Introduction to Mercantile Bank Ltd

Introduction to Mercantile Bank Ltd.

Mercantile Bank Ltd. is committed to provide high quality services to its constituents through different financial products and profitable utilization of fund and contribute to the growth of GDP of the country by financing trade and commerce, helping industrialization, boosting export, creating employment opportunities for the educated youth and encouraging micro-credit leading to poverty alleviation and improving the quality of life of the people and thereby contributing to the overall socio-economic development of the country.

With this vision mentioned above, Mercantile Bank Limited was incorporated in Bangladesh as a public limited company with limited liability under the Bank Companies Act, 1991 on 20th May 1999 and commenced commercial operation on 02 June 1999. MBL now is one of the most renowned bank in the private sector.

The commercial banking activities of the Bank are encompasses a wide range of services including accepting deposits, making loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collecting, issuing guarantee, acceptances and letters of credit.

Vision, Mission, Objectives & and Core Values

Vision Statement: Would make finest corporate citizen.

Mission Statement: Will become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable bank.

Objectives

Strategic objectives:

  To achieve positive economic value added (EVA) each year.

  To be market leader in product innovation.

  To be one of the top three financial institutions in Bangladesh in terms of cost efficiency.

  To be one of the top five financial institutions in Bangladesh in terms of market segments we serve.

Final Objectives:

  To achieve a return on shareholder’s equity of 20% or more, on average.

Core Values

For the customers     : Providing with caring services by being innovative in the development of new banking products and services.

For the shareholders : Maximize wealth of Bank.

For the employees     : Respecting worth and dignity of individual employees devoting their energies for the progress of the Bank.

For the community    : Strengthening the corporate values and taking environment and social risks and reward into account.

Corporate Information

as on 31st December 2005

  Date of Incorporation                       :     20th May 1999

  Inauguration of 1st Branch                :     02 June 1999, Main Branch, At Dilkusha.

  Commencement of Business             :     02 June 1999

  Authorized Capital                            :     Tk. 1,200.00 million

  Paid-up Capital                                :     Tk. 999.26 million

  Capital Adequacy                             :     10.39 % ( Tier-I: 9.29%, Tier-II: 1.10%)

  Deposit                                           :     Tk. 25,727.43 million

  Investment                                      :     Tk. 3,517.68 million

  Export Business                               :     Tk. 24,108.57 million

  Import Business                               :     Tk. 33,271.90 million (14,852 letter of credit)

  Foreign Remittance                          :     Tk. 679.10 million

  Number of Branches                        :     29

  Number of Shareholder                    :     5,199 (Sponsors 53.04%, FI’s 11.44%, General                                  Public 33.10%)

  Manpower                                       :     663

 Capital

The authorized share capital of Mercantile Bank Ltd. was Tk. 800.00 million when the bank started its operation. The paid-up capital of the bank was Tk. 245.00 million. Now at the end of year 2005 authorized capital is raised to 1200.00 million (12,000,000 ordinary shares of Tk. 100 each) and the paid up capital Tk 999.27. The Bank went for issue of shares on Octover, 2003 and its shares are listed with both Dhaka Stock Exchange and Chittagong Stock Exchange. During 2004, 7,994,125 ordinary shares of Tk. 100 each were issued; up to year 2006 9,992,656 ordinary shares were issued, subscribed and fully paid up.

Particulars of Fully Paid-up Share Capital:

No. of Shares

(%)

Sponsor

5,542,594

55.46

Financial Institutions

1,142,722

11.44

General Public

3,307,340

33.10

 Capital Adequacy:

As per the guidelines of the Bangladesh Bank MBL adopted GIS risk adjusted capital standards to measure capital adequacy (9% of total risk weighted assets). MBL’s capital adequacy ratio stood at 10.39% (Tier-1, 9.29% and Tier-II, 1.10%) in 2005 against 10.24% in 2004.

Comparative position of Capital Structure of the year 2005 & 2004 is given below:

(Taka In Million)

Particulars

30.06.06

2005

2004

A. Core Capital (Tier-I)
  a) Paid-up Capital

1,199.12

999.26

799.41

  b) Statutory Reserve

625.21

532.55

391.88

  c) Retained Earnings

138.89

251.69

205.38

  d) Dividend Equalisation Fund

45.68

45.68

45.68

    Sub Total

2,008.90

1,829.18

1,442.35

B. Supplementary Capital (Tier-II)
  e) General Provision

275.80

214.34

173.14

  f) Exchange Equalization Account

2.32

2.32

2.32

    Sub Total

278.12

216.66

175.46

Total Capital

2,287.02

2,045.85

1,617.81

  Performance Record of MBL 

MBL is showing a very excellent growth in mobilizing deposit, making loans and advances and in export-import businesses. The growth in deposit mobilisation is due to introduction of a number of attractive deposit schemes for the small and medium savers. The percentage of non-performing loan (NPL) become steady around 4.10 % for the last three years, this ratio is acceptable in the context of overall banking sector performance. Bank has made full provision required for the NPL.

The Bank is also able to strengthen its capital structure to become able to cope up with unfavourable circumstances. Bank is also continuously trying to increase its no. of foreign correspondence in order to increase and also facilitate its trade payments. The remittance handling of MBL has been substantially increased to Tk. 1,284.30 million in the first six months operation of the year 2006 in compare to Tk. 679.10 million in the year ended on 2005. Bank’s return on equity for the last three years remain close to 20% which indicates that banks target to achieve at least 20% ROE were met. But in the earlier years this rate was as high as 43.58%. The reason behind this may be, Bank is continuously increasing its equity portion of its capital to maintain its capital adequacy over the years.

Financial Data from 2001 to 2006 is given below:

(Taka In Million)

Particulars

2001

2002

2003

2004

2005

30.06.06 (P)

Authorized Capital

1,200.00

1,200.00

1,200.00

1,200.00

1,200.00

1,200.00

Paid-up Capital

276.85

319.77

639.53

799.41

999.27

1199.11

Total Equity (Tier-I)

527.18

593.10

1,129.77

1,442.35

1,829.19

2,008.90

Total Capital (Tier-I & II)

596.44

684.56

1,235.23

1,617.81

2,045.85

2,072.68

Total Deposit(including bill payable)

12,234.70

15,150.42

16,285.19

22,385.19

25,727.43

27,986.67

Total Loans and Advances

6,707.42

8,896.19

10,775.95

17,669.29

21,857.05

26,228.63

Non-performing loans (NPL)

5.16

37.49

444.02

726.17

905.74

% of NPL of total loans and advances

0.08%

0.42%

4.12%

4.11%

4.14%

Provision for classified loans

1.30

12.30

145.30

342.80

523.00

Total Foreign Exchange Business

23,033.90

26,986.10

36,105.40

46,407.50

58,059.57

39,502.90

a) Import

12,268.00

15,112.50

20,380.80

28,325.20

33,271.90

21,876.80

b) Export

10,457.50

11,377.30

15,250.60

17,411.00

24,108.57

16,341.80

c) Remittance

308.40

496.30

474.00

671.30

679.10

1,284.30

Return on Equity

43.58%

40.05%

22.49%

21.91%

21.12%

No. of Foreign correspondents

145

215

240

255

266

(P) Indicates provisional figures.

The cost of fund of the bank for the year ended in 2005 is 8.42%; it was 8.10% in the last year. Net interest margin decreases to 3.05% from 3.24% in the preceding year. But interest margin 3% is very acceptable in the context of banking business of Bangladesh. Book value per share gradually increased to Tk. 204.74 from 202.38 in the year 2004.

Operating Results

The Bank earned handsome amount of profit every year since it’s commence its business. Net profit before tax of the Bank as on 31st December 2005 was Taka 386.83 million as against Taka 312.58 million during the preceding year. In the last five months of the current year bank have earned Tk. 229.68 million (if annualized Tk. 459.36 million) after tax profit. If the same trend continues for the rest of the year bank would earn Tk. 459.36 million. The chart below shows how different parameters of income statement changed over the years.

Analysis of income at different periods

(Taka in Million)

 

1999

2000

2001

2002

2003

2004

2005

30.06.06

Interest Income

86.18

490.85

964.59

1281.19

1588.67

2120.82

2720.38

1532.58

Interest Expense

62.47

364.95

700.99

923.11

1115.82

1509.00

1987.16

1224.74

Net INt. income

23.71

125.90

263.60

358.08

472.85

611.82

733.22

307.84

Non intt. income

28.65

178.40

304.31

311.11

401.05

596.85

752.13

697.50

Non intt. expense

32.21

112.17

163.75

207.95

298.58

386.91

518.12

313.95

Profit Aft. Tax

6.88

97.06

214.96

256.54

215.91

312.58

386.83

229.68

Branch Network

The Bank commenced its business on June 2, 1999. The first branch was opened at Dilkusha Commercial Are in Dhaka on the inauguration day of the Bank. 10th branch was opened on October 29 and 20th branch on 24 December, 2003. The number of branches of the Bank stood at 28 at the end of 2005 of which 22 branches are located at major trade centres of the country while remaining 6 branches are at the rural areas of the country. The bank has already established three more branches in the year 2006.

 Human Resources Development

The Bank Believes in professional excellence and considers its working force as its most valuable asset and basis of its efficiency and strength.

The Bank has set up Training institute for providing training facilities to its executives/officers. The Training Institute has already conducted a number of foundation and specialized training courses. A number of officers were sent to BIBM and other training institutes at home and abroad for specialized training on various aspects of banking.

Total number of employees of the Bank stood at 663 as on 31st December, 2005 as against 544 as on 31st December, 2004. The manpower position of last 6 years is given below:

Manpower Position Of Last 6 Years

Category

2000

2001

2002

2003

2004

2005

All Category

219

305

363

492

544

663

Total Branch

10

14

15

20

25

29

Per branch Employee

22

22

24

25

22

23

119 officials were recruited in 2005 to meet the additional requirement of manpower to handle the increased volume of business, and to manage new branches.

 Present Scenario

Risk Management:

The prime objective of risk management is that Bank takes well-calculate business risks while safeguarding the Bank’s Capital, its financial resources and profitability from various risks. The risk management of MBL covers 5 core areas of banking i.e. Credit Risk Management, Foreign Exchange Risk Management, Asset Liability Management, Prevention of Money Laundering and establishment of Internal Control and Compliance.

MBL and Social Responsibility:

As corporate citizen MBL considers it important to act in a responsible manner towards the environment and society. MBL commitment has always been to behave ethically and to contribute towards the improvement of quality of life of the people, the community and greatly the society.  MBL have already established Mercantile Bank Foundation in which the Bank contributed 1% of operating profit or Tk. 4.00 million each year. MBL have been awarding 8 eminent personalities of the country each year since 2002 for the outstanding contribution in their respective fields. MBL also assists the handicapped artist, litterateur and distressed people in their medical treatment.

Goals for 2006 and beyond:

  Expanding network

  Investing in people and technology

  Allocating funds to maximize returns

  Shouldering corporate social responsibility

  Instituting best corporate governance practices

  Implementing Basel II in due course

Information Technology:

Banking operations of the branches have been computerized to minimize costs and risks and to optimize benefits and increase overall efficiency for improved services.

Bank has installed Reuters Screen for smooth operation of foreign currency dealings. The Bank also hosted a web page of its own to take a place in the world wide web.

Online Banking has been introduced to provide better services to customer. The Bank has introduced the Q-cash. The Bank has installed SWIFT to facilitate quick international trade and payments arrangements.

The Bank has already introduced VISA debit and credit cards.

MBL is quickly adapting the changes in the environment, taking the opportunity to use modern computer and information technology and also introducing new products to its product line. The financial performance over the year was also very sound. MBL is expanding its branch network to avail the more investment/business opportunity. It has very talented and expert human resources and always recruits high quality officers in their management positions. So there every possibility that this progress of MBL will b

Authorization of the Report

This Report has been prepared on the basis of my practical experiences on the day-to-day banking activities in Mercantile Bank Ltd., Ring Road Branch under the close supervision of my internal Guide Teacher Mr. Nurul Haque Majumder and overall guidance from the Director, Center for Post Graduate Studies (CPGS) Dr. Toufic Ahmad Choudhury.

The practical orientation in banks has been made an integral part of the MBM (Masters in Bank Management) Degree requirement. The objective of the MBM Program is to equip individual students to develop the specific skills and the breadth of judgment required to become effective financial executives or bankers. This MBM course is designed with an excellent combination of theoretical and practical aspects. The whole course is divided in to six terms of four months each. After the completion of first two terms consisting of theoretical exposure, the students are sent to different banks having some practical exposure to banking which would help them in taking up more professional courses in final year.

For fulfilling this very requirement, I was sent to Mercantile Bank Ltd., Kawran Bazar branch where I worked as an interne for about 07 weeks started from September 18, 2006 to November 09, 2006.

Objectives

The prime objectives are –

  To fulfil the course requirement of MBM Program;

  To apply theoretical knowledge in the practical field.

  To help the students in taking up professional courses in the second year.

  To have exposure to the functions of general banking section.

  To have exposure to the functions of credit section.

  To have exposure to the functions of foreign exchange section.

  To acquaint with day–to–day functioning of service oriented banking business;

  To study existing banker-customer relationship.

Scope

Mercantile Bank Limited is one of the private commercial banks in Bangladesh containing a network of 29 branches over the country. The scope of the study is limited to the Kawran Bazar Branch only. The report covers the organizational structure, General Banking functions, Foreign Exchange related operation, Credit operations, ancillary service rendered and the performance of the bank branch as well as the Bank.

Methodology

In preparing this report, both primary and secondary sources of information have been used.

For collecting primary data, the sources are –

  Face to face conversation with the officers

  Talking with the clients;

  Practical exposure on different desk of the bank;

  File study.

The secondary sources are –

  Annual and Half yearly Report of Mercantile Bank Ltd.;

  Periodicals published by the Bangladesh Bank;

  Different publications/circulars regarding banking functions, foreign exchange operation, and credit policies.

Job rotation that was followed by me during the internship period in the branch was as under:

Sl. No.

Name Of The Department

Duration (Including Holy Days)

From

To

Days Count

1.

General Banking

September 18, 2006

October 05, 2006

15 days

2.

Foreign Exchange

October 08, 2006

October 19, 2002

14 days

3.

Credit

October 22, 2002

November 09, 2002

19 days

Limitations

Despite all out co-ordination from the bank officials, I faced some limitations. Some of these are as under:

  Observing and analyzing the broad performances of a Bank and one of its Branches are not that easy

  Time was very limited, just seven weeks was really not sufficient.

  Bank’s policy of not disclosing some data and information for security and confidentiality, which could be very useful to prepare an effective report.

Conclusion

Mercantile Bank Ltd. is one of the most potential Banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and the management of this bank is equipped with the expert bankers and managers in all level of management. MBL is able to quickly adapt with the changes in the environment. The financial performance over the year was also very sound. Its general banking service is widening by introducing online banking, its foreign exchange business also shows increasing trend. MBL is also expanding its branch network to avail the more investment/business opportunity. It has very talented and expert human resources and always recruits high quality officers in their management positions. There every possibility that this progress of MBL will continue and could overcome its limitation to produce good result in future.

Mercantile Bank Ltd