* Cost/income ratio rises, below 40 percent target threshold
* Capital, liquidity a sufficient buffer against any shocks
* Dividend up 7.8 percent
PORT LOUIS, Sept 25 (Reuters) - State Bank of Mauritius posted a 3.79 percent fall in full-year net profits on Friday, but said business volumes had improved and its balance sheet provided a sufficient buffer against any shocks.
SBM, the second-largest bank on the island with about a 25 percent market share, recorded net profit of 2.03 billion rupees ($66 million) for the year ended June 30, from 2.11 billion rupees the previous financial year.
"Business volumes were significantly up year-on-year, with gross advances to customers and investment securities increasing by 12.7 percent to 40.8 billion rupees and by 27.5 percent to 19.0 billion rupees respectively," the bank said.
"Customer deposits went up by 15.9 percent to reach 63.6 billion rupees as at June 2009," it said in a statement.
SBM said it paid out a final dividend of 2.75 rupees per share, up 7.8 percent on the previous financial year.
SBM's stock price was down 1.86 percent at 79 rupees per share at mid-morning on Friday, but was more than double its March 3 low of 37.8 rupees.
Analysts say the Indian Ocean island's banks have remained fundamentally sound throughout the global financial crisis because 70 percent of lending comes from deposits.
But in July, ratings agency Moody's said it was reviewing SBM and Mauritius Commercial Bank, the island's largest company, and might lower their ratings for financial strength, long- and short-term local currency deposits and issuer ratings.
ASSET GROWTH
The group's cost-to-income ratio rose to 38.4 percent from 37.1 percent the previous year on account of lower investment income, but remained below its target threshold of 40 percent.
Total assets stood at 79.2 billion rupees, up 17.3 percent on June 2008. Foreign assets grew by 49.3 percent, representing 31.4 percent of total assets in financial year 2009 against 24.6 percent the previous period.
"The group has continued to maintain a sound balance sheet, with strong capital level at around 24 percent and ample liquidity, that will provide (a) sufficient buffer ... against unanticipated shocks, should they arise," SBM said.
SBM said asset quality over the period had improved despite the slowdown in economic activity locally and worldwide. It said domestic activity had slowed, mainly due to below-par performances in key export-led sectors.
It said there were signs the global downturn may have bottomed out but cautioned that the international environment remained fragile amid large fiscal and monetary imbalances, while access to credit remained difficult in many countries.
Earlier this week, the central bank told Reuters the $9 billion economy would grow by more than 4 percent next year, with a robust recovery expected in crucial sectors during the second half of 2009 and continuing into 2010.
The banking group is engaged in retail and corporate banking, currency and securities trading, e-Business, leasing and asset management. (Writing by Richard Lough; editing by David Clarke and Rupert Winchester)