A three-pronged strategy of international diversification, digital transformation and sustainable development, made the MCB better prepared to face this crisis, says Alain Law Min.
Despite the Covid-19 crisis, MCB Group has shown strong growth. How do you explain this resilience?
We have been confronted by a number of challenges since March last year. With the pandemic, our frontiers remained closed and as a result, a substantial part of our economy was at a standstill. Moreover, we have had to cope with other unfavourable events.
The FATF (Financial Action Task Force, the global money laundering and terrorist financing watchdog) placed us on its grey list and, subsequently, the EU placed us on its blacklist. Moody’s downgraded the country’s sovereign rating, which led to a downgrade of the rated banks in Mauritius.
Unfortunately, the country also had to deal with the Wakashio shipwreck oil spill.
It is in this context that we have to analyse MCB Group’s results, which posted a growth of 1.4% in net profit after tax for the Financial Year 2021 to reach Rs8bn ($182.5m), despite setting aside material provisions for expected credit losses. Overall, both MCB Group Ltd and MCB Ltd (the bank), which represents approximately 90% of the Group’s results, have been resilient. As an indication, notwithstanding the impact of the economic downturn, market volatilities and squeezed margins on revenue lines, the bank managed to increase its operating income by 2.4%.
Over the past five years, we have built an operating model based on our three-pronged strategy of international diversification, digital transformation and sustainable development, which made us better prepared to face this crisis.
With respect to our international diversification, we have developed our expertise in a number of niche products and services, such as commodity trade finance in oil and gas; specialised project finance in power and infrastructure; private banking and wealth management; and global markets as well as treasury products for our international businesses. These areas of activities have progressed well despite the pandemic.
As a result, we have grown our balance sheet by more than 20%, thanks to a large extent, our specialised finance businesses. Locally, in the face of notable pressures induced by the pandemic on the level and quality of credit demand in both the retail and corporate segments locally, we came up with adapted solutions to support our clients in these testing times, in the process working closely with the authorities.
Our digital transformation programme, which we started in 2018, has enabled us to be better prepared to serve our customers in a fast, easy and convenient manner during the pandemic. Many customers adapted to digital banking more easily, using our mobile app, MCB Juice, for payment of food and groceries online and for online credit applications. Investment in technology also allowed us to maintain business continuity, with more than 75% of our staff working from home, at the peak of the crisis.
During the crisis, sustainable development has been at the forefront of our actions, which is aligned with our corporate sustainability programme – ‘Success Beyond Numbers’ – launched in 2018. The three pillars of the programme centred on supporting local businesses, preserving our environment and promoting the wellbeing of our employees and communities, became increasingly relevant during the pandemic. This may have been related to the disruption in supply chains, leading to an increased focus on local production by SMEs or keeping the right balance between providing service to the customer and preserving the health and safety of our employees.
In this challenging context, the bank preserved its financial soundness by maintaining healthy asset quality, liquidity and capital ratios. Our gross NPL (non-performing loans) ratio improved to reach 3.2%, while our liquidity coverage ratios were comfortably above the regulatory norms. We also maintained strong capital positions with our capital adequacy ratio of 16.8% and a Tier ratio of 15.8%, which remain well above the regulatory requirements.
Looking ahead, based on its strong fundamentals, the bank is well-positioned to respond effectively to future challenges and play an active role in supporting economic recovery. We will consolidate our operating model by further developing our strategic pillars and leveraging on our strong customer base, to broaden and deepen our reach.
How do you welcome the recent decision of the FATF to remove Mauritius from its grey list? What does it mean for the Mauritius IFC?
The inclusion of our jurisdiction in the FATF grey list and the European Union black list had a material impact on the Mauritian financial services sector, including its banking sector. This required banks and non-bank financial institutions to carry out additional due diligence on cross border transactions and on KYC onboarding. In addition, the reputation of Mauritius as an international financial centre was compromised, especially with the DFIs, which were considering alternatives to channelling their funds via Mauritius, in order to invest in Africa.
Thanks to the concerted and assiduous efforts of the government, the regulatory authorities and the private sector, the deficiencies identified by FATF were promptly addressed and remedied. At MCB, we welcome the news of the removal of Mauritius from the grey list of FATF, which should pave the way for the exit of Mauritius from the EU blacklist soon. The image of Mauritius as a credible and reputable International Financial Centre will thus be restored and will continue to attract international corporates, private equity funds, asset managers and trusts for investment in Mauritius and into Africa. The recently signed trade agreements with India and China, coupled with the African Continental Free Trade Agreement, should also provide new opportunities for Mauritius to act as a keystone in attracting trade and investment flows. This will give a much-needed boost to FDI in Mauritius as well as provide opportunities for our skilled workforce, to service this key segment of our economy.
You previously talked about the NPL level within the banking sector? To what extent is the local banking sector affected by credit impairments following the Covid-19 outbreak?
The sudden closure of our borders led to a major drop in tourism and tourism-related activities, with real GDP falling by 15% from one year to the next. Since the start of the pandemic, the government and the regulatory authorities comforted the operators by providing support to the economy, which helped to avoid a financial crisis. The government set up the wage assistance scheme and the self-employed assistance scheme, to protect the systemic sectors and avoid massive redundancies.
The Bank of Mauritius put in place support programmes, in collaboration with the banking sector, which included a moratorium on capital repayments to retail customers, SMEs and Corporates and working capital credit facilities, for customers affected by the pandemic. The Mauritius Investment Corporation, set up by the Bank of Mauritius, has provided quasi-equity funding to the systemic companies, especially within the tourism sector. All these measures have helped the operators affected by the pandemic, to maintain their workforce and their operations during the lockdown period. As a result, most banks’ NPL has been maintained at an acceptable level, with the gross NPL ratio for the overall banking sector standing at 4.8% as of June 2021. The resilience of banks has also been enhanced with additional provisions for Expected Credit Losses, in the wake of the drop in economic activities across sectors.
With its Bank of Banks initiatives, the MCB has positioned itself as a regional hub for Africa without necessarily setting up shop on the continent. Why this strategy?
We have a universal banking model in Mauritius offering the full suite of products and services to both retail and corporate customers. However, our overseas diversification in Africa has centred on the development of specialist areas of activities, as previously described.
To support our international business expansion, we have leveraged our business network on the continent and forged mutually beneficial relationships with peers by capitalising on a wide network of correspondent banks, including over 100 in Africa.
The Bank also taps into synergies with the Group’s foreign banking subsidiaries in Madagascar, Maldives and Seychelles as well as its overseas associates, in Reunion, Mozambique and Mayotte, while leveraging our strategically positioned representative offices notably in Johannesburg, Nairobi, Paris and Dubai. They play a pivotal role in reinforcing existing coverage and relationships with clients and strengthening risk understanding, identification and management through on-field intelligence while capturing emerging business opportunities.
This flexible model has enabled us to effectively accompany our clients abroad, notably in Africa and the Indian Ocean region. Today, our foreign-sourced income accounts for more than 50% of our profits, and we aim to grow this share further.
What are these products and services that MCB has been able to offer to its customers in mainland Africa?
As stated earlier, we have built our expertise on selected products and services. One of our key areas of activities is related to commodity trade finance, especially in oil and gas, and the financing of its upstream activities. We have successfully developed this franchise, which has made us a reputable and reliable player in that ecosystem. In project finance, we have specialised in power, infrastructure, hospitality and telecommunication which are sectors where we can add value.
Private banking and wealth management is another focus area, leveraging on our strong customer base of private customers and asset managers. We also provide treasury management and global markets products for our global and international customers using Mauritius as an International Financial Centre. As far as FIs are concerned, we are complementing the service offering for their customers, by proposing our suite of products and services, most relevant for each individual bank.
With the economic contraction of 15% last year, what are the Mauritian economic sectors which are most resistant to the crisis and offer the best prospects, in your opinion?
All the sectors have been impacted one way or the other. The least impacted sectors have been the digital and financial services sectors. The ICT sector has been resilient during the pandemic, especially with call centres and back-office outsourcing activities. Investment in digital technology as a means to ensure business continuity and facilitate transactions have also been one of the key growth areas.
Despite the FATF grey list, the financial services sector has performed relatively well. The activities of existing international companies using Mauritius as IFC have been maintained, with foreign deposits increasing. The construction sector is recovering well from its dip last year, supported by the government investment in road and transport infrastructure, while we are also seeing a number of private projects coming through, namely in the energy and real estate sectors.
What are some of the key African markets that the bank is hoping to expand into in the coming years?
The African continent remains our key target as we firmly believe in its future economic progress. We will continue to focus on developing strong relationships with our customer base and how best to serve them in their ventures within their key markets across the African continent.
We will also leverage our representative offices on the continent to improve our coverage. We recently upgraded our representative office license in Dubai to improve our reach and, in view of our involvement in West Africa, we are currently applying for a representative office licence in Nigeria.
Overall, we will continue to leverage our tried-and-tested business model and focus on developing our regional as well as international business by organic growth. This is aligned with our aim to widen the bank’s footprint in Africa in a progressive and well-calculated manner.
What will be the impact of the $1bn syndicated loan?
The syndication loan forms part of our strategy to continuously optimise and diversify our short and medium-term funding profile. Initially launched at $600m, the facility was closed at $1bn in September 2021 after receiving commitments in excess of $1.6bn from 31 lenders. It is also worth noting that the facility was the largest financing to a corporate borrower in Africa this year when it was concluded. This testifies to MCB’s strong appeal to investors in the global financial market, the recognition of our investment-grade creditworthiness as well as lenders’ confidence in our strong fundamentals and international growth prospects.
The proceeds will be used to refinance our obligations and for general corporate purposes, including trade finance. Indeed, this line of credit will sustain our strategic endeavours to pursue the expansion of our international business in the region and across Africa. We aim to position ourselves as a prominent player within the energy & commodities segment, and gradually build an African power and infrastructure franchise, alongside deepening relationships with regional and international corporates and private equity funds.
What is your outlook for the MCB Group and the Mauritian economy for 2022?
It is difficult to predict the future, especially in such uncertain times. So far, MCB Group and MCB Ltd have been resilient despite the impact of the pandemic, the FATF grey list and Moody’s downgrade thanks to our sound business model.
Looking ahead, we have every reason to be optimistic with the opening of our frontiers since the beginning of October. If the positive trend being observed in tourist arrivals is sustained, we should see the start of an economic recovery.
On the financial services front, the exit from the FATF grey list should help attract more FDI flows and create more employment in a sector, which today represents 13% of the economy.
Finally, with the collaboration of the public and private sectors to build back better the economy, we are hopeful that there will be increased investment in green energy, in infrastructures, such as port facilities and transport, and in the digitisation of services, which will improve productivity and facilitate business growth.
MCB Group and MCB Ltd will continue to play their role in supporting the local economy – as the impacted sectors gradually find their way to recovery – and participating in the investment effort to build back the economy. Thanks to its strong fundamentals, in terms of capital and liquidity, the bank stands to benefit from the recovery in the local economy. On the international front, we will pursue our successful diversification strategy by focusing on our strong relationships built up over the years and effectively servicing our customers, thanks to our expertise in delivering value-added products and services.
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