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Chapter: - 02

2.1 History of the MBL: -

The Organization

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 21 st 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.

2.2 Vision, Mission, Objective, Values


2.2.1 Vision 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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Chapter: - 02
2.2.3 Objective
2.2.3.1 Strategic objective:-

The Organization

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.

2.2.4 Values
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.

2.3 Board 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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Chapter: - 02
Board of Directors

The Organization

The management hierarchy of Mercantile Bank Limited is given below:

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 P r e s i d e n t

First Asst. Vice President


Senior Principal Officer

Principal Officer
Senior Officer Officer Junior Officer Assistant Officer

Figure: - The management hierarchy of MBL

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Chapter: - 02
2.4 Various committees: -

The Organization

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Chapter: - 02
2.5 Departmental activity: Cash department
This section provides three services that are as follows: Cash Received Cash Payment Online Banking Services Cash Maintenance

The Organization

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 service make 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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Chapter: - 02
Clearing department
Clearing

The Organization

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.

Bangladeh Bank [Clearing House]

MBL

Authorise d Bank

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 drawer payees 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

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Chapter: - 02
Accounts department

The Organization

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 is limited company have to submit the memorandum or articles of association.

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Chapter: - 02
Export Order

The Organization

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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Chapter: - 02
Documents to Open L/C

The Organization

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 register Outward 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 vi ew, 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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Chapter: - 02

The Organization

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. Character Browers Integrity, Honesty and Intention to repay the loan money Capacity Borrowers business ability, particularly profit making report. Capita Financial Strength to cover a business risk. Conditions it is general business condition Collateral Borrowers 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 1 Loan interviewing/ selection of borrower Borrowers identity Family Background Reputation Business Circle Friends Competitors Employees Qualification Experience Physical Fitness Earnings Securities Offered against the Loan Own Stake in Business
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Chapter: - 02
Eagerness Expected terms of Repayment Other Sources of Income Normal Expenditure for maintaining his family Knowledge/ Experience to run the business project etc.

The Organization

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/partners Annual 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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Chapter: - 02

The Organization

Step 5 Managers decision about the suitability of the proposed loan/advance. Step 6 Assessment: Organization & Management Marketing Aspect Technical Aspect Financial Aspect Economic Aspect Sensitivity Analysis ARA Step 7 Recommendations Step 8 Sanction Step 9 Sanction advice & other terms & conditions Step 10 Repayment & Repayment Schedules Step 11 Interest 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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Chapter: - 02
2.6 Corporate Social Responsibility

The Organization

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 stakeholderscustomers, shareholders, employees, patrons and well wishers and society. Behaving responsibly 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. Early recognition 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 manag ement 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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Chapter: - 02
Supporting Sports and Culture

The Organization

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 f und 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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Chapter: - 02
2.7 Summary of the financial reports: Net interest margin

The Organization

3.16% 3.36% 3.24%

3.05%

3.52% 2.73%

3.72%

2002

2003

2004

2005

2006

2007

2008

Return on assets.

1.74% 1.24% 1.47% 1.46% 1.50% 1.32%

1.22%

2002

2003

2004

2005

2006

2007

2008

Return on equity.

40.05% 22.49% 21.91% 21.12% 21.48%

18.19%

16.27%

2002

2003

2004

2005

2006

2007

2008

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Chapter: - 02
Financial summary for four years of Mercantile Bank,
Particular Income statement
Interest income Interest expenses Net Interest income Non- Interest income Non- Interest expenses Net Non- Interest income Profit before provision and tax Profit after provision before tax Profit after tax 2720.38 1987.16 733.22 752.13 518.12 234.01 967.23 703.33 386.83 3498.67 2662.58 836.09 1132.74 790.07 342.67 1178.76 970.12 494.22

The Organization

2005

2006

2007
4450.90 3159.30 1291.60 1110.05 1016.51 93.54 1385.15 1198.84 540.50

2008
5604.36 4045.97 1558.39 1273.14 1250.02 23.12 1581.51 1281.68 615.88

Balance sheet
Authorized capital Paid up capital Total capital Deposits Loan and Advance Investment Fixed asset Total asset 1200.00 999.27 2045.85 25087.43 21857.05 3517.68 366.80 28890.48 3000.00 1199.12 2554.29 33332.65 26842.14 5407.90 467.99 37159.65 3000.00 1498.90 3387.17 39348.00 31877.86 7099.97 593.20 44940.54 3000.00 1798.68 4183.87 49538.36 41993.95 7690.12 683.00 55928.72

Foreign exchange business


Import Export Remittance 33271.90 24108.57 679.10 42442.80 34592.10 2989.10 40380.10 32670.10 3510.40 56528.80 43108.50 4722.90

BIS capital measure


Total risk weighted asset Core capital Supplementary capital Tier 1 capital ratio Tier 2 capital ratio Total capital ratio 19693.04 1829.19 216.66 9.29% 1.11% 10.39% 23919.86 2252.63 301.66 9.24% 1.10% 10.68% 29036.56 2929.30 457.87 10.09% 1.26% 11.67% 40634.58 3470.92 712.95 8.54% 1.58% 10.30%

Credit quality
Non-performing loan Provision for unclassified loan Provision for classified loan 905.74 214.34 523.00 1017.99 299.34 594.00 893.99 361.03 563.35 1242.47 438.20 578.20

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Chapter: - 02
% of NPLs to total loan & advance 4.14% 3.79%

The Organization
2.80% 2.96%

Share information
Share price(BDT) No. of share outstanding(`000) Earnings per share(EPS)(BDT) Basic Diluted Dividend per share(BDT) Cash(BDT) Stock% Dividend yield Dividend payout ratio Market capitalization Book value per share Market value book value multiple Price earning (Times) 32.26 32.26 25.00 5.00 20.00 6.40% 64.58% 3904.63 204.74 1.91 10.09 32.97 32.97 25.00 25.00 7.04% 60.65% 4259.87 213.01 1.67 10.77 30.05 30.05 20.00 20.00 4.81% 55.46% 6229.57 225.98 1.84 11.53 34.24 34.24 20.00 20.00 5.74% 58.41% 6263.89 232.61 1.50 10.17 390.75 992.66 355.25 11991.19 415.61 14988.98 348.25 17986.78

Operation performance ratio


Net interest margin Net non-interest margin Earning base in asset Operating efficiency ratio Cost income ratio Credit deposit ratio Cost of fund Yield on loans and advance Spread Return on asset Return on equity Equity multiple (Times) 3.05% 0.97% 90.40% 72.15% 34.88% 91.68% 8.42% 11.80% 3.38% 1.46% 21.12% 14.12 2.73% 1.12% 88.49% 74.54% 40.13% 80.53% 9.00% 12.21% 3.21%4.05 1.50% 21.48% 14.55 3.52% 0.25% 88.35% 75.09% 42.33% 81.02% 8.75% 12.80% 4.05% 1.32% 18.19% 13.27 3.72% 0.05% 91.84% 77.00% 44.15% 84.77% 9.19% 13.24% 4.05% 1.22% 16.27% 13.37

Other information
No. of Branch No. of employee No. of foreign correspondents 28 663 266 35 879 306 41 945 584 42 1115 586

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