confidence - Investing In Africa

Management Discussions & AnalysisFinancial Review (cont’d)The decrease in staff costs from Rs483.8M for 2004 to Rs403.4M for 2005 ismostly due to one-time expenses amounting to Rs88M in 2004 coupled withlower provisions for productivity bonus for 2005. System costs increased by73.0M or 36.49% to reach Rs273.0M for 2005 mostly because of (a) changein the depreciation estimate for Core Banking IT systems resulting in additionaldepreciation charge (b) increase in hardware and software maintenance dueto the lapse of the warranty period. Property costs increased marginally fromRs140.5M for 2004 to Rs142.5M for 2005. Supplementary depreciationamounting to Rs29M on properties now stated at revalued amount was offsetby lower depreciation amounting to Rs39M on furniture and equipment whichwere fully depreciated at June 30, 2004. The increase in other expenses fromRs80.7M for 2004 to Rs103.0M for 2005 was mostly due to higher one-timelegal costs.Adjusting for the one-time staff costs in 2004, higher depreciation arising fromthe change in the depreciation rate for Core Banking Systems and revaluationof properties and lower depreciation from fully depreciated Plant andEquipment and Furniture, non interest expense increased from Rs817M for2004 to Rs887.4M for 2005, representing an increase of 8.6%. Non interestexpense excluding depreciation and one-time items was Rs678.7M or 1.48%of Average Assets for 2005 against Rs624.5M or 1.58% for 2004.102Cost to Income RatioCost to income ratio, a key measure of efficiency in the banking industry isderived by dividing total non interest expense by gross income from operations(adjusted for grossing up of interest on tax free debentures) less provisions forcredit losses. Cost to income improved marginally from 40.15% for 2004 to38.91% for 2005 mostly due to higher staff costs in 2004. Excluding one-timeitems, cost to income ratio for 2004 and 2005 was 37.27% and 39.49%respectively. The deterioration of this ratio for 2005 was because of lowergrowth in gross income of 2.4% whereas expenses increased by 8.6% and wasmitigated by lower provisions for credit losses for 2005. SBM cost to incomeratio continues to be the lowest among the Mauritian local banks and one ofthe best in terms of global standards.Provisions for Credit LossesSpecific and portfolio provisions for credit losses for the period under reviewamounted to Rs160.6M compared to Rs179.7M last year, representing adecrease of 10.67%. However, the net charge for credit losses to the incomestatement was Rs78.6M, mostly because of reversal of specific provisionsamounting to Rs88.5M. Recoveries of advances written off amounted to Rs7Mfor 2005 against Rs2M for 2004.