Organization of MBL

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Chapter: - 02 The Organization

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2.1History of the MBL: -

Mercantile Bank Ltd (MBL) was incorporated in Bangladesh as a Public Company, Limited by

shares under the Companies Act 1994 as on May 20, 1999 and subsequently obtained Banking

Operation License from Bangladesh Bank under the Bank Companies Act 1991 and commenced

commercial operation on 02 June 1999 to provide efficient banking services and to contribute

socio-economic development of the country. The bank has 42 branches and 3 SME service

center. It has listed in the Stock Exchanges at Dhaka and Chittagong in 2003 and 2004

respectively.

The Founder of MBL is committed to make it a little more different and a bit special

qualitatively. This bank has new vision to fulfill and a new goal to achieve. The bank has been

manned with talented and experienced personnel equipped with most modern technology so

as to make it most efficient to meet the needs of 21st century. The Head Office of the Bank

situated at 61, Dilkusha commercial Area, Dhaka. The Board of Directors consists of eminent

personalities from the realm of commerce and industries of the country.

The Authorized Capital of the Bank is Tk.3000 million and the Paid -up Capital is

Tk.1498.89million.The Bank provides a broad range of financial services to its customers and

corporate clients

It has a large asset position comprising of Tk. 44940.54 million in December 2007.

2.2Vision, Mission, Objective, Values

2.2.1Vision

Would make finest corporate citizen

2.2.2 Mission

Will b become most caring, focused for equitable growth based on diversified deployment of

resources, and nevertheless would remain healthy and gainfully profitable Bank.


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2.2.3Objective

2.2.3.1 Strategic objective:-

To achieve positive Economic Values Added (EVA) each year.

To be market leader in product innovation.

To be one of the top three Financial Institution in Bangladesh in terms of cost

efficiency.

To be one of the top five Financial Institution in Bangladesh in terms of market share

in significant market segment we serve.

2.2.3.2 Financial objective:-

To achieve 20% return on shareholders equity or more, on average.

2.2.4Values

For the customer: - Providing with caring service by being innovative in the development of

new banking products and service.

For the shareholder: - maximizing wealth of the bank.

For the community: - Strengthening the corporate values and taking environment and social

risk and rewards into account.

2.3Board of Director: -

The Board of Directors being at the highest level of organizational structure plays an important

role on the policy formulation. The Board of Directors is not directly concern with day-to-day

operation of Bank. They had delegated their authority to the Managing Director and CEO to

look after the day-to-day affairs of the Bank.

The Bank is running by an excellent management team under the direct supervision of a

competent Board of Directors. The Board of Directors comprises total thirteen members, which

is within the maximum limit as imposed by BPRD circular-12, dated April 26,2003of Bangladesh

Bank, headed by the Chairman. Md. Abdul Jalil, is the present Chairman of the Board. The

Managing Director (MD) and CEO head management team. Mr. Dewan Mujibur Rahman is the

present Managing Director and CEO of MBL.


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The management hierarchy of Mercantile Bank Limited is given below:

Figure: - The management hierarchy of MBL

Board of Directors

Managing Director

Additional Managing Director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

First Vice President

Asst . Vice Presi den t

First Asst. Vice President

Senior Principal Officer

Principal Officer

Senior Officer

Officer

Junior Officer

Assistant Officer


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2.4Various committees: -


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2.5Departmental activity: -

Cash department

This section provides three services that are as follows:

Cash Received

Cash Payment

Online Banking Services

Cash Maintenance

Cash Received

The authorized officer receives cash from customers as for MMS, Savings, Current, and other

Bills. All cash received is kept in registered book with account holders name, account number,

date, and amount.

Cash Payment

The authorized officer payments cash to customers against cheque, bank cash received online

payment. All cash payments are kept in registered book with account holders name, account

number, date, amount, cheque number.

Online Bank Service and Computer Posting

MBL all branches are now using their own online. Anyone can now draw a cheque and receive

money from any branch or can save money to his/ her account from any branch. This servicemake peoples life easy going.

Cash Maintenance

In the mean time the authorized officer keep record of money in the registered book.


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Clearing department

Clearing

This section mainly works with different type of cheque. Customer submits his/ her cheque to

receive money. The authorized officer put seal on the customers copy. And then the officer

received cheque and post in the computer to take document. Clearing division submit all the

cheques to the Bangladesh bank. Here Bangladesh Bank is the called the clearing house.

For clearing a bank receives cheque, demand draft, and pay order from its clients. When the

instrument is put in the bank for clearing, the authorized officer check out the following things:

Date

Amount

Account Number

Make ensure instrument issuing date not exceed six (6) months

When everything will be ok the authorized officer put the seal on the instrument.

Return Cheque

In the mean time of the clearing some instrument may be returned. The cheque can be

returned for the following reasons:

Insufficient fund

Payment stop by drawerpayees endorsement irregular/ illegible/ required

payees endorsement irregular required banks confirmation

Draws signature differ/ required

Cheque is past dated, out of date/ multi date

Amount in figure and word is not same

Clearing stamp required/ requires cancellation

Bangladeh Bank

[Clearing House]

Authorised Bank

MBL


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Accounts department

Accounts department is most important for the bank. In accounts department maintains all

types of accounting procedure.

Function of the accounts department

Prepare daily statement of the affairs

Prepared supplementary

Prepare daily, weekly, quarterly and half yearly and annual statement of the bank

Reconciliation of the IBTA

Prepare advice

Prepare income and expenditure statement

Maintain the office stationary

Maintain all administrative work

Foreign exchange department

Foreign Exchange

Foreign exchange is divided into two parts as export and import. Earning foreign currency

government always encourages business people. Bank here help us to do the business with

outside of the country.

Export

Exporting product, all have to maintain some procedure through the bank which is describing

bellow.

Export Registration

Firm have to submit the following documents for obtaining ERC to export and import bureau.

Nationality certificate

Bank Certificate

TIN (Tax Identification Number

Trade License

If it is partnership business then have to submit the deed agreement. And if it islimited company have to submit the memorandum or articles of association.


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Export Order

After receiving the ERC, the exporter try to contact with the buyer through the correspondent

bank or directly. When they accept to buy the product there created the contact between the

export and the buyer. In the contact they mention the product price, the quantity, value of

commodity quoting FOB, CIR etc.

Letter of Credit

L/C which is called at sight mentioned when the importer receive document they pay all dues

to the bank. L/C which is called Usance mentioned when the importer sell product they pay

all dues to the bank MBL concern about the L/C facility by offering three types of L/C that are as

given bellow.

Cash L/C (for import)

Back to Back L/C and Local L/C created against master L/C (Export)EPZ (Export Processing Zone

Cash L/C

L/C is undertaking by the applicant bank to the beneficiary on behalf of applicant. It is one type

of security for the importer. Bank gives guaranty to the exporter on behalf of importer. Bank

gives guaranty to the exporter that if importer fail to keep the agreement then bank is liable to

pay the money to the exporter.

Back to Back L/C

When contact is made the exporter will be understood that they must be followed the terms

and condition in future avoiding conflict.

If issuing bank is not trustable then the third bank is obtained.

What type of L/C it must be mentioned by the advising bank.

The terms and condition must be clearly mentioned.

If L/C is transferable then it must be mentioned in L/C.

Ensure that the L/C is valid.

It must be mentioned that if the terms and condition would be changed.


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Documents to Open L/C

For opening L/C the applicant must submit the following documents:

Properly fulfill the LCAF (Letter of credit Authorized Form) form.

Performa Invoice.

Insurance Coverage.

Submitting the application to open the L/C.

Credit report.

TIN (Tax Identification number) number

Trade License

IRC (Import Registration Form)

IMP Form.

Accounting Function of L/C opening

Bank maintenance the following registrar to open and close the L/C:

IRC register

LCA issued registered

L/C opening registered

L/C liability and margin register

Shipping indemnity register

Bill of entry register

Export register

PAD (Payment against Document) liability register

Foreign bill purchase registerOutward bill for collection register

Balance book

L/C advising register

Credit department

Credit

The word credit is derived from the Latin word Credo, meaning I believe. It is usually defined

as ones ability to buy with a promise to pay. From the bankers point of view, Credit is the

confidence of the lender on the ability and willingness of the borrower to pay the debt as per

the schedule of the repayment. For this banking is the term as business of confidence.


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Before allowing credit facility a banker should be satisfied that the applicant qualities the

following five essentials which may be term as 5 Cs namely.

CharacterBrowers Integrity, Honesty and Intention to repay the loan money

CapacityBorrowers business ability, particularly profit making report.

Capita Financial Strength to cover a business risk.Conditions it is general business condition

CollateralBorrowers ability to produce additional securities.

Forms of Advance/ Credit

MBL makes advance in different forms. All types of credit facilities can be classified into two

groups:

Funded Credit

Loans

Cash credit (CC))

Overdraft (OD)

Consumer Credit Loan

Agriculture Loan

Lease financing

Import Financing (LIM, PAD)

Export Financing (Packing Credit, Trust Receipt etc.)

Non Funded Credit

Letter of Credit (L/C)

Process of Loan Sanction

Step 1Loan interviewing/ selection of borrower

Borrowers identity

Family Background

Reputation Business Circle

Friends

CompetitorsEmployees

Qualification

Experience

Physical Fitness

Earnings

Securities Offered against the Loan

Own Stake in Business


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Eagerness

Expected terms of Repayment

Other Sources of Income

Normal Expenditure for maintaining his family

Knowledge/ Experience to run the business project etc.

Step 2 The second step start when the client submits formal loan application to the banker

duly signed with relevant papers.

Step 3 Banker will properly scrutinize the loan case and collect and correlate the information

about the party/ firm/ company/ project from available sources.

Sources of Information

Loan Application

Market Report

Study of Accounts

Financial statements

Spot Verification of Factory/ Office/ Collateral Offered

Confidential Reports from Other Bank

CIB of Commercial Bank

Other Sources like Press Reports Regarding Purchase, Sale Auction, Decrease etc. of

Properties

Registration Records

Municipal Record

Registration of Joint Stock Companys Record

Step 4 Preparation of Credit Report: Performa (Proprietorship/Partnership):

Name

Address

Date of Compilation of Report

Nature of the firm & Date of establishment

Nature of business

Investment in the business

Allied or subsidiary concern, if any

Brief history regarding the proprietors/partnersAnnual income

Sales

Market Reputation

Means

Bank account & our experience

Name of the other banks & their experience, if any

Preparation & signing of the Credit Report


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Step 5Managers decision about the suitability of the proposed loan/advance.

Step 6 Assessment:

Organization & ManagementMarketing Aspect

Technical Aspect

Financial Aspect

Economic Aspect

Sensitivity Analysis

ARA

Step 7Recommendations

Step 8

Sanction

Step 9Sanction advice & other terms & conditions

Step 10Repayment & Repayment Schedules

Step 11Interest rate. Etc.

Types of Loan

Care Loan (Staff), SOD against FDR, SOD against (Work Order), SOD against (Scheme), SOD

General Others, House Building Loan (Commercial), Lease Finance, Hire purchase, Pad (Cash), CC

(Hypothecation), Small Loan Scheme (SLS), FDBP (LOCAL), House Building Loan (Residential),

Personal Loan (Only For Bankers), Personal Loan (STAFF), Small Enterprise Loan (SME), Car/

Microbus, Television, Refrigerator/ Air Conditioner, Computer/ Accessories, Washing/ Swing

Machine, Furniture, Car/ Auto Loan, Home Loan, Term Loan, Time Loan.


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2.6Corporate Social Responsibility

Despite stiff competition in the Banking industry, we consider it essential for a company to

behave in a responsible manner towards both the environment and society. This belief exists on

two pillars. First, to be successful on a long term basis, we need to trust our stakeholders-

customers, shareholders, employees, patrons and well wishers and society. Behavingresponsibly towards society and the environment strengthens this trust. Second, by taking

ecological and social risks and reward into account, we strengthen our corporate values. Our

commitment has always been to behave ethically and to contribute towards changing the

quality of life of our people, the local community, and generally the society. Our Corporate

Social Responsibility focuses on:

Environment

As a bank we finance mainly in those projects, which are environment friendly. Earlyrecognition of ecological risks in an integral part of credit evaluation system of mercantile bank

limited. Ecological damage will eventually harm not only the community but also, mercantile

bank limited, in the form of loan losses or image problems. In this regard, we have sent to

officials to The Hague, Netherlands for training on Environment and social management Course

for Financial Institutions conducted by FMO Netherlands.

Sustainable Banking Products

We have for introduced a number of banking products for people who have traditionally been

excluded from the banking services. We have introduced Women Entrepreneurs Development

Scheme for the women who have experience but do not have seed capital to start business.

We have agreement with Women Entrepreneurs Association, Bangladesh (WEA) to encourage

women Entrepreneurs to come forward in the business. We have agreement with Women

Entrepreneurs Association. We have SME banking products for marginal people. Small and

marginal severs are encouraged to use banking services and attractive rates of interest are

offered smaller severs as well.

Supporting Education

Our bank offers financial awards to MBM (Masters in Bank Management) students at

Bangladesh Institute of Bank Management (BIBM) who excel in their studies. We also

contribute to academic research. We have contributed BDT 1.00 million to Bangla Academy for

research in Bengali Literature.


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Supporting Sports and Culture

Mercantile Bank Limited has promoted a number of non-profit initiatives. We sponsored

National Chess Championship, Swimming and Tennis Competition. We have sponsored a

number of Cultural programs to supports different comminutes.

Supporting Flood and Cyclone Sidr affected people

Mercantile Bank Limited has contributed a substantial amount of money for Flood and Cyclone

Sidr affected people of the Country to the relief fund of Hon able Chief Adviser and Army

Chief. The Bank also distributed relief in different areas for Flood victims.

Mercantile Bank Foundation

The bank has to set up Mercantile Bank foundation for extending charitable and beneficial

social services to the society. The bank contributes 1% of operating revenue or BDT 4.00 million

to Mercantile Bank Foundation every year. The foundation has been established with the

following objectives:

Mercantile Bank Foundation awards 8 (eight) eminent personalities of the country

every year for the outstanding contribution in the field of Economics and Economic

Research, Bengali Language and Literature. Medical and Science % Technology, and

Commerce.

Conducting research on Bengali language and literature.

Book Purchase and Distribution to encourage writers and publishers of the Country.Donation for Handicapped artists, litterateur, and distressed people.

Undertaking Project for the development of under-privileged children.

We will remain committed to fulfill the role of good corporate citizenship in 2008 and beyond.


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2.7Summary of the financial reports: -

Net interest margin

Return on assets.

Return on equity.

2002 2003 2004 20052006

20072008

3.16% 3.36% 3.24%3.05%

2.73%

3.52% 3.72%

20022003 2004 2005

20062007

2008

1.74%

1.24%1.47% 1.46% 1.50%

1.32%1.22%

2002 2003 2004 20052006

20072008

40.05%

22.49% 21.91% 21.12% 21.48%18.19%

16.27%


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Financial summary for four years of Mercantile Bank,

Particular 2005 2006 2007 2008

Income statement

Interest income 2720.38 3498.67 4450.90 5604.36

Interest expenses 1987.16 2662.58 3159.30 4045.97

Net Interest income 733.22 836.09 1291.60 1558.39

Non- Interest income 752.13 1132.74 1110.05 1273.14

Non- Interest expenses 518.12 790.07 1016.51 1250.02

Net Non- Interest income 234.01 342.67 93.54 23.12

Profit before provision and tax 967.23 1178.76 1385.15 1581.51

Profit after provision before tax 703.33 970.12 1198.84 1281.68

Profit after tax 386.83 494.22 540.50 615.88

Balance sheetAuthorized capital 1200.00 3000.00 3000.00 3000.00

Paid up capital 999.27 1199.12 1498.90 1798.68

Total capital 2045.85 2554.29 3387.17 4183.87

Deposits 25087.43 33332.65 39348.00 49538.36

Loan and Advance 21857.05 26842.14 31877.86 41993.95

Investment 3517.68 5407.90 7099.97 7690.12

Fixed asset 366.80 467.99 593.20 683.00

Total asset 28890.48 37159.65 44940.54 55928.72

Foreign exchange business

Import 33271.90 42442.80 40380.10 56528.80

Export 24108.57 34592.10 32670.10 43108.50

Remittance 679.10 2989.10 3510.40 4722.90

BIS capital measure

Total risk weighted asset 19693.04 23919.86 29036.56 40634.58

Core capital 1829.19 2252.63 2929.30 3470.92

Supplementary capital 216.66 301.66 457.87 712.95

Tier 1 capital ratio 9.29% 9.24% 10.09% 8.54%

Tier 2 capital ratio 1.11% 1.10% 1.26% 1.58%

Total capital ratio 10.39% 10.68% 11.67% 10.30%

Credit quality

Non-performing loan 905.74 1017.99 893.99 1242.47

Provision for unclassified loan 214.34 299.34 361.03 438.20

Provision for classified loan 523.00 594.00 563.35 578.20


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% of NPLs to total loan & advance 4.14% 3.79% 2.80% 2.96%

Share information

Share price(BDT) 390.75 355.25 415.61 348.25

No. of share outstanding(`000) 992.66 11991.19 14988.98 17986.78

Earnings per share(EPS)(BDT)Basic 32.26 32.97 30.05 34.24

Diluted 32.26 32.97 30.05 34.24

Dividend per share(BDT) 25.00 25.00 20.00 20.00

Cash(BDT) 5.00 - - -

Stock% 20.00 25.00 20.00 20.00

Dividend yield 6.40% 7.04% 4.81% 5.74%

Dividend payout ratio 64.58% 60.65% 55.46% 58.41%

Market capitalization 3904.63 4259.87 6229.57 6263.89

Book value per share 204.74 213.01 225.98 232.61Market value book value multiple 1.91 1.67 1.84 1.50

Price earning (Times) 10.09 10.77 11.53 10.17

Operation performance ratio

Net interest margin 3.05% 2.73% 3.52% 3.72%

Net non-interest margin 0.97% 1.12% 0.25% 0.05%

Earning base in asset 90.40% 88.49% 88.35% 91.84%

Operating efficiency ratio 72.15% 74.54% 75.09% 77.00%

Cost income ratio 34.88% 40.13% 42.33% 44.15%

Credit deposit ratio 91.68% 80.53% 81.02% 84.77%

Cost of fund 8.42% 9.00% 8.75% 9.19%

Yield on loans and advance 11.80% 12.21% 12.80% 13.24%

Spread 3.38% 3.21%4.05 4.05% 4.05%

Return on asset 1.46% 1.50% 1.32% 1.22%

Return on equity 21.12% 21.48% 18.19% 16.27%

Equity multiple (Times) 14.12 14.55 13.27 13.37

Other information

No. of Branch 28 35 41 42

No. of employee 663 879 945 1115

No. of foreign correspondents 266 306 584 586

Organization of MBL

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