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“A Case Study of Mercantile Bank Limited”

Chapter 01

1. Introduction

The word “Bank” refers to the financial institution dealing with money. Commercial banks are the primary contributors to the economy of the country. On the other hand they are borrowing money from the locals and lending the same to the businessmen as loans and advances. So the people and the government are very much dependent on these banks as the financial intermediary. Moreover, banks are profit-earning concern, as they collect deposit at the lowest possible cost and provide loans and advances at higher cost. The difference between these two is the profit for the bank.

Involvement of the banking sector in different financial events is increasing day by day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases, the banking organizations are coming with innovative ideas. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better service opportunities to provide to their clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure.

A student takes the internship program when he or she is at the last leg of the bachelor’s degree. Internship program brings a student closer to the real life situation and thereby helps to launch a career with some experience.

1.1 Objectives of the study:

(i) Broad Objectives:

The broad objectives are as follow:

  • To find out the factors for profit generation of Mercantile Bank Limited.
  • To find out the factors for growth of Mercantile Bank Limited.

(ii) Specific Objectives:

  • To find out different earning sources of MBL.
  • To find out the sources of deposits of MBL.
  • To find out the special schemes of MBL.
  • To find out interest rates for different loan schemes, advance schemes and savings accounts.
  • To find out different income generating banking activities of MBL.
  • To find out major expenditure heads, other expenses and operating expenses of MBL.
  • To find out the profit of MBL, Mohakhali Branch.
  • To find out barriers for increasing profit.
  • To find out what types of deposits are discouraged.
  • To find out the opinion of the customers about the service provided by MBL.
  • To find out whether customers are interested to do banking in MBL.
  • To find out the possibility of deposit increase.
  • To find out how people are interested to take loan.
  • To find out how people are encouraged to do banking in MBL.
  • To find out the factors that attracts the customers to deposit in the Bank.
  • To find out how customers came for the first time to deposit.
  • To find out the customer opinion with regard to procedure of services like Demand Draft (DD), Telegraphic Transfer (TT), payment Order (PO) and Letter of Credit L/C at MBL.
  • To find out whether the interest rate is a factor for deposit or not.

1.2 Scope:

The report covers MBL’s organizational over view, management and organizational structure, functions performed by MBL. It also covers over view of all sides of banking system such as General Banking, Loans and Advances,Foreign Exchange Dept., Identification of problems of Mercantile Bank..

1.3 Mythology:

(i) Primary Sources:

Major sources of primary information are discussed with my supervisor Md. Rezowanul Karim (Officer) of General Banking . And also I have collected primary information by interviewing employees, personally talking with managers, observing various organizational procedures, structures, directly communicating with different kind of customers.

Primary data was mostly derived from the discussion with the employees & through surveys on customers of the organization.

(ii)  Secondary Sources:

Sources of secondary information will be as follows:

(a) Internal Sources:

  • Bank’s Annual Report
  • Group Business Principal

(b) External Sources:

  • Different books and periodicals related to the banking sector
  • Newspaper
  • Bangladesh Bank Report
  • Internet

1.4 Data Collection Instruments:

In-depth interview:

During the exploratory research, in-depth interview has been conducted with various managers, employees & customers of Mercantile Bank Ltd.

Data collection Method:

Formal questionnaire for data collection has not been used. Information has been collected through informal discussions with Relationship Managers & Respective Unit Heads of customer service and also customers of this Bank.

For the organizational part, information has been collected through different published articles, journals and brochures.

1.5 Limitations:

  • Large-scale research has not been possible due to time limitation.
  • In-depth research has not been possible due to some rules and restriction posed by the organization.
  • In many cases, up to date information has not been published.

Chapter 02

2. Company Overview

2.1 Historical Background of Mercantile Bank Ltd.(MBL):

Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country. Against the background of liberalization of economic policies in Bangladesh, Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services with a view to improving the socio-economic development of the country.

Mercantile Bank Limited has been incorporated on May 20th, 1999 in Dhaka, Bangladesh as a public limited company with the permission of the Bangladesh Bank; MBL commenced formal commercial banking operations from the June 02, 1999. The bank stood at 42 branches all over the country up to 2008.

There are thirty sponsors involved in creating Mercantile Bank Limited; the sponsors of the bank have a long heritage of trade, commerce and industry. They are highly regarded for their entrepreneurial competence. The sponsors happen to be members of different professional groups among whom are also renowned banking professionals having vast range of banking knowledge. There are also members who are associated with other financial institutions such as insurance companies, leasing companies etc.

The bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country.

The Bank is managed by qualified and efficient professionals. Mr. Shah Md. Nurul Alam is the holding charge of Managing Director upon expiry term of Mr. M. Taheruddin as Managing Director on 14.04.2004. Mr. Lutfar Rahman Sarker, the former Governor of the central bank of Bangladesh is the Chief Advisor of the Bank. He brings with him a wealth of experience of managing both public and private sector banks.

2.2 Vision, Mission & Objectives:

(i) Vision:

Would make finest corporate citizen.

(ii) Mission:

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

(iii) Objectives:

(a) Strategic objectives:

  • To achieve positive Economic Value Added (EVA) each year.
  • To be the 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 share in all significant market segments we serve.

(b) Financial objectives:

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

2.3 Core values:

(i) For the customers:

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

(ii) For the shareholders:

Maximizing wealth of the Bank.

(iii) For the employees:

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

(iv) For the community:

Strengthening the corporate values and taking environmental and social risks and reward into account.

(v) New technology:

Adopting the State-of-the Art technology in banking operations.

2.4 Branch Network:

Head office:

61-Dilkusha Commercial Area

Dhaka-1000, Bangladesh.

2.5 Branch Formation:

The bank commenced its business on June 02, 1999. The first branch was opened at Dilkusha Commercial Area in Dhaka on the inauguration day of the bank. The second branch was opened at Dhanmondi Residential Area, Dhaka on August 04, 1999. The third branch was opened at Karwan Bazar, Dhaka on September 06, 1999. Now, the total number of branches stood at 42 at the end of the year December, 2008. 20 branches are located at major trade centers of the country while remaining 5 branches are at the rural areas of the country. The Bank hopes to open five more branches in different parts of the country by December 2009.

2.6 Correspondent relationship:

The bank has established correspondent relationship with a number of foreign banks namely Citibank N.A, Bank of Tokyo Mitsubishi Ltd., Standard Chartered Bank, American Express Bank, Mashreq Bank, Commerce Bank, Habib Bank etc.

The number of foreign correspondents established by the bank is 70 on December 31, 1999. Efforts are being continued to further expand the correspondent relationship to facilitate bank’s growing foreign trade transactions.

2.7 Human Resource Development:

In today’s competitive business environment, only the quality of human resources makes the difference. The bank’s commitment to attract the best persons to work for it and the adaptation of the latest technologies is reflected on the efforts of the bank in the development of its human resources. In the face of today’s global competition, the bank envisages to develop highly motivated workforce and to equip them with latest skills and technologies. A good working environment promotes a level of loyalty and commitment, devotion and dedication among the employees.

The bank sent a number of officers to Bangladesh Institute of Bank Management and the other training institutes for specialized training of various aspects of banking. The bank is contemplating to set up “Training Institute” for providing facilities to its executives and officers. The bank believes in professional excellence and considers its working force as its most valuable asset and the basis of its efficiency and strength.

2.8 Office Automation:

Basic accounting system of the bank has been fully computerized to minimize cost and risks and to optimize benefits and increase overall efficiency for improved services. The bank is capable of generating the relevant financial statements at the end of the day.

2.9 Investment into the Future:

Excellence in banking operation depends largely on a well equipped and efficient Research and Development Division. Such activities require the investment of substantial money and a set of highly qualified personnel with multidisciplinary background. Although it is not possible at this stage to undertake Research and Development activities similar to those of  a bank on the developed countries, MBL established a core Research and Planning Division comprising skilled persons from the very inception of the bank.

2.10 Features of Mercantile Bank Limited:

There are many reasons behind the better performance of Mercantile Bank Limited than any other newly established banks:

  • Highly qualified and efficient personnel manage the bank.
  • MBL has established correspondent relationship with 102 of foreign banks.
  • MBL has established a core Research and Planning Division comprising skilled persons from the very inception of the bank.
  • Banking operation of all the branches of MBL have been computerized to provide promptly and frequently customer service.
  • The inner environment of all the branches of MBL are well decorated.
  • The bank has launched some financial products, which is not available in any other banks, like – Ajibon Pension Scheme.
  • MBL provides attractive interest rate than any other financial institution.
  • The bank provides loans to the customers at lower interest rate with easy and flexible conditions than the others do .
  • The bank is committed to provide the cheque amount within 30 second of submission of the cheque .
  • Profit earning in not the main aim of the Mercantile Bank Limited. The bank is responsible to maintain social responsibilities.
  • Letter of Credit commission and other charges are lower than other banks.
  • The bank frequently arranges customer meeting to achieve their valuable suggestions.

2.11 Mechanism:

Commercial Banking is the core activity of Mercantile Bank Limited. The bank serves all type of customers ranging from individuals to corporate bodies, both private and public.

2.12 Functions of MBL:

The bank plays a vital role for developing economic growth in any country’s money circulation. It has a lot of functions in different ways. Firstly to know about the bank:

A bank means an institution, which borrows money from the surplus unit of the society and lends money to the deficit for earning profit. The banker through current account mainly accepts the deposits, which are withdrawn by the cheques. Several heads of accounts also accept deposit-making institution, which deals with money and credit.

The functions of commercial banks are now wide and varied. However the functions of commercial banks may broadly be classified under the following two categories:

  • Primary functions
  • Secondary functions

(i) Primary Functions:

(a) Accept Deposits:

  • Demand Deposits
  • Time Deposits

(b) Lends Money:

  • Loans
  • Overdrafts
  • Cash credit
  • Bills purchased and discounted

(c) Creates Credit

(d) Creates Medium Exchange

(ii) Secondary Functions:

(a) Agency Services:

  • Collection of cheques, drafts, rents etc.
  • Execution of standing interaction
  • Conducting stock exchange transactions
  • Acting as correspondent and representative

(b) General Utility Services:

  • Accepting valuables for safe custody
  • Conducting foreign exchange business
  • Issuing of L/Cs
  • Transfer of funds in both ways
    • Telegraphic transfer and TCs
    • Lease financing
    • Merchant banking
    • Factoring
    • Serving as a referee
    • Underwriting shares and securities
    • Issuing debit and credit cards

2.13 The Standard Services Offered by MBL:

Bangladesh is one of the less development countries. So the economic development of the country depends largely on the activities of Commercial Banks. So I need to emphasis whether these Commercial Banks are effectively and honestly performing their functions, assign their duties and responsibilities. In thus respect I need to know about the general banking functions of those Banks as well as the MBL, to provide the general banking service.

The general banking department does the most important and basic works of the bank. All other departments are linked with this department. It also pays a vital role in deposit mobilization of the branch. MBL provides different types of accounts, locker facilities and special types of savings scheme under general banking. For proper functioning and excellent customer service this department is divided into various sections namely as follows:

  • Customer services for all banking needs of the customer
  • Customer counseling
  • Personalized services and relationship banking
  • Deposit banking
  • Loan and advances
  • Export and import facilities
  • Inland and foreign remittance facilities.

Chapter 03

3. Annual Statement

3.1 Balance Sheet:

Mercantile Bank Limited’s Balance Sheet as on December 31, 2008:

Balance Sheet
Property and Assets
Cash in hand (Including Foreign Currencies) 443,342,558 452,062,448
Balance with Bangladesh Bank and Sonali Bank Limited (Including Foreign Currencies) 3,930,776,782 3,265,291,647
Balance with Other Banks and Financial Institutions
In Bangladesh 177,928,388 126,848,623
Outside Bangladesh 149,983,120 82,352,676
Money at Call and Short Notice
Government 5,681,107,430 4,875,680,349
Others 2,009,014,337 2,224,286,529
Loans and Advances
Loans, Cash Credit, Overdraft etc. 7.A 37,362,451,991 28,799,208,279
Bills Purchased and Discounted 7.B 4,631,493,823 3,078,651;825
Fixed Assets Including Premises, Furniture and Fixtures
Other Assets
Non-Banking Assets
Total Assets
Liabilities and Capital Liabilities
Borrowings from other Banks, Financial Institutions and Agents
Deposits and other Accounts
Current Accounts and Other Accounts 11.1 5,831,638,358 5,220,658,499
Bills Payable 11.2 677,763,825 889,880,108
Savings Bank Deposits 11.3 3,020,870,440 2,344,752,184
Fixed Deposits 11.4 17,501,418,866 14,632,634,933
Bearer Certificate of Deposits 11.5 25,939,840
Deposits Under Schemes 11.6 19,342,487,344 15,026,036,203
Other Liabilities
Total Liabilities
Capital/ Shareholders’ Equity
Paid-up Capital 13.1 1,798,677,900 1,498,898,300
Statutory Reserve 14 1,222,833,902 966,496,902
Other Reserves 15 233,183,099 161,038,249
Surplus in Profit & Loss Account 16 362,637,209 302,870,428
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Off Balance Sheet Items
Contingent Liabilities
Acceptances and Endorsements 17 8,157,477,000 5,780,70’1,000
Letters of Guarantee 17.1 3,640,902,808 3,225,932,724
Irrevocable Letters of Credit 17.2 7,281,346,277 9,287,543,504
Bills for Collection 17.3 73,305,882 94,981,372
Other Contingent Liabilities 17.4 764,829,154 514,946,142
Other Commitments
Documentary credits and short term trade related transactions
Forward assets purchased and forward deposits placed
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credit lines and other commitments
Total Off-Balance Sheet Items Including Contingent Liabilities (A+B)

These Financial Statements should be read in conjunction with the annexed notes (1 to 38)

sd/-Dewan Mujibur RahmanManaging Director and CEO sd/-Subrota Narayan RoyDirector sd/-M. A. Khan BelalDirector sd/-A S M Feroz AlamDirector sd/-Alhaj Mosharref HossainChairman
See annexed auditors’ report to the Shareholders of date.
sd/-Syful Shamsul Alam & Co.Chartered Accountants sd/-Basu Banerjee Nath & Co.Chartered Accountants

Dhaka,March 03, 2009

3.2 Profit and Loss Account:
Profit and Loss Account For the year ended on December 31, 2008

Notes 2008(BDT) 2007(BDT)
Interest Income 18.1 4,875,241,879 3,686,414,282
Less : Interest Paid on Deposits, Borrowings etc. 19 4,045,970,142 3,159,295,227
Net Interest Income 829,271,737 527,119,055
Investment Income 18.4 751,100,500 764,485,995
Commission, Exchange and Brokerage 20 917,199,841 790,361,690
Other Operating Income 21 333,960,039 319,692,585
2,002,260,380 1,874,540, 270
Total Operating Income 2,831,532,117 2,401,659,325
Salaries and Allowances 23 611,587,111 452,854,242
Rent, Taxes, Insurance, Electricity, etc. 24 155,724,646 124,305,552
Legal Expenses 25 5,045,236 5,955,217
Postage, Stamps, Telecommunication etc. 27,045,459 28,289,005
Stationery, Printings, Advertisements etc. 26 63,499,399 56,743,714
Chief Executive’s Salary and Fees 23.1 6,450,000 4,388,203
Directors’ fees 22 2,163,600 1,900,700
Auditors’ Fees 500,000 500,000
Depreciation & Repair of Fixed Assets 27 74,617,737 60,174,509
Other expenses 28 303,383,441 281,399,317
Total Operating Expenses 1,250,016,629 1,016,510,459
Profit before Provision 1,581,515,488 1,385,148,866
Provision against Classified Loans 12.2 117,958,107 30,103,390
Provision against Unclassified Loans 12.2 77,174,000 61,687,181
Other Provisions 12.1.2 104,700,000 94,521,000
Total Provisions 299,832,107 186,311,571
Total Profit before Taxes 1,281,683,381 1,198,837,295
Provision for Taxation 12.1.1 665,800,000 658,338,000
Net Profit after Taxation 615,883,381 540,499,295
Retained Surplus brought forward from previous year 3,090,828 2,138,633
618,974,209 542,637,928
Statutory Reserve 256,337,000 239, 767,500
Retained Surplus 362,637,209 302,870,428
618,974,209 542,637,928
Earning Per Share (EPS) 29 34.24 30.05
sd/-Dewan Mujibur Rahman

Managing Director and CEO

sd/-Subrota Narayan Roy


sd/-M. A. Khan Belal


sd/-A S M Feroz Alam


sd/-Alhaj Mosharref Hossain


See annexed auditors’ report to the Shareholders of date.
sd/-Syful Shamsul Alam & Co.

Chartered Accountants

sd/-Basu Banerjee Nath & Co.

Chartered Accountants

Place: Dhaka, March 03, 2009
3.3 Financial Highlights:
Highlights for the year 2008 and 2007 (BDT in million):

Sl No. Particulars 2008 2007
1 Paid-up Capital 1,798.68 1,498.90
2 Total Capital Fund 4,186.69 3,387.17
3 Capital Surplus/Deficit 120.41 483.51
4 Total Assets 55,928.72 44,940.54
5 Total Deposits 49,538.36 39,348.00
6 Total Loans and Advances 41,993.95 31,877.86
7 Total Contingent Liabilities and Commitments 19,917.86 18,904.10
8 Credit Deposit Ratio (in %) 84.77 81.02
9 Percentage of Classified Loans against Total Loans and Advances (in %) 2.96 2.80
10 Profit after Tax and Provision 615.88 540.50
11 Amount of Classified Loans during the year 348.47 410.98
12 Provision kept against Classified Loans 578.20 563.85
13 Provision Surplus
14 Cost of Fund (in %) 9.19 8.75
15 Interest Earning Assets 49,941.85 39,497.83
16 Non-interest Earning Assets 5,986.87 5,442.71
17 Return on Investments (ROI) (in %) 10.46 10.98
18 Return on Assets (ROA) (in %) 1.22 1.32
19 Income from Investments 751.10 764.48
20 Earning Per Share (BDT) 34.24 36.05
21 Net Income Per Share (BDT) 34.24 36.05
22 Price Earning Ratio (approximate) 10 Times 12 Times
3.4 Cash Flow Statement:
Mercantile Bank Limited For the year ended on December 31, 2008:
2008 (BDT)
2007 (BDT)
Cash Flows From Operating Activities
Interest Received 5,423,137,314 4,385,453,847
Interest Paid (3,424,865,486) (3,159,295,227)
Fees and Commission Received 459,036,752 366,320,548
Payment to the Employees (486,587,111) (402,021,252)
Payment to suppliers (63,499,399) (56,676,382)
Income Tax Paid (638,616,891) (199,599,159)
Received from other operating activities
Exchange Gain 458,155,089 424,041,142
Other Operating Income 330,839,823 319,692,585
Payment for other operating activities
Rent, Taxes, Insurances and Electricity (154,613,531) (123,897,552)
Legal Expanses (5,045,236) (5,955,217)
Postage, Stamps and Telecommunication (27,045,459) (28,242,005)
Auditors’ Fees (500,000) (250,000)
Repair and Maintenance (11,329,772) (10,496,517)
Chief Executive’s Salary and Fees (6,450,000) (4,388,203)
Directors’ Fees (2,163,600) (1,900,700)
Other Expenses (179,329,916) (137,770,307)
Operating profit before changes in Operating Assets and Liabilities
Increase / Decrease in Operating Assets and Liabilities
Loans and Advances to other Banks
Loans and Advances to Customers
Other Assets (Item-wise)
Advance Deposits (1,000,588) (119,221)
Stock of Stationery (10,414,961) (2,789,880)
Suspense Account (23,985,407) (40,294,501)
Stamps in Hand (881,385) (75,673)
Advance Rent (88,559,508) 4,242,667
Excise Duty 42,400 (26,300)
Clearing Adjustment 6,526
DD paid without advice (240,000) (2,047,000)
Premium on Bond (124,403)
Mercantile Bank General Account 52,382,318
Adjusting Account Debit (200,126,162) (68,985,719)
Deposit from other Banks
Deposit from Customers
Other Liabilities on account of Customers
Other Liabilities
Net Cash Received from Operating Activities
Cash Flows From Investing Activities
Sale proceeds of Fixed Assets 501,877
Dividend Received 2,457,119 750,000
Purchase/Sale of Property, Plant and Equipment (154,376,501) (176,213,304)
Purchase/Sale of Shares 215,272,192 64,696,430
Other Investment activities (805,427,081) (952,480,4 10)
Net Cash from Investing Activities
Cash Flows from Financing Activities
Receipts from Issue of Loan Capital & Debt Securities
Paid for Repayment of Loan and Debt Securities
Received by Issue of Share
Dividend Paid
Net Cash from Financing Activities
Net Increase/(Decrease) of Cash and Cash Equivalent (A+B+C)
Effect of Exchange Rate Changes on Cash & Cash Equivalent
Opening Cash & Cash Equivalent
sd/-Dewan Mujibur Rahman Managing Director and CEO sd/-Subrota Narayan Roy


sd/-M. A. Khan Belal


sd/-A S M Feroz Alam


sd/-Alhaj Mosharref Hossain


See annexed auditors’ report to the Shareholders of date.
sd/-Syful Shamsul Alam & Co.

Chartered Accountants

sd/-Basu Banerjee Nath & Co.

Chartered Accountants


Chapter 04

4. General banking

4.1 Introduction:

General banking is the starting point of all the banking operations. This is the department, which provides day-to-day or instant services to the customers. Since bank is confined to provide the services everyday, General Banking is also known as ‘Retail Banking’. Main functions of General Banking department are  as the followings:

  • Accounts Opening.
  • Local Remittances.
  • FDR.
  • Different Schemes.
  • Collection and Clearing House.
  • Accounts Section.
  • Cash Section.
  • Locker Service

4.1.1 Accounts Opening:

For building up the relation between Bank and Customer, the first step that must be done, is to open an account of the customer. Opening of an account binds the same into a contractual relationship. But the selection of customer is very crucial. In fact, fraud and forgery of all kinds start by opening of an account by the customer or customers.

Bank’s success and failure largely depends on their customers. If customer is fraud, he/she may create fraud and forgery by his/her account with bank and thus destroy good will of the bank. So, this section takes extreme caution in selecting its customer base.

One of the basic functions of commercial banks is to accept deposits. For accepting deposits both demand and time, MBL-Mohakhali Branch offers the following types of accounts:

Types of accounts with terms and conditions:

This part covers only the following types of accounts:

  • Current Account
  • Savings Bank Account
  • Short Term Deposit (STD) Account

(i) Current Account:

No restriction exists on the number of deposits into and withdrawal from this account. Opening balance must be Tk. 1000 and after that customer must maintain a minimum balance of Tk. 500. Tk. 50 is charged if balance falls short of minimum balance.

Interest Rate = No interest.

Generally businessmen open this kind of accounts.

(ii)Savings Account:

This account can be opened by depositing Tk. 100. Mercantile Bank requires a minimum balance of Tk. 500 to continue the account. At one time, depositor can draw maximum 25% or Tk 1000 whichever lower.

Interest Rate = 6%

Individual, Businessmen or personally any one can open this kind of accounts.

(iii) Fixed Deposit Receipt:

This deposit is taken for some maturity period. Depositor isn’t allowed to withdraw or deposit money from this account.

(iv) Bearer Certificate of Deposit:

Special Characteristics of these accounts are:

  • Transferable by mere delivery only.
  • Duration 3 months to 12 months.
  • This certificate doesn’t contain any information about the depositor.
  • It is sold at discount so that the difference between purchase price and face value becomes the interest earning for the depositors.