MCB’s Financial Statements

Robust profitability of MCB points out that local banks can take a softer look of their customers

The MCB is not only the biggest domestic bank.

It has also implanted itself in the regional market by means of subsidiaries and/or branches. The unaudited abridged statements of the Mauritius Commercial Bank (MCB) show that the bank’s total assets increased by almost Rs 21 billion over the twelve months ended 31 March 2014. The cushion for the growth of the bank’s assets on this scale was provided almost exclusively by an increase of Rs 18.7 billion in deposits collected by it and by an increase of Rs 2.1 billion in shareholders’ funds which had the effect to raise the bank’s capital and reserves from Rs 22.6 billion at the end of March 2013 to Rs 24.7 billion at the end of March 2014.

Most of the asset increase of the bank during this period was lodged in securities (+Rs 11.6 billion), in placements with other banks (+Rs 3.6 billion) and cash holdings (+Rs 5.8 billion). On the other hand, its advances to customers declined marginally from Rs 141.4 billion at the end of March last year to Rs 141.1 billion at end-March 2014.

The bank’s quasi-stable level of advances over the twelve-month period means that it has deployed additional funds it raised during the period into more liquid assets such as cash and balances held with central and other banks and into somewhat less liquid assets such as investments in securities. While there may be turnover in advances taking place, with ongoing repayments offsetting new or additional advances granted, the overall picture is one of hardly any growth in the volume of total credit given to customers.

The effect of a want of an adequate pickup of the bank’s advances to the private sector implies a spill-over of liquidity onto the local market. It may also be mirroring the fact that local private sector investment has hardly been showing signs of growth these years, making for a tepid demand for advances from banks at the overall level. The Bank of Mauritius (BoM) has been stating for quite some time that a lot of excess liquidity is floating around on the local market albeit it has been attributing it to something else, notably foreign borrowing by the government, causing an overspill of liquidity on the market, with significant cost implications for the central bank’s budget. If so, we have a twin problem managing liquidity on the local market.

The MCB’s financial statements indicate that it received interest income in the course of the last 9 months to March 2014, notably from loans and advances principally but also to a much lesser extent from placements made with other financial institutions, totalling Rs 8.3 billion. In contrast, it paid interest to depositors (but also to institutions from which it has borrowed funds) amounting to only Rs 3.3 billion in total during the same period. Thus, the MCB was able to make quite a handsome amount of money by realizing a net interest income of Rs 5.0 billion between what it earned on granting advances using depositors’ money for so doing and what it paid out to the depositors. The bank’s net interest income (Rs 5 billion) exceeds by far the amount of interest it paid in the aggregate to all depositors, i.e., less than the Rs 3.3 billion mentioned above. It shows that the cost of financial intermediation is quite high in Mauritius or that, the rate of interest paid to depositors is quite low, which the depressed Key Repo Rate (KRR) of the BoM, as decided by the MPC from time to time, manages to keep at that low level.

This opinion about the high cost of financial intermediation in Mauritius is without consideration of numerous other charges by way of “commissions and sundry fees” which banks charge customers. While it is true that banks pay out fees and commissions to their correspondents on behalf of their customers and need to recuperate such costs, the difference between what they earn and what they pay out goes out disproportionately in favour of the banks. The 9-month financial statement of the MCB shows that it paid out principally to correspondent banks a total of Rs 0.4 billion by way of ‘fees and commissions’ during this period but it collected income from ‘fees and commissions’ charged to customers amounting to Rs 2.1 billion over the same period, a difference of Rs 1.7 billion in its favour solely on this item.

Despite the strength of the financial business lobby in the UK, the government commissioned several panels, House Committees and Commissions of inquiry to look into things like banking standards, absence of competition and possible cases of abuse by financial institutions of their “market power” resulting in abusive charges being levied against customers. This has led to a lot of redress although it has not prevented some key British banks like Royal Bank of Scotland facing the backlash of prolonged misgovernance.

It would be disastrous if our banks faced the scale of disruption as it happened lately in Europe and America. Our banks need to make reasonable profits to impart the necessary confidence to their customers. However, exaggeration in any case is bad. The accounts of the MCB for the first 9 months of its financial year show that it has, as in the past, remained highly profitable. This gives it scope to signal to other players on the local banking market that they can bring down the fees and commissions they charge for certain transactions and increase the interest rate they pay to depositors. The alternative is to go on inflating such charges and to bring down the interest banks pay to depositors to even lower levels, which is what has been happening for a long time in Mauritius. The robust profitability of the MCB, as seen from its accounts, points out that local banks can take a softer look of their customers.

 


* Published in print edition on 16 May 2014

An Appeal

Dear Reader

65 years ago Mauritius Times was founded with a resolve to fight for justice and fairness and the advancement of the public good. It has never deviated from this principle no matter how daunting the challenges and how costly the price it has had to pay at different times of our history.

With print journalism struggling to keep afloat due to falling advertising revenues and the wide availability of free sources of information, it is crucially important for the Mauritius Times to survive and prosper. We can only continue doing it with the support of our readers.

The best way you can support our efforts is to take a subscription or by making a recurring donation through a Standing Order to our non-profit Foundation.
Thank you.

Add a Comment

Your email address will not be published. Required fields are marked *