This financial year’s performance was impacted by the weight of COVID-19 that bore down upon us. It was a challenging year as we navigated through this pandemic underpinned by uncertainty and challenges that it imposes on everyone. However, we are proud to witness the resilience, talent and innovation attributes of our community. The Bank’s fast-tracked digital initiatives aided to promulgate technological end-to-end solutions for our customers to transact and operate from anywhere. Our team created an optimal support system to help satisfy the requisites of our customer demands which attested for quality clientele relations, an agile management and nimble execution.
Despite the headwinds during FY2021 as we operated in an environment affected by pressures on interest rates to boost economies, the Bank’s net interest spread was more than halved down. Our net interest income was nearly reduced in half with a year-on-year (“y-o-y”) drop of 47% with the impact spreading through customers, banks and securities. We observed downgraded yield levels across our books as a direct consequence dropping Fed rates, KRR and LIBOR rates. Given that the interest rate cuts were made in March 2020, it is only in this financial year around Q2 and Q3 that the net interest margin took full bearing of those drops – the aggregate effects being the drastic reduction of our prime lending rates, deposit grids and savings rate.
On the non-interest income side, more specifically net fee and commission income, we observed a growth of MUR 72.5m, that is, 15% contributing towards the Bank’s total operating income at the back of higher transactional volumes on the commission earnings end plus higher custody fees based on the growth in AUC. However, these effects were offset by net lower card fees income. On the trading income side, amidst the interest rate headwinds and drop in the level of secondary market activity, a 27% dive was noted. A 75% fall was noted for net gain on debt instruments measured at fair value through profit or loss with losses made on foreign exchange derivatives supported by a 36% increase in gain on foreign exchange.
The Bank recorded a 45% drop in our impairment losses on financial assets based on the assessment of our book with 85% of our impairment charges derived from loans and advances to customers with a drop of 57% y-o-y. The Bank’s bad debts recoveries were lower compared to last year at MUR 32.0m.
In line with the uncertainty in all economies and as required under IFRS 9, the Bank factored in additional post model adjustments on COVID-19 impacted exposures and restructured facilities. The Bank also took account of COVID-19 Support Programme mandated by the Bank of Mauritius which was extended to 30 June 2022 on 10 June 2021 in the post model adjustments. While we increased our provision level on Stage 1 and 2, it is the drop in Stage 3 that drove the fall in impairment levels for this financial year at the back of strong Stage 3 impact that were recorded in the prior year.
Expenses were 8% lower at MUR 100.0m as we incurred lower advertising and marketing expenses, travelling expenses and general expenses in line with dampened economic activity. Staff costs slightly different with an increase in base salaries due to higher headcount but offset by lower bonus accruals. The early down payment we made in digital transformation positioned us well to ride these challenging times, and on an IT front, we maintained our investment level more or less equal to last year. But in finding the right equilibrium between our income and expenses, the cost-to-income ratio deteriorated by eleven percentage point to 42%.
Despite the significant economic impact of the pandemic, we noted strong business momentum, the strength of our deposit franchise created a growth of 19% to MUR 179.2bn in our deposit base with more prolific CASA inflows which featured a 32% growth y-o-y which mitigated the expected consequences from the pandemic and EU blacklisting. From an asset standpoint, the 18% growth in total assets was channelled mostly in cash and cash equivalents and due from banks which registered a 44% hike y-o-y more precisely in placements and nostros which is in line with the Bank’s risk appetite. On the loans side, in line with our conservative lending approach, a 10% dip was noted, with the non-performing assets (“NPA”) climbing with one percentage point to 9% with a coverage ratio of 79%. For investment securities, we noted a drop of 7% to MUR 45.4bn driven by lower investment (14%) in debt instruments measured at amortised cost for the year under review.
