Independent auditor s report to the shareholders of SBI (Mauritius) Ltd formerly known as SBI International (Mauritius) Ltd

Independent auditor s report to the shareholders of SBI (Mauritius) Ltd formerly known as SBI International (Mauritius) Ltd This report is made solely to the shareholders of SBI (Mauritius) Ltd (the Bank ), as a body, in accordance with section 205 of the Mauritius Companies Act 2001. Our audit work has been undertaken so that we might state to the Bank's shareholders those matters we are required to state to them in an auditor's 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 shareholders 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 Bank set out on pages 4 to 50 which comprise the balance sheet as at 31 March 2009 and the income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Directors Responsibility for the Financial Statements The Bank s directors are responsible 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 Mauritius Companies Act 2001, the Banking Act 2004 and the Financial Reporting 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 judgment, 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.

Independent auditor s report to the shareholders of SBI (Mauritius) Ltd formerly known as SBI International (Mauritius) Ltd (cont d) Opinion In our opinion, the financial statements on pages 4 to 50 give a true and fair view of the financial position of the Bank as at 31 March 2009 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the requirements of the Mauritius Companies Act 2001 applicable to banks and the Financial Reporting Act 2004. Report on other legal and regulatory requirements Mauritius Companies Act 2001 We have no relationship with, or interests in, the Bank other than in our capacities as auditors and arm s length dealings in the ordinary course of business. We have obtained all information and explanations that we have required. In our opinion, proper accounting records have been kept by the Bank as far as 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 provisions of 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. Kemp Chatteris Deloitte Chartered Accountants 3 rd Floor, Cerne House La Chaussee Port Louis Signing Partner M.J. Burgess, ACA Date : 21.04.2009

SBI (MAURITIUS)LTD FORMERLY KNOWN AS SBI INTERNATIONAL (MAURITIUS) LTD Statement of Management s Responsibility for Financial Reporting The financial statements for the Bank s operations presented in this annual report have been prepared by the Management, which is responsible for their integrity, consistency, objectivity and reliability. International Accounting Standards of the International Accounting Standards Committee as well as the requirements of the Banking Act 2004 and the guidelines issued thereunder, have been applied and the 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, authorization 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 and Conduct Review and Risk Policy Committee, which are comprised of Independent Directors, oversees the 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 program of internal audits in coordination with the Bank s external auditors. In addition, the Bank's compliance function maintains policies, procedures and programs directed at ensuring compliance with regulatory requirements. Pursuant to the provisions of the Banking Act 2004, 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, Kemp Chatteris Deloitte, have full and free access to the Board of Directors and its committees to discuss the audit and matters arising there from, such as their observations and fairness of financial reporting and the adequacy of internal controls. V.Srinivasan M.Baguant C.Basanta Lala Managing Director & CEO Director Director Date: 21.04.2009 1

SBI (MAURITIUS)LTD FORMERLY KNOWN AS SBI INTERNATIONAL (MAURITIUS) LTD Income Statement March March March Note 2009 2008 2007 USD USD USD Interest income 42,688,064 43,307,731 24,441,710 Interest expense (24,200,592) (31,112,518) (17,249,872) Net interest income 6 18,487,472 12,195,213 7,191,838 Fee and commission income 5,485,998 2,230,350 1,359,466 Fee and commission expense (81,187) (115,568) (67,518) Net fee and commission Income 7 5,404,811 2,114,782 1,291,948 Net trading income 8 1,159,572 1,156,263 730,833 Other operating income 9 47,715 (30,192) (2,613) 1,207,287 1,126,071 728,220 Operating income 25,099,570 15,436,066 9,212,006 Net impairment loss on financial assets 10 (4,880,004) (1,055,563) (493,276) Personnel expenses 11 (1,984,594) (2,212,858) (1,733,817) Depreciation and amortisation (831,894) (678,245) (506,775) Other expenses 12 (2,340,511) (2,202,290) (1,860,926) Profit before income tax 15,062,567 9,287,110 4,617,212 Income tax expense 13 (957,620) (907,043) (556,413) Profit for the year 14,104,947 8,380,067 4,060,799 Transfer to Statutory Reserve 2,115,742 1,216,042 655,651 Profit attributable to equity holders 11,989,205 7,164,025 3,405,148 14,104,947 8,380,067 4,060,799 Basic earnings per share 14 24.40 22.66 16.16 Approved by the Board of Directors on 21.04.2009 V.Srinivasan Managing Director & CEO M.Baguant Director C.Basanta Lala Director 2

FORMERLY KNOWN AS SBI INTERNATIONAL (MAURITIUS) LTD Balance sheet As at 31 March 2009 Note March March March 2009 2008 2007 USD USD USD ASSETS Cash and cash equivalents 15 37,669,727 70,698,904 82,225,554 Loans and advances to banks 16 21,301,184 103,239,935 4,316,165 Loans and advances to customers 17 480,676,142 279,108,746 177,430,349 Investment securities 18 109,471,373 148,714,650 112,211,167 Property, plant and equipment 19 6,166,566 6,791,663 7,043,009 Deferred tax assets 20 891,269 256,987 462,971 Other assets 21 46,171,546 72,931,299 47,777,985 Total assets 702,347,807 681,742,184 431,467,200 LIABILITIES Deposits from customers 22 438,352,611 484,045,968 245,905,807 Other borrowed funds 23 71,500,000 46,089,650 92,559,786 Subordinated liabilities 24 6,817,208 8,082,246 6,803,762 Current tax liabilities 25 1,345,589 673,195 536,686 Other liabilities 26 51,153,148 77,674,590 48,612,289 Total liabilities 569,168,556 616,565,649 394,418,330 Shareholders' Equity Share Capital 27 48,627,187 23,627,187 16,142,963 Share premium 54,078,062 19,078,062 8,600,148 Retained earnings 22,454,475 16,567,501 7,462,342 Other reserves 28 8,019,527 5,903,785 4,843,417 Total equity 133,179,251 65,176,535 37,048,870 Total equity and liabilities 702,347,807 681,742,184 431,467,200 Approved by the Board of Directors on 21.04.2009 V.Srinivasan Managing Director & CEO M.Baguant Director C.Basanta Lala Director 3

Statement of changes in equity Share capital Share premium Statutory reserve General banking reserve Revaluation reserve Retained earnings Other reserves Total (Note 37) Balance at 1 April 2006 14,407,943 6,171,120 2,799,321 587,793 2,831,385 8,306,544 71,371 35,175,477 Foreign currency translation - - (11,319) 15,382 (2,147,666) (2,569,143) 41,499 (4,671,247) Total income and expense for the year recognised directly in equity - - (11,319) 15,382 (2,147,666) (2,569,143) 41,499 (4,671,247) Profit for the year - - - - - 4,060,799-4,060,799 Total income and expense for the year - - (11,319) 15,382 (2,147,666) 1,491,656 41,499 610,448 Issuance of ordinary shares 1,735,020 2,429,028 - - - - - 4,164,048 Transfer - - 655,651 - - (655,651) - Adjustment for unclaimed dividend - - - - - 43,652-43,652 Dividend paid - - - - - (1,723,859) - (1,723,859) Balance at end of Year 31 March 2007 16,142,963 8,600,148 3,443,653 603,175 683,719 7,462,342 112,870 37,048,870 Foreign currency translation - - - - - 3,888,039-3,888,039 Total income and expense for the year recognised directly in equity - - - - - 3,888,039-3,888,039 Profit for the year - - - - - 8,380,067-8,380,067 Total income and expense for the year - - - - - 12,268,106-12,268,106 Issuance of ordinary shares 7,484,224 10,477,914 - - - - - 17,962,138 Transfer - - 1,216,042 - (42,804) (1,173,238) (112,870) (112,870) Dividend paid - - - - - (1,989,709) - (1,989,709) Balance at end of Year 31 March 2008 23,627,187 19,078,062 4,659,695 603,175 640,915 16,567,501-65,176,535 Foreign currency translation - - - - - (3,990,093) - (3,990,093) Total income and expense for the year recognised directly in equity - - - - - (3,990,093) - (3,990,093) Profit for the year - - - - - 14,104,947-14,104,947 Total income and expenses for the year - - - - - 10,114,854-10,114,854 Issuance of ordinary shares 25,000,000 35,000,000 - - - - - 60,000,000 Share-fraction refund - - - - - (97,572) - (97,572) Transfer - - 2,115,742 - - (2,115,742) - Dividend paid - - - - - (2,014,566) - (2,014,566) Balance at end of 31 March 2009 48,627,187 54,078,062 6,775,437 603,175 640,915 22,454,475-133,179,251 4

FORMERLY KNOWN AS SBI INTERNATIONAL (MAURITIUS) LTD Cash flow statement Note March March March 2009 2008 2007 USD USD USD Cash flows from operating activities Profit for the year 14,104,947 8,380,067 4,060,799 Adjustments for: Depreciation 19 831,894 678,245 506,775 (Profit)/Loss on Disposal of Assets (16,345) 17,296 951 Impairment on financial assets 4,880,004 1,055,563 493,276 Net interest income 6 (18,487,472) (12,195,213) (7,191,838) Income tax expense 13 957,620 907,043 556,413 2,270,648 (1,156,999) (1,573,624) Changes in operating assets and liabilities Decrease/(Increase) in loans and advances to banks 81,938,752 (98,923,770) (4,316,165) Increase in loans and advances to customers (203,979,874) (102,704,330) (64,993,691) Decrease/(Increase) in other assets 29,339,959 (22,162,476) (25,359,583) (Decrease)/Increase in deposits from customers (45,693,357) 238,140,161 28,298,148 (Decrease)/Increase in other liabilities (25,170,395) 24,110,566 19,606,196 Interest received 40,107,858 40,316,892 22,707,396 Interest paid (25,991,640) (26,160,784) (14,942,793) Income tax paid (919,508) (564,550) (208,049) Net cash(used in)/ generated from operating activities (148,097,557) 50,894,710 (40,782,165) Cash flows from investing activities Decrease/(Increase)of investment securities 37,263,277 (36,503,483) (10,167,303) Purchase of property and equipment 19 (228,369) (491,119) (788,983) Proceeds from sale of property and equipment 37,917 265,022 2,743 Net cash used in investing activities 37,072,825 (36,729,580) (10,953,543) Cash flows from financing activities Receipts/(Repayment) of debt securities issued and other borrowed funds 25,410,350 (46,470,135) 31,219,472 Increase/(Decrease) in subordinated liabilities (1,265,038) 1,278,485 614,318 Share Fraction refund (97,572) - - Adjustment to Unclaimed Dividend - - 43,652 Proceeds from issuing shares and other equity instruments 60,000,000 17,849,268 4,164,048 Dividends paid (2,014,566) (1,989,709) (1,723,859) Net cash from financing activities 82,033,174 (29,332,091) 34,317,630 Net decrease in cash and cash equivalents (28,991,558) (15,166,961) (17,418,078) Cash and cash equivalents at beginning of year 15 70,698,904 82,225,554 104,597,018 Effect of exchange rate fluctuations (4,037,619) 3,640,311 (4,953,386) Cash and cash equivalents at end of year 15 37,669,727 70,698,904 82,225,554 37,669,727 70,698,904 5

6 1 General information The amalgamation of Indian Ocean International Bank Ltd (IOIB) with SBI International (Mauritius) Ltd., has been completed and the bank is operating as SBI (Mauritius) Ltd ('SBIML') as from 25th October, 2008. The financial statements have accounted for the merger by the pooling of interests method with the Income statement reporting the performance of the merged entity from 1st April 2008. The comparatives have thus been consolidated and restated to reflect these changes. 2 Summary of significant accounting policies Statement of Compliance The financial statements are prepared in accordance with and comply with the International Financial Reporting Standards (IFRs) and instructions, Guidelines and Guidance Notes issued by the Bank of Mauritius, in so far as the operation of the Bank is concerned.where necessary, comparative figures have been reclassified to conform with changes in presentation as per the revised Guidelines on Public Disclosure of Information, or in accounting policies in the current year. Basis of preparation The financial statements are prepared under the historical cost convention, except that available for sale financial assets are measured at fair value and land and buildings are measured at revalued amount. Functional and Presentation Currency The financial statements are presented in US Dollars (USD), which is the Bank's functional currency. Significant Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. Segmental Reporting A segment is a distinguishable component of the Bank that is engaged either in providing products or services (business segments) or in providing products or services with a particular economic environment (geographical environment) which is subject to risks and rewards that are different from those of other segments. In accordance with the Bank of Mauritius Guidelines, the Bank's business has been split into Segment A and Segment B Segment B is essentially directed to the provision of international financial services that give rise to foreign source income. Segment A relates to banking business other than Segment B business. Assets, liabilities and income have been classified into Segment A and Segment B on an actual basis, whereas all expenses have been apportioned on the gross income basis. Foreign Currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Bank at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate of that date. 6

2 Summary of significant accounting policies (continued) Interest Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. The calculation of the effective interest rate includes all fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition issue or disposal of a financial asset or liability. Interest income and expense presented in the income statement include: 1 interest on financial assets and liabilities at amortised cost on an effective interest rate basis 2 interest on available-for-sale investment securities on an effective interest basis Fees and Commissions Fees and commission income arise on financial services provided by the Bank Fees and commission income are accounted for in the period when receivable, except where it is charged to cover the costs of continuing service to, or risk borne for the customer, or is interest in nature. In these cases, it is recognised on an appropriate basis over the relevant period. Income tax expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it no longer probable that the related tax benefit will be realised. Financial Assets and Liabilities. Classification The Bank's accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances: 1 In classifying financial assets and liabilities as 'held for trading' the Bank has determined that it meets the description of held for trading assets and liabilities. 2 In designating financial assets and liabilities at fair value through profit and loss, the Bank has determined that it meets one of the criteria for this designation. 7 7

2 Summary of significant accounting policies (continued) 3 In classifying financial assets as held to maturity, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date. 4 The Bank classifies financial assets as Available for sale when they cannot be designated into category of financial assets. Recognition The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. Derecognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and and rewards of ownership of the financial assets are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Offsetting Financial assets and liabilities are set off and the net amount presented in the balance sheet when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a company of similar transactions such as in the Bank s trading activity. Fair Value Measurement The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, and valuation models. Identification and measurement of impairment At each balance sheet date the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or company of financial assets that can be reliably estimated. The Bank first assesses whether there is objective evidence of impairment individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Non-performing loans are impaired for doubtful debts identified during periodic evaluations of advances. Retail loans and advances are considered non-performing when amounts are due and unpaid for three months. Corporate loans are analysed on a case-by-case basis taking into account breaches of key loan conditions. The impairment of non-performing loans takes account of past loss experience adjusted for changes in economic conditions and the nature and level of risk exposure since the recording of the historic losses. 8

2 Summary of significant accounting policies (continued) The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If The Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a company of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment for impairment. If there is objective evidence that an impairment loss on financial asset has been incurred, the amount of loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the company and historical loss experience for assets with credit risk characteristics. Estimated of changes in future cash flows for company of assets should reflect and be directionally consistent with changes in related observable data from period to period. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. Under the Bank of Mauritius Guidelines on Credit Impairment Measurement and Income Recognition portfolio provision shall not be less than one per cent of aggregate amount of portfolio assessed loans. When a financial asset is uncollectable, or is written off against the related provision for loan impairment, such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occuring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value out of equity to profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised directly in equity. Changes in impairment provisions attributable to time value are reflected as a component of interest income. Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the balance sheet. 9

2 Summary of significant accounting policies (continued) Loans and advances Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. Investment Securities Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity, fair value through profit or loss, or available-forsale. Held-to-Maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available for sale. Held-to-maturity investments are carried at amortised cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held to maturity investments as available for sale for the current and following two financial years. Fair value through profit or loss The Bank carries some investment securities at fair value, with fair value changes recognised immediately in profit or loss as described in accounting policy. Available-for-sale Available for sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-forsale investment are carried out at fair value. Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in the profit or loss. Other fair value changes are recognised directly in equity until the investment is sold or impaired and the balance in equity is recognised in profit or loss. Land, building and equipment Recognition Land, building and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. Cost includes all costs directly attributable to bringing the asset to working condition for its intended use. Gains and losses on disposal of equipment are determined by reference to its written down value and are included in determining the operating profit. 10

2 Summary of significant accounting policies (continued) Subsequent costs The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. Depreciation Depreciation is calculated to write off the cost or revalued amounts of the tangible fixed assets over their estimated useful lives on straight line basis. Depreciation is calculated from the month the asset is capitalised. No depreciation is provided on freehold land. Depreciation are recognised in the income statement as follows: Leasehold land and buildings - Over the remaining term of the lease Building - 2% Computer, hardware and software - 33.33% Equipment, furniture and fittings - 10%-20% p.a Motor Vehicles - 20% p.a Impairment of non financial assets The carrying amounts of the Bank s non-financial assets, other than investment property and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.the recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Employee Benefits Defined Benefit Plans The Bank s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, that benefits is discounted to determine the present value of any plan assets is deducted. The discount rate is yield at balance sheet date. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement. In calculating the Bank's obligation in the respect to the plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the income statement over the expected average remaining working lives of the employees articipating in the plan. Otherwise, the actuarial gain or loss is not recognised. 11

2 Summary of significant accounting policies (continued) When the calculation results in a benefit to the Bank, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. State Pension Plan Contributions to the National Pension Scheme are expensed to the income statement in the period in which they fall due. Borrowings Borrowings are measured at amortised cost using the effective interest method. Deposits and subordinated liabilities Deposits are the Bank's source of debt funding. The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instrument. Deposits and subordinated liabilities are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the company chooses to carry the liabilities at fair value through the profit or loss. Acceptances Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be settled simultaneously with the reimbursement from customers. Acceptances are accounted for as offbalance sheet items and are disclosed as contingent liabilities. Related Paties For the purpose of these financial statements, parties are considered to be related to the Bank if they have the ability, directly or indirectly, to control the Bank or exercise significant influence over the Bank in making financial and operating decisions or vice versa, or where the Bank is subject to common control or significant influence. Related parties may be individuals or other entities. Operating Lease payments Payments made under operating leases are recognised in the income statement on a straignt line basis over the term of the lease Provisions A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation and reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 12

2 ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) In the current year, the Bank has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (the IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2008. The adoption of these new and revised standards and interpretations has not resulted in any changes to the Bank s accounting policies that would affect the amounts reported for the current or prior years. The Bank has adopted IFRS 7: Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 April 2008 and the consequential amendments to IAS 1: Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding financial instruments. At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but effective on annual periods beginning on or after the respective dates indicated IAS 1 Presentation of Financial Statements - Comprehensive revision including requiring a statement of comprehensive income (effective 1 January 2009) IAS 1 Presentation of Financial Statements - Amendments relating to disclosure of puttable instruments and obligations arising on liquidation (effective 1 January 2009) IAS 1 Presentation of Financial Statements - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 1 Presentation of Financial Statements Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IAS 7 Statement of Cash Flows Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IAS 16 Property, Plant and Equipment - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 17 Leases - Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IAS 19 Employee Benefits - Amendments resulting from May 2008 Annual improvement to IFRSs (effective 1 January 2009) IAS 20 Government Grants and Disclosure of Government Assistance - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 23 Borrowing Costs - Comprehensive revision to prohibit immediate expensing (effective 1 January 2009) IAS 23 Borrowings Costs - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 27 Consolidated and Separate Financial Statements - Consequential amendments arising from amendments to IFRS 3 (effective 1 July 2009) IAS 27 Consolidated and Separate Financial Statements - Amendment relating to cost of an investment on first time adoption (effective 1 January 2009) IAS 27 Consolidated and Separate Financial Statements - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 28 Investments in Associates - Consequential amendments arising from amendments to IFRS 3 (effective 1 July 2009) IAS 28 Investments in Associates - Amendments resulting from May 2008 Annual improvements to IFRSs (effective 1 January 2009) IAS 29 Financial Reporting in Hyperinflationary Economies - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 31 Interests in Joint Ventures - Consequential amendments arising from amendments to IFRS 3 (effective 1 July 2009) 13

2 ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)-(cont'd) IAS 31 Interests in Joint Ventures - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 32 Financial Instruments: Presentation - Amendments relating to puttable instruments and obligations arising on liquidation (effective 1 January 2009) IAS 36 Impairment of Assets - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 36 Impairment of Assets - Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IAS 38 Intangible Assets - amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 38 Intangible Assets - Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IAS 39 Financial Instruments: Recognition and Measurement - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) IAS 39 Financial Instruments: Recognition and Measurement - Amendments resulting for eligible hedged items (effective July 2009) IAS 39 Financial Instruments: Recognition and Measurement - Amendments resulting from Ammendents for embedded derivatives when reclassificatying financial instruments (effective 1 July 2009) IAS 39 IAS 40 IAS 41 IFRS 1 Financial Instruments: Recognition and Measurement amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) Investment Property - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) Agriculture - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 January 2009) First-time Adoption of International Financial Reporting Standards - Amendment relating to cost of an investment on first-time adoption (effective 1 January 2009) IFRS 2 Share-based Payment - Amendment relating to vesting conditions and cancellations (effective 1 January 2009) IFRS 2 Share-based Payment - Amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 July 2009) IFRS 3 Business Combinations - Comprehensive revision on applying the acquisition method (effective 1 July 2009) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - Amendments resulting from May 2008 Annual Improvements to IFRSs (effective 1 July 2009) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IFRS 7 Financial instruments disclosures - Ammendments enhancing disclosures about fair value and liquidity risks-(effective 1 January 2009) IFRS 8 Operating segments (effective 1 January 2009) IFRS 8 Operating Segments - amendments resulting from April 2009 Annual Improvements to IFRSs (effective 1 January 2010) IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008) IFRIC 15 Agreements for the Construction of Real Estate (effective 1 January 2009) IFRIC 16 Hedges of a Net Investment in a Foreign Operation (effective 1 October 2008) IFRIC 17 Distributions of Non-Cash Assets to Owners (effective 1 July 2009 ) IFRIC 18 Transfers of Assets from Customers (effective 1 July 2009) The directors anticipate that the adoption of these Standards and Interpretations on the above effective dates will have no material impact on the financial statements of the company. 14

3 Financial risk management Introduction and Overviews The Bank has exposure to the following risks from its use of financial instruments 1 Capital Risk 2 Credit Risk 3 Market Risk 4 Operational Risk This note presents information about the Bank s exposure to each of the above risks and its objectives, policies and processes for measuring and managing risk. Capital Risk The Bank manages its capital to ensure that the entity will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Bank s overall strategy remains unchanged from previous years.the capital structure of the Bank consists of debt, which includes the borrowings, cash and cash equivalents and equity attributable to equity holders comprising issued capital, reserves and retained earnings. Credit Risk In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank reflects three components (i) the probability of default by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Bank derive the exposure at default ; (i) The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. These tools have been developed internally and combine statistical analysis with credit officer judgement and are validated, where appropriate, by comparison with externally available data. Risk limit control and mitigation policies The Bank manages limits and controls concentrations of credit risk wherever they are identified, in particular, to individual counter parties and companies, and to industries and countries. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an half-yearly or more frequent review, when considered necessary.limits on the level of credit risk by product, industry sector and by country are approved by the Board of Directors. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrower to meet interest and capital repayment obligation and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below Collaterals The Bank employs a range of policies and practices to mitigate credit risk. The amount and type of collateral required depend on the counterparty'scredit quality and repayment capacity. The principal collateral types for loans and advances are: Fixed and Floating Charges over business assets such as premises, inventory and accounts receivable; Charges over financial instruments such as cash collateral, debt securities and equities. Mortgages over residential properties Corporate guarantees and letter of support Personal guarantees 15

3 Financial risk management (continued) Longer-term finance and lending to corporate entities are generally secured; revolving individual short term credit facilities are at times unsecured. In addition, in order to minimise the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments. Credit - related commitments The primary 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 cusomer cannot meet its obligations to third parties-carry the same credit risks as loans. Documentary and commercial letters of credit which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions. Commitments to extend credit represent unused portions of autorisations 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, as 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. The Bank's policy is to require suitable collateral to be provided by certain customers prior to the disbursement of approved loans. Impairment and provisioning policies The internal and external rating systems focus more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes. The impairment provision shown in the balance sheet at year-end is derived from each of the four rating grades.however, the majority of the impairment provision comes from the bottom two grading. The table shows the percentage of the Bank's on-and off-balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank's internal rating categories: The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set out by the Bank: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (eg equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower's competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level 16

Loans and Advances Exposure to Credit Risk 2009 2008 2007 USD USD USD Carrying Amount 501,977,326 382,348,681 181,746,514 Individually Impaired 7,394,845 12,612,863 7,234,343 Impairment allowance (4,301,607) (4,906,018) (4,990,340) 3,093,238 7,706,845 2,244,003 Past due but not impaired Carrying Amount 607,613 184,460 259,919 Neither Past due nor impaired Gross Amount 503,381,696 376,545,708 180,220,669 Portfolio Provisions (5,105,221) (2,088,332) (978,077) 498,276,475 374,457,376 179,242,592 The total impairment provision for loans and advances is USD 9,406,828 (2008: USD6,994,350 and 2007: USD5,968,417). Credit quality The Bank has been consistently applying the guidelines issued by Bank of Mauritius for identifying its non-performing assets and making appropriate provisions. In accordance with the guidelines, the credit quality of the loans and advances for the last three years has been as follows: 2009 2008 2007 USD USD USD Standard 503,989,309 376,730,168 180,480,588 Impaired 7,394,845 12,612,863 7,234,343 Total 511,384,154 389,343,031 187,714,931 17