competitors, particularly in segments relating to middle

to high income earners and small businesses.

As part of the institution’s endeavour to enhance

customer experience – in terms of speed and quality

of service delivery and convenience of access to the

Bank’s offerings – whilst developing a tailored value

proposition for each targeted customer segment, an

important milestone was achieved with the completion

of the programme to remodel the PLMB. With the

revamped layout, the Bank is better equipped to cater

for the specific needs of customers within a pleasant

atmosphere, notably through segmented areas,

dedicated teams and adapted service enablers including

increased floor space, enhanced queue management

techniques, deployment of modern technology and

specialised counters for bulk transactions and account

opening. The roll-out of the greeter concept has been

a key novelty in the new structure and is proving to

be instrumental in more effectively informing and

channelling clients, promoting self-service channels,

addressing service issues and generally fostering

personalised customer attention. In effect, significant

headway has been made in respect of the objective to



shift from a transaction focus to a relationship focus

based on improved in-branch interaction.

In parallel, consistent with the thrust of the retail

function to promote needs-based selling, the higher-

end client operations are being upgraded while the

team devoted to small and medium businesses has

been reinforced, thus sharpening the Bank’s edge in

these niche segments by way of greater proximity

and professionalism as anchored on prompt

execution. These initiatives have already started

reaping benefits as evidenced by the consolidation

of the leadership position of the Private Banking arm

in financing IRS property acquisition during the last

financial year despite intense competitive pressures.

The structural changes have been complemented

by marketing and commercial actions to enhance

brand visibility throughout the year. In this respect,

major achievements during the year under review

have been: the revamping of some products such

as MCB Rupys, the savings offer aimed at our

younger customers; the standardisation of product

information; partnership arrangements with third

party vendors; and in-branch animations around

product promotions. The ‘active waiting concept’

whereby customers awaiting to be served are

approached for informational as well as promotional

ends, has also contributed to increase sales and

brand visibility. In addition, alongside increasing its

presence in different media channels, MCB Retail

has conducted numerous outdoor sales promotions

including participation in selected fairs.

Furthermore, MCB Retail has pursued its move to

enhance operational efficiency with due consideration

being attached to strengthening risk management

practices. In this respect, business processes are being

continuously reviewed and streamlined wherever

possible, the back-office of satellite branches has been

centralised to the relevant main branches and the use

of TCRs is being extended to selected branches across

the network. Besides, a strong focus is constantly

laid on staff development and motivation in view of

their criticality in effectively and efficiently executing

the Bank’s strategy. As such, following up on the

culture development programme, a sales and service

training programme was, during the last financial year,

conducted across the retail network with the objective

of reinforcing the customer-centric culture. Moreover,

branch staff have again played an important role

in promoting community activities as evidenced by

their recent involvement in the educational campaign

‘My Words, My World ’.

Looking forward, the Bank intends to capitalise on

the experience of the redesign programme to align

service delivery to best practices across the entire

branch network. Moreover, the segmentation strategy

will be deepened and productivity gains will be sought

via further centralisation and continued promotion of



remote channels. All in all, on the basis of its drive to

be commercially proactive with continued focus on

customer service, relationship management and cost

effectiveness as well as on a workforce that is both

enthusiastic and competent, the retail function is well

poised to uphold its growth momentum in years to

come, the more so that its internal capability should be

further bolstered by the new core banking system.

Cards

In FY 2007/08, the Cards SBU delivered a strong

performance with its operating margin growing by

66%. The Bank consolidated its position as market

leader on both the acquiring and issuing segments

through focused relationship management, efficient

marketing and product innovation.

Recognising that e-commerce is by far the fastest

growing payment channel across the world, the MCB

has already embraced this digital revolution and

offers a secured online payment gateway that allows

merchants to sell their products and services on the

worldwide web. True to its pioneer spirit in electronic

payments, the Bank also introduced MCB Secure, an

online authentication service that provides enhanced

security when shopping over the Internet. MCB credit

cardholders can register for MasterCard SecureCode

and Verified by Visa to create an online personal

password which they will be prompted for when

shopping at registered merchants.

The MCB offers an array of card payment solutions

including personal debit and credit cards, fleet cards

and business charge cards. The latest addition to our

range of products is the newly launched MCB Corporate

Card, which is positioned as a premium travel and

entertainment card. The MCB Corporate Card comes

with a suite of features that help companies monitor

and control their employees’ expenses while enjoying

value add-ons such as travel insurance and travel

inconvenience benefits, corporate liability waiver cover

as well as local and international discount offers.

In addition to extending its product line, the Bank

also deployed regular usage promotions to reward

and prompt card usage at points of sale (POS). Our

‘Ça décoiffe!’ end of year promotion, which featured

a car as star prize, did not go unnoticed among our

cardholders and the public in general. The campaign

delivered excellent results with credit and debit card

spending at POS being 39% above the previous

year’s figures. The Bank also increased credit card

penetration across its customer base through regular

in-branch sales activities, direct mailing campaigns

and road shows, as a result of which related net

interest income almost doubled, while delinquency

ratio was kept under control at 2.9%.

The strong position of the MCB on the cards issuing

side has helped sustain its acquiring business as a

significant proportion of the locally billed volume is


processed on our own card readers. The Bank also

maintains a competitive edge by capitalising on

its exclusive partnerships with American Express

and Diners Club, allowing us to propose the most

extensive network mark acceptance in Mauritius. With

new shopping malls being opened throughout the

island coupled with the growth in the tourism sector,

the acquiring business posted a healthy 25% growth

in FY 2007/08. An exclusive card issuing agreement

was signed with American Express in April 2008 and

the high recognition American Express Gold and Green

cards are being issued as from end September 2008.

The Cards SBU is regularly investing into its people and

technology to remain at the forefront of the industry.

New projects are already under way and this line of

business is well geared to generate strong revenue

streams in the years to come.

Delivery Channels

During the last financial year, the MCB covered

significant ground in gearing up its channel capabilities

to support the smooth and efficient implementation of

its business strategy.

At branch level, besides upgrading the physical

set-up, the redesigned PLMB places much emphasis

on promoting alternative delivery channels notably

through the creation of self-service corners which,

complemented by adequate guidance and demos

Automated transactions as a % of total transactions

90

88

86

84

82

80

%

June 04 June 05 June 06 June 07 June 08

Volume of transactions (‘000)

FY 2005/06 FY 2006/07 FY 2007/08

Automated Teller Machines 27,875 30,700 32,696

Merchant Point of Sale 5,246 6,198 7,495

Internet Banking 187 237 374



provided by greeters, are contributing to increased

utilisation of automated teller machines (ATMs) and

Internet Banking. The Bank plans to adapt the

model to the rest of the network with the process

having already started with the Rose Hill branch

and is being due for completion in two years’ time

for the whole network.

Furthermore, following their successful implementation

in PLMB and in an endeavour to foster efficiency,

TCRs are being introduced in selected branches of

the network starting with the Curepipe and Rose

Hill main branches. Alongside raising productivity

at teller levels by some 20%, these state-of-the-

art banking technology devices contribute to

enhanced security by way of reduced cash handling

and enable greater intimacy namely through the

elimination of the glass separation for improved

teller and customer interaction.

Intent on ensuring a consistent customer experience

among the multiplicity of delivery options, the Bank

has uplifted its distribution model to facilitate multi-

channel integration with cross-channel information

flows being facilitated and streamlined, thereby

offering a seamless service irrespective of the

medium selected. In general, the Bank has sustained

its efforts to popularise the use of remote channels as

testified, inter alia, by the extension of the ATM park

to 144 locations currently as well as by awareness

campaigns and a further upgrade in respect of Internet

Banking, contributing to a surge of 58% in the volume

of transactions via this medium in the last financial

year. Overall, the proportion of electronic transactions

sustained its upward trend to reach some 89% as at

June 2008.

Going forward, in addition to bringing further

refinements to the ATM and branch networks, the

Call Centre services and capabilities will be enhanced

while a further upgrade in the Internet Banking facility

is projected within the context of the new core banking

system. Indeed, mapped on the retail segmentation

plan, the Bank’s delivery model will continually be

optimised to ensure access convenience, user-

friendliness and cost efficiency of related services.

International Operations

In line with its vision of ‘being the obvious choice

for financial services in the region and beyond’, the

Group has extended its activities beyond the map

of already covered territories as exemplified by the

recent setting up of its Africa Representative Office

in Johannesburg – an offshoot to better monitor and

serve the African markets – and a brand new branch

in the Maldives. Furthermore, a new business unit

has been established to penetrate the buoyant Global

Business sector in view of the perceived high revenue

growth potential for the Group. Overall, buttressed by

its string of achievements and confirmed credentials



in regional markets, the MCB has continued to grow

the scale of its outbound operations and reinforce its

standing, whilst taking full measure of the risks and

competitive features of every market where it chooses

to be active. The success of the strategy to promote

operations abroad can be gauged by the progress of

60.5% in foreign-sourced (Segment B) profit at Bank

level and 88.7% in related exposures over FY 2007/08

while the foreign subsidiaries and associate have

contributed appreciably to the Group’s results despite

some country-specific constraints and the dampening

impact of a strengthening Mauritian rupee.

In its endeavour to become a Mandated Lead Arranger

in the region, the Group has continued to broadcast its

appetite for syndications and risk participations while

keeping abreast of the credit underwriting capacity

of counterparts and engaging with them to secure

risk participation reciprocity. As a result, the year

under review has seen the Group exploit significant

opportunities on the African continent in respect of

correspondent banking, risk participation, syndication,

direct corporate funding and cross-border transactions.

The MCB is also being increasingly viewed as a

privileged partner by banking counterparts for joint

ventures in the financing of major deals in emerging

economies of sub-Saharan Africa.

Reflective of its goal to become a ‘Bank for Banks’,

the Group will further gear up its core capabilities

to affirm itself as a regional hub by targeting

specific banks for trade finance, payments and

cards outsourcing management services. In fact,

building on its long-standing expertise and robust

infrastructure in handling SWIFT operations within a

highly secure and resilient environment, the Group

has achieved considerable headway in its project

of becoming the first SWIFT Member Concentrator

in the entire sub-Saharan Africa and Indian Ocean

regions, offering connectivity services and the

administration of SWIFT-related matters for other

banks. Additionally, as part of its ambition to be

positioned as a cards hub for the region and to

offer the right strategic response to expressed

and latent needs of its overseas subsidiaries and

African counterparts, the Group is adopting an

innovative business model grounded on state-

of-the-art infrastructure and supported by a joint

venture agreement with HPS, a leading solution

provider of electronic payment systems on the

international scene.

As regards presence countries, the Group has

continued to reinforce its foothold therein both by

deepening and diversifying its activities, whilst

adapting to local market conditions. This has notably

been achieved by further entrenching MCB’s brand

franchise in the petroleum and tourism sectors as

well as enlarging the products and services line-up

and replicating them in subsidiaries.



Supported by its distinctive savoir-faire in specific

business segments, the MCB will increasingly avail

itself of growth opportunities by taking up positions

on its own or through joint ventures in markets

presenting attractive long-term prospects. Indeed,

the International arm has been diligently scrutinising

opportunities in the region and beyond with the

Africa Representative Office being called upon to

spearhead endeavours on the African continent. The

Group will strive to capture trade flows, especially

in the commodities markets, whilst expanding

its regional activities into non-bank financial

services such as leasing, factoring and investment

management services.

Global Business Desk

Intent on generating fresh revenue streams while

promoting MCB brand awareness in the region

and beyond, the Group has complemented its

business line-up with a Global Business Desk. The

value proposition of the desk will initially be centred

around managing the flow of investor funds through

deposits, interest bearing call accounts, international

inward and outward payments, currency advisory

services, foreign exchange transactions and lending,

amongst others. A distinctive capability of the MCB

in this area is its extensive network of correspondent

banks. Concomitant with the pace of growth of this

new business line, the Group will gear up the desk

with the relevant skills and enrich its products and

services offering to match the expectations of offshore

investors and traders who choose to capitalise on

the attractiveness of the Mauritian financial services

centre, including its extensive network of tax treaties

signed with several countries.

MCB Madagascar

This subsidiary’s results for calendar year 2007 only

progressed by 3.5% to reach MGA 5.3 billion, in

spite of a progression of 13.5% in its total assets and

a 21% growth in its loan book. The main reason for

this disappointing performance was an unfavourable

swing in interest margin and, in particular, a major

drop in yields on government treasury bills.

The first semester of 2008 showed a marked

improvement with net profits up by 37% to

MGA 3.4 billion. Coupled with the relative strength of

the Malagasy currency, this has led to a reasonable

growth of 15% to Rs 77.3 million in the contribution of

MCB Madagascar to Group results for FY 2007/08.

Prospects for FY 2008/09 are encouraging with

ongoing infrastructure and mining projects

underpinning strong growth on both the economic

and monetary fronts.

MCB Moçambique

The Group’s dealings in Mozambique have again

been the source of disappointment both from the



point of view of the operating environment and from

that of financial results. Overall economic activity

has not been progressing as forecasted and the

MCB’s specific model of an essentially ‘corporate-

oriented bank’ has had continuing difficulties in

trying to find its operating space in a local context

characterised by a complex administrative and

regulatory framework.

The loan book has contracted further with a

fall of some 34% while, at Rs 25.3 million,

contribution to Group profits was 16% lower than

that of FY 2006/07, implying a relatively poor

return on the capital employed in Mozambique.

MCB Moçambique is however building on its

existing relationships, while the recent opening

of a new branch in Matola, the industrial zone

of Maputo, should provide additional business

opportunities.

MCB Seychelles

Our Seychelles operations had an exceptional year

in 2007 with profits after tax jumping by 75% to

SCR 34 million, on the back of a strong 36% growth

in the loan book. Furthermore, results were boosted by

exchange gains following a major devaluation of the

Seychelles rupee against the US dollar in the second

half of the year. Profits for the first six months of 2008,

at around SCR 14 million, were at par with those of the

corresponding period in 2007.

The devaluation of the SCR, coupled with the

strength of the Mauritian rupee on the foreign

exchange markets, has meant that the contribution

of the Seychelles subsidiaries to Group profits in

FY 2007/08 were down from the previous year. At

around Rs 130 million though, this still represented

an excellent return on capital employed.

Although there are several important hotel projects

scheduled to be completed within the next two years,

the benefits in foreign currency flows are not expected

to immediately filter through the local economy and the

chronic shortages on the forex market will probably

persist for some time. This might have a negative impact

on the operating environment and, consequently, on the

results of our Seychelles subsidiaries.

MCB Maldives (Branch)

This branch was opened in May 2008 with a view to

providing corporate banking services to our growing

number of customers in the Maldives. Projects financed

by the MCB over the last few years will now be able to

route transactions through our Malé counter while we

also expect to develop trade related operations with

local traders and card acquiring business with the

fast-growing tourism industry.

Results of the branch up to 30 June 2008, which

consisted essentially of start-up costs, amounted to a

loss of Rs 5.2 million.



Banque Française Commerciale Océan Indien

(BFCOI)

This associate company, a joint venture with Société

Générale, which operates essentially in the Indian

Ocean islands of Reunion and Mayotte, and has a

branch in Paris, had an excellent performance. Results

for calendar year 2007, at EUR 12.2 million, were 13%

up on the previous year, fuelled by a 21% increase

in both assets and loan book. The bank continued to

expand its branch network and gain market share in

Reunion, its main place of business. Balance sheet

growth was more subdued during the first six months

of 2008 but BFCOI has capitalised on the momentum

gained in previous years by achieving, yet again, an

impressive result, with net profits reaching EUR 7.6

million, up by 23% on the corresponding period in

2007. Contribution to MCB Group earnings for the year

ended 30 June 2008 was Rs 281 million, representing

a progression of 17% as compared to FY 2006/07.

Non-Bank Activities

MCB Capital Markets Ltd.

The regrouping of the investment and capital market

related subsidiaries into MCB Capital Markets Ltd.

(MCBCM) was completed during the year and

MCBCM is now fully operational as a separate entity

within the MCB Group.

A strategy workshop for the MCBCM group was held in

September 2007, out of which a new 3-year plan for each

subsidiary was developed. The first half of 2008 also saw

the launch of a major internal initiative to align the culture

of these investment businesses to the long term strategy

of the company. Furthermore, a new subsidiary was

created during the year, MCB Investment Services Ltd.

(MCBIS), which acts as a shared services company for

the MCBCM companies, providing legal, finance, IT and

strategic management services. MCBIS has also applied

for an Investment Adviser (Restricted) licence.

A major new initiative was launched in the latter part

of the financial year with the creation of GHF Futures

Ltd., a 50/50 joint venture with GHF Holdings Ltd., a

UK based proprietary trading derivatives group. The

company will operate from new offices in Ebène and

the company should commence operations in January

2009. A number of young talented Mauritian graduates

have already been recruited following a rigorous

selection process and they are currently being trained

in India at one of the GHF Group’s trading offices. It

is anticipated that the company will initially trade

European interest rate futures, but this may be widened

to include equity or commodity futures in the medium

term. With this development of home grown trading

talent, the MCB Group aims to cement its position at

the forefront of new initiatives in the capital markets.

On a consolidated basis, total income for MCBCM

amounted to Rs 89.6 million while profit after tax stood

at Rs 20.7 million, with positive results registered by



all of its subsidiaries to the exception of MCBIS, which

recorded a loss of Rs 8.1 million for the first few

months of operations. The contribution of MCBCM to

Group profit stood at some Rs 16 million.

MCB Investment Management Co. Ltd.

MCB Investment Management Co. Ltd. (MCBIM)

delivered another set of satisfactory results despite an

extremely volatile year in equity markets, particularly

overseas. Revenues increased marginally to Rs 34.8

million despite a fall in the total funds under management

from Rs 7.8 billion to Rs 7.6 billion over the financial year,

largely on account of a decline of Rs 625 million therein

linked to the successful sale, on behalf of the MCB

Equity Fund Ltd., of a significant stake in Sun Resorts

Ltd. In effect, a number of new institutional mandates

were won during the year which was particularly

pleasing in the context of increasing competition and

challenging market conditions. Headline profit after tax

of MCBIM dropped by 15% to Rs 17.4 million due to

a combination of more difficult market conditions and

increased salaries and administration costs. However,

on excluding exceptional income in relation to fees

from two large advisory deals in the previous financial

year profits showed satisfactory double-digit growth.

Overall, the operating margin of the company remained

above 60%.

Assets continue to be fairly well balanced between

local and foreign markets with shares of 64% and

36% respectively and mandates continue to show an

equity bias, explained by the heavy preponderance

of long term institutional clients at MCBIM. Market

conditions were very tough all year overseas, whilst

the Mauritian equity market showed remarkable

resilience until the last quarter of FY 2007/08. We

believe market conditions will remain very hard in the

coming year as the wild excesses of the housing and

credit bubbles continue to unwind. MCBIM’s portfolios

managed to avoid the property and credit traps, but

were not able to escape from the secondary effects

of these events that blew through the markets last

year. However, the first few months of this financial

year have seen substantial new mandate wins for the

company, and we believe that the cautious investment

stance taken for portfolios should allow results to

progress satisfactorily.

MCB Registry & Securities Ltd.

MCB Registry & Securities Ltd. (MCBRS) had a rather

similar year to FY 2006/07 with revenues growing by

2% to Rs 12.8 million and profit after tax slipping from

Rs 3.3 million to Rs 2.6 million.

The company invested in a major upgrade of its unit

trust registry IT system during the year and will also

be replacing its corporate registry IT system during

the course of this year. These initiatives will allow

the company to take on more business and deliver

services in a more efficient and cost effective manner.



New mandates were added during the year although

the dearth of new initial public offers and corporate

actions did reduce the scope for increasing revenues.

The expectations are for slightly higher revenues for

the coming year, although costs relating to the new

systems will certainly impact on the bottom line.

MCB Stockbrokers Ltd.

MCB Stockbrokers Ltd. (MCBSB) had another good

year amid growing revenues and a booming local

stock market at least for the first eight months of

the financial year. Revenues grew to Rs 20.5 million,

up from Rs 19 million in FY 2006/07 which included

significant exceptional revenue arising from the buy

back of Lloyd’s stake in the MCB. This year’s revenues

were boosted by a pleasingly significant jump in

transactions effected for foreign investors, a general

increase in trading volumes and an exceptional item

of Rs 3.3 million relating to the sale of shares in Sun

Resorts Ltd. by the MCB Equity Fund Ltd. Profit after

tax fell from Rs 13 million to Rs 8 million in FY 2007/08

whilst expenses this year included an internal charge

of Rs 3.2 million paid to MCBIS.

MCBSB has recently concluded a deal with Newedge

in Europe with a view to shortly being able to offer

clients the ability to transact directly on foreign equity

and options markets. It is also building its sales and

marketing capabilities to cater for the expected growth

in demand for investment products, both local and

overseas. Although prices on the local market have

suffered a severe correction over the past few months,

volumes are holding up and foreign investor interest

continues to be strong.

MCB Fund Managers Ltd.

MCB Fund Managers Ltd. (MCBFM), formerly

Multipliant Management Company, is the manager of

the four funds under the Penny Unit Trust. Revenues

grew to Rs 8.3 million as compared to Rs 6.6 million

in FY 2006/07 due to the good performance of the

funds oriented to the local market as well as increased

subscriptions resulting from a more focussed

marketing drive. Operating expenses increased by

Rs 1 million to Rs 5.1 million and profit after tax

declined from Rs 0.7 million in FY 2006/07 to Rs 0.3

million in the last financial year after accounting for an

internal charge of some Rs 0.6 million to MCBIS.

The restructuring and rebranding of the four funds

is well under way, and the launch of a fifth fund is

imminent. The new image, brand and marketing

of these funds, together with their successful track

records and increased visibility should result in a

significant increase in revenues and profitability for

MCBFM in the medium term.

MCB Capital Partners Ltd.

MCB Capital Partners Ltd. (MCBCP) is the

investment manager of the MCB Equity Fund Ltd.



Revenues for the year were up by 46% to Rs 14.6

million reflecting the increased value of the Fund

and a revision in management fees charged.

Administration costs grew from Rs 4.2 million in

FY 2006/07 to Rs 13.1 million in the last financial

year reflecting the recruitment of analysts that

occurred at the end of the previous financial year,

training costs and expenses relating to a UK based

Private Equity consultant appointed to streamline

investment processes and to help ensure best

international investment practice. As a result, profit

for the year dropped from Rs 3.5 million to Rs 0.5

million, but expenses included an internal charge to

MCBIS of Rs 1.7 million for the first time this year.

The prospects for MCBCP are most encouraging

and the dealflow, both domestic and regional, is

varied and potentially very interesting.

MCB Equity Fund Ltd.

The Fund had another very successful year financially,

posting unrealised fair value gains of Rs 520 million

and profit on disposal of Rs 426 million. The largest

part of this profit on disposal was achieved through

the sale of 5,000,000 shares in Sun Resorts Ltd. in

December 2007, a position that the Fund had held

since its inception.

The portfolio grew by 11% to Rs 2.2 billion over the

year and the compounded annual growth rate between

June 2006 and June 2008 stood at around 34%.

The portfolio’s sectoral allocation (on a fair value basis)

showed predominance in travel and leisure (39%),

media (24%) and real estate (17%). New investments

totalling approximately Rs 200 million were made

during the year and another investment of EUR 3

million has been closed post balance sheet date.

The Fund made an overall profit of Rs 500.2 million

in FY 2007/08 as compared to Rs 42.3 million in the

previous financial year, due mainly to the disposal

of Sun Resorts shares mentioned above. Total

management and related fees paid during the year

came to Rs 17 million.

MCB Factors Ltd.

MCB Factors Ltd. has recorded another important

increase in activity over FY 2007/08 culminating in a

growth of 53% in total assignment and a significant

rise of above 30% in profit to Rs 35 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 and simultaneously

provide cash to manage their business and meet

their financial commitments. Over FY 2008/09, it is

expected that MCB Factors Ltd. will continue to work

towards increasing its range of services to cater more

systematically to the needs of the export market as

well as to offer full factoring services domestically.



Fincorp Investment Ltd.

Attributable earnings of the Fincorp Group were

significantly up during the year under review as

consolidated results reached Rs 375 million, from

Rs 300 million in FY 2006/07. However, a substantial

part of this profit was attributable to an increase in fair

value of investment property in the books of Caudan

Development Ltd., an associate of Fincorp. Under IAS

40, this adjustment, which represented a surplus of Rs

212 million in the consolidated accounts of Fincorp,

was fully credited to the income statement. The core

investments of Fincorp had a relatively subdued

performance during the year.

Finlease, the MCB Group’s leasing arm, which is

a 100% subsidiary of Fincorp, achieved a profit

of Rs 46 million for the year, slightly down from the

previous year’s performance. Its balance sheet grew

comfortably as total assets and leases receivable

reached Rs 2,983 million and Rs 2,001 million

respectively, up by 30% and 8.5% from 30 June 2007.

Net results were affected by increased amortisation

charges but the company’s well structured balance

sheet should enable it to post increased earnings, in

spite of a very competitive operating environment.

Promotion and Development Ltd., the Fincorp Group’s

other main investment, achieved a reasonable

performance from its investing activities, with related

earnings progressing by 20% to reach Rs 253 million.

Contributions from associated companies, and in

particular Médine Sugar Estates, were down to Rs 62

million from a high of Rs 279 million in FY 2006/07,

that year’s results having been boosted by substantial

sales of real estate.

The net asset value of the Promotion and Development

Ltd. shares increased by 12% to reach Rs 184.18 as

at 30 June 2008, while at the level of Fincorp, it stood

at Rs 33.58, an increase of some 13% during the year.

The Fincorp shares are currently trading at slightly

below Rs 17, a substantial discount to net asset value

as is the case for most investment companies listed

on the Stock Exchange of Mauritius.

MCB Properties Ltd.

This subsidiary essentially owns a number of

properties housing banking premises of the

MCB Group. Operational profit for the year amounted

to Rs 5.8 million, a progression of 9% over

FY 2006/07.

Blue Penny Museum

This company, which runs the museum located

in the Caudan Waterfront, registered an operating

loss of Rs 2.6 million, representing the effective

contribution of the Group to the safeguard and

protection of the National Heritage.



OBJECTIVES FOR FY 2007/08 PERFORMANCE IN FY 2007/08 OBJECTIVES FOR FY 2008/09

Return on average equity (ROE)

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

ROE of 27.8% was achieved (24.5% excluding profit on sale of Sun Resorts shares). However, ROE has been computed using the new “Basel II” definition of Tier 1 Capital, which includes minority interest. The restated ratio for FY 2006/07 is 22.3% instead of 24.0%.

ROE, excluding exceptional income, is expected to stay above 23%.

Return on average assets (ROA)

An improvement is expected in ROA over FY 2006/07 (2.35%).

ROA was 3.04% for the year, including the non-recurring result of Rs 425 million. On excluding this item, ROA still reached 2.69%.

Excluding non-recurrent items, ROA is expected to be maintained at about current levels.

Operating income

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

Increase in net interest income of 15% and 21% for the Group and the Bank respectively. Non-interest income growth, excluding non-recurring items, reached 22.7% for the Bank, with foreign exchange profits and fee income and commissions both up by some 24%.

Expected growth approaching 20% in net interest income, on the back of continued buoyancy in the level of average lending, particularly on regional project finance. Slower growth of around 15% in other income, due to difficult foreign exchange market conditions.

Operating expenses

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%.

As forecast, operating costs grew by 16%.

Human resource costs are expected to rise by about 13% for the year, following recent salary reviews. However, the current upgrading of our IT systems and general pressure on infrastructure costs will again contribute to an overall increase in operating expenses in excess of 15%.

Financial ReviewPerformance Against Objectives



OBJECTIVES FOR FY 2007/08 PERFORMANCE IN FY 2007/08 OBJECTIVES FOR FY 2008/09

Cost to income ratio

Cost to income ratio to improve slightly as a result of revenue growing at a faster pace than costs (FY 2006/07: 47.5%).

An improvement of more than 4 percentage points was observed in the cost to income ratio, revenues having been impacted by an exceptional profit. Excluding the latter, the ratio still improved to 45.8%.

This ratio, based on Group figures, excluding contributions from Associates, should improve further, the target of the MCB, in the medium term, being the low forties.

Loans and advances growth

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%.

Average loans in foreign currency grew by only 23% for the Bank, several projects having encountered delays, while those in rupees increased by 9%. However, the disbursements have accelerated in the latter part of the year. Consequently, Group loan portfolio increased by 17% during the year to 30 June 2008.

With the momentum recently gained, foreign currency loans are forecast to grow by nearly 50%, contributing to an increase of about 20% in the average loan book.

Deposits growth

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

Average customer deposits of the Bank went up by 16%, on account of heightened liquidity in the local market and a substantial rise in foreign currency deposits.

The existing liquidity situation is likely to persist, with average balances growing by more than 15%, boosted by continuing buoyancy of our foreign currency resource base.

Asset quality

Barring unexpected events, reduce the gross ratio of NPLs by one percentage point to 6% and bring down the ratio of net NPLs to below 3%.

The targets of 6% and 3% have been achieved with gross and net NPL ratios reaching 5.8% and 2.6% respectively.

Gross NPLs to loans ratio to approach 5% with the net ratio to fall further below 2.5%.


Review by Financial Priority Area

Analysis of Results

The year under review has seen an outstanding

financial performance for the MCB, with profit

attributable to ordinary equity holders increasing

by impressive rates of 51.0% and 50.1% at Bank

and Group levels to reach Rs 2,901.0 million and

Rs 3,693.7 million respectively. Though results were

boosted by net gains on sale of securities of a non-

recurring nature mostly linked to the disposal of

shares of Sun Resorts Ltd. by the MCB Equity Fund

Ltd., profitability growth remained solid at around

33% even on excluding income from this transaction.

Underpinned by a diversification of revenue sources

and an increasing focus on customer service

enabling the MCB to fend off mounting competition,

operating income rose by around 28% for both the

Bank and the Group to reach Rs 6,371.5 million and

Rs 7,471.1 million respectively. Furthermore, reflecting

sustained efficiency gains, revenue growth continued

to outpace increases in operating expenses which

were contained at 17.3% for the Bank and 15.9% for

the Group in spite of high inflation and considerable

investments in infrastructure and technology. As a

result, operating profit before provisions went up

considerably, contributing to a perceptible increase in

recurring earning power – the ratio of pre-provision

profit excluding net gain on sale of securities to

average assets – to 3.12% for the Bank and 3.05% for

Bank Group

Rs b

n

Profit attributable to shareholders

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

4

3

2

1

0

Bank Group

Rs b

n

Operating profit before provisions

5

4

3

2

1

0FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08



the Group, representing increases of 18 and 13 basis

points respectively as compared to the previous year.

Reflective of an improvement in asset quality in line

with a strengthened risk management framework,

the charge for credit impairment, excluding portfolio

provision, increased by only 1.7% for the Group and

was virtually unchanged for the Bank, as compared

to a 17% growth in the loan book. With the share

of income of associated companies going up by

54.6% to Rs 640.8 million, profit before tax of the

Group surged by 43.6% to Rs 4,460.9 million while

a rise of 42.6% to Rs 3,296.4 million was registered

at Bank level. The tax charge for the year stood at

Rs 395.4 million and Rs 575.2 million at Bank and

Group levels respectively, inclusive of a charge of

Rs 88 million in respect of the special levy applicable

to banks operating in Mauritius.

The sustained positive results over the past few years

are, in large part, an upshot of the sound strategies

pursued by the MCB on several fronts, with a particular

focus on enlarging the revenue base. In this respect,

it is encouraging that all major lines of business

have achieved appreciable performances, thereby

ensuring a solid foundation for future growth. Taken

together, the share of income from foreign sources

and from non-bank financial services in Group profit

maintained a rising trend to reach 56.5% despite the

dampening impact of the appreciation of the rupee on

the contribution of some overseas subsidiaries. In fact,

income from foreign sources has fared particularly well

on the strength of buoyant activities pertaining to non-

residents and a notable increase in the contribution

from BFCOI, the Group’s foreign associate, while the

contribution of non-bank financial services was in large

part driven by the Sun Resorts transaction. Excluding

this item, the shares of these two major business lines

in Group profit stood at 40.0% and 11.8% respectively,

while local banking activities accounted for 48.2%.

Looking ahead, although economic prospects

are somewhat clouded by turbulences in global

financial markets and volatility in commodity

prices, the MCB is confident that the pursuit of

its diversification strategy, supported by judicious

investments undertaken at various levels, should

enable it maintain satisfactory growth in results,

exclusive of non-recurring transactions.

Revenue

Net Interest Income

Interest income of the Bank improved from Rs 8,068.2

million to Rs 9,444.4 million in FY 2007/08, to a large

extent upheld by an appreciable growth in the loan

portfolio and higher yields on advances in line with

a rise in the reference rates on an annual average

basis brought about by the relatively tight monetary

stance of the BoM until early 2008. Further support

emanated from a surge in investment in securities

particularly during the second half of the financial


year amidst a high liquidity situation in the banking

sector and enhanced returns on these investments on

average, which is at odds with the general downward

movement in the Bank rate over the year mainly due to

timing differences. Interest receipts from placements

with other banks also increased by a notable margin.

Notwithstanding a fall of some Rs 144 million in

interest paid on borrowings from banks and financial

institutions following the repayment of some lines of

credit contracted in previous years, interest expense

of the Bank went up by 14.6% to Rs 5,777.1 million,

buoyed by a strong growth of deposits over the year.

As a result, net interest income for the Bank posted

an increase of 21.2%, contributing to a rise of 15.3%

to Rs 4,165.9 million at Group level despite the

dampening effect of the strong rupee on results of

foreign subsidiaries. The latter factor has contributed

to net interest margin at Group level remaining close

to the previous year’s figure at some 4% in spite of an

increase at Bank level to slightly above 3.8% on the

back of more gratifying lending business. As for the

net interest income to average assets ratio, it stood at

3.46% for the Bank and 3.43% for the Group.

Other Income

At Bank level, a rise of 40.2% was achieved in

other income which reached Rs 2,704.1 million in

FY 2007/08, underpinned by appreciable increases

of 24.4% in profit arising from dealing in foreign

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

FY 2

003/

04 =

100

Rs b

n

12

10

8

6

4

2

0

160

150

140

130

120

110

100

Net interest income - Group

Interest income Interest expense Growth index - NII (right scale)

Interest income Interest expense Growth index - NII (right scale)

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

FY 2

003/

04 =

100

Rs b

n

12

10

8

6

4

2

0

160

150

140

130

120

110

100

Net interest income - Bank


currencies, partly on account of transactions linked

to IRS and Global Business transactions, and of

22.0% in fee income and commissions reflecting

upbeat activity at the level of credit cards and

corporate finance. Other income for the year also

benefited from robust gains on sales of securities,

supported by profits of Rs 48 million related to the

capital restructuring of MCB Capital Markets Ltd. and

of Rs 290 million following the redemption of shares

in MCB Equity Fund Ltd. in the wake of the successful

disposal of shares in Sun Resorts Ltd. Whilst these

gains were to a large extent set off on consolidation,

the latter transaction yielded a gain of Rs 425 million

for the Group, contributing to a solid growth of 47.7%

in its non-interest income to Rs 3,305.2 million in

FY 2007/08. Excluding these non-recurring deals, the

increases in other income were still strong at 22.7%

and 28.7% at Bank and Group levels respectively.

Cost Control

Reflecting a significant increase in operating activities

during the financial year under review, non-interest

expenses rose by 17.3% to Rs 2,666.6 million at Bank

level and by 15.9% to Rs 3,225.2 million at Group level.

The growth was mainly driven by notable increases

in salaries and human resource development costs

as well as in depreciation charges in line with efforts

to bolster human resource capabilities and in view of

major investments in infrastructure and technology,

including the branch redesign programme, the

Rs b

n

Breakdown of non-interest income - Group

Fee income and commissions Profit from dealings Others in foreign currencies

3.0

2.5

2.0

1.5

1.0

0.5

0FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

Note: Figures for FY 2007/08 exclude net gains on the sale of Sun Resorts shares by MCB Equity Fund Ltd.

Excluding net gains on the sale of securities of a non-recurring nature

Bank Group

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2007/08

%

Cost to income ratio55

50

45

40

35


modernisation of equipment and the upgrading of

systems.

Overall though, despite a persistently high inflation

rate at national level, the MCB continues to grow

incomes by a higher margin than increases in cost,

leading to a further drop in the cost to income ratio in

FY 2007/08, from 45.9% to 41.9% at Bank level and

from 47.5% to 43.2% for the Group. Exclusive of non-

recurring gains on sale of securities, cost to income

ratio still pursued a downward trend to stand at 44.2%

and 45.8% at Bank and Group levels respectively.

Credit Exposure

Gross loans and advances for the Bank registered a

noteworthy growth of 17.0% to reach Rs 75.0 billion as

at 30 June 2008, with notable performances across the

various segments. Credit to non-residents surged by

88.7% to Rs 12.7 billion, reflecting the MCB’s focus on

promoting foreign-sourced income. Indeed, alongside

an appreciable rise in loans and advances to entities

outside Mauritius, significant growth was recorded in

respect of IRS and Global Business related activities.

At domestic level, business loans to residents went

up by 8.8% to reach Rs 48.4 billion, spurred by major

increases in the business and financial services,

tourism and construction sectors in line with their

generally good economic performance in FY 2007/08,

while credit to the personal segment locally increased

by 7.7% to Rs 13.9 billion, principally driven by the

Bank Group


Rs b

n

90

80

70

60

50

40

30

20

Gross loans and advances

Loan portfolio mix - Bank

11.7%10.2%

3.3%

12.3%

13.3% 16.1%

17.0%

7.4%9.4%

Agriculture and fishingManufacturingTourismConstructionTradersFinancial & business servicesInfrastructurePersonal & ProfessionalOthers


growth in housing loans. Notwithstanding the impact

of a strong rupee on the balances of some overseas

subsidiaries, the Group also posted a 17.0% rise in

gross loans and advances to Rs 80.8 billion as at June

2008, largely supported by the Bank’s performance.

Amidst high liquidity in the banking system,

particularly in the second half of the financial year,

investment in Government securities at Bank level

almost doubled to reach Rs 20.9 billion as at 30 June

2008. The corresponding increase at Group level was

somewhat tempered by a decline in the balance of

Government securities for subsidiaries, largely due

to rupee strength, but remained strong at 72.3%.

As such, the liquid assets to deposits ratio increased

over the financial year from 19.4% to 26.0% at Bank

level and from 22.9% to 26.7% for the Group.

Credit Quality

The ratio of non-performing loans (NPLs) to total loans

was down to 5.8% for the Group and 6.0% for the Bank,

from 7.0% and 7.4% respectively one year ago. The

level of NPLs in absolute terms has been fluctuating

around the Rs 4.5 billion mark for the last four years

while the loan portfolio has increased by more than

40% during the same period. This has led to an

important reduction in the NPL ratios and is indicative

of the continuing positive effects of the Bank’s risk

management framework on the measurement and

monitoring of credit risk.

%

6

5

4

3

2

1

Net NPLs to net loans


Bank Group


%

10

9

8

7

6

5

4

NPLs to gross loans

Bank Group



The ratio of net NPLs to net loans has fallen below 3%

for the first time in many years, reaching 2.6% and 2.7%

respectively for the Group and the Bank. The percentage

cover of NPLs by specific provisions has remained

steady at around 57%, in spite of a substantial write-

off of around Rs 540 million against existing provisions.

The uncovered portion of the NPL portfolio is more than

adequately covered by collateral held by the Bank,

suitably written down in value, where need be, to reflect

market parameters and delays in recovery.

Additionally, the Bank, in conformity with the

Bank of Mauritius Guideline on Credit Impairment

Measurement and Income Recognition, recognises

the varying degrees of risk attached to the

different components of its loan portfolio. Loans

have been analysed by sector, each sector having

similar characteristics, and a statistical provision

has been assigned to each sector based on

past loss experience and current attributes and

outlook. There was an increase of Rs 85 million in

the portfolio provision during the year, in line with

the 17% increase in the loan book.

The charge for specific provisions for the year

was stable at Rs 328 million, in contrast with the

jump in total exposures, again a reflection of the

improved risk environment at MCB.

Funding

Deposits and Borrowings

Total deposits at Bank level recorded a considerable

expansion rate of 29.3% to reach Rs 97.5 billion as

at 30 June 2008 largely driven by growth in foreign

currency demand deposits in line with increased

banking activities linked to non-residents. Savings

deposits, which account for the highest proportion

Provisioning and asset quality Group Bank

Movement in allowances for credit impairment (Rs m) 2006 2007 2008 2006 2007 2008

Provisions at start 3,142 3,359 3,246 3,062 3,270 3,158

Provisions made during the year 498 338 283 473 279 231

Provisions released during the year (86) (64) (47) (68) (34) (23)

Amounts written off (196) (387) (286) (196) (357) (265)

Provisions at end 3,359 3,246 3,196 3,270 3,158 3,101

Key ratios (%)

Income statement charge to total loans 0.5 0.5 0.5 0.5 0.6 0.5

Total provision to non-performing loans 70.7 67.2 68.1 70.3 66.8 68.8

Total provision to total loans 5.4 4.7 4.0 5.6 4.9 4.1


of total deposits, posted an accelerated rise of

16.4% last year to reach some Rs 42 billion. The

strong performance at Bank level contributed to an

increase of 25.6% in total Group deposits over the

past financial year to Rs 107.0 billion as at end June

2008. As regards borrowings, a substantial decline

in related balances was observed during the year

reflecting an appreciation of the rupee particularly

against the US dollar as well as the scheduled

reimbursement of a term loan of USD 35 million

from Sumitomo Mitsui Banking Corporation Europe

Ltd. contracted in 2004 and the part repayment of

the syndicated loan of USD 100 million arranged

by ING Bank N.V and Sumitomo Mitsui Banking

Corporation Europe Ltd. in 2006.

Capital Resources

Notwithstanding a significant rise of 49.2%

in dividend payments to Rs 1.1 billion and a

release of some Rs 240 million from reserves

representing unrealised profits on the disposal of

investment, Group shareholders’ funds expanded

by a notable 21.3% to reach Rs 16.3 billion as

at 30 June 2008 in line with the outstanding

financial results achieved over the past financial

year. The net asset value per share, as such,

increased substantially from Rs 56.87 as at

30 June 2007 to stand at Rs 68.90 as at end of

FY 2007/08. Capitalisation levels of the Group thus

remained very comfortable with the equity to total

Bank Group


Rs b

n

110

90

70

50

30

Deposits

Bank Group


18

15

12

9

6

3

0

Shareholders’ funds

Rs b

n



assets ratio reaching 12.3% as at 30 June 2008,

slightly above the preceding year’s figure, and the

risk-weighted capital adequacy ratio standing at

16.9%, as per Basel II definitions.

Capital StructureThe Bank of Mauritius (BoM) sets the regulatory

requirements with respect to a bank’s capital

structure in Mauritius and has exercised its

discretion in fixing the minimum capital adequacy

ratio at 10%, that is, above the 8% norm of the

Basel Committee. The MCB maintains its capital

structure within prudential and supervisory limits,

whilst ensuring it has sufficient capacity for its

future development after serving a remuneration

to its shareholders. In line with the Basel II

Accord, the capital adequacy is estimated by

the ratio of the sum of risk-weighted assets and

risk-weighted off-balance sheet exposures of the

Bank to its capital base, which is calculated as

the sum of Tier 1 and Tier 2 Capital net of relevant

deductions, as per the new BoM Guideline on

Eligible Capital.

Whereas the 1988 Basel Capital Accord focuses

on the capital base of banks, Basel II emphasises

the measurement and management of key

banking risks including credit risk, market risk

and operational risk. As such, it is meant to better

reflect the underlying risks in banking and is thus

expected to foster stronger risk management

practices within the banking industry. The risk

management framework proposed in Basel II

seeks to ensure that the strategies formulated

by a bank are clearly linked to its appetite for

risk, so that its capital resources are managed

at an optimum level to support both its risk and

strategic objectives. Basel II is anchored on three

pillars, namely:

Pillar 1: minimum capital requirements –

Whilst key elements of the 1988 Accord have

been retained with respect to capital adequacy

namely the general requirement for banks to hold

total capital equivalent to at least 8% of their

risk-weighted assets, the revised framework

entails significantly more risk-sensitive capital

requirements that are both conceptually sound

and adaptable to the existing supervisory and

accounting systems in individual member

countries. Modifications to the definition of risk-

weighted assets have two primary elements:

substantive changes 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 would 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.

Reflecting its commitment to ensure a good risk

management framework, the MCB has, since

April 2007, adhered to the Basel II Standardised

Approach to credit risk, operational risk and

market risk. This has enabled the Bank to promote

enhanced risk awareness at all levels of the

organisation and to align its capital requirements

more closely to specific risks. Capital allocation

has, as a result, become more sensitive to risk

and reflects a better assessment of return against

risk, thus further improving the strategic decision-

making process.

The table hereafter shows the components of

Tier 1 and Tier 2 Capital for the Bank and the

resulting capital adequacy ratios under the Basel I

framework for the last three years as well as the

capital adequacy ratio calculated as per Basel II

requirements as at June 2008.



June 08Rs m

June 07Rs m

June 06Rs m

I: CAPITAL BASE

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

Share premium 39 16 0

Statutory reserve 2,504 2,083 1,832

General reserve 0 0 165

Other disclosed free reserves, including undistributed balance in Income Statement 4,549 3,772 3,937

Current year's retained profit 1,822 1,198 1,038

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

Share buy-back: Treasury shares -376 -384 -393

TIER 1 Capital (A) 10,076 8,223 8,434

Reserves arising from revaluation of fixed assets 0 0 0

Reserves arising from revaluation of investments 719 740 335

Subordinated debt 1,237 1,411 0

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

TIER 2 Capital (B) 2,922 3,117 1,301

TOTAL (GROSS) CAPITAL A+B 12,998 11,340 9,735

Investments in banking subsidiaries and associates in Mauritius and overseas -987 -893 -893

Lending to subsidiary and associate banks in Mauritius or overseas -647 -428 -400

Other deductions -22 -22 -22

TOTAL (NET) CAPITAL 11,342 9,996 8,420

II: WEIGHTED RISK ASSETS

Weighted amount of on-balance sheet assets 74,239 65,317 56,911

Weighted amount of off-balance sheet exposures 10,249 8,364 8,071

Weighted risk assets for operational risk 7,758 6,648 6,133

Aggregate net open foreign exchange position 265 6 538

TOTAL WEIGHTED RISK ASSETS (BANK) 92,511 80,335 71,653

TOTAL WEIGHTED RISK ASSETS (GROUP) 106,801 91,966 78,476

III: B.I.S RISK ADJUSTED RATIO

BANK 12.26 12.44 11.75

GROUP 17.49 17.19 15.24

CAPITAL ADEQUACY RATIO AS PER BASEL II

BANK 12.04 - -

GROUP 16.94 - -



Risk Weighted Assets and Off-Balance Sheet Exposures

Risk Weighted On-Balance Sheet Assets June 08 June 07 June 06

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

27,935 0 0 0 0

Claims on central governments and central banks 1,204 0-100 1,204 1,086 764

Cash items in the process of collection 305 20 61 76 93

Claims on banks 13,780 20-100 3,129 2,857 1,742

Residential mortgages 7,506 50 3,753 3,139 2,759

Claims on non-bank private sector 56,717 100 56,717 47,973 43,235

Investments in corporate shares and securities 5,258 100 5,258 6,136 4,695

Other assets 4,117 100 4,117 4,048 3,623

74,239 65,317 56,911

Risk Weighted Off-Balance Sheet Exposures June 08 June 07 June 06

Nominal Amount (Rs m)

Credit Conversion Factor (%)

Credit Equivalent

Amount (Rs m)

Weight (%)




Financial guarantees 2,179 100 2,180 0-100 819 1,170 1,840

Acceptances 0 100 0 0-100 0 0 0

Other guarantees 11,059 50 5,530 0-100 5,521 4,220 3,396

Documentary credits 6,719 20 1,344 20-100 1,001 791 594

Outstanding loans commitment 5,816 50 2,908 100 2,908 2,183 2,242

10,249 8,364 8,071

Risk Weighted Assets for Operational Risk (Rs m) June 08 JuJune 07 June 06

Average gross income for last 3 years 5,172 4,432 4,190

Capital charge 776 665 613

Equivalent Risk Weighted Assets 7,758 6,648 6,133



Risk ReportThe mission of the risk management function is

to identify, assess and manage the credit, market

and operational risks to which the MCB Group is

exposed, thereby improving the risk-return profile

of its activities while upholding an environment

conducive to attracting and promoting business

opportunities. The goal is to enhance stakeholders’

confidence with respect to the Bank’s management

of current and potential credit, market and

operational risks through adequate internal control

mechanisms, up-to-date and comprehensive

risk policies, adherence to legal and regulatory

framework and reliable decision-making support.

Group Risk Structure

The Group Risk structure, as illustrated below, focuses

on credit risk, operational risk and market risk with a

setup that facilitates the ongoing refinements in capital

allocation among these three main risk categories,

Group Compliance

ISMPhysical Security

Legal

Board

Supervisory and Monitoring Committee Audit Committee

Group Internal Audit SBU

General ManagementGroup Risk SBU

Credit Risk Market RiskOperational

Risk




in line with the Basel II Risk framework. Besides,

independent teams oversee the internal audit function,

the compliance to all applicable laws, regulations,

codes of conduct and standards of good practice, the

information security, the physical security and the legal

function across the MCB Group.


The Risk Monitoring Committee (RMC) comprises

two independent non-executive directors, two

executive directors and the Head of Group Risk as

secretary with its principal responsibility being to

monitor the credit and market risk portfolios of the

Bank against the agreed risk appetite, as well as the

Bank’s operational risk tolerance. In this respect, the

RMC adopts the risk appetite as set by the Board,

monitors the utilisation of capital and current capital

adequacy, recommends changes to the agreed risk

appetites and tolerance as may be appropriate in

the light of changing circumstances, and highlights

the key risks of the Bank to the Board.

The RMC also reviews reports from the Group Risk SBU

as well as from the Information Security Management,

Physical Security, Compliance and Legal functions in

respect of strategic and business risks and determines

actions to be taken as appropriate. Besides, country

limits, approved as and when required by the Board,

are monitored quarterly by the RMC.

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 obligations towards

the MCB’.

Credit Risk Governance

The Board of the MCB has ultimate control and

oversight of credit risk management as well as

credit risk policies and their deployment through

the Supervisory and Monitoring Committee (SMC)

and the Executive Credit Committee (ECC). In

particular, the SMC, in consultation with line

management, is accountable to the Board through

the normal chain of operational command and

control for setting out the credit policy as well as

ensuring the proper and prudential segregation

of duties within the credit risk management

architecture of the MCB. Besides, through the

RMC, the Board has access to expert analysis and

reporting on the key risks of the Bank from areas

functionally independent from the risk-taking

business units.

Credit Risk Management

The goal of credit risk management at the MCB is

to maximise the return on capital by maintaining

credit risk exposure within the Bank’s risk

appetite, with due consideration being given

to the long-term success of the organisation,



through the effective identification, measurement,

monitoring and control of the credit risk inherent

in the entire portfolio.

Effective credit risk management relies on the

Bank’s well-established dual control structure, its

sound credit processes and its clear delegation of

decision-making authority – commensurate with the

size and risk of exposures and in accordance with

comprehensive credit policies – to manage the

approval of loans depending on how well the loan

fits into the target market criteria set by the Bank

and on whether it is in line with the intended risk-

return profile.

Credit Risk Measurement

The Bank measures the credit risk capital

requirements by applying the appropriate risk

weights to the on-balance sheet and off-balance

sheet exposures in line with the Guideline on

Standardised Approach to Credit Risk issued by

the Bank of Mauritius and as required by the Basel II

framework. The capital adequacy and return on

capital levels for the individual risk categories of

the Bank’s portfolio are regularly monitored by the

RMC against the overall risk-bearing capacity of the

Bank, in order to ensure that the Group is, at all

times, maintaining adequate capital to provide for

its growth and to support a reasonable measure of

unexpected losses.

From an operational perspective, the track record of

customers is appraised, as appropriate, to predict the

likely future behaviour of existing accounts for ongoing

credit risk management. The frequency of review is

increased in accordance with the size and likelihood

of potential credit losses to ensure the timely detection

of problem loans. Performing exposures are reviewed

on a regular basis, with all corporate exposures being

examined at least annually. Deteriorating higher-risk

exposures are referred to a dedicated team for closer

scrutiny where appropriate. The Bank’s disciplined

approach to provisioning and loan loss assessment

is based on the Guideline on Credit Impairment and

Income Recognition, issued by the Bank of Mauritius.

Ultimately, the Bank assesses whether the individual

business areas provide sufficient contribution to the

targeted risk-return profile in order to determine the

capital allocation that yields the optimum return,

achieved by channelling risk capital away from low-

return business areas to high-return business areas.

Credit Risk Mitigation

Several appropriate forms of risk mitigation are used

by the MCB to reduce or transform risk exposures.

The credit risk mitigation techniques used within the

MCB include security/collateral, netting, guarantees

and political risk covers, all of which contribute to a

reduction in the MCB’s credit risk for exposures where

such instruments are available and felt required.



Credit Risk Concentration

The mitigation and avoidance of adverse concentrations

of risk associated with large exposures, representing

credit risk concentration through large advances to

groups of connected clients, is an important element

in the management of risk exposure. The Bank is fully

compliant with the Guideline on Credit Concentration

limits issued by the Bank of Mauritius in March 2000.

It is the policy of the MCB to limit credit risk exposures

and concentrations within the constraints of the Bank’s

capital base. The MCB’s credit portfolio is thus also

diversified by industry and the Bank regularly monitors

the credit risk concentration aggregating to more than

15% of its capital base, classified by industry sector, to

ensure that its risk-bearing capacity is not jeopardised.

Note 6(e) to the Financial Statements gives total credit

facilities including guarantees, acceptances and other

similar commitments extended by the Bank to any

one customer or group of closely-related customers

for amounts aggregating more than 15% of its capital

base, classified by sector.

Country Exposure Limit Model

The country exposure limits are based on the Bank’s

areas of expertise, its intimate knowledge of the local

economy in countries of presence and its strategy to

increase its regional presence, with the maximum risk

limit being determined by the risk appetite of the Bank.

Country limits are approved annually by the Board and

monitored quarterly by the RMC and include, where

necessary, sub-limits relating to short term trading

operations in strategic commodities. The monitoring

and limitation of the concentration of exposures

in certain risk classes are crucial in detecting the

deterioration of the portfolio in a timely manner.

Operational Risk

The MCB defines Operational Risk as ‘the risk of loss

resulting from inadequate or failed internal processes,

people and systems or from external events. This

definition includes legal risk, but excludes strategic

and reputational risk’ .

Operational risk is characterised by its pervading

nature on the one part and, on the other, by the

fact that it has for a long time been managed very

intuitively in most financial institutions. Basel II

introduces operational risk as a specific area of risk

against which capital has to be put aside and which

needs to be developed as a new discipline in its

own right and managed comprehensively against

a set of minimum standards. Constant changes

and development in products and services as well

as in internal and external environments require

sound risk management practices that can adapt

to the evolving nature of operational risk. The MCB

recognises the specific challenge relating to the

management of operational risk which is inherent

to all aspects of a business and covers a wide range

of issues. The Bank’s commitment to addressing



these challenges is embodied in a Group Operational

Risk Policy Manual which sets the framework and

standards for the management of operational risk

within the MCB.

The framework and standards adopted by the MCB

for operational risk capital computation and for the

management of operational risk follow the Basel II

Standardised Approach requirements.

Operational Risk Governance

The Board of Directors, through the Risk Monitoring

Committee, exercises oversight on the operational

risk management framework which is subject

to its approval and review. The responsibility to

ensure the implementation of the framework

is devolved to Senior Management, with the

Operational Risk and Compliance Committee

(ORCC) exercising effective ongoing monitoring of

the entire operational risk cycle.

The ORCC is chaired by the Chief Executive

(Banking) and also comprises the Head of Group

Risk and the Head of Group Compliance, with the

Manager of Operational Risk acting as secretary.

The responsibility for the overall operational

risk management/control methodology and the

implementation of the operational risk management

framework resides with a dedicated function, the

Operational Risk BU.

The MCB’s operational risk management framework

ensures adequate, comprehensive, systematic and

consistent identification, assessment, monitoring and

mitigation of operational risks in all material products,

activities, processes and systems, including new

ones. The Operational Risk BU is continuously upgrading

a set of tools to ensure effective management of

operational risk across the Bank.

Identification and Assessment

Incident/Loss Reporting Framework

An incident/loss reporting framework has been

set up and is being consolidated for the collection,

analysis and reporting of operational risks. The

framework makes it mandatory for individual

members of staff to report operational risk issues,

including ‘near misses’ which they identify in their

daily activities. The incident/loss reporting structure

contributes effectively to the assessment of the

control environment and in drawing and providing

management with a more accurate operational risk

profile of the Bank.

Risk and Control Self-Assessment

Incident/loss reports provide a means to complement

the assessment of operational risks which are

carried out in Risk and Control Self-Assessments

(RCSA) workshops with key stakeholders from

business areas. The RCSA methodology, which

includes initial business process analyses, ensures



the comprehensive identification and qualitative

assessment of operational risks. For maximum

efficiency, the deployment of both approaches

is paced according to contextual factors and

developments in the Bank.

Monitoring

Ad hoc and regular periodic reports flowing from

the analysis of incidents and losses allow Senior

Management to assess the effectiveness and

timeliness of the management of operational risks

and to formulate adaptive mitigation strategies.

Significant issues are brought to the attention of the

Risk Monitoring Committee.

Mitigation

The adequacy of mitigation strategies, including

risk transfer through insurance, which aims at the

elimination or reduction of losses resulting from

operational risks are regularly reviewed/assessed

in the light of operational incidents or prior to the

launch of new products, processes or systems. The

priorities of the strategies adopted are correlated

with the likelihood and materiality of operational risks

identified.

Operational Risk Awareness

The embedding of an operational risk awareness

culture is supported by training and regular

communication targeting all employees.

Market Risk

The Basel Committee on Banking Supervision

defines market risk as ‘the risk of losses in on-

and off-balance sheet positions arising from

movements in market prices’. The MCB Group,

however, has given a wider definition to market

risk, namely ‘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 laid out in 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

The core function of the Market Risk BU is to exercise

overall control and monitoring of market risk (including

credit and operational risk arising from market risk

activities) within the MCB and to 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 Group

is constantly managed within limits set by the

GMRP, and within guidelines laid down by the Bank

of Mauritius. Furthermore, 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. It is also

responsible for initiating action to update or amend

existing risk policies as a result of the identification

of such new risks for the business.

ALCO is chaired by the Chief Executive (Banking)

and is convened monthly with attendance from key

members of Senior Management.

Interest Rate Risk

Interest rate risk is the risk arising from changes in

interest rates, or the prices of interest-sensitive assets.

Interest rate risk arises, for example, whenever the

interest rate reset date of an asset does not coincide

exactly with the interest rate reset date of the liability

which funds it (date mismatch).

The MCB manages interest rate risk in the trading and

non-trading books (that is 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 the Bank intends to limit the amount of interest

rate exposure at different points in the interest rate

maturity spectrum.

The Group’s overall interest rate sensitivity gap is

shown in Note 2(f) to the Financial Statements.

Foreign Exchange Risk

Foreign exchange risk (FX risk) is defined as ‘the risk

that the Bank’s foreign currency positions will be

adversely affected with the movements in exchange

rates between one currency and another’.

The MCB manages FX risk as a whole, whether

arising from its day-to-day trading decisions,

or embedded within the balance sheet/general

banking activities.

Trading activities involving FX risk are controlled

through the allocation of specific trading limits. The

trading limits are set in terms of maximum (open)

trading position.

The FX risk exposure arising from trading activities

or otherwise from the general banking activities

across all currencies and on a consolidated basis is

formulated in terms of both the official regulatory limit

of the Bank of Mauritius and internal limits/targets.

The exposures are monitored against the limits and

reported on an ongoing basis to ALCO.



Note 2(e) to the Financial Statements shows the

Group exposure to FX risk.

Liquidity Risk

Liquidity risk is defined within the MCB as ‘the risk

that, at any time, the MCB does not have sufficient

realisable financial assets to meet its financial

obligations as they fall due’. The responsibility for the

day-to-day management of liquidity within targets and

limits rests with the Treasury BU.

The liquidity policy of the MCB, which is aligned with

the Bank of Mauritius Guideline on Liquidity, seeks to

ensure that:

1. the MCB can meet its financial obligations as they

fall due in the normal course of business; and

2. the MCB maintains an adequate stock of highly

liquid assets to enable it to meet unexpected

funding needs at short notice.

Accordingly, the MCB policy states three mutually

supporting ‘lines of defence’ namely:

1. cash flow management – whereby the MCB

creates a continuously maturing stream of assets

and liabilities through time;

2. maintenance of a liquid assets portfolio; and

3. maintenance of a diversified liability base.

Internal Audit

Building on several bold initiatives put in place in

FY 2006/07 to considerably strengthen the internal

audit function of the MCB, the Group Audit SBU –

whose Head reports directly to the Audit Committee

for direction and accountability and to the Executive

Directors for administrative interface and support –

has moved, during the year under review, from a purely

controls-focused to a risk-centric model. This implies

that internal auditors now adopt an all-inclusive

conceptual approach to audit, risk assessment and

risk management that extends well beyond a narrow

focus on controls.

To support this strategy and, in general, expanded risk

consciousness, the centrally-controlled unit of internal

auditors has been strengthened as the recruitment,

development and retention of risk professionals

are considered a prerequisite to business growth

plans. Similarly, the facilitation of control self

assessment workshops – in line with the Enterprise

Risk Management methodology – throughout the

Group and the extensive use of Computer Aided Audit

Techniques (CAATs) are viewed as solid catalysts in

the quest for this more risk-centric audit approach.

Results of the different audit assignments, including

a risks-based grading of the issues, are periodically

presented to all relevant stakeholders, that is, functional

heads, line management and Executive Directors. On a

monthly basis, a summarised implementation status of

all issues is communicated to the Executive Directors

and discussed if need be. Quarterly or more frequent



meetings are scheduled with the Audit Committee.

The annual audit plan (after discussions with the

Executive Directors), issues and progress regarding

implementation thereof, and resource requirements

are typical items on the agenda.

Physical Security

Physical security relates to the safeguarding of

employees, customers and other assets, so far as is

reasonably practical, from potential risk and 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.

Access control at the MCB Centre was further

enhanced with the introduction of a card-based

security system supported by turnstiles in the main

reception area. Additional CCTV cameras were

installed to further improve security surveillance on

the premises.

A focus on health and safety issues has seen staff being

trained in First Aid and fire fighting techniques, both of

which will support emergency planning programmes

throughout the Bank.

The documented security practices and procedures in

the branch and ATM networks have been continually

monitored and are regularly re-assessed in the context

of a changing operating environment and branch

redesign. A firm foundation exists to support security

efforts going forward.

Information Security Management

In line with the recommendations and findings

of Gartner International following a review on the

organisation’s information security functions, the

Information Security Management (ISM) BU is now

giving greater attention to managing information

risk. As such, ISM is currently establishing a series of

frameworks that should result in reaching the next level

of quality in the information risk maturity continuum

while aligning itself to industry best practices and

recognised standards such as PCI and ISO27001.

As part of the MCB’s logical access framework and of

the regular review of users’ accesses on all applications,

a recertification procedure has been introduced to

ensure that all access rights are reviewed and signed

off by the owning business lines, guaranteeing that

redundant accesses are removed.

Additionally, new processes are being introduced with

the aim of providing the business lines with better

visibility of their information risks portfolio as another

key decision making tool at their disposal.

Finally, as per international best practices, the ISM

Business Continuity Planning team has split its focus



between two key areas, firstly, Business Continuity

Management which will now concentrate on

ensuring the MCB’s ability to offer an uninterrupted

service to its customers, and secondly, IT Continuity,

now focusing specifically on further improving IT

services’ capabilities in continuously supporting

our business.

Compliance

Compliance risk is defined within the MCB 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 of reputation. These risks

are inter-related but for a financial services group

such as the MCB, reputational risk is of particular

concern.

The MCB Group’s approach to compliance risk is

fourfold:

1. Review of changes in law and regulations in

order to ensure that the Group addresses the

risks arising from such changes;

2. Monitoring of compliance with existing rules and

regulations while mitigating the effects of any

unintentional non-compliance;

3. Management of productive dialogue with

regulators in order to ensure effective two-way

communication; and

4. Assisting management in promoting a culture of

integrity, including initiating actions to raise staff

awareness on fraud prevention and Anti-Money

Laundering and Combating the Financing of Terrorism.

The Board of Directors bears the final responsibility

for compliance even if it delegates authority to line

management through the Board Risk Monitoring

Committee and General Management. The Head

of Group Compliance – who also assumes the

function of Money Laundering Reporting Officer

(MLRO) – and the compliance function assist the

Board, General Management and line managers in

discharging their compliance accountabilities.

Within the MCB, 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.

In regard to the MCB’s Anti-Money Laundering and

Combating Financing of Terrorism obligations, the

Compliance function is duty-bound to ensure that

the Bank has put in place adequate processes,

that these processes are being appropriately

implemented and that adequate training is given to

staff. In addition, Compliance has the responsibility

to ensure that appropriate training programmes

are designed to raise staff awareness on fraud

issues with a view to, ideally, preventing or, at least,

mitigating fraudulent schemes.

In order to achieve these objectives, Group

Compliance also has a dedicated team having

the responsibilities to carry out investigations in

cases of alleged frauds and to assist the MLRO

in the investigation and validation of internal

suspicious reports which have been reported to

the latter.

Legal

As part of its endeavour to strengthen the Legal

function at the MCB, the Legal SBU embarked,

during the year under review, upon the centralisation

of some Legal activities initially disseminated

across other functions within the Bank. The first

wave of this centralisation process was intended

to clearly demarcate the legal specialty from other

professional disciplines within the Bank with a view

to enhancing and measuring the area’s contribution

to the MCB’s value chain. Consequently, several

gains accrued to the Bank in terms of effectiveness

and efficiency, inter alia, in the form of:

1. the rationalisation of legal costs alongside a

closer collaboration with selected external

lawyers/law chambers;

2. a clearer understanding at all levels of the

organisation of the mission to uphold, secure

and defend the supreme interest of the

MCB Group and its constituents from a legal

standpoint; and

3. an improved quality of service in terms of legal

support within the Bank characterised, amongst

other things, by punctual advisory committees

and hotlines to assist colleagues on legal matters

at all times.

Whilst ensuring that internal customers receive

excellent legal support – in terms of bespoke legal

solutions, coherent opinions, on-the-spot advice, reliable

counselling, legal representation and advocacy, ‘legal

vetting’ of contract and security documentation – the

Legal SBU is well poised to embark on the second phase

of its centralisation with the following milestones:

1. The consolidation of competencies within the

Legal function mainly through the proposed

regrouping of all ‘legal-connotated’ functions;



2. The establishment of a formal outsourcing policy

covering legal services to further rationalise legal

spending;

3. The design and delivery of in-house legal training

to targeted audiences to upgrade the skills and

knowledge within the organisation;

4. The formalisation of service relationships with

internal partners (e.g. through agreed service

standards); and

5. The assessment of customer satisfaction with

the SBU’s services through the administration of

a survey.

Basel IIBasel II Scope of Application

The Bank’s credit, market and operational risks are

measured under the Standardised Approach. The

amount of credit risk capital is arrived at by applying the

risk weights based on the external credit assessments

for sovereign, central bank and bank exposures along

with the standard Basel II risk weights as applicable

under the Standardised Approach for corporate, retail,

mortgage and past due exposures. The capital charge

for market risk is based on the assessment of foreign

exchange risk in the Bank’s trading book and banking

book and of interest rate risk and equity risk in the

trading book. The computation of operational risk

capital follows the Basel II measurement methodology

whereby gross income is used as a proxy for the scale

of operational risk exposure.

Credit Risk Capital

Basel II Standardised Approach to Credit Risk

offers a menu of options under Pillar I for the

calculation of the credit risk capital requirements

under the banking book exposures, as opposed to

Basel I which applies a ‘one size fits all’ approach.

The Standardised Approach presents greater risk

sensitivity in measuring credit risk as it uses

the credit ratings of External Credit Assessment

Institutions (ECAIs) to define the weights used

when calculating the risk-weighted assets,

especially for sovereign, central bank and bank

asset classes.

The sovereign, central bank and bank risk weights

used by the MCB are based on the credit assessments

of external rating agencies such as Moody’s, Fitch and

Standard & Poor’s, with each category of borrower

having a specific risk weight structure. A preferential

risk weight in respect of short-term foreign currency

lending is applied to banks licensed under the

Banking Act 2004, subject to a floor of 20%. The

Bank’s claims on Public Sector Entities treated as

claims on banks, presently unrated, are assigned a

risk weight of 50%. The following table summarises

the equivalent Moody’s credit ratings of ECAIs used

by the Bank along with their corresponding risk

weights applicable by asset class.



Standard risk weights, in line with the Basel II

Standardised Approach, are applied as follows:

claims on corporate customers as well as claims

on corporate public sector entities are considered

as unrated and are assigned a standard risk weight

of 100%. A standard risk weight of 75% is applied

to retail exposures; claims secured by residential

property are allocated a risk weight of 35% subject

to an exposure limit of Rs 5 million and a loan-

to-value not exceeding 80% as required by the

Guideline on Standardised Approach to Credit Risk.

Past due claims are assigned a risk weight, ranging

from 50% to 150%, dependent on the proportion

of specific provision to the outstanding amount of

the exposure.

Credit Risk Mitigation

The MCB applies the methodology for determining

the appropriate risk weight for exposures secured

by eligible collateral, guarantee and credit derivative

(if any) set out in the Guideline on Standardised

Approach to Credit Risk. Where a claim on a

counterparty is secured against eligible collateral,

the secured portion of the claim is weighted

according to the risk weight appropriate to the

collateral. The unsecured portion of the claim is

weighted according to the risk weight applicable to

the original counterparty.

Operational Risk Capital

The computation of operational risk capital

follows the Basel II measurement methodology

for the Standardised Approach. This approach

uses gross income as a proxy for the scale of

operational risk exposure. The Bank’s activities are

mapped, according to set principles (including the

possibility of using internal pricing methods), into

eight standard business lines to which respective

industry-wide exposure factors (Beta Factors) are

assigned. The total capital charge is calculated as

the three-year average of the simple summation of

the regulatory capital charges across each of the

business lines in each year.

Type of ClaimAaa

to Aa3A1

to A3Baa1

to Baa3Ba1

to Ba3B1

to B3Below

B3Unrated

1 Sovereign & Central Banks * 0% 20% 50% 100% 100% 150% 100%

2 Multilateral Development Banks 20% 50% 50% 100% 100% 150% 50%

3 Banks - for long-term claims 20% 50% 50% 100% 100% 150% 50%

4 Banks - for short-term claims 20% 20% 20% 50% 50% 150% 20%

* Claims on the Government of Mauritius and the Bank of Mauritius denominated and funded in Mauritian rupees are assigned a preferential risk weight of 0%.



The business lines to which the Bank’s activities

are mapped are Trading and Sales (ß 18%), Retail

Banking (ß 12%), Commercial Banking (ß 15%) and

Agency Services (ß 15%). It is worth highlighting that

the Standardised Approach provides a lower capital

charge than the Basic Indicator Approach.

Market Risk Capital

The MCB has adopted the Standardised Measurement

Approach to Market Risk for regulatory capital

allocation to comply with the Basel II Market Risk

Amendment, and the Bank of Mauritius Proposal Paper

on Measurement and Management of Market Risk.

The Group overall exposures to foreign exchange risk

and the interest rate sensitivity gap are shown in Notes

2(e) and 2(f) to the Financial Statements. The principal

methodology which the MCB uses for the measurement

of market price risk is Value-at-Risk (VaR), defined as

follows: ‘VaR is the statistical representation of financial

risk, expressed as a number, based on consistent

modelling of past data and/or simulation of possible

future movements, applied to a particular risk position,

asset, or portfolio.’

In the conduct of its risk measurement activities,

the MCB utilises VaR-modelling based on historical

simulations, whereby current positions are measured

against historic volatilities over a given period.

The VaR model used by the Bank is based upon a 99

percent one-tailed confidence level and assumes a

ten-day holding period, with market data taken from

the previous two years. The VaR analysis for the MCB

(Foreign Exchange Risk) is shown in Note 2 to the

Financial Statements.

Risk Appetite and Stress Testing

Following the implementation of the Basel II Standardised

Approach, the Bank has enhanced its assessment of risk

appetite, which is integrated within the annual planning

cycle, and of capital consumption through quarterly

monitoring of Basel II capital by the RMC.

Stress tests on the risk portfolio, based on a gradually

increasing range of realistic adverse circumstances,

are performed to assess their impact on key Income

Statement and Balance Sheet ratios as well as on the

ability of the Bank to meet capital requirements at all

stages of the economic cycle within a plausible time

horizon. This exercise is in line with the Bank’s willingness

to ensure that it holds sufficient capital at all times.

Forward TogetherPriding itself in creditable financial and operational

accomplishments spanning 170 years of reliable and

dedicated service, the MCB is confidently gearing up

its capabilities to maximise long term value creation. In

fact, bearing in mind complex and mounting challenges

within the economic environment, the Group is



unflinchingly pursuing its objective of enhancing the

robustness of its revenue foundations through prudently

calibrated market diversification strategies, whilst

maintaining a healthy position in domestic banking. To

this end, much emphasis is being laid across business

segments on innovative and international best practice

operational functionalities, a wide-ranging, adapted

and easily accessible menu of financial products and

services, as well as strengthened relationships and

customer service.

Conspicuously, being recognised as fundamental in

spearheading the Group’s far-reaching development

strategies, the workforce will obviously remain a

key pillar of service delivery. Initiatives for further

human resource development as well as for attracting

and retaining talented individuals – particularly

within the context of more challenging industry

dynamics – are expected to foster the creation of a

more knowledgeable, skilled, motivated and flexible

workforce. Besides, aided by an across-the-board

modernisation of its hard and soft infrastructure set-up

including a refurbishment of branches, the operation

of a landmark building in the Ebène region in 2010,

and the roll-out of the new core banking system,

Temenos T24, in 2009, the Group will continuously

strive to revamp its operational processes and ensure

their subsequent harmonisation and streamlining on

all fronts. Noteworthy positive upshots are expected

to be reaped in terms of a better flow and utilisation

of management information, considerable efficiency

gains, a more robust risk management environment,

a material smoothening of customer service delivery,

and enhanced product development competencies.

By and large, reflective of its eagerness to embrace

contemporary and sophisticated operating models

for bolstering resource productivity and product

marketability, the Group will, at all times, keep abreast

of evolving trends – while remaining wary of temporary

and costly fads – and assess their relevance and

applicability to improve general performance metrics.

Building on continuously improved operations, the Group

will assertively pursue multiple and resilient paths to

growth notably by efficiently responding to appealing

business prospects both locally and, increasingly,

in the region and beyond through the provision of

quality products and services and the maintenance of

prolific customer relationships, alongside furthering

greater visibility. In the retail network, in line with

its ambition of providing new heights of customer

experience, both in terms of more fertile interactions

and a stronger spectrum of service offerings, the

Bank firmly believes in the eventual commercial pay-

off of a more effective delivery channel management

across branches nationwide. Noticeably, exploiting

its accomplished market leading position and proven

innovation spirit, the cards segment is predisposed for

rejuvenated future realisations in view of the exclusive

card issuing agreement signed with American Express



in April 2008 and further technological developments

amongst others. For its part, championing the Group-

wide philosophy pertaining to the creation of a cost-

effective and invigorating operational environment, the

Corporate arm is leaving no stone unturned in exploiting

business openings in addition to reinforcing established

relationships. In the same vein, an extended scope

and sophistication of international operations should

spearhead the Group’s pursuance of more significant

and sustainable income streams. Indeed, in addition

to expanding its foothold in presence countries and

determinedly tapping into opportunities for financing

regional trade and investment deals, a key objective

going forward for the MCB is to cement a commanding

reputation as a ‘Bank for Banks’ particularly in the wake

of promising breakthroughs achieved in positioning itself

as the first SWIFT Member Concentrator in this part of

the world and as a regional hub for cards operations.

Further impetus to the revenue diversification strategy

should stem from a material improvement in the range

and quality of investor services provided, further to their

regrouping under the MCB Capital Markets Ltd. All in

all, in parallel with the design of distinctive development

road-maps by different lines of business and efforts

made to ensure their alignment with the organisation’s

strategic orientations, the MCB will attempt, as far

as possible, to exploit cross-selling opportunities as

well as to replicate established human resource and

operational capabilities across the Group with a view to

optimally exploiting synergies for sound and balanced

performances by all business segments.

With recent sharp downturns in global financial markets

attesting even more to the necessity of pursuing

measured and rational strategic orientations, the MCB

is convinced that its ambitious yet sensible policies

will enable it rise up to forthcoming challenges. In fact,

capitalising on its solid brand identity and enhanced

resource deployment, the Group is exuding the same

unscathed confidence that accompanied it throughout

its history, envisioning the future as a stirring horizon

of business opportunities to seize, challenging

times to handle, and echelons of professionalism

and expertise to surpass. By generating mutually

beneficial relationships with various stakeholders

on both the economic and social fronts, the Group

is intent on asserting its prime partaking position in

the development of Mauritius as a modern nation

within the region, thereby resolutely keeping afloat its

cherished credo of moving ‘forward, together’.

Pierre-Guy NOEL

Chief Executive (Group)

Antony R. WITHERS

Chief Executive (Banking)


financial statements


Moving towards seamless processes


Statement of Management’s Responsibility for Financial Reporting

The Group Financial Statements and the Financial Statements for the Bank’s operations in Mauritius presented in this 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 2008 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.

Pierre-Guy NOEL Antony R. WITHERS Chief Executive (Group) Chief Executive (Banking)

J.Gérard HARDY Bertrand DE CHAZAL Director Director Chairman Audit Committee


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 118 to 189 which comprise the balance sheets at June 30,2008 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.


Report of the Auditors

Opinion

In our opinion, the financial statements on pages 118 to 189 give a true and fair view of the financial position of the Group and

of the Bank at June 30, 2008, and of their financial performance and their cash flows for the year then ended in accordance

with International Financial Reporting Standards and comply with the Companies Act 2001.

Report on Other Legal and Regulatory Requirements

Companies Act 2001

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

business advisers and dealings in the ordinary course of business.

We have obtained all information and explanations we have required.

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

those records.

Banking Act 2004

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

complete, fair and properly drawn up and comply with the Banking Act 2004 and the regulations and guidelines of the

Bank of Mauritius.

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

The Financial Reporting Act 2004

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

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

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

BDO DE CHAZAL DU MEE

Chartered Accountants

Per M.Yacoob A.Ramtoola - FCA

29th September 2008Port Louis Mauritius


as at 30th June 2008Balance Sheets

Pierre-Guy NOEL Antony R. WITHERS

Chief Executive (Group) Chief Executive (Banking)

GROUP BANK

Notes2008

RS'0002007

RS'0002006

RS'0002008

RS'0002007

RS'0002006

RS'000

AssetsCash resourcesCash and balances with Central Banks 3 5,776,456 6,235,477 5,509,108 4,434,230 4,042,455 4,015,691 Balances with banks and interbank loans 4 236,869 345,645 214,156 51,322 147,802 204,565 Balances with banks abroad 4 11,072,046 9,863,254 6,480,484 11,031,840 9,987,990 6,622,201

17,085,371 16,444,376 12,203,748 15,517,392 14,178,247 10,842,457

Securities and other investmentsSecurities 5 22,839,217 13,252,182 18,364,266 20,885,824 10,573,779 14,874,838 Other investments - available-for-sale 7 3,469,831 3,535,001 1,824,931 1,187,714 1,334,009 622,177 - derivative financial instruments 7 137,261 23,795 16,125 137,261 23,795 16,125 Investments in associates 8 6,022,694 5,281,108 3,256,832 885,586 875,530 872,151 Investments in subsidiaries 9 - - - 2,391,412 2,126,099 1,766,732

32,469,003 22,092,086 23,462,154 25,487,797 14,933,212 18,152,023

Loans Personal and credit cards 14,933,346 14,761,071 11,385,708 14,579,503 12,969,386 11,085,228 Business 57,233,320 47,550,037 44,595,234 51,849,602 44,475,277 41,316,947 Governments 93,110 126,636 6,366 - - - Entities outside Mauritius 8,565,944 6,652,786 5,736,880 8,565,944 6,652,786 5,736,880

80,825,720 69,090,530 61,724,188 74,995,049 64,097,449 58,139,055 Less allowances for credit impairment (3,196,374) (3,245,882) (3,358,912) (3,101,358) (3,158,304) (3,270,487)

6 77,629,346 65,844,648 58,365,276 71,893,691 60,939,145 54,868,568

OtherGoodwill and other intangible assets 10 284,835 288,302 354,111 202,246 229,201 314,138 Property, plant and equipment 11 3,371,104 3,443,069 3,036,585 2,458,313 2,449,780 2,193,777 Deferred tax assets 12 15,140 15,844 31,980 13,153 15,096 31,647 Other assets 13 2,116,862 2,014,397 1,955,893 1,782,642 1,771,334 1,600,962

5,787,941 5,761,612 5,378,569 4,456,354 4,465,411 4,140,524

132,971,661 110,142,722 99,409,747 117,355,234 94,516,015 88,003,572

The notes on pages 129 to 189 form part of these financial statements.Auditors’ report on pages 116 and 117.


GROUP BANK

Notes2008

RS'0002007

RS'0002006

RS'0002008

RS'0002007

RS'0002006

RS'000

Liabilities and Shareholders' EquityDepositsPersonal 69,217,086 61,893,853 56,951,011 63,854,268 57,229,612 53,748,473 Business 35,001,767 20,973,361 17,801,612 31,207,990 16,418,950 13,709,024 Governments 361,069 758,576 1,449,191 110,752 252,469 753,478 Banks 2,398,177 1,531,833 993,046 2,373,015 1,536,428 997,600

15 106,978,099 85,157,623 77,194,860 97,546,025 75,437,459 69,208,575

BorrowingsBorrowings from the Bank of Mauritius 449,630 840,329 1,056,122 449,630 840,329 1,056,122 Borrowings from other banks in Mauritius

and banks abroad 1,405,723 3,938,310 5,184,415 2,555,126 4,284,574 5,380,538

Subordinated debt 1,237,128 1,411,108 - 1,237,128 1,411,108 - 14 3,092,481 6,189,747 6,240,537 4,241,884 6,536,011 6,436,660

OtherOther liabilities 16 3,726,564 3,475,399 3,245,244 3,187,315 2,918,087 2,671,798 Outstanding lease obligations 18 - - 6,366 554 2,327 6,133 Proposed dividend 687,981 - - 687,981 - - Current tax liabilities 455,102 383,833 271,598 347,643 327,374 239,501 Deferred tax liabilities 12 37,044 21,732 616 - - -

4,906,691 3,880,964 3,523,824 4,223,493 3,247,788 2,917,432

Capital and reserves attributable to the ordinary equity holders of the parent

Share capital 19 2,503,756 2,503,756 2,821,105 2,503,756 2,503,756 2,821,105 Reserves and surplus 5,263,318 4,589,731 3,703,209 3,378,775 2,738,331 2,406,662 Retained earnings 8,955,759 6,765,698 6,203,437 5,837,778 4,436,959 4,605,968

16,722,833 13,859,185 12,727,751 11,720,309 9,679,046 9,833,735 Less treasury shares (376,477) (384,289) (394,080) (376,477) (384,289) (392,830)

16,346,356 13,474,896 12,333,671 11,343,832 9,294,757 9,440,905

Minority interest 1,648,034 1,439,492 116,855 - - -

Total equity 17,994,390 14,914,388 12,450,526 11,343,832 9,294,757 9,440,905

132,971,661 110,142,722 99,409,747 117,355,234 94,516,015 88,003,572

Contingent LiabilitiesAcceptances, guarantees, letters of credit,

endorsements and other obligations on accountof customers, and foreign exchange contracts 36,460,790 25,892,067 16,707,977 34,242,458 24,663,631 15,888,362

Commitments 6,000,729 4,487,776 4,622,812 5,815,689 4,366,559 4,484,731 Assets pledged against facilities granted by

the Bank of Mauritius - - 1,014,515 - - 1,014,515

Tax assessment 220,642 201,762 182,880 220,642 201,762 182,880 Other 1,085,998 1,071,586 782,368 996,426 995,853 765,011

20 43,768,159 31,653,191 23,310,552 41,275,215 30,227,805 22,335,499

These financial statements were approved for issue by the Board of Directors on the 29th September 2008.

J. Gérard HARDY Bertrand de CHAZAL

Director Director

President of the Board Chairman Audit Committee

for the year ended 30th June 2008


Income Statements

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Interest incomeInterest on loans 8,197,694 7,068,108 5,494,526 7,530,085 6,475,536 5,057,539 Interest on investment in securities 1,364,311 1,232,702 1,157,577 1,232,742 1,012,713 994,082 Interest on placements with other banks 723,545 637,596 254,336 681,615 579,994 211,544

21 10,285,550 8,938,406 6,906,439 9,444,442 8,068,243 6,263,165 Interest expenseInterest on deposits (5,862,395) (4,889,524) (3,449,997) (5,493,414) (4,616,568) (3,296,931)Interest on borrowings from banks and

financial institutions (246,102) (428,923) (350,365) (274,384) (418,632) (296,272)

Other interest expense (11,153) (7,229) (12,889) (9,297) (6,457) (12,230)22 (6,119,650) (5,325,676) (3,813,251) (5,777,095) (5,041,657) (3,605,433)

Net interest income 4,165,900 3,612,730 3,093,188 3,667,347 3,026,586 2,657,732 Other incomeFee income and commissions 23 1,377,965 1,108,301 835,757 1,024,181 839,650 716,235 Profit arising from dealing in foreign currencies 1,223,559 987,138 670,908 1,074,286 863,657 596,670 Dividend income 23 118,668 82,713 58,829 206,486 221,374 149,875 Net gain on sale of securities 536,448 9,903 30,051 397,191 - 58,995 Other 48,577 50,439 41,275 1,981 4,464 10,283

3,305,217 2,238,494 1,636,820 2,704,125 1,929,145 1,532,058 Operating income 7,471,117 5,851,224 4,730,008 6,371,472 4,955,731 4,189,790

Non-interest expenseSalaries and human resource development (1,581,067) (1,280,699) (1,122,296) (1,441,237) (1,166,005) (1,035,480)Employee benefits (13,228) (63,337) (67,782) (13,228) (63,337) (67,782)Depreciation (436,823) (303,730) (236,127) (335,961) (217,780) (192,736)Amortisation of intangible assets (104,897) (110,935) (97,178) (96,114) (106,003) (96,158)Other (1,089,144) (1,023,457) (834,453) (780,086) (720,655) (603,366)

24 (3,225,159) (2,782,158) (2,357,836) (2,666,626) (2,273,780) (1,995,522)

Operating profit before provisions 4,245,958 3,069,066 2,372,172 3,704,846 2,681,951 2,194,268 Allowance for credit impairment 25 (425,889) (375,928) (320,154) (408,417) (370,598) (313,203)

Operating profit 3,820,069 2,693,138 2,052,018 3,296,429 2,311,353 1,881,065 Share of income of associated companies 640,839 414,392 282,390 - - - Exceptional items - - 78,675 - - 37,800

Profit before tax 4,460,908 3,107,530 2,413,083 3,296,429 2,311,353 1,918,865 Income tax expense 26 (575,180) (560,822) (399,632) (395,394) (389,932) (311,802)Profit for the year 3,885,728 2,546,708 2,013,451 2,901,035 1,921,421 1,607,063

Attributable to :-Ordinary equity holders of the parent 3,693,734 2,460,845 1,986,423 2,901,035 1,921,421 1,607,063 Minority interest 191,994 85,863 27,028 - - -

3,885,728 2,546,708 2,013,451 2,901,035 1,921,421 1,607,063

Basic and diluted earnings per share for profit attributableto the ordinary equity holders of the parent after exceptional items (Rs) 28 15.58 9.74 7.40

Basic and diluted earnings per share for profit attributable tothe ordinary equity holders of the parent before exceptional items (Rs) 28 15.58 9.74 7.11

The notes on pages 129 to 189 form part of these financial statements.Auditors’ report on pages 116 and 117.

Notes


Statement of Changes in EquityAt

trib

utab

le to

ord

inar

y eq

uity

hol

ders

of t

he p

aren

t

Shar

eCa

pita

l RS

'000

Shar

ePr

emiu

m

RS'0

00

Trea

sury

Shar

es

RS'0

00

Capi

tal

Rese

rve

RS'0

00

Tran

slat

ion

Rese

rve

RS'0

00

Stat

utor

yRe

serv

e RS

'000

Gene

ral

Bank

ing

Rese

rve

RS'

000

Reta

ined

Earn

ings

RS

'000

Tota

l

RS'0

00

Min

ority

Inte

rest

RS

'000

Tota

lEq

uity

RS

'000

No

te

GROU

PAt

1st

Jul

y 20

052,

821,

105

-

(393

,789

) 4

06,6

16

162,

064

1,5

82,5

78

537

,499

5

,116

,005

1

0,23

2,07

8 1

10,5

37

10,

342,

615

Adju

stm

ent o

f fai

r val

ue o

f ass

ets

in a

ssoc

iate

-

-

-

-

-

-

-

(45,

575)

(45,

575)

-

(45,

575)

As re

stat

ed 2

,821

,105

-

(3

93,7

89)

406

,616

1

62,0

64

1,5

82,5

78

537

,499

5

,070

,430

1

0,18

6,50

3 1

10,5

37

10,

297,

040

Shar

e of

incr

ease

in re

serv

es o

f ass

ocia

tes

-

-

-

568

,213

1

31,4

84

-

-

-

699

,697

-

6

99,6

97

Inve

stm

ent i

n su

bsid

iary

-

-

-

-

-

-

-

-

-

25

25

Tran

sfer

on

disp

osal

of i

nves

tmen

t -

-

-

(6

,339

) -

-

-

-

(6

,339

) -

(6

,339

)Cu

rrenc

y tra

nsla

tion

diffe

renc

e -

-

-

-

1

4,61

3 -

-

-

1

4,61

3 (6

37)

13,

976

Fair

valu

e ga

in -

-

-

2

2,07

1 -

-

-

-

2

2,07

1 -

2

2,07

1 Ne

t inc

ome/

(exp

ense

) rec

ogni

sed

dire

ctly

in e

quity

-

-

-

583

,945

1

46,0

97

-

-

-

730

,042

(6

12)

729

,430

Pr

ofit f

or th

e ye

ar -

-

-

-

-

-

-

1

,986

,423

1

,986

,423

2

7,02

8 2

,013

,451

To

tal r

ecog

nise

d in

com

e fo

r the

yea

r -

-

-

5

83,9

45

146

,097

-

-

1

,986

,423

2

,716

,465

2

6,41

6 2

,742

,881

Di

vide

nds

27 -

-

-

-

-

-

-

(5

69,0

06)

(569

,006

) (2

0,09

8) (5

89,1

04)

Tran

sfer

to g

ener

al b

anki

ng re

serv

e -

-

-

-

-

-

3

4,41

0 (3

4,41

0) -

-

-

Tr

ansf

er to

sta

tuto

ry re

serv

e -

-

-

-

-

2

50,0

00

-

(250

,000

) -

-

-

Pu

rcha

se o

f tre

asur

y sh

ares

-

-

(291

) -

-

-

-

-

(2

91)

-

(291

)At

30t

h Ju

ne 2

006

2,8

21,1

05

-

(394

,080

) 9

90,5

61

308

,161

1

,832

,578

5

71,9

09

6,2

03,4

37

12,

333,

671

116

,855

1

2,45

0,52

6 Pr

ior y

ear a

djus

tmen

t in

the

finan

cial

sta

tem

ents

of F

inco

rp G

roup

-

-

-

(29,

145)

-

-

-

4,6

69

(24,

476)

(18,

047)

(42,

523)

As re

stat

ed 2

,821

,105

-

(3

94,0

80)

961

,416

3

08,1

61

1,8

32,5

78

571

,909

6

,208

,106

1

2,30

9,19

5 9

8,80

8 1

2,40

8,00

3 Sh

are

of in

crea

se/(d

ecre

ase)

in re

serv

es o

f ass

ocia

tes

-

-

-

67,

833

96,

414

-

-

7,2

94

171

,541

(5

1,64

5) 1

19,8

96

Tran

sfer

on

disp

osal

of p

rope

rty, p

lant

and

equ

ipm

ent

-

-

-

(21,

618)

-

-

-

21,

618

-

-

-

Curre

ncy

trans

latio

n di

ffere

nce

-

-

-

-

(2,8

34)

-

-

-

(2,8

34)

3,8

22

988

Re

leas

e of

sha

re v

alue

/reco

gniti

on o

f min

ority

inte

rest

f

ollo

win

g sh

ares

bou

ght b

ack

& ca

ncel

led

by F

inco

rp -

-

-

9

,533

(4

99)

-

-

155

,241

1

64,2

75

1,3

37,6

45

1,5

01,9

20

Fair

valu

e ga

in -

-

-

4

99,9

64

-

-

-

-

499

,964

-

4

99,9

64

Net i

ncom

e re

cogn

ised

dire

ctly

in e

quity

-

-

-

555

,712

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

,460

,845

2

,460

,845

8

5,86

3 2

,546

,708

To

tal r

ecog

nise

d in

com

e fo

r the

yea

r -

-

-

5

55,7

12

93,

081

-

-

2,6

44,9

98

3,2

93,7

91

1,3

75,6

85

4,6

69,4

76

Divi

dend

s27

-

-

-

-

-

-

-

(723

,335

) (7

23,3

35)

(33,

675)

(757

,010

)Tr

ansf

er to

gen

eral

ban

king

rese

rve

-

-

-

-

-

-

622

(6

22)

-

-

-

Tran

sfer

to s

tatu

tory

rese

rve

-

-

-

-

-

250

,000

-

(2

50,0

00)

-

-

-

Shar

es b

ough

t bac

k an

d ca

ncel

led

by th

e Gr

oup

(317

,349

) -

1

,250

-

-

-

-

(1

,113

,449

) (1

,429

,548

) (1

,326

) (1

,430

,874

)Em

ploy

ee s

hare

opt

ions

exe

rcis

ed -

1

6,25

2 8

,541

-

-

-

-

-

2

4,79

3 -

24,

793

At 3

0th

June

200

7 2

,503

,756

1

6,25

2 (3

84,2

89)

1,5

17,1

28

401

,242

2

,082

,578

5

72,5

31

6,7

65,6

98

13,

474,

896

1,4

39,4

92

14,

914,

388

Shar

e of

incr

ease

in re

serv

es o

f ass

ocia

tes

-

-

-

45,

149

44,

052

-

-

-

89,

201

33,

289

122

,490

Tr

ansf

er o

n di

spos

al o

f inv

estm

ent

-

-

-

(240

,321

) -

-

-

-

(2

40,3

21)

-

(240

,321

)Cu

rrenc

y tra

nsla

tion

diffe

renc

e -

-

-

-

(1

15,1

82)

-

-

-

(115

,182

) 1

2,51

8 (1

02,6

64)

Fair

valu

e ga

in -

-

-

4

81,1

08

-

-

-

-

481

,108

-

4

81,1

08

Net i

ncom

e/(e

xpen

se) r

ecog

nise

d di

rect

ly in

equ

ity -

-

-

2

85,9

36

(71,

130)

-

-

-

214

,806

4

5,80

7 2

60,6

13

Profi

t for

the

year

-

-

-

-

-

-

-

3,6

93,7

34

3,6

93,7

34

191

,994

3

,885

,728

To

tal r

ecog

nise

d in

com

e/(e

xpen

se) f

or th

e ye

ar -

-

-

2

85,9

36

(71,

130)

-

-

3,6

93,7

34

3,9

08,5

40

237

,801

4

,146

,341

In

crea

se in

sha

reho

ldin

g in

sub

sidi

arie

s -

-

-

-

-

-

-

-

-

(1

5,57

6) (1

5,57

6)Ne

t ass

ets

disp

osed

of b

y su

bsid

iary

-

-

-

-

-

-

-

-

-

11,

377

11,

377

Profi

t on

deem

ed d

ispo

sal o

f sub

sidi

ary

-

-

-

-

-

-

-

11,

108

11,

108

1,2

34

12,

342

Divi

dend

s27

-

-

-

-

-

-

-

(1,0

79,0

38)

(1,0

79,0

38)

(26,

294)

(1,1

05,3

32)

Tran

sfer

to g

ener

al b

anki

ng re

serv

e -

-

-

-

-

-

6

,219

(6

,219

) -

-

-

Tr

ansf

er to

sta

tuto

ry re

serv

e -

-

-

-

-

4

29,5

24

-

(429

,524

) -

-

-

Em

ploy

ee s

hare

opt

ions

exe

rcis

ed -

2

3,03

8 7

,812

-

-

-

-

-

3

0,85

0 -

3

0,85

0

At 3

0th

June

200

8 2

,503

,756

3

9,29

0 (3

76,4

77)

1,8

03,0

64

330

,112

2

,512

,102

5

78,7

50

8,9

55,7

59

16,

346,

356

1,6

48,0

34

17,

994,

390

The

note

s on

pag

es 1

29 to

189

form

par

t of t

hese

fina

ncia

l sta

tem

ents

.Au

dito

rs' r

epor

t on

page

s 11

6 an

d 11

7.



Statement of Changes in EquitySh

are

Capi

tal

RS'0

00

Shar

e Pr

emiu

m

RS'0

00

Trea

sury

Shar

es

RS'0

00

Capi

tal

Rese

rve

RS'0

00

Stat

utor

yRe

serv

e RS

'000

Gene

ral

Bank

ing

Rese

rve

RS'0

00

Reta

ined

Earn

ings

RS

'000

Tota

l

RS'0

00 N

ote

BANK

At 1

st J

uly

2005

2,8

21,1

05

-

(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 -

-

-

(3

6,57

1) -

-

-

(3

6,57

1)Fa

ir va

lue

gain

-

-

-

3

1,52

5 -

-

-

3

1,52

5 Ne

t exp

ense

reco

gnis

ed d

irect

ly in

equ

ity -

-

-

(5

,046

) -

-

-

(5

,046

)Pr

ofit f

or th

e ye

ar

-

-

-

-

-

-

1,6

07,0

63

1,6

07,0

63

Tota

l rec

ogni

sed

(exp

ense

)/inc

ome

for t

he y

ear

-

-

-

(5,0

46)

-

-

1,6

07,0

63

1,6

02,0

17

Divi

dend

s27

-

-

-

-

-

-

(569

,006

) (5

69,0

06)

Tran

sfer

to g

ener

al b

anki

ng re

serv

e -

-

-

-

-

2

9,97

0 (2

9,97

0) -

Tr

ansf

er to

sta

tuto

ry re

serv

e -

-

-

-

2

50,0

00

-

(250

,000

) -

Pu

rcha

se o

f tre

asur

y sh

ares

-

-

(291

) -

-

-

-

(2

91)

At 3

0th

June

200

6 2

,821

,105

-

(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

-

-

-

65,

417

-

-

-

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

yea

r -

-

-

6

5,41

7 -

-

1

,921

,421

1

,986

,838

Di

vide

nds

27 -

-

-

-

-

-

(7

23,3

35)

(723

,335

)Tr

ansf

er to

sta

tuto

ry re

serv

e -

-

-

-

2

50,0

00

-

(250

,000

) -

Sh

ares

bou

ght b

ack

and

canc

elle

d by

the

Bank

(317

,349

) -

-

-

-

-

(1

,117

,095

) (1

,434

,444

)Em

ploy

ee s

hare

opt

ions

exe

rcis

ed -

1

6,25

2 8

,541

-

-

-

-

2

4,79

3

At 3

0th

June

200

7 2

,503

,756

1

6,25

2 (3

84,2

89)

105

,921

2

,082

,578

5

33,5

80

4,4

36,9

59

9,2

94,7

57

Fair

valu

e ga

in re

cogn

ised

dire

ctly

in e

quity

-

-

-

1

96,2

28

-

-

-

196

,228

Pr

ofit f

or th

e ye

ar

-

-

-

-

-

-

2,9

01,0

35

2,9

01,0

35

Tota

l rec

ogni

sed

inco

me

for t

he y

ear

-

-

-

196

,228

-

-

2

,901

,035

3

,097

,263

Di

vide

nds

27 -

-

-

-

-

-

(1

,079

,038

) (1

,079

,038

)Tr

ansf

er to

sta

tuto

ry re

serv

e -

-

-

-

4

21,1

78

-

(421

,178

) -

Em

ploy

ee s

hare

opt

ions

exe

rcis

ed -

2

3,03

8 7

,812

-

-

-

-

3

0,85

0

At 3

0th

June

200

8 2

,503

,756

3

9,29

0 (3

76,4

77)

302

,149

2

,503

,756

5

33,5

80

5,8

37,7

78

11,

343,

832

The

note

s on

pag

es 1

29 to

189

form

par

t of t

hese

fina

ncia

l sta

tem

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Cash Flow Statements

GROUP BANK

Notes2008

RS'0002007

RS'0002006

RS'0002008

RS'0002007

RS'0002006

RS'000

Net cash flows from trading activities 30 4,142,007 3,365,649 3,615,927 3,672,373 2,898,742 3,216,461

Net cash flows from other operating activities 31 629,434 5,024,226 2,248,394 531,464 4,180,147 2,435,644

Dividends received from associates 34,668 11,898 45,235 - - - Dividends paid (391,057) (723,335) (842,824) (391,057) (723,335) (842,824)Dividends paid to minority shareholders in subsidiaries (26,294) (33,675) (20,098) - - - Income tax paid (476,005) (431,917) (447,467) (373,182) (285,508) (337,493)

Net cash flows from operating activities 3,912,753 7,212,846 4,599,167 3,439,598 6,070,046 4,471,788

Investing activitiesPurchase of investments (380,942) (1,017,721) (688,991) (7,103) (648,052) (232,595)Proceeds from sale of investments 1,130,870 47,238 67,103 330,940 1,637 65,809 Proceeds from disposal of shares in subsidiaries - - - 698,807 - - Investment in subsidiaries (21,178) - - (417,700) (318,422) (515,001)Acquisition of subsidiary, net of cash acquired - (8,403) (25) - (11,425) (14,625)Purchase of property, plant and equipment (529,571) (602,000) (493,473) (352,131) (477,319) (298,584)Purchase of intangible assets (84,140) (33,471) (114,337) (70,973) (30,752) (111,142)Proceeds from sale of property, plant and equipment 29,776 83,600 1,880 10,055 8,000 4,722Proceeds from sale of intangible assets 1,377 - - 1,377 - -

146,192 (1,530,757) (1,227,843) 193,272 (1,476,333) (1,101,416)

Net cash flows before financing 4,058,945 5,682,089 3,371,324 3,632,870 4,593,713 3,370,372

FinancingPurchase of treasury shares - - (291) - - (291)Issue of shares by local subsidiary 23,719 - - - - - Employee share options exercised 28,842 22,743 - 28,842 22,743 - Subordinated loan to subsidiary - - - (200,647) (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) (1,773) (3,806) (4,861)

52,561 64,408 (5,343) (173,578) 53,834 (27,022)Increase in cash and cash equivalents 4,111,506 5,746,497 3,365,981 3,459,292 4,647,547 3,343,350 Cash and cash equivalents at 1st July 2007 11,665,737 5,963,211 2,549,498 9,053,344 4,405,797 1,062,447 Effect of foreign exchange rate changes (547,225) (43,971) 47,732 - - -

Cash and cash equivalents at 30th June 2008 32 15,230,018 11,665,737 5,963,211 12,512,636 9,053,344 4,405,797

The notes on pages 129 to 189 form part of these financial statements. Auditors’ report on pages 116 and 117.



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.

Notes to the Financial Statements


Index to Notes to the Financial Statements

NOTES PAGES

1 Accounting Policies 129

(a) Basis of presentation

(b) Basis of consolidation 129-130

(c) Foreign currency translation 130

(d) Derivative financial instruments and hedging

(e) Offsetting financial instruments

(f) Interest income and expense

(g) Fees and commissions

(h) Sale and repurchase agreements

(i) Investment securities 130-131

(j) Trading securities 131

(k) Loans and provisions for loan impairment

(l) Goodwill 131-132

(m) Property, plant and equipment 132

(n) Computer software development costs

(o) Finance leases - where the company is the lessee

(p) Accounting for leases - where the company is the lessor

(q) Cash and cash equivalents

(r) Provisions 133

(s) Employee benefits

(t) Deferred tax

(u) Borrowings

(v) Acceptances

(w) Segment reporting

2 Financial Risk Management 133

(a) Strategy in using financial instruments

(b) Credit risk 133-135

(c) Market risk 135

(d) Currency Risk

- Concentration of assets, liabilities and off-balance sheet items 136-139

(e) Interest rate risk 139



NOTES PAGES

2 Financial Risk Management (continued)

- Interest sensitivity of assets and liabilities-repricing analysis 140-142

(f) Liquidity risk 143

- Maturities of assets and liabilities 143-146

(g) Fair values of financial assets and liabilities 146

3 Cash and balances with Central Banks 147

4 Due from other banks

5 Securities 148

6 Loans 149

(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 150

(e) Credit concentration of risk by industry sectors 151

(f) Loans outside Mauritius

7 Other investments 152

(a) Available-for-sale

(b) Derivative financial instruments

8 Investments in associates 153

9 Investments in subsidiaries 154

10 Goodwill and other intangible assets 155

(a) Goodwill

(b) Other intangible assets

11 Property, plant and equipment 156-159

12 Deferred tax (liabilities)/assets 159

13 Other assets

14 Due to other banks

15 Deposits 160

(a) Deposits comprise the following


16 Other liabilities

continued



NOTES PAGES

17 Employee benefits assets 161-162

18 Outstanding lease obligations 163

19 Share capital and treasury shares

20 Contingent liabilities 164

(a) Instruments

(b) Commitments

(c) Assets pledged against facilities granted by the Bank of Mauritius

(d) Tax assessment

(e) Other

21 Interest income 165

22 Interest expense

23 Other income

(a) Fee income and commissions

(b) Dividend income

24 Non-interest expense 166

25 Allowance for credit impairment 167

26 Income tax expense

27 Dividends

28 Earnings per share 168

(a) Basic earnings per share

(b) Diluted earnings per share

29 Capital commitments

30 Net cash flows from trading activities 169

31 Net cash flows from other operating activities

32 Analysis of the balances of cash and cash equivalents as shown

in the Balance Sheets

33 Segment information 170

- Geographical segments 170-172

- Business segments 173-175

34 Related party transactions 176-177



NOTES PAGES

35 Segmental reporting - Bank 178

Balance Sheets 178-179

Income Statements 180

(a) Securities 181-182

(b) Loans 183

(i) Remaining term to maturity

(ii) Credit concentration of risk by industry sectors

(iii) Movements in allowances for credit impairment 184

(iv) Allowances for credit impairment by industry sectors 185-186

(c) Other Assets 187

(d) Deposits

(i) Personal, business and governments

(ii) Banks

(e) Other liabilities 188

(f) Contingent liabilities

(i) Instruments

(ii) Commitments

(iii) Tax assessment

(iv) Other

(g) Other income 189

(i) Fee income and commissions

(ii) Dividend income

(h) Allowance for credit impairment

continued

Notes to the Financial Statementsfor the year ended 30th June 2008


1. Accounting Policies The principal accounting policies adopted in the preparation of these financial statements are set out below: (a) Basis of presentation

The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and instructions, Guidelines and Guidance notes issued by the Bank of Mauritius, in so far as the operations of the Bank are concerned. Where necessary, comparative figures have been amended to conform with changes in presentation, or in accounting policies in the current year. 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 2008 that the Group has not early adopted.

Except for revised IFRS 3, ‘Business Combinations, revised IAS 27, ‘Consolidated and separate financial statements’, IFRS 8, ‘Operating segments’, revised IAS 1, ‘Presentation of Financial Statements’, the amendment to IAS23 Borrowing costs’, and the amendment to IAS 32 relating to puttable instruments, these standards, amendments and interpretations are not relevant to the Group’s operations.

IFRS 8 and the revised IAS 1 are disclosure requirements only and will not, when adopted, affect the results of the Group.

The amendment to IAS 23 eliminates the alternative treatment of expensing borrowings costs on qualifying assets. The revised IAS 1 affects the presentation of owner changes in equity and of comprehensive income.

Revised IFRS 3 carries forward the requirements of its predecessor to apply the acquisition method (previously referred to as the purchase method) to account for all business combinations and the identifiability criteria for recognizing an intangible asset separately from goodwill.

The approach of revised IAS 27 to consolidation has not changed. Some changes have been made to the allocation of losses to Non Controlling Interests (previously minority interest). Changes have been made, amongst others, to the treatment of changes in ownership interests (after control of an equity is obtained, changes in the parent’s ownership interest are accounted for as equity transactions) and to the loss of control of subsidiaries (the remaining investment should be measured at fair value at the date that control is lost), with the resulting gain or loss taken through profit or loss.

(b) Basis of consolidation (1) Subsidiaries

The 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) Associates Investments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interests in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill. Equity accounting is discontinued when the carrying amount of the investment in an associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associates. The Group Income Statement reflects the Group’s share of post-tax profits of associates.



1. Accounting Policies (continued)

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 translationThe 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.

(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 instruments Financial 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.

continued



Accounting Policies (continued)

(i) Investment securities (continued)Investment securities are initially recognised at cost (which includes transaction costs). Available-for-sale listed financial assets are subsequently remeasured at fair value based on quoted bid prices. Fair values for unlisted equity securities are estimated using maintainable earnings or net assets bases refined to reflect the specific circumstances of the issuer. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in 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.

(j) Trading securities Trading securities are securities which were either acquired for generating a profit from short-term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit taking exists. Trading securities are initially recognised at cost, (which includes transaction costs) and measured at subsequent reporting dates at fair value. All related realised and unrealised gains and losses are recognised in the Income Statement for the year.

(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 equipment Property, plant and equipment are carried at historical cost or at revalued amounts less accumulated depreciation. Revaluation surpluses are credited to reserves. Any subsequent decrease is first charged to reserves. Thereafter, decreases are charged to the Income Statement to the extent that the decrease exceeds any amount formerly held in reserves in respect of the same asset.Land and buildings are revalued on a regular basis by qualified independent valuers.Depreciation is calculated to write down the cost or amount of the valuation of such assets to their residual values on a straight-line basis over their estimated useful lives as follows:

Buildings 50 years Computer and other equipment 5-10 years Other fixed assets 5-15 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are recognised as income or expense in the Income Statement.Repairs and renewals are charged to the Income Statement when the expenditure is incurred.

(n) Computer software development 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 the company is the lessor Finance 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 doudtful debts in respect of all identified impaired leases in the light of periodical reviews. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Operating 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.

(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 32 to the financial statements.

continued




(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 reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services within a particular economic environment (geographical segment) or in providing products or services which is subject to risks and rewards that are different from those of other segments (business segment). Segments with a majority of revenue earned from sales to external customers and whose gross income, operating profit or assets are 10 per cent or more of all the segments are reported separately.Inter segment services are charged at prime commercial rates. The Group’s results and assets relate predominantly to financial services within a particular economic environment and is mainly organised on a geographical basis.Detailed analyses of segment reporting are shown in note 33 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.



2. Financial Risk anagement (continued)

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.

Credit quality of loans and advancesGroup Bank

2008Rs M

2007Rs M

2006Rs M

2008Rs M

2007Rs M

2006Rs M

Neither past due nor impaired 70,313 60,416 52,598 64,758 55,578 49,119

Past due but not impaired (less than 90 days) 5,821 3,842 4,376 5,728 3,794 4,368

Impaired 4,692 4,832 4,750 4,509 4,725 4,652

Gross 80,826 69,090 61,724 74,995 64,097 58,139

Less allowances for credit impairment (3,196) (3,246) (3,359) (3,101) (3,158) (3,270)

Net 77,630 65,844 58,365 71,894 60,939 54,869

Fair value of collaterals of past due but not impaired loans 5,821 3,842 4,376 5,728 3,794 4,368

Fair value of collaterals of impaired loans 2,293 2,237 2,110 2,096 2,054 1,952

Maximum exposure to credit risk before collateral and other credit risk enhancements:

Group Bank

2008Rs M

2007Rs M

2006Rs M

2008Rs M

2007Rs M

2006Rs M

Credit risk exposures relating to on-balance sheet assets are as follows:

Balances with banks in Mauritius, banks abroad and interbank loans 17,085 16,444 12,204 15,517 14,178 10,842

Securities 7,846 7,504 7,574 6,223 5,305 5,014

Treasury and other eligible bills 14,993 5,748 10,790 14,663 5,269 9,861

Loans and advances to customers 80,826 69,091 61,724 74,995 64,097 58,139

Derivatives financial instruments 137 24 16 137 24 16

Other assets 2,117 2,014 1,956 1,783 1,771 1,601

Credit risk exposures relating to off-balance sheet assets are as follows:

Financial guarantees 36,461 25,892 16,708 34,242 24,664 15,888

Loans commitments and other credit related liabilities 6,001 4,488 4,623 5,816 4,365 4,485

Total 165,466 131,205 115,595 153,376 119,673 105,846

Loans and advances renegotiatedGroup Bank

2008Rs M

2007Rs M

2006Rs M

2008Rs M

2007Rs M

2006Rs M

Loans and advances renegotiated 283 583 766 276 515 430

Fair value of collaterals 283 583 766 276 515 430

continued



Types of collateral and credit enhancements held at year endFixed chargeFloating chargeLien on vehiclePledge of shares, ‘Parts’Fixed Deposit Assignment of life policyContinuing guaranteeBank GuaranteeLetter of comfort

(c) Market risk

Market risk arises from activities undertaken in or impacted by financial markets generally. This includes the risk of gain or loss arising from the movement in market price of a financial asset or liability as well as ancillary risks such as liquidity and funding risk. The market risk management policies at the Bank are set by the Risk Committee of the Board and executive management of this class of risk is delegated to the Asset and Liability Committee (ALCO). The Market Risk Business Unit (MRBU) plays a central role in monitoring and controlling market risk activities. It is the aim of MRBU to ensure that market risk policies and guidelines are being effectively complied with and that limits are being observed. A major methodology which MCB uses for the measurement of market price risk is Value-at-Risk (VaR). VaR is the statistical representation of financial risk, expressed as a number, based on consistent modelling of past data and/or simulation of possible future movements, applied to a particular risk position, asset, or portfolio. The VaR model used by the Bank is based upon a 99 percent one-tailed confidence level and assumes a ten-day holding period, with market data taken from the previous two years.

The Group and the Bank are exposed to equity securities price risk because of investments held and classified as available-for-sale financial assets. The table below summarises the impact of increases/decreases in fair value of the investments on the Group’s and the Bank’s equity. The analysis is based on the assumption that the fair value had increased/decreased by 5%.

(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.

VaR Analysis - Foreign Exchange Risk (Group)

As at 30 June Average Maximum Minimum

2008 (Rs M) (15.24) (13.44) (20.30) (6.45)

2007 (Rs M) (11.29) (12.61) (16.04) (10.57)

VaR Analysis - Foreign Exchange Risk (Bank)

As at 30 June Average Maximum Minimum

2008 (Rs M) (10.30) (9.57) (17.09) (2.89)

2007 (Rs M) (7.07) (7.33) (10.42) (4.41)

Group Bank

2008Rs M

2007Rs M

2006Rs M

2008Rs M

2007Rs M

2006Rs M

Available-for-sale financial assets 173 177 91 59 67 31




2. Financial Risk Management (continued)

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

GroupAt June 30, 2008 EURO

RS '000USD

RS '000GBP

RS '000MUR

RS '000OTHERRS '000

TOTAL RS '000 Assets

Cash and balances with Central Banks 34,980 20,168 12,109 4,360,266 6,707 4,434,230

Balances with banks and interbank loans 7,006 44,316 - - - 51,322

Balances with banks abroad 3,307,420 4,544,282 2,082,370 - 1,097,768 11,031,840

Securities - - - 20,885,824 - 20,885,824

Other investments - available-for-sale 102,630 554,862 - 529,376 846 1,187,714

- derivative financial instruments 109,563 13,924 7,972 5,405 397 137,261

Investments in associates 2,534,295 - - 3,488,399 - 6,022,694

Loans 6,056,628 12,905,792 328,336 55,478,416 225,877 74,995,049

Goodwill & other intangible assets - - - 202,246 - 202,246

Property, plant and equipment - - - 2,458,313 - 2,458,313

Deferred tax assets - - - 13,153 - 13,153

Other assets 59,922 101,263 21,585 1,589,861 10,011 1,782,642

12,212,444 18,184,607 2,452,372 89,011,259 1,341,606 123,202,288

Less allowances for credit impairment (3,101,358)

120,100,930

Subsidiaries 12,870,731

Total assets 132,971,661

Liabilities

Deposits 10,841,945 13,999,542 2,756,804 68,940,971 1,006,763 97,546,025

Borrowings from Bank of Mauritius - - - 449,630 - 449,630

Borrowings from other banks in Mauritius and banks abroad 1,358 2,503,275 - 50,000 493 2,555,126

Subordinated debt - 1,237,128 - - - 1,237,128

Other liabilities 150,265 422,807 50,643 2,509,820 53,780 3,187,315

Outstanding lease obligations - - - 554 - 554

Proposed dividend - - - 687,981 - 687,981

Current tax liabilities - - - 347,643 - 347,643

10,993,568 18,162,752 2,807,447 72,986,599 1,061,036 106,011,402


Total liabilities 114,977,271

Net on-balance sheet position 1,218,876 21,855 (355,075) 16,024,660 280,570 17,190,886



17,994,390

Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,262 295,026 14,217,665

Credit commitments 4,486,351 11,286,168 99,867 9,146,393 821,703 25,840,482


42,551,091

continuedfor the year ended 30th June 2008





BankAt June 30, 2008 EURO

RS '000USD

RS '000GBP

RS '000MUR

RS '000OTHERRS '000

TOTAL RS '000 Assets

Cash and balances with Central Banks 34,980 20,168 12,109 4,360,266 6,707 4,434,230

Balances with banks and interbank loans 7,006 44,316 - - - 51,322

Balances with banks abroad 3,307,420 4,544,282 2,082,370 - 1,097,769 11,031,840

Securities - - - 20,885,824 - 20,885,824

Other investments - available-for-sale 102,630 554,862 - 529,376 846 1,187,714

- derivative financial instruments 109,563 13,924 7,972 5,405 397 137,261

Investment in associates 438,403 - - 447,183 - 885,586

Investment in subsidiaries - 269,702 - 2,121,710 - 2,391,412

Loans 6,056,628 12,905,792 328,336 55,478,416 225,877 74,995,049

Goodwill & other intangible assets - - - 202,246 - 202,246

Property, plant and equipment - - - 2,458,313 - 2,458,313

Deferred tax assets - - - 13,153 - 13,153

Other assets 59,922 101,263 21,585 1,589,861 10,011 1,782,642

10,116,552 18,454,309 2,452,372 88,091,753 1,341,606 120,456,592



Liabilities

Deposits 10,841,945 13,999,542 2,756,804 68,940,971 1,006,763 97,546,025

Borrowings from Bank of Mauritius - - - 449,630 - 449,630

Borrowings from other banks in Mauritius and banks abroad 1,358 2,503,275 - 50,000 493 2,555,126

Subordinated debt - 1,237,128 - - - 1,237,128

Other liabilities 150,265 422,807 50,643 2,509,820 53,780 3,187,315

Outstanding lease obligations - - - 554 - 554

Proposed dividend - - - 687,981 - 687,981

Current tax liabilities - - - 347,643 - 347,643

Total liabilities 10,993,568 18,162,752 2,807,447 72,986,599 1,061,036 106,011,402

Net on-balance sheet position (877,016) 291,557 (355,075) 15,105,154 280,570 14,445,190


11,343,832

Off balance sheet net notional position 4,688,299 4,440,709 240,369 4,553,262 295,026 14,217,665

Credit commitments 4,486,351 11,286,168 99,867 9,146,393 821,703 25,840,482





Group EURORS '000

USDRS '000

GBPRS '000

MURRS '000

OTHERRS '000

TOTAL RS '000 At June 30, 2007

Total assets 9,023,007 14,280,142 1,903,246 73,969,768 777,635 99,953,798


Net on-balance sheet position 2,376,542 1,427,925 (532,264) 11,865,470 (405,133) 14,732,540


11,574,236


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


30,379,843

Bank At June 30, 2007

Total assets 7,251,899 14,280,142 1,903,246 73,461,397 777,635 97,674,319


Net on-balance sheet position 605,434 1,427,925 (532,264) 11,357,099 (405,133) 12,453,061


9,294,757

Off balance sheet net notional position (106) 1,728 1,720 5,646 703 9,691


continued





Group EURORS '000

USDRS '000

GBPRS '000

MURRS '000

OTHERRS '000

TOTAL RS '000 At June 30, 2006

Total assets 6,335,566 11,069,003 2,190,767 71,680,472 616,200 91,892,008

Total liabilities 5,065,137 11,342,829 2,132,230 59,547,336 475,135 78,562,667

Net on-balance sheet position 1,270,429 (273,826) 58,537 12,133,136 141,065 13,329,341


10,058,854


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, 2006

Total 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


9,440,905

Off balance sheet net notional position (1,976) 112 817 7,192 1,661 7,806


(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.




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

Group Up to 1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-interest bearing RS '000

Total RS '000

At June 30, 2008Assets

Cash and balances with Central Banks - - - - - - 4,434,230 4,434,230

Balances with banks and interbank loans 51,322 - - - - - - 51,322

Balances with banks abroad 9,249,102 1,590,128 10,440 - - - 182,170 11,031,840

Securities 799,859 2,777,409 3,711,102 7,815,012 2,942,667 2,839,775 - 20,885,824

Other investments - available-for-sale 272,875 - - - - - 914,839 1,187,714

- derivative financial instruments - - - - - - 137,261 137,261

Investments in associates - 438,403 - - - - 5,584,291 6,022,694

Loans 59,285,938 8,187,088 3,309,278 1,103,846 235,988 2,474,559 398,352 74,995,049

Goodwill & other intangible assets - - - - - - 202,246 202,246

Property, plant and equipment - - - - - - 2,458,313 2,458,313

Deferred tax assets - - - - - - 13,153 13,153

Other assets - - - - - - 1,782,642 1,782,642

69,659,096 12,993,028 7,030,820 8,918,858 3,178,655 5,314,334 16,107,497 123,202,288


120,100,930



Liabilities

Deposits 87,128,269 1,222,802 466,318 593,758 492,142 106,825 7,535,911 97,546,025

Borrowings from Bank of Mauritius - - - 163,206 57,524 228,900 - 449,630

Borrowings from other banks in Mauritius and banks abroad 94,816 822,415 1,637,250 - - - 645 2,555,126

Subordinated debt - - 1,237,128 - - - - 1,237,128

Other liabilities 93,756 - - - - 5,750 3,087,809 3,187,315

Outstanding lease obligations 554 - - - - - - 554

Proposed dividend - - - - - - 687,981 687,981

Current tax liabilities - - - - - - 347,643 347,643

87,317,395 2,045,217 3,340,696 756,964 549,666 341,475 11,659,989 106,011,402



On balance sheet interest sensitivity gap (17,658,299) 10,947,811 3,690,124 8,161,894 2,628,989 4,972,859 4,447,508 17,190,886



17,994,390

continued




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

Bank Up to 1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-interest bearing RS '000

Total RS '000

At June 30, 2008Assets

Cash and balances with Central Banks - - - - - - 4,434,230 4,434,230


Balances with banks abroad 9,249,102 1,590,128 10,440 - - - 182,170 11,031,840

Securities 799,859 2,777,409 3,711,102 7,815,012 2,942,667 2,839,775 - 20,885,824


- derivative financial instruments - - - - - - 137,261 137,261

Investment in associates - 438,403 - - - - 447,183 885,586

Investment in subsidiaries - 208,669 - - - - 2,182,743 2,391,412

Loans 59,285,938 8,187,088 3,309,278 1,103,846 235,988 2,474,559 398,352 74,995,049




Other assets - - - - - - 1,782,642 1,782,642

69,659,096 13,201,697 7,030,820 8,918,858 3,178,655 5,314,334 13,153,132 120,456,592



Liabilities

Deposits 87,128,269 1,222,802 466,318 593,758 492,142 106,825 7,535,911 97,546,025


Borrowings from other banks in Mauritius and banks abroad 94,816 822,415 1,637,250 - - - 645 2,555,126

Subordinated debt - - 1,237,128 - - - - 1,237,128

Other liabilities 93,756 - - - - 5,750 3,087,809 3,187,315


Proposed dividend - - - - - - 687,981 687,981

Current tax liabilities - - - - - - 347,643 347,643

Total liabilities 87,317,395 2,045,217 3,340,696 756,964 549,666 341,475 11,659,989 106,011,402



11,343,832




(e) Interest Rate Risk (continued) Interest sensitivity of assets and liabilities- repricing analysis (continued)


1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-interest items

RS '000 Total

RS '000 At June 30, 2007

Total assets 60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 14,693,176 99,953,798


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


11,574,236


14,914,388

BankAt June 30, 2007

Total assets 60,097,693 13,011,412 1,676,714 4,562,874 1,881,408 4,030,521 12,413,697 97,674,319


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

(e) Interest Rate Risk (continued) Interest sensitivity of assets and liabilities- repricing analysis (continued)

GroupUp to

1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-interest items

RS '000 Total

RS '000

At June 30, 2006

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




10,058,854


12,450,526


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




9,440,905

continued




(f) Liquidity risk

Liquidity risk can be defined as the risk of a funding crisis, notably a lack of funds to meet immediate or short term obligations in a cost-effective way.

There are two aspects of liquidity risk management a) cash flow management to ensure a balanced inflow and outflow of funds on any one specific day b) the maintenance of a stock of liquid assets to ensure that the Bank has a constantly available store of value, which can be utilised in the event of an unexpected outflow of funds. The MCB has a documented liquidity policy compliant with the Bank of Mauritius Guideline on Liquidity. The Bank Treasury manages liquidity in accordance with this policy, on a day-to-day basis.

Maturities of assets and liabilities

GroupUp to

1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-maturity items

RS '000 Total

RS '000

At June 30, 2008

Assets

Cash and balances with Central Banks 3,234,988 - - - - - 1,199,242 4,434,230


Balances with banks abroad 9,419,999 859,065 10,440 - 731,063 - 11,273 11,031,840

Securities 799,859 2,777,409 3,711,102 7,815,012 2,942,667 2,839,775 - 20,885,824


- derivative financial instruments 49,894 18,496 40,779 26,634 1,458 - - 137,261

Investments in associates - - - - - - 6,022,694 6,022,694

Loans 26,877,823 2,891,457 1,313,923 1,228,098 7,930,755 34,752,993 - 74,995,049




Other assets - - - - - - 1,782,642 1,782,642

40,706,760 6,546,427 5,076,244 9,069,744 11,605,943 37,592,768 12,604,402 123,202,288


120,100,930



Liabilities

Deposits 81,299,204 2,162,051 1,488,223 2,963,367 6,858,681 2,774,499 - 97,546,025


Borrowings from other banks in Mauritius and banks abroad 94,816 3,790 - 818,625 1,637,250 - 645 2,555,126

Subordinated debt - - - - - 1,237,128 - 1,237,128

Other liabilities - - - - - - 3,187,315 3,187,315


Proposed dividend - 687,981 - - - - - 687,981

Current tax liabilities - - - 347,643 - - - 347,643

Total liabilities 81,394,574 2,853,822 1,488,223 4,292,841 8,553,455 4,240,527 3,187,960 106,011,402


114,977,271

Net liquidity gap (40,687,814) 3,692,605 3,588,021 4,776,903 3,052,488 33,352,241 9,416,442 17,190,886



17,994,390




(f) Liquidity risk (continued) Maturities of assets and liabilities (continued)

BankUp to

1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-maturity items

RS '000 Total

RS '000

At June 30, 2008

Assets

Cash and balances with Central Banks 3,234,988 - - - - - 1,199,242 4,434,230


Balances with banks abroad 9,419,999 859,065 10,440 - 731,063 - 11,273 11,031,840

Securities 799,859 2,777,409 3,711,102 7,815,012 2,942,667 2,839,775 - 20,885,824


- derivative financial instruments 49,894 18,496 40,779 26,634 1,458 - - 137,261

Investment in associates - - - - - - 885,586 885,586

Investment in subsidiaries - - - - - 208,669 2,182,743 2,391,412

Loans 26,877,823 2,891,457 1,313,923 1,228,098 7,930,755 34,752,993 - 74,995,049




Other assets - - - - - - 1,782,642 1,782,642

40,706,760 6,546,427 5,076,244 9,069,744 11,605,943 37,801,437 9,650,037 120,456,592



Liabilities

Deposits 81,299,204 2,162,051 1,488,223 2,963,367 6,858,681 2,774,499 - 97,546,025


Borrowings from other banks in Mauritius and banks abroad 94,816 3,790 - 818,625 1,637,250 - 645 2,555,126

Subordinated debt - - - - - 1,237,128 - 1,237,128

Other liabilities - - - - - - 3,187,315 3,187,315


Proposed dividend - 687,981 - - - - - 687,981

Current tax liabilities - - - 347,643 - - - 347,643


Net liquidity gap (40,687,814) 3,692,605 3,588,021 4,776,903 3,052,488 33,560,910 6,462,077 14,445,190


11,343,832

continued





GroupUp to

1 monthRS '000

1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-maturity items

RS '000 Total

RS '000

At June 30, 2007

Total assets 32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 11,633,971 99,953,798


Net liquidity gap (27,202,553) 5,953,890 207,796 3,374,261 1,239,730 22,772,038 8,387,378 14,732,540


11,574,236


14,914,388


Total assets 32,253,460 8,843,360 1,715,715 5,964,558 7,636,656 31,906,078 9,354,492 97,674,319


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


9,294,757






1-3monthsRS '000

3-6monthsRS '000

6-12monthsRS '000

1-3years

RS '000

Over 3years

RS '000

Non-maturity items

RS '000 Total

RS '000 At June 30, 2006

Total assets 29,399,493 5,176,327 2,908,134 4,734,232 9,504,811 31,173,727 8,995,284 91,892,008

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

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 5,457,451 12,711,392


9,440,905

(g) Fair values of financial assets and liabilities

The fair values of those financial assets and liabilities not presented on the Group's and the Bank's balance sheets at their fair valuesare not materially different from their carrying amounts.

continued



3. Cash and Balances with Central Banks

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Cash and balances with Central Banks 5,702,490 6,181,829 5,472,555 4,360,264 3,988,807 3,979,138

Foreign currency notes and coin 73,966 53,648 36,553 73,966 53,648 36,553

5,776,456 6,235,477 5,509,108 4,434,230 4,042,455 4,015,691

4. Due from other Banks

Balances with banks and interbank loans 236,869 345,645 214,156 51,322 147,802 204,565

Balances with banks abroad 11,072,046 9,863,254 6,480,484 11,031,840 9,987,990 6,622,201

11,308,915 10,208,899 6,694,640 11,083,162 10,135,792 6,826,766



5. Securities

Remaining term to maturity

2008 2007 2006

Within 3 monthsRS'000

3 - 6 monthsRS'000

6 - 12 monthsRS'000

1 - 5 yearsRS'000

Over 5 yearsRS'000

TotalRS'000

TotalRS'000

TotalRS'000

GROUPGovernment stocks 487,445 99,898 297,652 5,920,202 1,040,738 7,845,935 7,503,994 7,573,975

Treasury bills 3,757,579 3,611,204 7,624,499 - - 14,993,282 5,748,188 10,790,291

4,245,024 3,711,102 7,922,151 5,920,202 1,040,738 22,839,217 13,252,182 18,364,266

BANKGovernment stocks 149,780 99,898 190,513 4,790,019 992,423 6,222,633 5,304,878 5,014,336

Treasury bills 3,427,488 3,611,204 7,624,499 - - 14,663,191 5,268,901 9,860,502

3,577,268 3,711,102 7,815,012 4,790,019 992,423 20,885,824 10,573,779 14,874,838

continued



6. Loans

(a) Loans comprise the following:GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Personal and credit cards 14,933,346 14,761,071 11,385,708 14,579,503 12,969,386 11,085,228

Business 57,233,320 47,550,037 44,595,234 51,849,602 44,475,277 41,316,947

Governments 93,110 126,636 6,366 - - -

Entities outside Mauritius 8,565,944 6,652,786 5,736,880 8,565,944 6,652,786 5,736,880

80,825,720 69,090,530 61,724,188 74,995,049 64,097,449 58,139,055 Less:Allowances for credit impairment (3,196,374) (3,245,882) (3,358,912) (3,101,358) (3,158,304) (3,270,487)

77,629,346 65,844,648 58,365,276 71,893,691 60,939,145 54,868,568

Finance lease receivables included in Group loans amount to Rs 2,001 million as at 30th June 2008 (2007 : Rs 1,850 million, 2006 : nil).


Within 3 months 31,332,254 26,266,750 23,855,412 29,769,280 24,753,592 22,585,034

Over 3 months and up to 6 months 1,526,766 182,627 660,078 1,313,923 591,112 627,017

Over 6 months and up to 1 year 2,059,240 2,972,256 1,522,068 1,228,098 2,299,621 797,568

Over 1 year and up to 5 years 20,178,747 17,324,752 14,742,212 17,395,675 14,983,433 13,646,577

Over 5 years 25,728,713 22,344,145 20,944,418 25,288,073 21,469,691 20,482,859

80,825,720 69,090,530 61,724,188 74,995,049 64,097,449 58,139,055

(c) Movements in allowances for credit impairment

2008 2007 2006

Specific RS'000

Portfolio RS'000

Total RS'000 RS'000 RS'000

GROUPProvisions at 1st July 2007 1,992,388 452,628 2,445,016 2,437,132 2,311,098

Effect of consolidating Fincorp Group as a subsidiary - - - 18,276 -

Translation differences in respect of subsidiaries 3,903 - 3,903 7,812 88

Provisions made during the year 365,571 84,995 450,566 432,427 407,503

Provisions released during the year (46,897) - (46,897) (64,083) (85,806)

Amounts written off (285,997) - (285,997) (386,548) (195,751)

Provisions at 30th June 2008 2,028,968 537,623 2,566,591 2,445,016 2,437,132

Interest suspense 629,783 - 629,783 800,866 921,780

Provisions and interest suspense at30th June 2008 2,658,751 537,623 3,196,374 3,245,882 3,358,912

BANKProvisions at 1st July 2007 1,936,510 438,800 2,375,310 2,369,077 2,250,130

Provisions made during the year 328,170 81,000 409,170 396,992 382,922

Provisions released during the year (22,973) - (22,973) (33,978) (68,224)

Amounts written off (264,548) - (264,548) (356,781) (195,751)

Provisions at 30th June 2008 1,977,159 519,800 2,496,959 2,375,310 2,369,077

Interest suspense 604,399 - 604,399 782,994 901,410

Provisions and interest suspense at30th June 2008 2,581,558 519,800 3,101,358 3,158,304 3,270,487



6. Loans (continued)

(d) Allowances for credit impairment by industry sectors

2008 2007 2006

Gross amount of loansRS'000

Non performing loans

RS'000

Specific provisionRS'000

Portfolio provisionRS'000

Total provisionRS'000 RS'000 RS'000

GROUPAgriculture and fishing 6,060,422 110,384 47,165 54,634 101,799 106,719 83,168

Manufacturing 9,658,768 859,286 539,673 80,748 620,421 528,080 685,239

of which EPZ 4,264,953 393,260 247,251 50,977 298,228 243,148 388,051

Tourism 13,443,722 67,072 34,822 19,302 54,124 118,671 80,299

Transport 769,683 35,718 9,520 2,910 12,430 19,334 17,137

Construction 12,598,875 772,670 343,981 89,666 433,647 493,699 486,768

Traders 11,321,924 1,168,081 766,725 89,324 856,049 899,889 855,952

Information and communicationtechnology 346,280 29,852 23,317 2,145 25,462 18,381 17,690

Financial and business services 9,375,937 56,246 30,163 32,198 62,361 47,219 74,035

Infrastructure 2,560,126 52 51 3,623 3,674 3,540 2,404

Personal 7,150,606 1,190,106 620,291 107,308 727,599 743,157 696,997

of which credit cards 421,276 112,027 89,674 15,500 105,174 92,510 86,900

Professional 324,117 134,246 74,890 3,917 78,807 80,833 59,507

Media, entertainment andrecreational activities 575,009 58,436 55,751 22,454 78,205 57,774 144,484

Special certificate holders 2,669,108 90,811 19,514 3,274 22,788 16,555 4,881

Others 3,971,143 118,838 92,888 26,120 119,008 112,031 150,351

80,825,720 4,691,798 2,658,751 537,623 3,196,374 3,245,882 3,358,912

BANKAgriculture and fishing 5,509,888 98,159 44,022 53,300 97,322 83,131 80,818

Manufacturing 8,771,161 805,752 514,142 75,900 590,042 509,105 654,449

of which EPZ 3,964,372 390,178 244,392 49,300 293,692 240,542 386,987

Tourism 12,743,881 63,191 33,425 18,300 51,725 114,330 79,640

Transport 493,460 33,969 9,164 2,100 11,264 18,256 13,159

Construction 12,020,703 762,952 340,964 89,100 430,064 491,942 486,131

Traders 9,951,184 1,074,591 718,554 87,400 805,954 876,559 821,928

Information and communicationtechnology 267,125 29,570 23,142 1,700 24,842 17,862 17,690

Financial and business services 9,250,116 55,091 29,051 31,200 60,251 43,521 72,862

Infrastructure 2,482,652 52 51 2,900 2,951 3,135 2,404

Personal 6,951,928 1,189,789 620,091 106,600 726,691 742,037 693,984

of which credit cards 421,276 112,027 89,674 15,500 105,174 92,510 86,900

Professional 295,926 134,246 74,890 3,700 78,590 80,697 59,057

Media, entertainment andrecreational activities 494,241 57,677 55,201 21,800 77,001 56,920 144,484

Special certificate holders 2,530,411 90,811 19,514 2,300 21,814 16,204 4,881

Others 3,232,373 113,074 99,347 23,500 122,847 104,605 139,000

74,995,049 4,508,924 2,581,558 519,800 3,101,358 3,158,304 3,270,487

continued



6. Loans (continued)

(e) Credit concentration of risk by industry sectors

Total credit facilities including guarantees, acceptances and other similar commitments extended by the Bank to any one customer or group of closely-related customers for amounts aggregating more than 15% of its capital base, classified by industry sectors.

GROUP

2008RS'000

2007RS'000

2006RS'000

Agriculture and fishing 3,122,423 2,612,091 2,553,588

Manufacturing 4,762,089 5,533,978 4,698,244

of which EPZ 2,129,926 2,700,609 2,687,849

Tourism 6,719,512 2,679,985 2,544,481

Transport - 832 19,709

Construction/Property 1,341,306 1,359,659 568,516

Traders 690,304 6,647,451 2,332,708

Entities outside Mauritius 585,236 1,617,382 1,619,602

Others 2,417,788 2,853,427 1,335,576

19,638,658 23,304,805 15,672,424

(f) Loans outside Mauritius

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

(i) Banks 1,268,060 548,346 425,537 1,268,060 548,346 425,537

(ii) Government 1,204,078 1,086,262 754,722 1,204,078 1,086,262 754,722

(iii) Other entities 6,093,806 5,018,178 4,556,621 6,093,806 5,018,178 4,556,621

8,565,944 6,652,786 5,736,880 8,565,944 6,652,786 5,736,880



7. Other Investments

(a) Available-for-sale

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Quoted

Official list : shares 453,962 876,033 394,665 2,104 - -

Development and Enterprise Market/Over The Counter : shares 189,107 143,036 98,548 - - -

Unquoted

Shares 2,826,762 2,515,932 1,331,718 1,185,610 1,334,009 622,177

3,469,831 3,535,001 1,824,931 1,187,714 1,334,009 622,177

(b) Derivative financial instruments

The Group utilises the following derivative instruments to manage its exposure to foreign currency risk:Currency forwards represent commitments to purchase foreign and domestic currency, including undelivered spot transactions.Currency swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies. Except for certain currency swaps, no exchange of principal takes place. The Group’s credit risk represents the potential cost to replace the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Group assesses counterparties using the same techniques as for its lending activities.

The fair values of derivative instruments held are set out below:

GROUP & BANK Contractual/NominalAmountRS'000

Fair value assetsRS'000

Fair valueliabilitiesRS'000Derivatives held-for-trading

Year ended 30th June 2008

Foreign Exchange Derivatives

Currency forwards 5,257,531 90,847 83,070

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

14,217,663 137,261 95,973




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

continued



8. Investments in Associates

The Group's interest in its principal associates are as follows:

BANK

Country of

incorporation AssetsRS'000

LiabilitiesRS'000

Minority InterestRS'000

RevenuesRS'000

ProfitRS'000

Holding%

CostRS'000


Banque Française Commerciale O.I. France 66,675,738 62,645,941 - 4,473,159 561,578 49.99 447,184

Promotion and Development Ltd Mauritius 9,363,996 1,024,865 1,091,528 440,640 696,739 46.43 -

Caudan Development Ltd Mauritius 3,936,353 1,159,045 - 329,042 738,895 5.34 -

447,184

Subordinated loan to associate 438,402

885,586



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


875,530



Fincorp Investment Ltd Mauritius 5,455,767 2,536,097 - 270,759 176,645 49.51 24,735

471,919


872,151

Except for Banque Française Commerciale Ocean Indien which is unquoted, the other associates are quoted.

BANK

2008RS'000

2007RS'000

2006RS'000

Market value of quoted investment - - 654,399

Cost of unquoted investment 447,184 447,184 447,184

447,184 447,184 1,101,583

GROUP

2008RS'000

2007RS'000

2006RS'000

Group share of net assets 5,527,407 4,795,877 2,799,715

Goodwill 56,885 56,885 56,885

Subordinated loan to associate 438,402 428,346 400,232

6,022,694 5,281,108 3,256,832



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continued



10. Goodwill and Other Intangible Assets

(a) Goodwill

GROUP

2008RS'000

2007RS'000

2006RS'000

At 1st July 2007 33,501 33,501 33,501

Investment in subsidiary 19,348 - -

At 30th June 2008 52,849 33,501 33,501

(b) Other intangible assets

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Computer Software

Cost

At 1st July 2007 1,124,987 1,075,499 950,257 1,079,658 1,058,616 936,722

Transfer from property, plant and equipment - 4,421 10,836 - - 10,836

Additions 84,140 33,471 114,337 70,973 30,752 111,142

Disposals (5,775) (9,721) (84) (5,257) (9,710) (84)

Exchange adjustment (1,496) 1,199 153 - - -

Effect of consolidating Fincorp Group

as a subsidiary - 20,118 - - - -

At 30th June 2008 1,201,856 1,124,987 1,075,499 1,145,374 1,079,658 1,058,616

Amortisation

At 1st July 2007 870,186 754,889 657,558 850,457 744,478 648,385

Transfer from property, plant and equipment - 1,753 - - - -

Disposals adjustment (3,961) (24) (65) (3,443) (24) (65)

Charge for the year 104,897 110,935 97,178 96,114 106,003 96,158

Exchange adjustment (1,252) 309 218 - - -

Effect of consolidating Fincorp Group

as a subsidiary - 2,324 - - - -

At 30th June 2008 969,870 870,186 754,889 943,128 850,457 744,478

Net book value 231,986 254,801 320,610 202,246 229,201 314,138

TOTAL 284,835 288,302 354,111 202,246 229,201 314,138



11. Property, Plant and Equipment

Assets underfinanceleasesRS'000

Landand

buildingsRS'000

Computerand otherequipment

RS'000

Otherfixed

assetsRS'000

Total

RS'000

GROUPCost & valuation

At 1st July 2007 11,457 2,640,645 1,779,528 912,734 5,344,364

Additions - 144,348 189,440 195,783 529,571

Disposals (142) (4,300) (141,712) (77,379) (223,533)

Exchange adjustment - (110,554) (34,508) (5,801) (150,863)

Transfer (7,954) - 8,452 (498) -

At 30th June 2008 3,361 2,670,139 1,801,200 1,024,839 5,499,539

Accumulated depreciation

At 1st July 2007 10,181 333,072 1,172,151 385,891 1,901,295

Charge for the year 591 41,631 222,543 172,058 436,823

Disposal adjustment (142) (343) (141,006) (53,514) (195,005)

Exchange adjustment - (9,708) (4,260) (710) (14,678)

Transfer (7,954) - 8,269 (315) -

At 30th June 2008 2,676 364,652 1,257,697 503,410 2,128,435

Net book values

At 30th June 2008 685 2,305,487 543,503 521,429 3,371,104

BANKCost & valuation

At 1st July 2007 10,835 1,991,352 1,591,070 469,892 4,063,149

Additions - 123,424 169,196 59,511 352,131

Disposals (142) (4,300) (112,961) (23,132) (140,535)

Transfer (7,954) - 7,954 - -

At 30th June 2008 2,739 2,110,476 1,655,259 506,271 4,274,745


At 1st July 2007 9,739 249,768 1,109,691 244,171 1,613,369

Charge for the year 548 28,115 206,461 100,837 335,961


Transfer (7,954) - 7,954 - -

At 30th June 2008 2,191 277,540 1,211,840 324,861 1,816,432

Net book values

At 30th June 2008 548 1,832,936 443,419 181,410 2,458,313

In line with IAS 16, the Bank reviewed the residual value, the useful life and the depreciation method of Property, Plant and Equipment in use at balance sheet date. This exercise resulted in an additional charge of Rs'000 107,614 which is included in the current year's depreciation expense.

continued



11. Property, Plant and Equipment (continued)


Landand

buildingsRS'000


RS'000

Otherfixed

assetsRS'000

Total

RS'000


At 1st July 2006 18,613 2,605,861 1,549,173 478,055 4,651,702

Additions - 170,305 266,764 164,931 602,000

Disposals (67) (79,379) (54,926) (42,670) (177,042)

Exchange adjustment - (25,672) (20,617) (2,877) (49,166)

Effect of consolidating Fincorp Group as a subsidiary - - 5,459 315,721 321,180

Acquisition of subsidiary - - 111 - 111

Transfer to other intangible assets - - (2,848) (1,573) (4,421)

Transfer (7,089) (30,470) 36,412 1,147 -

At 30th June 2007 11,457 2,640,645 1,779,528 912,734 5,344,364


At 1st July 2006 15,029 289,404 1,059,615 251,069 1,615,117

Charge for the year 2,306 56,076 165,079 80,269 303,730

Disposal adjustment (65) (11,823) (53,828) (33,450) (99,166)

Exchange adjustment - (585) (8,327) (1,648) (10,560)

Effect of consolidating Fincorp Group as a subsidiary - - 4,607 89,267 93,874

Acquisition of subsidiary - - 53 - 53

Transfer to other intangible assets - - (990) (763) (1,753)

Transfer (7,089) - 5,942 1,147 -

At 30th June 2007 10,181 333,072 1,172,151 385,891 1,901,295

Net book values

At 30th June 2007 1,276 2,307,573 607,377 526,843 3,443,069


At 1st July 2006 17,991 1,834,904 1,415,496 400,910 3,669,301

Additions - 156,858 224,061 96,400 477,319

Disposals (67) (410) (54,429) (28,565) (83,471)

Transfer (7,089) - 5,942 1,147 -

At 30th June 2007 10,835 1,991,352 1,591,070 469,892 4,063,149


At 1st July 2006 14,726 222,789 1,014,224 223,785 1,475,524



Transfer (7,089) - 5,942 1,147 -

At 30th June 2007 9,739 249,768 1,109,691 244,171 1,613,369

Net book values

At 30th June 2007 1,096 1,741,584 481,379 225,721 2,449,780





Landand

buildingsRS'000


RS'000

Otherfixed

assetsRS'000

Total

RS'000


At 1st July 2005 29,023 2,135,225 1,420,832 451,688 4,036,768

Additions - 187,772 256,598 49,103 493,473

Disposals (11) (2,632) (131,523) (46,611) (180,777)

Exchange adjustment - 32,740 5,105 1,156 39,001

Acquisition of subsidiary - 252,756 - 21,317 274,073

Transfer 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


At 1st July 2005 18,897 203,349 1,030,009 246,552 1,498,807


Disposal adjustment (8) - (128,744) (50,551) (179,303)

Exchange adjustment - 2,775 3,057 399 6,231

Acquisition of subsidiary - 46,476 - 6,779 53,255

Transfer (7,598) - 7,198 400 -

At 30th June 2006 15,029 289,404 1,059,615 251,069 1,615,117

Net book values

At 30th June 2006 3,584 2,316,457 489,558 226,986 3,036,585


At 1st July 2005 28,401 1,762,262 1,295,579 374,604 3,460,846

Additions - 72,642 185,979 39,963 298,584

Disposals (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


At 1st July 2005 18,734 200,239 942,585 196,353 1,357,911


Disposal 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 1,475,524

Net book values

At 30th June 2006 3,265 1,612,115 401,272 177,125 2,193,777

continued




If the land and buildings were stated on the historical basis, the amounts would be as follows :

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Cost 4,945,898 4,648,539 3,955,870 3,721,104 3,367,324 2,973,469

Accumulated depreciation (2,052,892) (1,809,816) (1,531,845) (1,740,889) (1,521,890) (1,392,252)

2,893,006 2,838,723 2,424,025 1,980,215 1,845,434 1,581,217

12. Deferred Tax (Liabilities)/Assets

The movement on the deferred income tax account is as follows :-

At 1st July 2007 (5,888) 31,364 84,769 15,096 31,647 84,284

Effect of reduction in tax rate (5,032) (3,187) - (5,032) (3,187) -

Exchange adjustments in respect of foreign subsidiaries 4,121 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 (15,105) (24,484) (23,759) 3,089 (13,364) (23,511)

At 30th June 2008 (21,904) (5,888) 31,364 13,153 15,096 31,647

Deferred tax assets :-

Provisions and post retirement benefits 32,272 70,388 86,160 32,272 70,388 86,160

Provisions for credit impairment 30,840 42,781 42,982 30,840 42,781 42,982

Tax losses carried forward 1,852 296 296 - - -

Accelerated tax depreciation (49,824) (97,621) (97,458) (49,959) (98,073) (97,495)

15,140 15,844 31,980 13,153 15,096 31,647

Deferred tax liabilities :-

Accelerated tax depreciation 37,044 21,732 616 - - -

(21,904) (5,888) 31,364 13,153 15,096 31,647

13. Other Assets

Balances due in clearing 385,420 492,184 655,943 305,132 380,818 464,613

Accrued interest receivable 773,130 852,835 577,387 720,860 781,800 526,121

Employee benefits asset (see note 17) 327,857 230,165 198,362 327,857 230,165 198,362

Others 630,455 439,213 524,201 428,793 378,551 411,866

2,116,862 2,014,397 1,955,893 1,782,642 1,771,334 1,600,962

14. Due to Other Banks

Borrowings from the Bank of Mauritius 449,630 840,329 1,056,122 449,630 840,329 1,056,122

Borrowings from other banks in Mauritiusand banks abroad 1,405,723 3,938,310 5,184,415 2,555,126 4,284,574 5,380,538

Subordinated debt 1,237,128 1,411,108 - 1,237,128 1,411,108 -

3,092,481 6,189,747 6,240,537 4,241,884 6,536,011 6,436,660



15. Deposits(a) Deposits comprise the following:

GROUP BANK2008

RS'0002007

RS'0002006

RS'0002008

RS'0002007

RS'0002006

RS'000

Personal 69,217,086 61,893,853 56,951,011 63,854,268 57,229,612 53,748,473

Business 35,001,767 20,973,361 17,801,612 31,207,990 16,418,950 13,709,024

Governments 361,069 758,576 1,449,191 110,752 252,469 753,478

Banks 2,398,177 1,531,833 993,046 2,373,015 1,536,428 997,600

106,978,099 85,157,623 77,194,860 97,546,025 75,437,459 69,208,575



Demand deposits 29,073,281 22,127,563 19,574,106 25,082,259 17,667,775 14,827,472

Savings deposits 44,121,225 38,218,456 35,346,507 42,236,732 36,350,470 33,715,621

Time deposits with remaining term to maturity:

Up to 3 months 14,378,271 6,724,051 5,937,181 13,770,622 5,675,406 5,220,168

Over 3 months and up to 6 months 1,749,373 1,797,039 1,809,064 1,486,950 1,507,490 1,280,357

Over 6 months and up to 1 year 3,252,677 3,421,566 2,786,136 2,963,267 2,589,613 2,475,128


Over 5 years 63,896 1,432,648 1,387,215 61,896 1,432,648 1,387,215

31,385,416 23,279,771 21,281,201 27,854,019 19,882,786 19,667,882

104,579,922 83,625,790 76,201,814 95,173,010 73,901,031 68,210,975

(ii) Banks

Demand deposits 2,175,485 1,241,633 818,479 2,150,323 1,246,228 823,033


Up to 3 months 221,419 290,200 124,567 221,419 290,200 124,567

Over 3 months and up to 6 months 1,273 - - 1,273 - -

Over 5 years - - 50,000 - - 50,000

2,398,177 1,531,833 993,046 2,373,015 1,536,428 997,600

TOTAL 106,978,099 85,157,623 77,194,860 97,546,025 75,437,459 69,208,575

16. Other Liabilities

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Accrued interest payable 1,405,620 1,301,016 1,031,308 1,379,347 1,237,336 992,598

MCB Superannuation Fund 285,619 186,806 364,303 285,619 186,806 364,303

Derivative financial instruments (note 7 (b)) 95,973 14,103 23,931 95,973 14,103 23,931

Interest suspense, impersonal & otheraccounts 2,569,135 2,774,340 2,747,482 2,030,775 2,262,836 2,192,376

4,356,347 4,276,265 4,167,024 3,791,714 3,701,081 3,573,208

Interest suspense shown in note 6(c) (629,783) (800,866) (921,780) (604,399) (782,994) (901,410)

3,726,564 3,475,399 3,245,244 3,187,315 2,918,087 2,671,798

continued



17. Employee Benefits Assets

GROUP & BANK

2008RS'000

2007RS'000

2006RS'000Amounts recognised in Balance Sheets at end of year:

Present value of funded obligations 2,603,510 2,389,118 2,169,478

Fair value of plan assets (3,104,721) (3,092,815) (2,427,893)

Surplus of plan assets (501,211) (703,697) (258,415)

Unrecognised actuarial gains 173,354 473,532 60,053

Assets shown in note 13 (327,857) (230,165) (198,362)

Amounts recognised in the Income Statements:

Current service cost 103,349 94,858 87,065

Interest cost 245,988 212,500 178,316

Expected return on plan assets (325,159) (242,923) (197,599)

Actuarial gain recognised (10,950) (1,098) -

Total included in non-interest expense (note 24) 13,228 63,337 67,782

Movements in assets recognised in Balance Sheets:

At 1st July 2007 (230,165) (198,362) (179,181)

Total expense as above 13,228 63,337 67,782

Contributions and direct benefits paid (110,920) (95,140) (86,963)

At 30th June 2008 (327,857) (230,165) (198,362)

Actual return on plan assets 35,931 657,500 350,288

The principal actuarial assumptions at end of year:

% % %

Discount rate 10.50 10.50 10.00

Expected return on plan assets 10.50 10.50 10.00

Future salary increases * 9.00 9.00 8.50

Future pension increases 6.00 6.00 5.50

* 9.0% for clerical staff and 8.5% for non-clerical staff.

Reconciliation of the present value of funded obligations

RS'000 RS'000 RS'000

Present value of obligation at start of period 2,389,118 2,169,478 1,914,583

Current service cost 103,349 94,858 87,065

Interest cost 245,988 212,500 178,316

Benefits paid (134,945) (87,718) (84,419)

Liability loss - - 73,933

Present value of obligation at end of period 2,603,510 2,389,118 2,169,478



17. Employee Benefits Assets (continued)

Reconciliation of fair value of plan assets GROUP & BANK

2008RS'000

2007RS'000

2006RS'000

Fair value of plan assets at start of period 3,092,815 2,427,893 2,075,061

Expected return on plan assets 325,159 242,923 197,599

Employer contributions 110,920 95,140 86,963

Benefits paid (134,945) (87,718) (84,419)

Asset (loss)/gains (289,228) 414,577 152,689

Fair value of plan assets at end of period 3,104,721 3,092,815 2,427,893

Distribution of plan assets at end of year GROUP & BANK

2008%

2007%

2006%Percentage of assets at end of year

Local equities 30 25 20

Local bonds 14 14 8

Property 4 4 5

Loan 3 3 4

Overseas bonds and equities 36 34 35

Other 13 20 28

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 & BANK

2008%

2007%

2006%Percentage of assets at end of year

Assets held in the entity's own financial instruments 6 8 6

Property occupied by the entity 2 3 3

Other assets used by the entity 9 6 15

Expected employer contributions for 2009 is Rs'000 120,861.

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

continued



18. Outstanding Lease Obligations

BANK

2008RS'000

2007RS'000

2006RS'000

Minimum lease payments:

Up to 1 year 572 1,894 4,221

Over 1 year and up to 2 years - 572 1,913

Over 2 years and up to 5 years - - 572

572 2,466 6,706

Less:

Future finance charges (18) (139) (573)

554 2,327 6,133

The present value of finance lease liabilities may be analysed as follows:Up to 1 year 554 1,773 3,787

Over 1 year and up to 2 years - 554 1,792

Over 2 years and up to 5 years - - 554

554 2,327 6,133

19. Share Capital and Treasury Shares

Number of shares Total

Share Capital

Treasury Shares

Balances at 1st July 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

Exercise of share options - 272,672 272,672

At 30th June 2008 250,375,595 (13,140,736) 237,234,859

The nominal value of the shares is Rs 10 each.



20. Contingent Liabilities

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

(a) Instruments

Acceptances on account of customers 533,476 318,872 178,783 - - -

Guarantees on account of customers 13,750,102 10,932,402 9,737,078 13,238,177 10,531,399 9,376,142

Letters of credit and other obligations on account of customers 5,331,029 7,097,324 3,104,190 4,646,053 6,707,885 2,910,558

Foreign exchange contracts 14,328,121 7,121,096 3,337,284 14,217,663 7,029,518 3,273,555

Other contingent items 2,518,062 422,373 350,642 2,140,565 394,829 328,107

36,460,790 25,892,067 16,707,977 34,242,458 24,663,631 15,888,362

(b) Commitments

Loans and other facilities, including undrawn credit facilities 6,000,729 4,487,776 4,622,812 5,815,689 4,366,559 4,484,731

(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 - - 1,014,515

(d) Tax assessment * 220,642 201,762 182,880 220,642 201,762 182,880

(e) Other

Inward bills held for collection 454,376 451,586 397,486 364,804 375,853 380,129

Outward bills sent for collection 631,622 620,000 384,882 631,622 620,000 384,882

1,085,998 1,071,586 782,368 996,426 995,853 765,011

43,768,159 31,653,191 23,310,552 41,275,215 30,227,805 22,335,499

* 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 February2003.

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 221 million, including penalties.

continued



21. Interest Income

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Interest on loans 8,197,694 7,068,108 5,494,526 7,530,085 6,475,536 5,057,539

Interest on investments in securities 1,364,311 1,232,702 1,157,577 1,232,742 1,012,713 994,082

Interest on placements with other banks 723,545 637,596 254,336 681,615 579,994 211,544

10,285,550 8,938,406 6,906,439 9,444,442 8,068,243 6,263,165

22. Interest Expense

Interest on deposits 5,862,395 4,889,524 3,449,997 5,493,414 4,616,568 3,296,931

Interest on borrowings from banks and financial institutions 246,102 428,923 350,365 274,384 418,632 296,272

Other interest expense 11,153 7,229 12,889 9,297 6,457 12,230

6,119,650 5,325,676 3,813,251 5,777,095 5,041,657 3,605,433

23. Other Income

(a) Fee income and commissions

Trade finance 258,027 246,141 194,825 220,887 210,571 152,831

Corporate finance 345,719 230,295 209,057 303,241 218,124 195,998

Credit card 283,797 218,917 174,174 255,258 193,313 156,349

Guarantees 131,012 109,450 127,017 106,001 102,450 120,206

Management and other fees 359,410 303,498 130,684 138,794 115,192 90,851

1,377,965 1,108,301 835,757 1,024,181 839,650 716,235

(b) Dividend income

Income from quoted investments:

Subsidiary - - - 35,694 23,796 -

Associate - - - - 11,898 29,745

Others 28,916 28,660 24,483 118 - -

Income from unquoted investments:

Subsidiaries - - - 143,495 150,057 90,058

Others 89,752 54,053 34,346 27,179 35,623 30,072

118,668 82,713 58,829 206,486 221,374 149,875



24. Non-Interest ExpenseGROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Salaries and human resource development 1,578,838 1,278,813 1,122,296 1,439,008 1,164,119 1,035,480 Employee benefits 13,228 63,337 67,782 13,228 63,337 67,782

Equity settled share-based payments 2,229 1,886 - 2,229 1,886 -

Depreciation charge 436,823 303,730 236,127 335,961 217,780 192,736

Amortisation of intangible assets 104,897 110,935 97,178 96,114 106,003 96,158

Consultancy fees in respect of B.P.R. andrelated projects - - 13,458 - - 13,458

Other operating expenses 1,089,144 1,023,457 820,995 780,086 720,655 589,908

3,225,159 2,782,158 2,357,836 2,666,626 2,273,780 1,995,522

Number of employees at the end of the year 2,344 2,267 2,172 2,076 2,025 1,956

Share-based payments

On 26th December 2006, at the Annual Meeting, the shareholders approved a scheme that entitles the employees of the Bank to purchase shares in the Company at a discount. A further offer on similar terms was made to these employees on the 24th October 2007.

The number and weighted average exercise price of share options are as follows:

2008 2007

Weighted avgexercise

priceRS

Number ofoptions

Weighted avgexercise

priceRS

Number ofoptions

Outstanding and exercisable at 1st July 2007 75.53 231,816 - - Granted during the year 109.78 455,049 76.82 529,918 Exercised during the year 106.24 (272,672) 77.82 (298,102)Expired during the year 75.07 (189,962) - - Outstanding and exercisable at 30th June 2008 224,231 231,816

The options outstanding at 30th June 2008 have an exercise price in the range of Rs 107 to Rs 119 and a weighted average contractual life of 3½ months (2007 : 3½ months).

The weighted average share price at the date the share options were exercised during F/Y 07/08 was Rs 155.07 (2007 : Rs 100.92).

The fair value of services in return for share options granted is based on the fair value of the share options granted measured by the average market price of the share of the last three months, as may be adjusted by the Board of Directors of the Bank. The fair value at measurement date is Rs 119 (2007 : Rs 83.50).

continued



25. Allowance for Credit Impairment

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Provisions for bad and doubtful debts 450,566 432,427 407,503 409,170 396,992 382,922

Bad debts written off for which no provisions were made 63,440 9,590 2,025 63,440 9,590 2,015

Provisions released during the year (46,897) (64,083) (85,806) (22,973) (33,978) (68,224)

Recoveries of advances written off (41,220) (2,006) (3,568) (41,220) (2,006) (3,510)

425,889 375,928 320,154 408,417 370,598 313,203

26. Income Tax Expense

Income tax based on the adjusted profits 465,159 514,675 374,249 306,988 355,395 286,743

Deferred tax 20,137 27,671 23,759 1,943 16,551 23,511

Special levy on banks 87,897 19,221 - 87,897 19,221 -

Under/(Over) provision in previous year 1,987 (745) 1,624 (1,434) (1,235) 1,548

Charge for the year 575,180 560,822 399,632 395,394 389,932 311,802

The tax on the profits differs from the theoretical amount that would arise using the basic tax rate as follows:

Profit before tax 4,460,908 3,107,530 2,413,083 3,296,429 2,311,353 1,918,865

Less profit of Associates (640,839) (414,392) (282,390) - - -

3,820,069 2,693,138 2,130,693 3,296,429 2,311,353 1,918,865

Tax calculated at a rate of 15% (2007 : 22.5% & 2006 : 25%) 573,010 605,956 532,673 494,464 520,054 479,716

Effect of different tax rates 81,170 45,964 36,997 - - -

Impact of:

Income not subject to tax (199,010) (125,130) (183,533) (146,863) (142,756) (183,356)

Expenses not deductible for tax purposes 152,158 136,767 96,717 80,995 115,149 98,670

Tax credits (122,032) (121,211) (84,846) (119,665) (120,501) (84,776)

Special levy on banks 87,897 19,221 - 87,897 19,221 -

Under/(Over) provision in previous year 1,987 (745) 1,624 (1,434) (1,235) 1,548

Tax charge 575,180 560,822 399,632 395,394 389,932 311,802

27. Dividends

BANK

2008RS'000

2007RS'000

2006RS'000

Interim paid on 21st December 2007 at Rs 1.65 per share 391,057 308,659 268,399

Final paid on 28th July 2008 at Rs 2.90 per share 687,981 414,676 300,607

1,079,038 723,335 569,006



28. Earnings Per Share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinaryshares outstanding during the year, excluding the weighted average number of ordinary shares purchased by the Bank and held as treasury shares.

GROUP

2008RS'000

2007RS'000

2006RS'000

Profit attributable to ordinary equity holders of the parent after exceptional items 3,693,734 2,460,845 1,986,423

Profit attributable to ordinary equity holders of the parent before exceptional items 3,693,734 2,460,845 1,907,748

Weighted average number of ordinary shares (thousands) 237,112 252,534 268,399

Basic earnings per share after exceptional items (Rs) 15.58 9.74 7.40

Basic earnings per share before exceptional items (Rs) 15.58 9.74 7.11

(b) Diluted earnings per share

Diluted earnings per share is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinaryshares 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 ofordinary 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 3,693,734 2,460,845 1,986,423

Profit attributable to ordinary equity holders of the parent before exceptional items 3,693,734 2,460,845 1,907,748

Weighted average number of ordinary shares basic (thousands) 237,112 252,534 268,399

Effect of share options in issue (thousands) 21 10 -

Weighted average number of ordinary shares diluted (thousands) at year end 237,133 252,544 268,399

Diluted earnings per share after exceptional items (Rs) 15.58 9.74 7.40

Diluted earnings per share before exceptional items (Rs) 15.58 9.74 7.11

29. Capital Commitments

Capital Commitments at 30th June are as follows:

GROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Expenditure contracted for but not incurred 164,418 269,082 200,507 164,418 269,082 200,507

Expenditure approved by the Board but not contracted for 1,249,480 696,597 363,472 1,249,480 696,597 363,472

continued



30. Net Cash Flows from Trading ActivitiesGROUP BANK

2008RS'000

2007RS'000

2006RS'000

2008RS'000

2007RS'000

2006RS'000

Operating profit 3,820,069 2,693,138 2,052,018 3,296,429 2,311,353 1,881,065

Increase in interest receivable and other assets (242,320) (150,463) (337,912) (102,768) (222,364) (136,986)

Increase in other liabilities 344,019 197,605 1,309,338 269,228 238,974 951,048

Employee share option expenses 2,008 1,695 - 2,008 1,695 -

Cash inflow from exceptional item - - 37,800 - - 37,800

Release provision for employee benefits (97,692) (31,803) (19,181) (97,692) (31,803) (19,181)

Charge for credit impairment 450,566 432,427 407,503 409,170 396,992 382,922

Release of provisions for credit impairment (46,897) (64,083) (85,806) (22,973) (33,978) (68,224)

Exchange adjustment (92,207) (121,602) (50,700) (113,932) (91,132) (41,349)

Depreciation 436,823 303,730 236,127 335,961 217,780 192,736

Amortisation of intangible assets 104,897 110,935 97,178 96,114 106,003 96,158

Profit on disposal of property, plant and equipment (1,248) (5,724) (406) (2,418) (4,464) (552)

Loss on disposal of intangible assets 437 - - 437 - -

Impairment of intangible assets - 9,697 19 - 9,686 19

Profit on disposal of investments (536,448) (9,903) (30,051) (59,440) - (58,995)

Profit on disposal of shares in subsidiaries - - - (337,751) - -

4,142,007 3,365,649 3,615,927 3,672,373 2,898,742 3,216,461

31. Net Cash Flows from Other Operating Activities

Net increase in deposits 23,566,520 6,972,671 8,019,033 22,108,566 6,228,884 7,224,623

Net increase in loans and advances (12,708,703) (6,923,723) (3,681,945) (11,340,743) (6,433,591) (3,300,984)

(Increase)/decrease in securities (10,327,180) 4,804,174 (1,798,663) (10,312,045) 4,301,059 (1,316,889)

Decrease/(Increase) in balances due in clearing 98,797 171,104 (290,031) 75,686 83,795 (171,106)

629,434 5,024,226 2,248,394 531,464 4,180,147 2,435,644

32. Analysis of the Balances of Cash and Cash Equivalents as shown in the Balance Sheets

ASSeTS

Cash and balances with Central Banks 5,776,456 6,235,477 5,509,108 4,434,230 4,042,455 4,015,691

Due from other banks 11,308,915 10,208,899 6,694,640 11,083,162 10,135,792 6,826,766

LiABiLiTieS

Due to other banks (1,855,353) (4,778,639) (6,240,537) (3,004,756) (5,124,903) (6,436,660)

CASh And CASh equivALenTS 15,230,018 11,665,737 5,963,211 12,512,636 9,053,344 4,405,797

ChAnge in yeAr 3,564,281 5,702,526 3,413,713 3,459,292 4,647,547 3,343,350



33. Segment Information

Primary reporting format - geographical segments


GroupRS'000

MauritiusRS'000

Reunion*RS'000

SeychellesRS'000

MadagascarRS'000

MozambiqueRS'000

EliminationsRS'000

Income:

External gross income 13,590,767 12,572,808 - 504,494 313,346 200,119

Expenses (9,344,809) (8,751,431) - (268,066) (180,398) (144,914)

Operating profit before provisions 4,245,958 3,821,377 - 236,428 132,948 55,205

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

Operating profit 3,820,069 3,402,955 - 236,233 133,993 46,888

Share of income of associated companies 640,839 360,107 280,732 - - -

Profit before tax 4,460,908 3,763,062 280,732 236,233 133,993 46,888

Income tax expense (575,180)

Profit for the year 3,885,728

Other segment items:

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

Investments in associates 6,022,694 3,479,619 2,543,075 - - - -

Goodwill and other intangible assets 284,835

Deferred tax assets 15,140


Segment liabilities 113,797,144 108,618,409 - 4,247,284 2,323,498 1,367,199 (2,759,246)

Unallocated liabilities 1,180,127


Capital expenditure 596,333 552,443 - 2,872 6,752 34,266

Depreciation charge 436,823 406,725 - 17,324 7,575 5,199

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

* Note: Figures for Banque Française Commerciale Ocean Indien have been aggregated under this heading, Reunion being this bank's main place of business.

continued



33. Segment Information (continued)



GroupRS'000

MauritiusRS'000

Reunion*RS'000

SeychellesRS'000

MadagascarRS'000

MozambiqueRS'000

EliminationsRS'000

Income:


Expenses (8,107,834) (7,450,925) - (303,673) (181,554) (171,682)


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







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






Unallocated liabilities 405,565




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

Impairment charge 9,697







GroupRS'000

MauritiusRS'000

Reunion*RS'000

SeychellesRS'000

MadagascarRS'000

MozambiqueRS'000

EliminationsRS'000

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)






Unallocated liabilities 278,580




Amortisation 97,178 96,158 - 122 898 -

Impairment charge 19


continued




Secondary reporting format - business segments


GroupRS'000

External gross income:

The Mauritius Commercial Bank Ltd 12,148,567

MCB Madagascar SA 313,346

MCB Moçambique SA 200,119

MCB Seychelles Ltd 504,494

Fincorp Investment Ltd 409,436

Others 766,118

Eliminations (751,313)

13,590,767

GroupRS'000

Net interestincomeRS'000

Fees andcommissions

RS'000

InvestmentincomeRS'000

Forex profit and others

RS'000

Operating income:

The Mauritius Commercial Bank Ltd 6,371,472 3,667,347 1,024,181 206,486 1,473,458

MCB Madagascar SA 247,097 172,276 61,846 - 12,975

MCB Moçambique SA 159,743 105,752 22,733 - 31,258

MCB Seychelles Ltd 438,555 193,712 125,379 - 119,464

Fincorp Investment Ltd 109,931 (5,196) 91,367 5,114 18,646

Others 734,501 32,009 126,486 113,085 462,921

Eliminations (590,182) - (74,027) (206,017) (310,138)

7,471,117 4,165,900 1,377,965 118,668 1,808,584

Segment assets 121,023,765 117,553,934 3,469,831

Investments in associates 6,022,694



Unallocated assets 5,625,227







GroupRS'000






Fincorp Investment Ltd 165,947

Others 234,828


11,176,900

GroupRS'000

Net interestincomeRS'000

Fees andcommissions

RS'000



RS'000

Operating income:

The Mauritius Commercial Bank Ltd 4,955,731 3,026,586 839,650 221,374 868,121




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

Segment assets 99,076,207 95,541,206 3,535,001






continued






GroupRS'000






Others 98,757


8,543,259

GroupRS'000

Net interestincome/(expense)

RS'000

Fees andcommissions

RS'000



RS'000

Operating income:

The Mauritius Commercial Bank Ltd 4,189,790 2,657,732 716,235 149,875 665,948




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

Segment assets 90,758,221 88,933,290 1,824,931








34. 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'000

Loans and AdvancesBalances at 30th June 2007 2,745,919 55,743 122,399

Movements relating to directors and

managers who retired during the year - (2,446) -

Existing loans of new entities 621,219 - -

Other net movements (33,925) 21,689 (18,002)

Balances at 30th June 2008 3,333,213 74,986 104,397

Leases receivableBalance at year end:

30th June 2007 N/A N/A 43,718

30th June 2008 N/A N/A 44,057

depositsBalance at year end:

30th June 2006 300,353 78,085 2,313

30th June 2007 49,986 73,091 32,205

30th June 2008 517,272 105,773 2,431

Off Balance sheet itemsBalance at year end:

30th June 2006 21,549 350 10,354

30th June 2007 6,606 500 403

30th June 2008 263,523 500 46,008

interest incomeFor the year ended:

30th June 2006 148,738 3,955 16,798

30th June 2007 186,168 4,670 18,770

30th June 2008 287,193 10,405 20,440

interest expenseFor the year ended:

30th June 2006 23,433 4,961 920

30th June 2007 2,644 5,012 2,430

30th June 2008 10,178 6,361 1,238

Other incomeFor the year ended:

30th June 2006 21,236 129 659

30th June 2007 25,393 116 18,655

30th June 2008 22,784 108 583

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.

continued



34. 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 21.5 M, Rs 21.8 M and Rs 20.1 M respectively for 2008, 2007 and 2006 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 26.3 MMCB Madagascar 5 % of operating income Rs 11.0 MMCB Mozambique 5% of operating income Rs 14.2 M

IT and Systems support to the above three companies is provided by BFCOI who has claimed EUR 290,000, EUR 268,000 and EUR 166,000 from MCB Seychelles, MCB Madagascar and MCB Moçambique respectively. These amounts have been charged to our subsidiaries’ income statements and consolidated in Group non-interest expense.

(b) The Bank

In addition to the amounts disclosed in (a) above, the following information relate to subsidiaries of the Bank :

(i) Balances as at 30th June : Loans and Advances

RS'000DepositsRS'000

Off Balance sheet items

RS'000

Balance at year end:

30th June 2006 604,031 513,656 895,331

30th June 2007 1,589,365 718,396 735,354

30th June 2008 1,221,417 2,039,213 795,658

(ii) Income and expenses :

Interest income

Interest expense

Other income

For the year ended:

30th June 2006 63,270 15,505 42,819

30th June 2007 107,835 44,944 60,044

30th June 2008 114,706 82,535 68,077

(c) Key Management personnel compensation The Group and the Bank

Remuneration and other benefits relating to key management 2008RS'000

2007 RS'000personnel, including directors, were as follows :

Salaries and short term

employee benefits 95,650 81,055

Post employment benefits 6,042 4,897

101,692 85,952



35. 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 2008

2008 2007

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000Note

ASSeTS

Cash resources

Cash and balances with Central Banks 4,434,230 4,434,230 - 4,042,455 4,042,455 -

Balances with banks and interbank loans 51,322 51,322 - 159,674 159,674 -

Balances with banks abroad 11,031,840 - 11,031,840 9,976,118 - 9,976,118

15,517,392 4,485,552 11,031,840 14,178,247 4,202,129 9,976,118

Securities and other investments 35(a)

Securities 20,885,824 20,885,824 - 10,573,779 10,573,779 -

Other investments - available-for-sale 1,187,714 530,576 657,138 1,334,009 579,734 754,275

- derivative financial instruments 137,261 44,020 93,241 23,795 17,011 6,784

Investments in associates 885,586 - 885,586 875,530 - 875,530

Investments in subsidiaries 2,391,412 1,643,017 748,395 2,126,099 1,679,793 446,306

25,487,797 23,103,437 2,384,360 14,933,212 12,850,317 2,082,895

Loans 35(b)

Personal and credit cards 14,579,503 13,923,283 656,220 12,969,386 12,923,934 45,452

Business 51,849,602 48,355,599 3,494,003 44,475,277 44,433,284 41,993

Entities outside Mauritius 8,565,944 - 8,565,944 6,652,786 - 6,652,786

74,995,049 62,278,882 12,716,167 64,097,449 57,357,218 6,740,231

Less allowances for credit impairment (3,101,358) (3,024,303) (77,055) (3,158,304) (3,102,229) (56,075)

71,893,691 59,254,579 12,639,112 60,939,145 54,254,989 6,684,156

Other

Goodwill and other intangible assets 202,246 202,246 - 229,201 229,201 -

Property, plant and equipment 2,458,313 2,458,313 - 2,449,780 2,449,780 -

Deferred tax assets 13,153 13,153 - 15,096 15,096 -

Other assets 35(c) 1,782,642 1,606,436 176,206 1,771,334 1,587,482 183,852

4,456,354 4,280,148 176,206 4,465,411 4,281,559 183,852

117,355,234 91,123,716 26,231,518 94,516,015 75,588,994 18,927,021

continued



35. Segmental Reporting - Bank (continued)

BALANCE SHEETS as at 30th June 2008

2008 2007

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000Note

LiABiLiTieS And ShArehOLderS' equiTy

Deposits 35(d)

Personal 63,854,268 56,640,752 7,213,516 57,229,612 52,441,861 4,787,751

Business 31,207,990 23,425,234 7,782,756 16,418,950 14,467,847 1,951,103

Governments 110,752 110,752 - 252,469 252,469 -

Banks 2,373,015 1,260 2,371,755 1,536,428 11,637 1,524,791

97,546,025 80,177,998 17,368,027 75,437,459 67,173,814 8,263,645

Borrowings

Borrowings from the Bank of Mauritius 449,630 449,630 - 840,329 840,329 -

Borrowings from other banks in Mauritius

and banks abroad 2,555,126 54,435 2,500,691 4,284,574 57,330 4,227,244

Subordinated debt 1,237,128 - 1,237,128 1,411,108 - 1,411,108

4,241,884 504,065 3,737,819 6,536,011 897,659 5,638,352

Other

Other liabilities 35(e) 3,187,315 2,913,191 274,124 2,918,087 2,626,930 291,157

Outstanding lease obligations 554 554 - 2,327 2,327 -

Proposed dividend 687,981 687,981 - - - -

Current tax liabilities 347,643 347,643 - 327,374 327,374 -

4,223,493 3,949,369 274,124 3,247,788 2,956,631 291,157

Capital and reserves attributable to the ordinary equity holders of the parent

Share capital 2,503,756 2,503,756 - 2,503,756 2,503,756 -

Reserves and surplus 3,378,775 3,118,000 260,775 2,738,331 2,672,914 65,417

Retained earnings 5,837,778 5,837,778 - 4,436,959 4,436,959 -

11,720,309 11,459,534 260,775 9,679,046 9,613,629 65,417

Less treasury shares (376,477) (376,477) - (384,289) (384,289) -

Total equity 11,343,832 11,083,057 260,775 9,294,757 9,229,340 65,417

117,355,234 95,714,489 21,640,745 94,516,015 80,257,444 14,258,571

COnTingenT LiABiLiTieS 35(f)

Acceptances, guarantees, letters of credit,endorsements and other obligations on accountof customers, and foreign exchange contracts 34,242,458 21,754,200 12,488,258 24,663,631 16,787,824 7,875,807

Commitments 5,815,689 4,518,069 1,297,620 4,366,559 3,193,110 1,173,449

Tax assessment 220,642 220,642 - 201,762 201,762 -

Other 996,426 729,003 267,423 995,853 704,509 291,344

41,275,215 27,221,914 14,053,301 30,227,805 20,887,205 9,340,600




INCOME STATEMENTS for the year ended 30th June 2008

2008 2007

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000

BANKRS'000

SEGMENT ARS'000

SEGMENT BRS'000Note

Interest income

Interest on loans 7,530,085 6,870,196 659,889 6,475,536 5,967,545 507,991

Interest on investment in securities 1,232,742 1,211,703 21,039 1,012,713 1,012,066 647

Interest on placements with other banks 681,615 72,601 609,014 579,994 71,290 508,704

9,444,442 8,154,500 1,289,942 8,068,243 7,050,901 1,017,342

Interest expense

Interest on deposits (5,493,414) (4,962,177) (531,237) (4,616,568) (4,233,456) (383,112)

Interest on borrowings from banks and

financial institutions (274,384) (41,344) (233,040) (418,632) (91,774) (326,858)

Other interest expense (9,297) (9,297) - (6,457) (6,457) -

(5,777,095) (5,012,818) (764,277) (5,041,657) (4,331,687) (709,970)

Net interest income 3,667,347 3,141,682 525,665 3,026,586 2,719,214 307,372

Other income

Fee income and commissions 35(g) 1,024,181 740,448 283,733 839,650 654,280 185,370

Profit arising from dealing in foreign currencies 1,074,286 980,997 93,289 863,657 783,854 79,803

Dividend income 35(g) 206,486 110,194 96,292 221,374 111,422 109,952

Net gain on sale of securities 397,191 343,770 53,421 - - -

Other 1,981 1,981 - 4,464 4,464 -

2,704,125 2,177,390 526,735 1,929,145 1,554,020 375,125

Operating income 6,371,472 5,319,072 1,052,400 4,955,731 4,273,234 682,497

Non-interest expense

Salaries and human resource development (1,439,008) (1,362,208) (76,800) (1,164,119) (1,121,823) (42,296)

Employee benefits (13,228) (10,006) (3,222) (63,337) (63,337) -

Equity settled share-based payments (2,229) (2,229) - (1,886) (1,886) -

Depreciation (335,961) (322,610) (13,351) (217,780) (207,116) (10,664)

Amortisation of intangible assets (96,114) (88,365) (7,749) (106,003) (96,527) (9,476)

Other (780,086) (739,790) (40,296) (720,655) (700,208) (20,447)

(2,666,626) (2,525,208) (141,418) (2,273,780) (2,190,897) (82,883)

Operating profit before provisions 3,704,846 2,793,864 910,982 2,681,951 2,082,337 599,614

Allowance for credit impairment 35(h) (408,417) (426,594) 18,177 (370,598) (359,419) (11,179)

Profit before tax 3,296,429 2,367,270 929,159 2,311,353 1,722,918 588,435

Income tax expense (395,394) (347,176) (48,218) (389,932) (363,887) (26,045)

Profit for the year 2,901,035 2,020,094 880,941 1,921,421 1,359,031 562,390

continued




(a) SECURITIES

Remaining term to maturity2008

Within3 months RS'000

3 - 6 months RS'000

6 - 12months RS'000

1 - 5 years

RS'000

Over5 years RS'000

TOTALRS'000

Bank

Government stocks 149,780 99,898 190,513 4,790,019 992,423 6,222,633

Treasury bills 3,427,488 3,611,204 7,624,499 - - 14,663,191

3,577,268 3,711,102 7,815,012 4,790,019 992,423 20,885,824

Segment A

Government stocks 149,780 99,898 190,513 4,790,019 992,423 6,222,633

Treasury bills 3,427,488 3,611,204 7,624,499 - - 14,663,191

3,577,268 3,711,102 7,815,012 4,790,019 992,423 20,885,824

2007

Within3 months RS'000

3 - 6months RS'000

6 - 12 months RS'000

1 - 5 years

RS'000

Over5 years RS'000

TOTALRS'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

Other Investments2008 2007

BANK RS'000

Segment A RS'000

Segment B RS'000

BANK Rs'000

Segment A RS'000

Segment B RS'000

Available-for-sale

Unquoted Shares 1,187,714 530,576 657,138 1,334,009 579,734 754,275

derivative financial instruments

Derivatives held-for-trading


Currency forwards 90,847 10,026 80,821 11,626 7,388 4,238

Currency swaps 46,414 33,994 12,420 12,169 9,623 2,546

137,261 44,020 93,241 23,795 17,011 6,784




(a) SECURITIES (continued)

Investments in Associate2008 2007

Country of

incorporation

Effective Holding

% BANK RS'000

Segment ARS'000

Segment BRS'000

Effective Holding

% BANK RS'000

Segment ARS'000

Segment BRS'000

Banque Française

Commerciale O.I. France 49.99 447,184 - 447,184 49.99 447,184 - 447,184

Subordinated loan to associate 438,402 - 438,402 428,346 - 428,346

885,586 - 885,586 875,530 - 875,530

Investments in Subsidiaries2008

Country of incorporation/

operation

Principal activities Stated capital RS'000

Effective Holding

% BANK RS'000

Segment ARS'000

Segment BRS'000

MCB Equity Fund Ltd Mauritius Private Equity Fund 1,451,050 100.00 1,451,052 1,451,052 - MCB Moçambique SA Mozambique Banking & Financial services 145,675 95.00 260,040 - 260,040

MCB Seychelles Ltd Seychelles Banking & Financial services 48,000 100.00 211,522 - 211,522

MCB Capital Markets Mauritius Investment holding company 98,700 90.00 75,000 75,000 -

MCB Male Branch Rep. of Maldives Banking & Financial services 61,000 100.00 61,033 - 61,033

MCB Factors Ltd Mauritius Factoring 50,000 100.00 50,000 50,000 -

Fincorp Investment Ltd Mauritius Investment company 103,355 57.56 24,735 24,735 -

MCB Properties Ltd Mauritius Property ownership & development 14,625 100.00 14,625 14,625 -

MCB Madagascar SA Madagascar Banking & Financial services 208,950 75.00 7,131 - 7,131

Blue Penny Museum Mauritius Philatelic museum 1,000 100.00 950 950 -

2,156,088 1,616,362 539,726

Subordinated loans to subsidiaries 235,324 26,655 208,669

2,391,412 1,643,017 748,395

2007

Country of incorporation/

operation

Principal activities Effective Holding

% BANK RS'000

Segment ARS'000

Segment BRS'000

MCB Equity Fund Ltd Mauritius Private Equity Fund 100.00 1,534,903 1,534,903 - MCB Moçambique SA Mozambique Banking & Financial services 91.28 227,653 - 227,653

MCB Seychelles Ltd Seychelles Banking & Financial services 100.00 211,522 - 211,522

MCB Factors Ltd Mauritius Factoring 100.00 50,000 50,000 -

Fincorp Investment Ltd Mauritius Investment company 57.56 24,735 24,735 -

MCB Properties Ltd Mauritius Property ownership & development 100.00 14,625 14,625 -

MCB Registry and Securities Ltd Mauritius Share and unit registry services 100.00 12,000 12,000 -

MCB Fund Managers Ltd Mauritius Management of collective investment services 100.00 11,425 11,425 -

MCB Madagascar SA Madagascar Banking & Financial services 75.00 7,131 - 7,131 MCB Investment

Management Co. Ltd Mauritius Investment advisory and fund management services 62.22 3,000 3,000 -

MCB Capital Partners Ltd Mauritius Investment advisory and fund management services 100.00 1,000 1,000 -

Blue Penny Museum Mauritius Philatelic museum 97.88 950 950 -

MCB Stockbrokers Ltd Mauritius Brokerage services 100.00 500 500 -

2,099,444 1,653,138 446,306

Subordinated loan to subsidiary 26,655 26,655 -

2,126,099 1,679,793 446,306

continued




(b) LOANS

2008 2007

(i) Remaining term to maturity BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

Within 3 months 29,769,280 25,755,736 4,013,544 24,753,592 22,724,049 2,029,543

Over 3 months and up to 6 months 1,313,923 929,562 384,361 591,112 571,585 19,527

Over 6 months and up to 1 year 1,228,098 688,269 539,829 2,299,621 2,290,771 8,850


Over 5 years 25,288,073 21,437,726 3,850,347 21,469,691 19,481,017 1,988,674

74,995,049 62,278,882 12,716,167 64,097,449 57,357,218 6,740,231

(ii) Credit concentration of risk by industry sectors BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

Agriculture and fishing 3,122,423 3,122,423 - 2,612,091 2,612,091 -

Manufacturing 4,762,089 4,762,089 - 5,533,978 5,533,978 -

of which EPZ 2,129,926 2,129,926 - 2,700,609 2,700,609 -

Tourism 6,661,459 5,747,904 913,555 2,679,985 2,387,410 292,575

Transport - - - 832 832 -

Construction/Property 1,341,306 1,341,306 - 1,359,659 1,359,659 -

Traders 690,304 690,304 - 6,647,451 6,647,451 -

Others 2,417,788 2,417,788 - 3,830,327 2,853,427 976,900

18,995,369 18,081,814 913,555 22,664,323 21,394,848 1,269,475




(b) LOANS (continued)

2008 2007

(iii) Movements in allowances for credit impairment Specific RS’000

Portfolio RS’000

TotalRS’000

Specific RS’000

Portfolio RS’000

TotalRS’000Bank

Provisions at 1st July 2007 1,936,510 438,800 2,375,310 1,970,877 398,200 2,369,077

Provisions made during the year 328,170 81,000 409,170 356,392 40,600 396,992

Provisions released during the year (22,973) - (22,973) (33,978) - (33,978)

Amounts written off (264,548) - (264,548) (356,781) - (356,781)

Provisions at 30th June 2008 1,977,159 519,800 2,496,959 1,936,510 438,800 2,375,310

Interest suspense 604,399 - 604,399 782,994 - 782,994

Provisions and interest suspense at 30th June 2008 2,581,558 519,800 3,101,358 2,719,504 438,800 3,158,304

Segment A

Provisions at 1st July 2007 1,921,298 397,937 2,319,235 1,961,989 362,199 2,324,188


Provisions released during the year (22,973) - (22,973) (33,978) - (33,978)

Amounts written off (263,676) - (263,676) (356,781) - (356,781)

Provisions at 30th June 2008 1,961,797 458,107 2,419,904 1,921,298 397,937 2,319,235

Interest suspense 604,399 - 604,399 782,994 - 782,994

Provisions and interest suspense at 30th June 2008 2,566,196 458,107 3,024,303 2,704,292 397,937 3,102,229

Segment B

Provisions at 1st July 2007 15,212 40,863 56,075 8,888 36,001 44,889


Amounts written off (872) - (872) - - -

Provisions at 30th June 2008 15,362 61,693 77,055 15,212 40,863 56,075

continued





2008(iv) Allowances for credit impairment by industry sectors Gross

amount of loans

RS'000

Non performing

loans RS'000

Specific provision

RS'000

Portfolio provision

RS'000

Total provision

RS'000BankAgriculture and fishing 5,509,888 98,159 44,022 53,300 97,322 Manufacturing 8,771,161 805,752 514,142 75,900 590,042

of which EPZ 3,964,372 390,178 244,392 49,300 293,692 Tourism 12,743,881 63,191 33,425 18,300 51,725 Transport 493,460 33,969 9,164 2,100 11,264 Construction 12,020,703 762,952 340,964 89,100 430,064 Traders 9,951,184 1,074,591 718,554 87,400 805,954 Information and communication technology 267,125 29,570 23,142 1,700 24,842 Financial and business services 9,250,116 55,091 29,051 31,200 60,251 Infrastructure 2,482,652 52 51 2,900 2,951 Personal 6,951,928 1,189,789 620,091 106,600 726,691

of which credit cards 421,276 112,027 89,674 15,500 105,174 Professional 295,926 134,246 74,890 3,700 78,590 Media, entertainment and recreational activities 494,241 57,677 55,201 21,800 77,001 Special certificate holders 2,530,411 90,811 19,514 2,300 21,814 Others 3,232,373 113,074 99,347 23,500 122,847

74,995,049 4,508,924 2,581,558 519,800 3,101,358

Segment AAgriculture and fishing 5,345,431 98,080 44,022 51,656 95,678 Manufacturing 8,771,136 805,727 514,142 75,900 590,042

of which EPZ 3,964,372 390,178 244,392 49,300 293,692 Tourism 9,314,935 62,903 33,207 13,240 46,447 Transport 288,060 33,368 9,164 1,056 10,220 Construction 11,512,733 757,769 340,578 85,092 425,670 Traders 8,711,835 1,073,432 718,186 75,073 793,259 Information and communication technology 267,086 29,531 23,142 1,700 24,842 Financial and business services 5,819,280 54,929 29,002 19,193 48,195 Infrastructure 2,482,651 51 51 2,900 2,951 Personal 6,710,943 1,166,398 605,843 102,205 708,048

of which credit cards 421,276 112,027 89,674 15,500 105,174 Professional 295,540 134,220 74,890 3,692 78,582 Media, entertainment and recreational activities 297,440 57,542 55,108 11,986 67,094 Special certificate holders 322,451 90,811 19,514 313 19,827 Others 2,139,361 113,000 99,347 14,101 113,448

62,278,882 4,477,761 2,566,196 458,107 3,024,303

Segment BAgriculture and fishing 164,457 79 - 1,644 1,644 Manufacturing 25 25 - - - Tourism 3,428,946 288 218 5,060 5,278 Transport 205,400 601 - 1,044 1,044 Construction 507,970 5,183 386 4,008 4,394 Traders 1,239,349 1,159 368 12,327 12,695 Information and communication technology 39 39 - - - Financial and business services 3,430,836 162 49 12,007 12,056 Infrastructure 1 1 - - - Personal 240,985 23,391 14,248 4,395 18,643 Professional 386 26 - 8 8 Media, entertainment and recreational activities 196,801 135 93 9,814 9,907 Special certificate holders 2,207,960 - - 1,987 1,987 Others 1,093,012 74 - 9,399 9,399

12,716,167 31,163 15,362 61,693 77,055





2007(iv) Allowances for credit impairment by industry sectors Gross

amount of loans

RS'000

Non performing

loans RS'000

Specific provision

RS'000

Portfolio provision

RS'000

Total provision

RS'000BankAgriculture 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 AAgriculture and fishing 4,651,220 120,035 38,965 44,100 83,065 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 Information and communication technology 224,570 15,217 9,325 2,130 11,455 Financial and business services 3,418,959 85,328 37,808 2,461 40,269 Infrastructure 2,317,596 65 35 3,100 3,135 Personal 6,675,489 1,197,026 631,430 96,932 728,362

of which credit cards 424,520 90,900 75,810 16,700 92,510 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 Special certificate holders 583,044 89,973 15,104 1,100 16,204 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

Segment BAgriculture and fishing 66 66 66 - 66 Manufacturing 122 17 16 1 17 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 Professional 14,866 91 91 295 386 Others 1,581,646 3,593 790 7,890 8,680

6,740,231 30,432 15,212 40,863 56,075

continued




(c) OTHER ASSETS

2008 2007

BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

Balances due in clearing 305,132 305,132 - 380,818 380,818 -

Accrued interest receivable 720,860 629,796 91,064 781,800 689,588 92,212

Employee benefits asset 327,857 327,857 - 230,165 230,165 -

Others 428,793 343,652 85,141 378,551 286,911 91,640

1,782,642 1,606,437 176,205 1,771,334 1,587,482 183,852

(d) DEPOSITS

BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000


Demand deposits 25,082,259 19,359,088 5,723,171 17,667,775 14,589,669 3,078,106

Savings deposits 42,236,732 40,412,602 1,824,130 36,350,470 35,007,120 1,343,350


Up to 3 months 13,770,622 7,918,975 5,851,647 5,675,406 4,635,568 1,039,838

Over 3 months and up to 6 months 1,486,950 1,293,527 193,423 1,507,490 1,343,863 163,627

Over 6 months and up to 1 year 2,963,267 2,447,641 515,626 2,589,613 2,315,441 274,172

Over 1 year and up to 5 years 9,571,284 8,683,009 888,275 8,677,629 8,134,856 542,773

Over 5 years 61,896 61,896 - 1,432,648 1,135,660 296,988

27,854,019 20,405,048 7,448,971 19,882,786 17,565,388 2,317,398

95,173,010 80,176,738 14,996,272 73,901,031 67,162,177 6,738,854

(ii) Banks

Demand deposits 2,150,323 - 2,150,323 1,246,228 11,637 1,234,591


Up to 3 months 221,419 1,260 220,159 290,200 - 290,200

Over 3 months and up to 6 months 1,273 - 1,273 - - -

222,692 1,260 221,432 290,200 - 290,200

2,373,015 1,260 2,371,755 1,536,428 11,637 1,524,791

Total 97,546,025 80,177,998 17,368,027 75,437,459 67,173,814 8,263,645




(e) OTHER LIABILITIES

2008 2007

BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

Accrued interest payable 1,379,347 1,275,960 103,387 1,237,336 1,125,839 111,497

MCB Superannuation Fund 285,619 285,619 - 186,806 186,806 -

Derivative financial instruments 95,973 12,407 83,566 14,103 9,663 4,440

Interest suspense, impersonal & other accounts 2,030,775 1,943,604 87,171 2,262,836 2,087,616 175,220

3,791,714 3,517,590 274,124 3,701,081 3,409,924 291,157

Interest suspense (604,399) (604,399) - (782,994) (782,994) -

3,187,315 2,913,191 274,124 2,918,087 2,626,930 291,157

(f) CONTINGENT LIABILITIES BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

(i) Instruments

Guarantees on account of customers 13,238,176 10,208,513 3,029,663 10,531,399 7,967,194 2,564,205

Letters of credit and other obligations on account of customers 4,646,053 2,841,676 1,804,377 6,707,885 5,817,784 890,101

Foreign exchange contracts 14,217,663 8,687,373 5,530,290 7,029,518 2,956,820 4,072,698

Other contingent items 2,140,566 16,638 2,123,928 394,829 46,026 348,803

34,242,458 21,754,200 12,488,258 24,663,631 16,787,824 7,875,807

(ii) Commitments

Loans and other facilities, including undrawn credit facilities 5,815,689 4,518,069 1,297,620 4,366,559 3,193,110 1,173,449

(iii) Tax assessment 220,642 220,642 - 201,762 201,762 -

(iv) Other

Inward bills held for collection 364,804 268,391 96,413 375,853 298,352 77,501

Outward bills sent for collection 631,622 460,612 171,010 620,000 406,157 213,843

996,426 729,003 267,423 995,853 704,509 291,344

Total 41,275,215 27,221,914 14,053,301 30,227,805 20,887,205 9,340,600

continued




(g) OTHER INCOME

2008 2007

BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

(i) Fee income and commissions

Trade finance 220,887 140,792 80,095 210,571 172,648 37,923

Corporate finance 303,241 226,908 76,333 218,124 192,685 25,439

Credit card fees 255,258 228,198 27,060 193,313 161,707 31,606

Guarantees 106,001 83,818 22,183 102,450 77,554 24,896

Management and other fees 138,794 66,489 72,305 115,192 49,686 65,506

1,024,181 746,205 277,976 839,650 654,280 185,370

(ii0 Dividend income

Income from quoted investments:

Subsidiary 35,694 35,694 - 23,796 23,796 -

Associate - - - 11,898 11,898 -

Other 118 118 - - - -

Income from unquoted investments:

Subsidiaries 143,495 50,000 93,495 150,057 47,081 102,976

Others 27,179 24,382 2,797 35,623 28,647 6,976

206,486 110,194 96,292 221,374 111,422 109,952

(h) ALLOWANCE FOR CREDIT IMPAIRMENT 2008 2007

BANK RS'000

Segment ARS'000

Segment BRS'000

BANK RS'000

Segment ARS'000

Segment BRS'000

Provisions for bad and doubtful debts 409,170 387,318 21,852 396,992 385,806 11,186

Bad debts written off for which no provisions were made 63,440 63,440 - 9,590 9,590 -

Provisions released during the year (22,973) (22,973) - (33,978) (33,978) -

Recoveries of advances written off (41,220) (1,191) (40,029) (2,006) (1,999) (7)

408,417 426,594 (18,177) 370,598 359,419 11,179

A Review of the Economic Environment


a review of the economic environment

19 September 2008



Embarking on new opportunities for sustainable development


A Review of the Economic EnvironmentThe International Context 194› Economic Growth 194

› Infl ation 195

› Financial Markets 196

The Regional Performance 198

The Mauritian Economy 200

› Introduction 200

› The Real Sector 201

› The Fiscal Sector 214

› The Financial Sector 216

› The External Sector 218

› Conclusion 221



The International ContextThe relative sluggishness of the international

economic environment, particularly regarding some

of our major export markets, represents a major test

domestically mainly in terms of sectoral growth,

external trade and inflation, highlighting all the more

the urgency for Mauritius to reinforce its domestic

foundations to better head off exogenous shocks.

Economic Growth

Spurred by the robust expansions of several emerging

and developing economies, the global economy

grew by a broadly satisfactory 5.0% in 2007, though

this performance has been somewhat marred by a

slowing down of activity in advanced economies

whose overall expansion undershot the previous

year’s reading by 30 basis points to attain 2.7%. In

particular, confronted by the outbreak and deepening

of the crises in the housing and financial markets,

the US economy recorded a dampened growth of

2.2% for the year, largely due to a relatively weak

year-on-year expansion of 0.6% in the fourth quarter

on the back of deteriorating consumer and business

sentiment. The softening of worldwide economic

activity has persisted in 2008 with policymakers

facing the formidable challenge of grappling with

the twin threats of bleak growth prospects and

sharp inflationary pressures. In particular, after

undergoing a deceleration in its expansion to an

annualised 4.5% in the first quarter and considering

forecast deteriorating fundamentals in the second

semester, the world economy is on course to grow

at a rather restrained 4.1% year-round, that is,

nearly one percentage point lower than last year’s

achievement. In fact, whilst emerging nations like

China, India and Russia should post appreciable –

albeit lower-than-earlier anticipated – economic

performances, several developed economies are

facing a weakened outlook. For the US economy,

despite garnering much support from considerable

monetary and fiscal stimulus as well as buoyant net

exports on the basis of a depreciating currency, the

expansion rate is forecast to attain a largely dimmed

1.3% this year, which is substantially lower than

last year’s rate on account of inhibited aggregate

demand linked to overdoses of financial stress as

well as elevated food and energy prices. Regarding

the euro area economy, owing to spillovers from the

US credit crunch, major hikes in consumer prices

and currency strength, annual growth is likely to be

held back at 1.7%, a harbinger of this bleak outlook

being second quarter results that showed an

overall annualised contraction of 0.2% in GDP with

suggestions that the German, French and Italian

economies are heading towards recession. For

their part, the Japanese and UK economies are also

anticipated to lose considerable momentum over

the year, the latter one being hit notably by impaired

household disposable incomes and consumer

spending.



Infl ation

Infl ationary pressures around the world started

to display sturdy signs of an upsurge last year –

particularly during the second semester – amidst

international market imbalances, with food price

increases accounting for a signifi cant 20% of

general headline infl ation for advanced economies

and as high as around 70% for that of emerging

economies. Acute and sustained increases in

basic commodity prices have continued to prompt

worrisome infl ation risks on a worldwide scale for

most part of 2008 while increasingly stymieing

growth prospects, thereby setting up daunting

challenges for several nations. In the oil markets,

(e) estimates (f) forecasts

Source: IMF World Economic Outlook - April 2008 and July 2008 Update

IMF World Economic Outlook

Annual percent change

2005 2006(e) 2007(e) 2008(f) 2009(f)

World output 4.4 5.1 5.0 4.1 3.9

Advanced economies 2.6 3.0 2.7 1.7 1.4

United States 3.1 2.9 2.2 1.3 0.8

Euro area 1.6 2.8 2.6 1.7 1.2

Germany 0.8 2.9 2.5 2.0 1.0

France 1.7 2.2 2.2 1.6 1.4

Italy 0.6 1.8 1.5 0.5 0.5

Spain 3.6 3.9 3.8 1.8 1.2

Japan 1.9 2.4 2.1 1.5 1.5

United Kingdom 1.8 2.9 3.1 1.8 1.7

Emerging and developing economies 7.1 7.9 8.0 6.9 6.7

Sub-Saharan Africa 6.2 6.4 7.2 6.6 6.8

Russia 6.4 7.4 8.1 7.7 7.3

Developing Asia 9.0 9.9 10.0 8.4 8.4

China 10.4 11.6 11.9 9.7 9.8

India 9.1 9.8 9.3 8.0 8.0

Consumer prices

Advanced economies 2.3 2.4 2.2 3.4 2.3

Emerging and developing economies 5.7 5.4 6.4 9.1 7.4



the price for Brent crude oil registered a sizeable

expansion throughout 2007 and onto 2008 to reach

a peak of around USD 145 at mid-July on account of

slow-moving supply response to buoyant demand

activity mainly in emerging economies, sporadic

geopolitical tensions, and the sustained depreciation

of the US dollar. Regarding food items, conspicuous

hikes in international prices were underpinned inter

alia by (i) sturdy demand growth in emerging and

developing countries, (ii) unfavourable weather

conditions, (iii) growing biofuel production in

advanced economies, and (iv) trade restrictions

by exporting nations. As such, surges in consumer

prices have, for instance, prompted worrying

inflation concerns for advanced economies, with

headline inflation in July last standing at a 17-year

high of 5.6% in the US and at an all-time high of

4.1% in the eurozone. Comparatively, reflecting

above-trend growth and high average consumer

spending on food and energy amongst others, more

prominent inflation figures have been recorded by

emerging and/or import-dependent economies,

thus provoking balance of payments problems,

failure to secure adequate food supplies, erosion

of purchasing power, and worsening poverty. More

recently though, while remaining well above the

levels prevailing at the onset of the food and energy

crisis, international commodity prices have eased

from their recent peaks. Downward pressures on

these prices are likely to persist in the coming

months and onto 2009 as a result of sluggish

demand – largely in line with the deteriorating

economic prospects of advanced economies – and,

in the case of food in particular, improving supply.

Financial Markets

Triggered by a rising tide of defaults on subprime

mortgages amidst a cooling housing market, the US

financial market crisis erupted in August 2007, before

significantly worsening and taking up an increasingly

international dimension. While emerging economies have

somewhat eschewed the financial turmoil, advanced

countries have been hit at different levels mainly due

to their highly interlinked financial markets. As such,

mounting levels of turbulences related to (i) banking

distress fuelled by a weakening of capital positions and

sizeable losses of liquidity, (ii) disruptions in credit markets,

(iii) apprehensions over the soundness of structured

products and investment vehicles, and (iv) declines in

the prices of asset-backed securities and a retreat of

equity prices particularly in 2008 as a result of growing

economic uncertainties. In terms of repercussions, there

are strong fears that episodes of credit squeeze could

eventually transform into a full-scale credit crunch,

leading amongst others to a more pronounced negative

impact on the real sector. At present, the fragile set-up

in global financial markets appears to be worsening

at a worrying pace as demonstrated by major plunges

registered by key international credit and equity markets

in September 2008 and continued precarious conditions


thereafter. This has led the IMF to raise its estimate of

aggregate potential losses stemming from the global

financial markets crises from USD 945 billion to USD

1.3 trillion. Overall, with these developments raising the

urgency of broad financial reforms, sturdy, targeted and

concerted initiatives for restoring investor confidence

and market stability have been earmarked worldwide,

a notable example being the proposed momentous US

debt rescue plan for removing distressed assets from

the financial system. On the interest rate front, monetary

authorities in various countries have been facing stern

challenges to effectively calibrate their policy stance

given weakening growth prospects and generally

elevated inflationary pressures. However, downside risks

to the growth outlook now seem to have become more

of a worry than inflation expectations on account of the

spreading global financial crisis and a projected easing

of international commodity prices. In the US, successive

cuts totalling 325 basis points as from September 2007,

on account of the burgeoning financial unrest, took the

Federal funds rate down to 2.0% as from April last, with

monetary policy being kept on hold thereafter. Against

the backdrop of lessening inflationary pressures as

well as serious deterioration in financial and economic

fundamentals, the chances for a rate cut in the near future

appear to have gained momentum. In the eurozone, the

benchmark interest rate has been kept on hold for some

time at 4.0% since July 2007, before being raised by 25

basis points in July last owing to a surge in consumer

prices. Given increasing and concordant indications

Exchange Rates on World Markets

Value as at Annual average

29-Jun-07 30-Jun-08 FY 2006/07 FY 2007/08

USD/GBP 2.0063 1.9906 1.9333 2.0041

USD/EUR 1.3520 1.5748 1.3060 1.4713

JPY/USD 123.39 106.17 118.55 110.23

ZAR/USD 7.0440 7.8035 7.1951 7.2929

Notes:(i) Energy includes petroleum, natural gas and coal(ii) Food includes mainly cereals, vegetable oils, meat and seafood

Source: IMF

Food Metals Energy

Primary commodity prices

200

180

160

140

120

100

80

Jun

06

Aug

06

Oct 0

6

Dec

06

Feb

07

Apr 0

7

Jun

07

Aug

07

Oct 0

7

Dec

07

Feb

08

Apr 0

8

Jun

08

Aug

08

Inde

x: Ju

n 06

=10

0

Bank of England repo rate ECB rate Federal funds rate

Evolution of key interest rates76543210

Jun

06

Aug

06

Oct 0

6

Dec

06

Feb

07

Apr 0

7

Jun

07

Aug

07

Oct 0

7

Dec

07

Feb

08

Apr 0

8

Jun

08

Aug

08

%



of a marked downward momentum in economic

activity, mainly in the wake of the knock-on effects of

the US financial turmoil, interest rate hikes might not

be contemplated in the near future, the more so that

concerns regarding inflation are expected to ease. For its

part, the reference rate in the UK has been characterised

by cumulative rate cuts totalling 75 basis points to

5.0% between December and April last – as a result of

deteriorating macroeconomic fundamentals – before

being left unchanged since. As it stands, the justification

for a rate cut in the near future is being gradually

reinforced on the basis of increasingly subdued economic

activity, though apprehensions regarding inflation on the

back of sharp declines in the pound sterling do support

the case for monetary policy to be kept in abeyance.

With respect to exchange rate movements, on account

of the financial turmoil, downgraded economic outlook

and expectations of lower interest rates, the US dollar

depreciated on a continuous basis to record lows against

the euro and the pound sterling towards the end of 2007

and the first few months of 2008, though it posted a

relatively strong performance in June last and registered

month-highs more recently. Looking forward, whereas

degenerating macroeconomic fundamentals across

eurozone economies and the decline in oil prices could

have a strengthening impact on the greenback, the latter

is expected to display persistent volatility given enduring

insecurities characterising US financial markets and

mixed signals depicted by the US economy in general.

The Regional PerformanceSub-Saharan countries have experienced non-

negligible macroeconomic gains recently, thus raising

investor confidence. Assuming the general reform

impetus persists and that potential risks on both the

internal and external sides are effectively tackled,

these economies should provide ever more appealing

sources of revenue for the MCB in the near future in

line with its geographic diversification strategies.

In 2007, the sub-Saharan region registered one of the

highest expansions in decades at an overall rate of 7.2%

on the basis of improved macroeconomic management,

growing domestic and foreign investment, major debt

relief and strong global demand for commodities.

Sound economic performance was more pronounced

in oil-exporting nations like Angola and Equatorial

Guinea where new oil fields came on stream, while oil-

importing economies achieved mixed, albeit broadly

satisfactory, results. In particular, various resource-

intensive countries with relatively developed financial

markets, solid macroeconomic prospects and general

political stability – for instance South Africa and Nigeria

– have attracted substantial private capital flows which,

despite their attendant risks, have created opportunities

for further progress on the public infrastructure front

and for broader socio-economic development. In 2008,

reflecting ongoing gains achieved by sustained reform

efforts, economic growth in the sub-Saharan region

is forecast to maintain its positive trend to stand at



6.6%. However, while the expansion of oil exporters

is anticipated to accelerate by about one percentage

point to reach nearly 10% owing mainly to favourable

dynamics in the oil industry, that of middle- and low-

income oil-importing countries is expected to slow

down given their growing exposure to unfavourable

international conditions, though still attaining a resilient

4.9%. As regards infl ation in the region, it reached an

overall 7.2% in 2007 and is expected to accelerate to

8.6% this year against the backdrop of a signifi cant rise

in food and non-fuel commodity prices on an annual

average basis.

Regional Economic Outlook

Annual percent change

Real GDP Growth Consumer Price Infl ation

2006(e) 2007(e) 2008(f) 2006(e) 2007(e) 2008(f)

Sub-Saharan Africa

Angola 18.6 21.1 16.0 13.3 12.2 11.4

Botswana 3.6 5.4 5.0 11.6 7.1 8.0

Ghana 6.4 6.4 6.9 10.9 9.6 8.9

Kenya 6.1 7.0 2.5 14.5 9.8 12.3

Madagascar 5.0 6.3 6.8 10.8 10.3 9.0

Malawi 7.9 7.4 7.1 13.9 8.1 6.9

Mauritius 5.1 5.4 5.3 8.9 8.8 10.1

Mozambique 8.0 7.0 7.0 13.2 7.9 5.7

Namibia 4.1 4.4 4.7 5.1 6.7 7.5

Nigeria 6.2 6.4 9.1 8.3 5.5 8.6

Senegal 2.1 5.0 5.4 2.1 5.9 4.5

Seychelles 5.3 5.3 4.6 (1.4) 5.7 23.3

South Africa 5.4 5.1 3.8 4.7 7.1 8.7

Tanzania 6.7 7.3 7.8 7.3 7.0 7.1

Uganda 5.1 6.5 7.1 6.6 6.8 5.9

Zambia 6.2 5.3 6.3 9.0 10.7 6.6

Maldives 18.0 7.6 6.5 3.5 7.4 15.0

(e) estimates (f) forecasts

Sources: CSO and MCB staff estimates for MauritiusIMF World Economic Outlook April 2008 Database for sub-Saharan Africa IMF Public Information Notice September 2008 for Maldives



Concerning the performance of Indian Ocean

countries, Madagascar mainly benefited from

a notable exports performance as well as

considerable foreign direct investment (FDI)

linked to the start-up of two large mining

projects last year, while other positive news

came up in the form of a decelerating, albeit still

elevated, inflation rate and a surplus balance of

payments position. Assuming the broad-ranging

reform programmes being implemented reap

desired results, economic growth should remain

noteworthy this year. As regards Seychelles,

its economy expanded at an appreciable rate

last year on the basis of strong FDI while

unemployment attained a historic low. Economic

activity could be somewhat tempered in 2008,

though, due to negative global developments and

capacity constraints while inflationary pressures

are expected to rise. In Mozambique, after

experiencing a promising annualised GDP growth

of 6.7% in the first semester of 2008 despite

being hit by natural calamities, the economy is on

course to pursue its notable expansion pattern in

the remaining months, thereby possibly attaining

the official target of 8% provided external shocks

are appropriately headed off. For its part, economic

growth in Maldives is estimated at 7.6% for 2007

and is expected to maintain a notable performance

this year, underpinned by buoyant activity in the

tourism and construction industries.

The Mauritian EconomyIntroduction

Heedful of escalating challenges represented by

increasingly exacting international conditions –

mainly reflected by an erosion of preferences

on established foreign markets and surges in

commodity prices – against the backdrop of

lingering domestic imbalances, ambitious and

broad-based economic reforms have been

implemented in recent periods, notably in the

context of the last two National Budgets, to

re-ignite macroeconomic fundamentals. Though

further headway is still warranted, major strides

have been accomplished as regards sectoral

strengthening, improvement of the investment

environment, external competitiveness upgrades,

fiscal consolidation, and the bolstering of

microeconomic fundamentals in general. Hence,

despite black spots existing on some fronts,

encouraging signs of recovery have been noted

in the form of an important increase in private

investment and an upturn in GDP growth in the

past couple of years, while the unemployment

rate has reassuringly reversed its long-

standing upward movement. Concomitantly,

the broadly favourable developments have

triggered heightened optimism for enhanced

short to medium term growth prospects and for

future material improvement in average living

standards. Nevertheless, mounting threats to



The Real Sector

Economic Growth

Despite shortcomings relating to the domestic

economic environment, including policy

inconsistencies in some areas, the Mauritian

economy built on its sprouting growth momentum

to expand by 5.4% in 2007. When excluding

the sugar sector – which experienced a major

contraction – the expansion rate is uplifted

to a more commendable 6.1%. Reflective of

a more stimulating operating environment,

private investment was commendably a major

driver of economic activity. On the sectoral

front, robust growth in the export oriented,

tourism and construction sectors, as well as in

transport, storage and communications, and

internal and external balances, emanating mainly

from exogenous shocks, have recently raised

concerns on the growth outlook, particularly in a

context where insufficiencies regarding domestic

capacity persist. As such, the urgency of having

well-honed macroeconomic frameworks to

shield the economy from any future external

shocks and to pursue sustained robust growth

is being markedly highlighted, the more so that

the recent worsening of the turmoil within key

international financial markets is threatening to

materially hamper performances in the domestic

real sector.

business and financial services ensured that

output growth was fairly balanced. For 2008,

whereas the recovery cycle has hitherto not been

called into question, underpinned by a strong

commitment to reforms, the performance of the

Mauritian economy over the year is expected to

be marred by significant headwinds. As such,

despite robust performances expected in the

construction, business and financial services,

and transport, storage and communications

sectors, GDP growth should largely undershoot

initial forecasts to stand at 5.3%. In effect,

economic activity in various sectors – principally

manufacturing and tourism – is expected to be

somewhat foiled as a result of a deterioration of

the operating environment principally linked to an

unfavourable international context, particularly

when structural rigidities relating inter alia to

public infrastructure deficiencies, multifactor

productivity insufficiencies and labour market

imperfections subsist despite ongoing reforms.

The observed vulnerability of Mauritius to

worsening shocks – which has resulted into a

pronounced deterioration of the external trade

balance and the persistence of relatively harsh

inflationary pressures – could be dissected as

follows. Firstly, export revenues and, to a lower

extent, capital inflows are expected to be hurt

by the accentuating activity slowdown in our

major export markets. Secondly, the general



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strengthening of the rupee against major foreign

currencies since the latter half of 2007 would

impair our external trade competitiveness.

Thirdly, unless the recent reprieve is maintained

over the coming months, hikes recorded in basic

commodity prices will hold back output growth

through the occurrence of high inflationary

pressures and a significant worsening of the

terms of trade. Finally, the ongoing world trade

liberalisation process could hurt domestic and

export oriented enterprises that do not offer the

right competitive response.

Looking further ahead, assuming that the

business environment is not unduly marred by

further exogenous shocks as well as delays and

ambiguities in implementing earmarked economic

reforms, the prevailing economic momentum

should remain broadly on track. In this respect,

it is reassuring to take stock of the steady

commitment of the authorities for furthering

economic progress. Tangible demonstrations include

measures pronounced in the context of the 2008/09

National Budget which sowed promising seeds

for the eventual creation of a stronger and more

flexible economic set-up in the medium to long

term. This should be articulated through a more

appealing business environment, greater external

competitiveness, superior nationwide resilience

to shocks – thus contributing to eventually foster

a more robust external balance notably through

food security and reduced dependence on energy

imports – enhanced fiscal consolidation, and

the adoption of an inclusive growth programme

through social empowerment. Nevertheless,

accomplishing sound and sustained economic

performance is an arduous task that may be

thwarted if a variety of conditions are not satisfied.

Firstly, in view of observed episodes of delays,

reversals and inconsistencies characterising the

official policy set-up, it is essential that further

impediments to the reform impetus be avoided

and that the general Government policy framework

be comprehensively, swiftly and assertively put

in train in order to meet set macroeconomic

targets. An essential policy requirement is a rapid

materialisation of measures listed for a major

upgrade of public infrastructure in several fields

following mounting deficiencies therein and rising

capacity utilisation. Secondly, despite satisfactory

fiscal improvements achieved, continued spot-on

discipline by the Government is warranted so

as to suitably meet expenditure and revenue

targets, failing which several growth-enhancing

programmes could be jeopardised. Thirdly, while

waiting for initiated deep-rooted growth strategies

to start producing desired results, a judicious and

adapted management of downside risks to growth

is necessary so as to at least keep economic

activity on course.


Sectoral Activity

Sugar

In line with a fall in cane productivity per hectare

of nearly 9% linked to adverse climatic conditions

and a further reduction in the area harvested

by 2.2% to some 65,259 hectares, a significant

contraction of more than 13% of the sugar industry

was recorded last year with an estimated sugar

production of 437,448 tonnes. Despite a negative

output effect, export revenue was supported by the

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 was scheduled for 2007/08. Furthermore, a

major positive development during the last financial

year has been the eventual agreement reached

between the Government and the Mauritius Sugar

Producers Association on several issues pertaining

to the reengineering of the sugar industry into a

cane cluster, after months of intense discussions.

For 2008, there are indications that output would

revolve around 455,000 tonnes, representing a mild

recovery compared to last year’s already depressed

output. This relatively poor outlook is mainly due to

adverse weather conditions as gauged by deficient

rainfall in the closing months of 2007 as well as sub-

optimal climatic conditions in April, May and June

this year. On the export side, receipts are expected

to be particularly hit this year on account of an

Sugar 2.9%Non-sugar agriculture 2.5%

Food manufacturing (excl. sugar) 5.9 %

Textile 6.5%

Other manufacturing 6.7%

Construction 6.4%

Wholesale & retail trade 11.7 %

Hotels & restaurants 9.4%Transport, storage

& communications 12.0%

Insurance 2.8%

Banking 6.4%

Others 6.0%Social & general

public services 13.8%

Other financial and business

services 7.0%

Sectoral contribution to GDP (Year 2007)

Sugar production Price (right scale)

700

600

500

400

300

200

Sugar output and price

20

18

16

14

12

102003/04 2004/05 2005/06 2006/07 2007/08

Crop Year

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additional 12% cut in the guaranteed prices of sugar

on the EU market in the context of the liberalisation of

market access thereto. This will, to some extent, be

compounded by a relatively strong rupee on average.

Overall, whereas the intentions expressed by both the

private and public sectors for the reengineering of

the sugar industry appear encouraging, it is essential

that they be swiftly backed by concrete and self-

assured national initiatives given their broad-ranging

impact on the economy. This would help support

the required development of a determined national

biofuel strategy – given that adequate resources

exist to render the exercise a success – thus raising

the odds for the country to realise the ‘Maurice Ile

Durable’ vision espoused by the 2008/09 National

Budget through higher levels of production and, more

pertinently, consumption.

Manufacturing

The manufacturing sector registered a relatively

restrained growth rate of 2.2% last year, with the

noteworthy performance of the textile and clothing

industry and the broadly satisfactory expansion of

the food segment being somewhat dampened by

the subdued achievement of other sub-sectors.

The textile and clothing industry registered a

commendable expansion rate of 8.5% in 2007 largely

on account of favourable exchange rate movements,

greater product and market diversification, improved

quality, better supply chain management as well

as vertical integration and consolidation strategies.

However, year-round sectoral activity was tempered

by a relatively poor year-on-year output growth

of 3.2% in the fourth quarter, largely linked to the

strengthening of the rupee. For 2008, as gauged by

a 12.8% contraction in domestic exports of articles of

apparel and clothing accessories for the first semester

conceivably due to the sustained firming up of the

domestic currency, the expansion of sales volume

could be markedly restrained. Tightening economic

conditions in our main export markets and elevated

freight charges will also weigh down on growth in the

sector. Notwithstanding these challenges, the extent of

the expected shortfall could be partly tempered by the

external competitiveness nurtured over the years by

well-established operators in respect of supply chain

management as well as opportunities arising from

competitive constraints also being faced by several

leading world apparel exporters, of which China.

With respect to the food manufacturing segment, a

key component, namely seafood activity, has been

marked by broadly favourable economic activity

last year – illustrated by a noteworthy nominal

rise of 21.7% in domestic exports of fish and fish-

related products – though real output growth was

somewhat constrained by concerns regarding the

admissibility of part of planned Mauritian exports

to EU markets. This year, the segment should

maintain a rather positive performance, the more


so that the EU has recently temporarily relaxed its

quota requirements for exports of such products by

Mauritius. However, limitations on real growth could

notably emanate from an inadequate availability of

domestic fishing vessels, diminishing fish stocks,

and eventual deficiencies regarding strict sanitary

norms imposed by the EU on exported goods. As for

manufacturing activity other than textile, clothing

and food, which is mostly domestic oriented, the

outcome therein has been marred by inherent

difficulties to further develop operating capabilities

against the backdrop of heightening competition

from imported products. The segment is expected

to maintain a somewhat weak performance this

year, with growth impediments arising from the

continuing reduction in customs duty of imported

substitutes. It could be argued here that, considering

that the trend in world trade liberalisation appears

almost irreversible, it is vital that dedicated support

be provided to vulnerable domestic firms to enable

them raise their productivity levels and thus better

face up to foreign competitors.

Tourism

After experiencing a below-par growth rate of 3.5%

in 2006, marred by the Chikungunya episode, the

tourism industry rebounded strongly last year with

arrivals of around 907,000, representing an impressive

growth of 15.1%. In particular, arrivals from European

countries rose by an appreciable 16.7%, reflecting the

France 26.5%

Italy 7.7%

UK 11.8%

Germany 7.2%Other European12.5%

Europe 65.7%Others 3.5%

Asia 7.5%

Other African 3.7%

Reunion Island 10.6%

South Africa 9.0%

Tourist arrivals by origin (Year 2007)

Tourist arrivals and receipts

Tourist arrivals Receipts (right scale)

1000

800

600

400

200

0

50

40

30

20

10

02003 2004 2005 2006 2007

Rs b

n

‘000

Mauritian workers Expatriates Exports (right scale)

100

80

60

40

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Export oriented enterprises -Employment & exports

40

35

30

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Empl

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rising fuel surcharges. Thirdly, competitive pressures

could stem from the increasing popularity of emerging

economies towards both domestic travellers and

foreign visitors, the heightened attractiveness of

dollar-zone destinations as a result of the lowered

value of the greenback on foreign exchange markets,

and the expansion of low-cost airline industries around

the world which is boosting short-break travel. Finally,

growing disparity between a high-class hotel product

and an altogether rather rickety physical environment

nationwide – examples comprise traffic jams and

various aesthetic shocks including petty pollution –

may act as a mounting turn-off to potential travellers.

Nonetheless, it is comforting to take note of a stepping

up of initiatives to ensure a high and sustainable

growth rate for the tourism industry. Major examples

relate to endeavours for the creation of a brand image

for the Mauritian destination, market diversification

and cleaning-up efforts.

Business and Financial Services

Benefiting from an overall healthy economic climate

and a continued diversification of activities, the business

and financial services sector maintained its strong

expansion in 2007, registering a growth rate of 8.4%.

The key drivers of this noteworthy performance were

the banking and business activities sectors which grew

by 7.9% and 10.0% respectively. Regarding the banking

industry in particular, whilst the operating environment

has been slightly reshaped with new entrants in the

continuing good health of our major market segments.

Overall, the sound performance of the tourism sector

has been supported by an expansion in flight capacity

mainly linked to air access liberalisation and sustained

marketing efforts. As such, gross tourism receipts for

the year attained Rs 40.7 billion, a 27.4% increase

compared to 2006. For 2008, a less optimistic outlook

prevails with total tourist arrivals forecast to expand by

a reduced rate to stand at below 960,000. In fact, a

noticeable reminder of the relatively soft environment is

a lower-than-targeted 5.5% expansion in arrivals for the

first semester as compared to the corresponding period

in 2007, with strategies to boost demand during the off-

peak season panning out to a limited extent only.

Overall, though Mauritius will uphold its status as

a preferred holiday destination for thousands of

tourists this year, the attraction for the destination

could fail to reach desired heights due to a variety of

factors. Firstly, with economic growth losing speed

in advanced economies – the latter representing a

major proportion of our overall market base – travel

demand to Mauritius could be somewhat restrained,

with arrivals from countries like Germany and Italy

already showing a year-on-year contraction for the

first six months of the year. Secondly, elevated oil

prices have already been responsible for the national

carrier curtailing supply capacity on various routes,

whilst there looms the danger of a reduction in travel

demand as a result of inflated ticket prices linked to



a result of favourable developments which should

support another creditable year of achievement in

2008. For its part, though benefi ting from the rise

in average income levels and growing economic

activity, the trade sector has had to bear the impact

of high infl ationary pressures in 2007. This year,

notwithstanding a continuing dampening price effect,

a non-negligible rise in consumer demand is expected

mainly on account of rising nominal incomes,

particularly considering an average wage increase of

over 30% in the public sector as per the Pay Research

Bureau (PRB) recommendations. Regarding the

Freeport segment, its growth outcome could be rather

weak this year on the basis of concerns expressed by

major operators regarding port productivity amongst

others. At another level, it appears that the effective

launch of the land-based oceanic industry could take

time to materialise. Indeed, several issues remain to be

resolved therein notably in the regulatory fi eld, though

there are recent indications that construction activities

could unfold in 2009.

Savings and Investment

Despite a signifi cant contraction of public sector

investment, the ratio of gross domestic fi xed

capital formation (GDFCF) to output edged up by a

notable 80 basis points to attain 25.1% last year

owing to a considerable expansion of 24.0% in

private investment. Tellingly, when the impact of the

purchase of aircraft and marine vessel is excluded,

fi eld, existing market players have accelerated their

efforts to raise the sophistication of their operations

and enhance the attractiveness of their products and

services. As regards the other segments, a notable

growth rate of 5.1% was noted in the insurance sector

last year, while the other fi nancial intermediation sector,

which comprises mainly stock broking and mutual

fund companies, recorded a substantial rise of 11.2%.

Looking forward, on account of broadly favourable

economic prospects and interesting avenues for

enhanced industry development – particularly given

the planned setting up of real estate investment trusts

as well as cross-border transactions in derivatives as

announced in the last National Budget – the business

and fi nancial services sector should sustain its

appreciable growth pattern.

Other Main Sectors

After posting an impressive double-digit expansion in

2007, the construction sector would take advantage

of the ongoing momentum in 2008, particularly given

major projects rolling out in the hospitality, property

development including IRS, manufacturing and

residential segments amongst others. In the same

vein, the transport, storage and communications

sector accomplished a commendable performance

last year with a growth of 7.8%, driven in large part

by the information and communication technology

industry. Indeed, the latter pursued its double-digit

expansion trend in 2007 by growing by 14.6% as



the investment ratio ramped up by more than two

and a half percentage points to reach 24.1%. This

year, private sector investment is anticipated to grow

substantially by around 15% – mainly on account of

major construction projects in the IRS and property

development, tourism, retail and manufacturing

sectors – reminiscent of a generally improved

business sentiment engendered by a more gratifying

operating environment and a broadly favourable

economic outlook. This achievement should outweigh

the expected major contraction in public sector

investment, thereby causing the growth of GDFCF

to exceed 7.0% and the investment ratio to rise by

90 basis points to attain some 26% of GDP. Overall,

while ongoing economic progress should provide

support to the status of Mauritius as an appealing

investment destination, the authorities should keep

sight of downside risks that include rising production

costs and downgraded prospects in specific sectors

of activity.

Whilst real consumption growth is expected to pick

up slightly from the rather subdued rate of 3.9%

recorded in 2007 owing to high economic activity

levels and the significant injection of liquidity in

the monetary system largely as a result of the

PRB awards, it is likely to undershoot economic

growth due to sustained elevated inflationary

pressures. However, with a relatively high deflator

effect contributing to the nominal growth of total

final consumption expenditure to exceed that of

GDP, the ratio of gross domestic savings to GDP

is anticipated to decline from 16.5% in 2007 to

15.9% in 2008.

Inflation

In line with a resurgence of inflationary pressures

worldwide, headline inflation remained fairly high at

8.8% as at both December 2007 and June 2008, after

adopting a declining trend subsequent to its June 2007

peak largely on account of a positive base effect. In fact,

despite decreases in the cost of communication and the

restraining impact of rupee strength on various goods –

against the dollar in particular – the consumer price index

has been principally influenced by the pass-through

effects of surging food and energy prices emanating

from imbalances in international markets. Indeed, these

sub-groups, which account for around 30% of the

average consumption basket, have recorded broad-

based price increases – involving items such as rice,

bread, flour, chicken, milk, vegetables, cooking oil and

electricity – with food inflation peaking at some 17%

in the first quarter of the year, while the average rise

in the energy index reached double-digit figures in

recent months. As regards measures of core inflation,

partly reflecting the limited spill-over effects of rising

commodity prices on other commodity groups, the

rates have been somewhat kept under check during

the last financial year, though signs of a non-negligible

ascending movement have been registered lately.



Echoing global trends of mounting infl ationary

pressures, the overall average price increase

domestically is expected to reach around 10.1% as

at December next notwithstanding a relatively strong

rupee on average and tightening of monetary policy

during the second half of 2008. This movement is

anticipated to materialise as price hikes registered

earlier during the year start to have an increasing impact

on the moving average calculation. In addition, demand-

side pressures are likely to spring from the signifi cant

injection of liquidity in the monetary system as a result

of the PRB awards, whilst domestic food and energy

prices will, in all probability, continue to be infl uenced by

elevated quotes on foreign markets despite recent calls

for increases in oil supply and bumper crops expected

in wheat and rice, amongst others. Indeed, potential

downward pressures on energy and food prices, notably

linked to subdued demand amid economic diffi culties

in developed countries, could be tempered by security

concerns and geopolitical tensions as well as disruptions

of the normal trade pattern caused by export restrictions

and the need to replenish stocks. In this respect, the

Food and Agricultural Organisation noted in May 2008

that “rising utilization levels would necessitate more

than one good season to bring about a meaningful

replenishment of stocks and hence a reduction in

Movement in CPI

Description Weight in CPI basket

% Change (FY 2007/08)

Average Point-to-point

Food and non-alcoholic beverages 286 15.1 14.7

Alcoholic beverages and tobacco 92 8.1 9.6

Clothing and footwear 51 6.2 5.0

Housing, water, electricity, gas and other fuels 131 6.1 9.4

Furnishings, household equipment & routine household maintenance

64 7.0 6.7

Health 30 6.8 6.6

Transport 147 6.1 13.0

Communication 36 (0.4) (3.7)

Recreation and culture 48 1.2 (0.7)

Education 32 4.7 2.3

Restaurants and hotels 43 10.9 14.8

Miscellaneous goods and services 40 7.7 6.3

TOTAL 1,000 8.8 9.7


Labour force and unemployment

Mauritian employed Mauritian unemployed

Expatriates Unemployment rate (right scale)

575

525

475

425

375

325

12

10

8

6

4

22003 2004 2005 2006 2007

‘000 %

Sectoral breakdown of employment (Year 2007)

Sugar 3.8%Non-sugar agriculture 5.6%

Food manufacturing (excl. sugar) 2.3%

Textile 12.5%

Other manufacturing 8.2%

Construction 9.5%

Trade 15.0%Hotels & restaurants 6.1%

Transport, storage & communications 7.1%

Business & financial services and real

estate 6.7%

Social & generalpublic services 16.0%

Others 7.2%

Core 1: excludes ‘Food, Beverages and Tobacco’ components and mortgage interest on housing loan from headline inflation

Core 2: excludes Food, Beverages, Tobacco, mortgage interest, energy prices and adminis-tered prices from headline inflation

12

10

8

6

4

2

Jul 0

7

Aug

07

Sep

07

Oct 0

7

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr 0

8

May

08

Jun

08

Headline Core 1 Core 2

Inflation

%

price volatility” before concluding that “from dairy to

wheat and soybeans to sugar, price spikes and market

volatility appear to have become more the norm than

the exception”. As such, for policy responses to be

effective, the rise in inflation should not be viewed as

a short-term supply shock that can be tackled through

price controls and subsidies only, but rather as a more

deep-rooted change in market dynamics. The focus on

food and energy policies at national level during the last

National Budget is a right step in this direction. These

need now to be culturally endorsed and economically

reinforced with the involvement of all stakeholders.

Labour Market

The importance of dedicated labour market

strategies in Mauritius has for long been advocated

within an overall menu of structural reforms for

securing an improved investment climate, whilst

supporting GDP growth and employment creation.

Indeed, the achievement of such key objectives is

expected to largely hinge on greater labour mobility,

higher wage flexibility and enhanced productivity of

resources. As such, though much remains to be

done, it is reassuring to take stock of unfolding

initiatives, with specific examples being (i) the setting

up of the National Pay Council last year to provide a

more sensible and synchronised approach to wage

bargaining, and (ii) the recent upgrading of the legal

framework with the Employment Relations Act and

Employment Rights Act expected to improve the



adaptability of the labour market to evolving socio-

economic dynamics amongst others. From another

perspective, targeted and multi-pronged policies for

improving job-matching, further closing skills gaps

and providing assistance to small and medium

enterprises have also been implemented. As such,

considering specifi c job creation measures and the

nationwide economic recovery process, last quarter

results for 2007 have confi rmed the dynamism of a

number of sectors in terms of net job creation, notably

transport, storage and communications, trade,

education, health and social work, construction

and, to a lower extent, tourism. On the other hand,

whereas the employment level increased by 2,352

in the export oriented industry between December

2006 and December 2007, net job creation among

Mauritian workers therein actually declined by

about a thousand, partly explaining the drop in the

employment level recorded in the manufacturing

sector during the last quarter of 2007. Overall, the

unemployment rate for that period improved to

7.2%, that is, a full percentage point lower than in

the corresponding quarter of 2006, contributing to

a fall in the average unemployment rate for 2007

to 8.5% from 9.1% in the preceding year. These

trends have been maintained in the fi rst quarter

of 2008 with a fall of 5,800 in the unemployment

count as compared to the corresponding period

in 2007 despite net job losses in the agricultural

and manufacturing sectors, leading to a year-on-

year fall in the joblessness rate by 1.4 percentage

points to 8.2%. Whilst the prospects for job

creation in manufacturing remain dim in view of

the numerous impending challenges in the sector,

continued buoyancy in the construction industry

and some service sectors in particular should help

support the momentum in the labour market in the

short to medium term, particularly considering the

laudable initiative of the authorities to broaden the

scope of the Empowerment Programme under the

aegis of the National Empowerment Foundation.

Against this background, the unemployment rate

looks set to maintain its downward movement to

reach some 8% this year. Looking further ahead,

the strategic intent of reinforcing the national food

policy with the objective of achieving food security

may well provide further impetus to job creation if

carefully planned and implemented. The long-term

employment landscape will, however, be dictated

by the knowledge and competency base of the

population and its ability to continuously adapt

to changing work demands. In this respect, the

widening of access to higher education for instance

through the Government-guaranteed student loan

scheme announced in the last National Budget is

an interesting step forward, albeit subject to non-

negligible implementation challenges, and at least

holds the promise for a shrinking skills gap and

a more productive workforce. Regarding wages,

a general increase of 4.4% was registered in the



related index in 2007 as compared to the base

period, namely September 2006, on account of

a rise in wage rates across all industry groups.

The highest increase in the general wage rate

was registered by the ‘Hotels & Restaurants’ and

‘Financial Intermediation’ industry groups, reflecting

good economic and financial performances therein,

whilst the manufacturing sector was the main

contributor to the increase in the wage rate index

given its significant weight.

The Fiscal Sector

Budget Outturn

Viewed as a major cause for concern some time

back, fiscal indicators have shown major progress

lately with the ratios of budget deficit and public

sector debt to output on a resolutely downward trend.

In effect, the Government succeeded in achieving its

intended overall fiscal outturn for FY 2007/08 with

the budget deficit as a percentage of GDP declining

from 4.3% to 3.8% despite only around 23% of a

forecast envelope of some Rs 2.9 billion relating to the

receipt of foreign grants being secured. In fact, over

the year, considerable positive support to the budget

balance emanated from an upward revision of some

Rs 3.8 billion in estimated tax receipts linked to better

than expected revenue-generating outcomes of fiscal

adjustment measures, improved tax compliance,

enhanced economic activity, heightened prices of

various consumer goods and lower than anticipated

outlays with regard to interest payments amongst

others. Less encouragingly, some of the budgetary

savings were due to delays in the implementation of

long-overdue public infrastructure projects. It is worth

highlighting that the fiscal outcome could even have

outperformed its targeted rate to reach less than 3%.

However, this breakthrough has not occurred due to

the decision to exploit the extra fiscal space created

and to appropriate an Estimate of Supplementary

Expenditure to the tune of around Rs 4.5 billion for

FY 2007/08 through the creation of major funds

and equity placements devoted to the pursuance of

various socio-economic objectives. Concerning this

item, whatever be the prevailing views regarding its

probity or technical significance, it could be more

fitting to gauge its underlying substance in terms

of the degree of success that the Government will

achieve in comprehensively and promptly utilising

the funds set aside for concrete projects in the

coming periods.

The decline in the fiscal deficit and, in concurrence,

the achievement of a primary surplus have

contributed to significantly reduce the level of public

sector debt from 63.0% of GDP as at June 2007 to

57.9% of GDP as at June last, thereby somewhat

easing prior concerns regarding debt sustainability.

External public sector debt remains negligible at

some 8.3% of GDP.


Budgetary Prospects

Looking ahead, in line with ongoing budget

reforms, the initiative to implement a Programme-

Based Budget framework – which links the funds

appropriated by ministries to the outputs that they

produce in order to achieve agreed outcomes –

is highly laudable as it can, if strictly followed,

materially improve public finances mainly by

fostering greater discipline, accountability and

effectiveness in respect of Government expenditure.

For FY 2008/09, the fiscal balance is expected to

remain broadly similar to the preceding year’s

figure in nominal terms. While it would be put under

pressure by several factors – notably the scheduled

full implementation of the PRB report to the tune of

around Rs 5.2 billion and a stepping up in terms of

the purchase of fixed assets – outweighing forces

would surface on various fronts. In particular, major

gains are expected on the revenue side, represented

mainly by (i) a significant increase of around Rs 4.3

billion in tax receipts linked to growing economic

activity, (ii) a considerable ramping up of foreign

grants to some Rs 4 billion, in part due to the

recouping of delayed funding, and (iii) satisfactory

achievements with respect to other items, namely

social security contributions and campement site

leases. When factoring in an enhanced output

base, the budget deficit is projected to pursue its

downward trajectory to attain 3.3% of GDP, thus

contributing to a further improvement in the ratio

Excise duties 17.0%

Others 3.1%Licence fees 2.3%

Customs duties 5.6%

Taxes on services 4.1%

Value Added Tax 39.1%

Taxes on property 8.2%

Individual income tax 7.4%

Corporate tax 13.2%

Breakdown of tax revenue (FY 2007/08)

Budget deficit

11

10

9

8

7

6

5

Budget deficit Budget deficit (% GDP)

6

5

4

3

2

1

02003/04 2004/05 2005/06 2006/07 2007/08

Rs b

n

% G

DP


of public sector debt to GDP to 55.7% as at end

June 2009. All in all, notwithstanding the best of

intentions being portrayed by the Government with a

view to moving further towards fiscal sustainability,

achieving set budgetary targets would represent

a rather challenging exercise, with possible risks

including dampened revenue collection following

lower-than-targeted overall economic growth and

potential wastages in current expenditure.

The Financial Sector

Monetary Front

The financial system has been characterised by

swings in the monetary stance in the last eighteen

months or so against a backdrop of upward

pressures on price stability and a delicate economic

recovery cycle. Indeed, after raising the Repo rate by

75 basis points to 9.25% in July 2007, reflecting the

general trend towards monetary tightening in major

international markets at that time and persistent

inflationary pressures domestically, the Bank of

Mauritius eased monetary policy during the first half

of 2008 with the keynote rate being trimmed by a

cumulative 125 basis points to 8.0% as at May 2008.

A loosening of the monetary stance was guided by the

need to help reinforce the macroeconomic foundations

of the recovery process in view of downside risks

to growth emanating in large part from dampened

economic prospects of our major export markets

and to protect the external competitiveness of the

6,000

5,400

4,800

4,200

3,600

3,000

Jul 0

7

Aug

07

Sep

07

Oct 0

7

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr 0

8

May

08

Jun

08

Inde

x : 5

July

1989

=10

0

Daily evolution of SEMTRI (in rupee terms)

Lombard rate Repo rate

MCB Prime Lending rate Bank rate

16

14

12

10

8

6

4

2

0

Jun

06

Aug

06

Oct 0

6

Dec

06

Feb

07

Apr 0

7

Jun

07

Aug

07

Oct 0

7

Dec

07

Feb

08

Apr 0

8

Jun

08

Aug

08

%

Evolution of Lombard rate, Repo rate, Bank rate and MCB Prime Lending rate



export oriented industry considering the threat of a

strengthening rupee. Nevertheless, with the risk of a

double-digit infl ation rate becoming more prominent,

the Governor of the Central Bank clearly expressed

his intentions to switch back to a tightening stance

which was translated in a 25 basis points rise in the

reference rate in July 2008 and, more recently, an

increase in the cash reserve ratio from 4% to 6%,

marking a reversal in the trend to shift away from

direct monetary control.

The suitable monetary policy that Mauritius

should pursue in current circumstances is open

to debate as is the case in many other countries

wherein commodity price shocks coupled with

sluggish economic conditions are posing serious

policy challenges. Tighter monetary policy could

be justifi ed on grounds of upside risks to price

stability, the more so considering the additional

liquidity to be injected into the system following the

full implementation of the PRB recommendations.

On the other hand, the effectiveness of increases

in interest rates in properly addressing price hikes

without undue restraints on aggregate demand is

highly arguable particularly within the context of

a still fragile economic climate nationwide amidst

heightened uncertainties on the international

scene and considering that infl ation has to a large

extent been caused by exogenous factors recently.

As such, until detailed information relating to

the performance of the domestic economy and

interest rate movements abroad are obtained on

a suffi ciently prolonged time period, caution might

have to be exercised with respect to the scale of

monetary policy decisions.

Refl ecting monetary policy easing in early 2008,

the Bank rate dropped from 10.70% in FY 2006/07

on an annual average basis to 8.96% in the last

fi nancial year while, on a point-to-point basis, it

slid by 3.53 percentage points, the extent of the

decline being compounded by an atypically general

downward trend in the yields on treasury bills in

the second half of 2007 despite the rise in the

Repo rate in July 2007. In line with generally lower

interest rates within the market, growth in money

supply picked up as gauged by a 17.1% increase

in broad money liabilities over FY 2007/08 backed

by a rise of 22.9% in domestic credit by depository

corporations and the Central Bank as net claims on

both the private sector and the Central Government

edged up by a notable margin. As a result, broad

money supply reached Rs 252.2 billion as at June

2008, representing 102.1% of GDP.

Stock Exchange

The domestic stock market sustained its excellent

performance of recent years until end-February

2008 to the extent of topping the chart of the ten

most performing stock exchanges in the world



between 31 December 2007 and 14 February 2008

according to US firm Bloomberg, amidst setbacks

suffered by many global exchanges in the wake of

the subprime crisis. Thereafter however, a reversal

in the bullish trend was observed potentially

reflecting the espousal of a more cautious attitude by

investors, to some extent prompted by international

developments and heightened uncertainties faced by

some economic sectors. On the whole, the SEMDEX

grew significantly by 28.5% while the total return

index, SEMTRI, shot up by 32.5% on a point-to-point

basis over FY 2007/08. A key feature upholding the

stock market in recent years has been growing

foreign investor confidence therein, which should

be reinforced by the enhanced credibility likely to

accrue to the local Bourse following its inclusion in

the Dow Jones Wilshire Global Index Family as from

October 2008. Coupled with the sound fundamentals

of many of the listed companies, this should add to

the resilience of the domestic stock exchange over

the medium term.

The External Sector

External Trade

Notwithstanding a pickup in exports of apparel

and clothing as well as a good performance of

the fisheries sector, domestic exports grew by a

moderate 6.0% last year, tempered by a sharp drop

in sugar receipts following the poor crop. Despite

much lower outlays relating to the purchase of

aircraft, the adverse impact on the balance of

trade was compounded by a much faster rise of

13.4% in imports, excluding those of the Freeport

zone, largely reflecting the sharp rise in some

commodity prices on international markets. In

particular, imports of refined petroleum products

increased by nearly Rs 2 billion while major

hikes were also registered in respect of metal

products, wheat and dairy products, amongst

others. Against this background, the balance of

trade worsened significantly from Rs 41.5 billion

in 2006 to Rs 51.3 billion last year in spite of a

healthy rise in net exports of the Freeport zone.

With commodity prices expected to remain

elevated on average this year, and key export

sectors bearing the brunt of a strong rupee and

trade liberalisation, the trade balance is projected

to widen further to around Rs 69 billion in 2008.

Balance of Payments

In spite of a worsening of the merchandise

account, the current account deficit narrowed

from Rs 19.4 billion in 2006 to Rs 12.1 billion in

2007, representing 5.2% of GDP, largely thanks to

a much improved surplus on the services account

as boosted by a 27.4% rise in gross tourism

receipts. Healthy increases were also recorded in

the surpluses of the current transfers account and

particularly the income account, which benefited

from a substantial rise in investment income.


Balance of trade

Exports (f.o.b) Imports (c.i.f) Balance of trade

150

120

90

60

30

0

- 30

- 602003 2004 2005 2006 2007

Rs b

n

Others 7.2%

Australia 2.3%

South Africa 7.4%

USA 2.3%

Other European 7.9%

UK 3.0%

Spain 2.6%

Italy 2.7%

Germany 2.7%

France 10.6%

India 21.2%

Other Asian 10.2%

China 11.4%

Indonesia 2.3%

Japan 3.6%Malaysia 2.6%

Asia 51.3%

Imports by country of origin (Year 2007)Exports by country of destination (Year 2007)

UK 34.1%

France 13.8%

Italy 5.6%

Other European 15.4%

UAE 3.8%

USA 7.4%

Madagascar 6.0%

Others 13.9%

Balance (Rs bn) % GDP

3

0

-3

-6

-9

-12

-15

-18

-21

2003 2004 2005 2006 2007

Current account

BOP (Rs bn) Import cover (months)

2003 2004 2005 2006 2007

15

12

9

6

3

0

- 3

- 6

Balance of payments and import cover

Terms of trade

160

140

120

100

80

60

40

202003 2004 2005 2006 2007

Export price index Import price index Terms of trade

Inde

x : 2

003

= 10

0


This improvement, coupled with a significant

increase in net FDI inflows, amongst others, has

contributed to a spectacular shift in the overall

balance of payments from a deficit of Rs 4.6 billion

in 2006 to a surplus of Rs 13.9 billion last year.

Consequently, the level of net international reserves

increased by 15.7% over the year to reach Rs 85.8

billion as at December last, representing a rise in the

import coverage to 6.4 months based on imports of

goods and services for 2007. Whereas the current

account deficit is expected to widen this year,

another strong surplus is projected on the balance

of payments with financial inflows remaining

buoyant. This should help maintain reserves at a

comfortable level.

External Debt

The country does not rely much on external

financing, a fact which has contributed to

enhance its credit profile on external markets.

Indeed, the external debt ratio has remained

at rather low levels and on a declining trend in

recent years, reaching 12.3% of GDP as at June

2007. Over 50% of this stock was accounted for

by the Government with a further 44% accruing

to public corporations. The stock of external

debt is estimated to have dropped in absolute

terms as at June 2008, corresponding to a sharp

decline to 9.4% of GDP as a result of the larger

output base.

Selling rates of main currencies vis-à-vis the rupee

Value as at Annual average

29-Jun-07 30-Jun-08 FY 2006/07 FY 2007/08

USD 32.02 27.70 32.64 29.55

GBP 64.13 55.34 63.54 59.19

EUR 43.04 43.82 43.04 43.26

JPY (100) 26.06 26.15 27.89 26.84

ZAR 4.61 3.53 4.64 4.13

Evolution of the rupee110

105

100

95

90

85

80

75

Jul 0

7

Aug

07

Sep

07

Oct 0

7

Nov

07

Dec

07

Jan

08

Feb

08

Mar

08

Apr 0

8

May

08

Jun

08

USD GBP Euro

Inde

x: 2

July

200

7 =

100



Exchange Rate

Largely on account of significant financial and

capital inflows on the balance of payments, the

rupee appreciated against major currencies on a

point-to-point basis during the last financial year.

The gain in value has been more pronounced

against the US dollar, the pound and the rand,

reflecting the weakness of these currencies on

international markets. On an annual average

basis, the rupee depreciated slightly against the

euro in FY 2007/08 compared to the preceding

year, but appreciated against the US dollar,

pound and rand. The effective exchange rate of

the rupee is expected to further appreciate on

an annual average basis in FY 2008/09 in line

with strong foreign currency inflows.

Conclusion

Notwithstanding inadequacies persisting on

various fronts, the Mauritian economy pursued

its nascent recovery process in 2007 with

macroeconomic fundamentals holding up rather

well against non-negligible idiosyncratic risks.

In 2008, despite the mobilisation of significant

domestic and foreign investment on the strength

of a generally benign socio-economic outlook,

the expansion of the economy is expected

to remain below par. Indeed, considering

the elevated international openness of the

Mauritian economy as well as the inadequacies

of its micro-foundations, the challenging

external environment should partially feed in

the domestic economic system, with negative

repercussions in the form of dampened output

in some key sectors and a high current account

deficit. Nonetheless, amidst such unfavourable

developments, it is reassuring to note that the

economy has hitherto accomplished major

progress in terms of robustness – with output

growth for instance offering a reasonably

satisfactory level of resistance to the hostile

external set-up – thus signifying that overall

economic management in Mauritius has taken

a broadly appropriate direction in recent years

regardless of episodic hiccups.

Looking forward, the operating environment is

expected to remain broadly challenging in a

context where exogenous shocks on economic

activity have developed from being intermittent

dynamics to entrenched growth-inhibiting

factors, and considering the major threat to

domestic activity that aggravating disorders

within global financial markets may represent.

As such, the stakes are high particularly for

policymakers from whom urgent and prudent

economic restructuring efforts are warranted

for weathering nationwide vulnerabilities and

realising sound economic progress. Alongside

fostering a cultural shift in the attitudes of



stakeholders to induce them to diligently embrace sound economic development strategies, the

underlying challenge resides in unravelling the right set of economic priorities and aligning their

implementation to international best practices, while invariably bearing in mind the prerequisite for

an undisturbed and indiscriminate reform impetus across time and space.

SourcesBank of Mauritius, Annual Report, Various Publications

Central Statistics Office, Economic and Social Indicators and Reports

Energy Information Administration

Food and Agricultural Organisation, Food Outlook

International Monetary Fund, World Economic Outlook, Data and Statistics

Mauritius Chamber of Agriculture, Various Statistics

Ministry of Finance and Economic Development, Budget Speech,

Programme-Based Budget Estimates 2008-2009, Various Publications and Pronouncements

Stock Exchange of Mauritius, Various Publications

MCB Strategy, Research and Development SBU, Staff Estimates

AbbreviationsBOP Balance of Payments

CPI Consumer Price Index

FDI Foreign Direct Investment

GDFCF Gross Domestic Fixed Capital Formation

GDP Gross Domestic Product

GDS Gross Domestic Savings

IMF International Monetary Fund

IRS Integrated Resort Scheme

PRB Pay Research Bureau

SEMDEX Stock Exchange of Mauritius Price Index

SEMTRI Stock Exchange of Mauritius Total Return Index

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Mauritius

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Rivière Noire

Flic en Flac

Floréal

VacoasLa Caverne

Candos Pont Fer Phoenix Quatre Bornes

Curepipe Road

Curepipe

TrianonRose HillStanley

Beau BassinRéduit

Saint Pierre

Jules KoenigBell Village SSR

Edith Cavell

Plaine Verte

Port Louis

Caudan

Mahebourg

Rodrigues

Port Mathurin

Plaine Corail

Key

Main Branches

Satellite Branches

Counters

Bureaux de Change

2008 in retrospect

Caring about the future

Anou KozéOpen days at branches of the MCB network allowed clients and the general public to learn more about our products and services.

Unveiling Capital MarketsMCB Capital Markets unveiled its DNA and its growing ambitions.

Foire de MadagascarMCB Madagascar was present at the Foire de Madagascar to promote its palette of products and services to local corporates and foreign investors.

Careers FairKnowledge being one its core values, the MCB sponsored

the International Careers and Educational Fair.

Concours d’orthographeFocused: the MCB renewed its partnership with the Alliance

Française for the annual Concours d’Orthographe.

2008 in Retrospect


2008 in Retrospect

A new openingOpening of the Malé Branch in the Maldives in May 2008.

Matola welcomes MCBMCB Moçambique opened its second branch in Matola.

Corporate Exhibition SpaceA Corporate Exhibition Space welcomes

all visitors at the MCB Centre.


2008 in Retrospect

MCB rupys revampSmiles ahead: children enjoyed the Rupys funfair marking the revamping of the ever popular junior accounts.

Teller Cash recyclersAfter the Port Louis Main Branch, Curepipe and Rivière du Rempart welcomed Teller Cash Recyclers.

Exclusive offersEnd of year promotions at the redesigned Port Louis Main Branch captured the public’s imagination.


2008 in Retrospect

My Words, My WorldMCB offered an educational

pack (consisting of a dictionary, notebooks and a comic book)

to every primary school child in Mauritius, Rodrigues and Agalega.

CPE Scholarship The MCB CPE Scholarships were

awarded to six children whose parents work for the MCB and who

excelled at the CPE exams.

Syndicated loanMCB was the lead arranger of a syndicated loan of 60 million euros in favour of Port Launay Resort Ltd for the construction of a luxury hotel in Seychelles.


2008 in Retrospect

MCB Foundation anniversaryKristine Chong Ah Yan was awarded the MCB Foundation Scholarship in August

2008. She will be studying at the London School of Economics.

The MCB Foundation celebrated its 20th anniversary in 2008.

Tour de Maurice Cycliste 2007The MCB Rush is an integral part of the

annual Tour de Maurice

regional gamesMCB Seychelles was the offi cial bank of the 6th CJSOI games held in Mahé.

golf driveSwing time: MCB sponsored the prestigious MCB Golf Open and launched two new competitions exclusively reserved for its valued customers: the MCB Invitational and the MCB Golf Trophy.




2008 in Retrospect

Winning cardThe lucky winner of the end of year cards promotion won a convertible car.

Launch of MCBFAGoal: The first MCB Football Academy was launched in Saint Hilaire.

Rodrigues Scholarship Annefoye Larcher, who has been awarded the MCB Rodrigues Scholarship 2007, is now studying at the University of Mauritius.

A new landmarkPreliminary work has started

on MCB Ebène, a landmark building in terms of its

unique architecture and environmentally friendly design.


Concept and Design: MoSAiC AdveRTiSing

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