Bangladesh Economy
Although the economy of Bangladesh achieved 6.66% GDP growth in FY 2010-11 but it faced macroeconomic challenges in 2011. Inflation was a continuous threat over the year and soared to a 13-year high of 11.97 percent in September, 2011. Price hike in the international market, Increment of demand in domestic market, upward revision of petroleum price in the domestic market and more importantly huge government borrowing from the banking system added fuel in the flame of inflationary pressure. During the first five month of current fiscal year 2011-12, the government borrowed more than BDT 190 billion which is higher than the total borrowing target of BDT 189.75 billion in the same fiscal.
The country’s foreign exchange reserve fall bellow USD 10 billion in September, 2011 after it has climbed up to a landmark of USD 10 billion in November 2009. The foreign exchange reserve faced downward trend due to excessive rise in import, slowdown in remittance and decline in foreign aid disbursement. Consequently, domestic currency depreciated gradually against all noted currency of the world.
Capital Market, on the other hand was another cause of concern for the economy over the year 2011. After reaching a record high at the beginning of the year, then both the DSE and CSE plunged. And the downward trend in the capital market sustained for the rest of the year 2011. Both the bourses were shaded by almost 100% in terms of the benchmark general index.
The Banking Industry of Bangladesh faced the pinch of liquidity crunch in 2011. Higher growth of credit compared to deposits growth rate, indiscriminate borrowing of government from the banking channel and cautious monetary policy triggered the edgy liquidity situation. Moreover, the deadline set by Bangladesh Bank to bring down the AD ratio within the regulatory requirement compelled the industry to attract deposits even at a more competitive rate. Besides, the banking industry entered into the arena of 10 percent CAR as per Basel II accord from July 2011. All these incidents really made the situation challenging for the banking business.
However, amidst all these multidimensional macro- economic and banking challenges, MBL performed remarkably well and subsequently achieved positive growth in almost all business arenas during 2011 and such growth has been made possible by the heartiest effort and the excellent customer services of our officers and executives along with the dynamic business polices of our Board of Directors.
We express our heartiest gratitude to all valued clients, patrons, well-wishers and honorable shareholders for their continuous support and co-operation, which has facilitated our path towards growth and goal.
On the occasion of 13th Annual General Meeting of MBL, we feel proud to report the Bank’s performance during the year 2011, its prospects and potential challenges in the year to come.
2011: A year of sustainable growth
MBL has strengthened its position as one of the leading financial institutions and maintained satisfactory growth across its all Business Units. We took a strategy to ensure sustainable growth by adhering to compliance in all spheres of its operations and pursuing versatile sources of revenue. The Bank remained focused in all key areas like capital adequacy, quality asset growth and strong liquidity thereby ensuring sound revenue. Operating Profit of the Bank increased to BDT 3,501.68 million in 2011, displaying 23% increment compared to that of 2010. Profit before tax increased to BDT 3,004.17 million in 2011 from BDT 2,435.93 million in 2010. This momentum in profit is the testimony of our Bank’s solid performance in every sphere of banking business and confidence kept by our customer towards our efficiency.
Balance Sheet Position
Amidst a cautious monetary policy and disciplined financial system, the balance sheet of the Bank marked a significant growth with 35.22% and 20.52% in Deposits and Loans & Advances respectively in 2011 over that of 2010. At the end of the year 2011, total deposit of the Bank stood at BDT 102,262.02 million against that of BDT 75,629.14 million till 2010. Loans and Advances on the other hand, which are well diversified, increased to BDT 79,999.80 million at the end of 2011 as against that of BDT 66,377.70 million up to December 2010. Total Assets of the Bank marked 33.75 % growth and stood at BDT 116,553.01 million at the end of 2011 as compared to that of BDT 87,140.11 million during 2010. Total Shareholders’ Equity increased to BDT 9,659.33 million in 2011 experiencing 34.42% growth over 2010.
Contribution in International Business
MBL made a noteworthy contribution in facilitating the Import and Export of the Economy. The Import Business of the Bank grew by 6.13% in 2011 over 2010. Whereas, Export business, grew by 36.88% during the same time period. The Bank recorded BDT 95,008.70 million as import business at the end of the year 2011 against that of BDT 89,524.10 million up to December 2010. Export business stood at BDT 81,311.80 million till December 2011 against that of BDT 59,404.20 million at the end of 2010. In the year under review, the Bank also handled BDT 7,150.10 million as remittance from overseas.
Attractive Deposits & Loan Products
Considering the demand of our potential as well as existing customers, MBL has launched several deposit and advance products, which have drawn huge public attention. Among the deposit products- Monthly Savings Scheme, Family Maintenance Deposit Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Savings Scheme, Advanced Benefit Savings scheme, 1.5 Times Benefit Scheme and Consumer Credit Scheme, Special Deposits Scheme and among the Loan products ‘Shopnow Nibash’- Home Loan, ‘Sonar Tori’- Car Loan, ‘Akangkha’- Overseas Employment Loan, ‘Chaka’- SME Loan and ‘Anonna’- Women Entrepreneurs SME Loan have attained a praise-worthy popularity among the people at home and abroad.
Efficiency in MBL Card Services
MBL started its credit card operation in 2002 with Q-Cash proprietary cards and in June 2006, VISA Brand Card was launched. The Bank extends various services to the customers to meet the modern and assorted needs of the customers. VISA dual prepaid card, VISA Dual Hajj Card, Credit Card and Debit card have introduced in the Bank with various up-to-date facilities such as withdrawal through Pay Order, SMS alert services, Issuance of supplementary card, longer interest free period etc. Call center of the Bank provides 24 hours service to its cardholders. The Bank is alert to the potential risk of credit card fraud and unauthorized use of card. Procedure and policies to combat credit card fraud are regularly reviewed and updated to minimize the risk of loss to credit card customers. At the end of December 2011, MBL earned BDT 2.54 million net revenue from card business. Bank’s International/ Dual cards are highly acceptable all over the world. MBL is continuously expanding its ATM network and inking contact with the other banks with a view to making these services more attractive and convenient to all.
Agriculture: The Prioritized area of Financing
Agriculture is reckoned as the backbone of our economy. Realizing the such importance of agriculture, MBL is continuously financing in the Agriculture sector with the aid from Bangladesh Bank, different financial institutions and NGOs. To facilitate Agriculture Credit, the Bank has already launched Agriculture Credit Department and has already inaugurated 18 rural branches and 5 SME/ Krishi branches in the remote areas of the country and in upcoming days the Bank will launch more rural branches in unbanked areas of outside the divisional cities and upazilas. The Bank is working under a refinance agreement with Bangladesh Bank and financing the farmers in arrangement with ACI motors to purchase Sonalika tractors. Besides, MBL is also associated with various NGOs and other organizations like, BURO-Bangladesh; Integrated Development Foundation (IDF), Chittagong; Nowzuwan, Chittagong to disburse agricultural loans to the farmers.
Small and Medium Enterprises (SME) Financing
SME is the engine of growth in a labor intensive economy like Bangladesh. It creates more employment opportunity and thereby increasing the purchasing power as well as aggregate demand. However, despite increasing focus and consequent policy efforts on such a crucial Small and Medium Enterprises (SME) sector in Bangladesh, flourishing of this thriving sector is not up to the mark because of fund crisis. Considering the importance and needs of the economy, MBL has given adequate priority in this sector by offering affable lending products and services so that SME can aspire to opportunities of growth and wealth creation. So far, our growth in this arena of business is praiseworthy. At the end of 2011, total SME financing of the Bank stood at BDT 3,833.56 million against BDT 3,386.13 million in 2010 registering 13.21% growth in 2011 over 2010.
Our Comparative Advantages
Since inception, we have created positive image in the banking industry by dint of our distinct product and services and thereby attaining comparative advantages in the industry. From the very beginning, we have emphasized on excellent customer services, technological sophistication, innovation of new products and services, bolstering human capital, efficient use of capital and finally ensuring the benefit of all stakeholders. To be more specific:
Sustainable Growth
The vision of the Bank is “Would make finest corporate citizen”. And our core priorities are strong expense management and to show our ability to execute business strategies efficiently against our goal. To sum up, we want to maximize our profit and minimize the non-performing assets in order to attain sustainable growth.
Excellence in Customers Services
We do believe that customers are the main stakeholders of the Bank. That is why we always try to satisfy our customers while remaining compliant to the regulatory bodies. Our goal is to make financial matters better and easier for our clients. The Bank provided greater value to its customers by developing a wide range of products and services. The Bank has always remained competitive in offering services to the customers and is continuously redesigning its products to meet ever changing customer needs. Having a deep knowledge of our customers and their growing needs are key to our business success. Our customer group ranges from individuals, organizations and small business covering all sectors of Corporate, SME and Retail businesses. The Bank is not only providing services but also taking steps to expand these sectors by participating actively in various trade shows organized in the country.
Sophisticated Technology
Technological sophistication is the precondition for attaining sustainable growth in the age of today’s modern banking arena. As such, we are putting due emphasis on strengthening our IT division and at the same time continuously providing more and more IT based products to our customers. From the beginning, MBL has adopted the modern hardware and software technologies to make the services easier and quicker to the customers. We have introduced on-line banking and SMS banking services for our customers. We are providing 24 hours banking services to our clients through SMS banking and ATM booths across the country. For Core Banking Solution the Bank has selected “TEMENOS T24”, a world class proven technology platform, which is likely to be implemented this year. After implementation of the system the entire service of the Bank would become automated as a replacement of the traditional system. Our endeavor to upgrade continuously its core banking platform and invest in suitable software and hardware is ongoing — ensuring not only its alignment with technology but also to bring efficiency to its operations and ensure customer satisfaction to the extent of highest degree.
Human Capital Development
We firmly believe that Human Resources is the most valuable asset for the Bank and the success and failure in banking operations depend largely on the quality of the people who works with the clients. So, it is our continuous endeavor to establish an open and enabling environment where our people can work with self respect, dignity and scope of showing creativity and efficiency. We believe that our investments in Human Resource development are keys to sustainable growth and profit thereof. The Bank has a talented work force for its operational activities. We nurture that talent even more effectively through continuous and need based training in both home and abroad. Bank plans to hire, develop and retain its Human Resources based with the right level of skills and talent to meet current and future needs. In recruiting fresh graduates we follow competitive job exams, which eventually ensure the efficient human capital of the Bank.
Corporate Social Responsibility (CSR)
Business organizations are now regarded as “Corporate Citizens” and as a result they are striving to play their responsibilities in this regard. We believe that, true success does not consist in profit maximization rather in doing something for the deprived part of the society. With a view to performing CSR activities, MBL has established a Foundation namely Mercantile Bank Foundation Just a year after its incorporation. Each year one percent of the operating profit or BDT 40 Lakh, which one is higher, is contributed to this Foundation. “MBF Education Scholarship-2010” is the indication of MBL’s attempt to stand beside the meritorious but poor students of the society. In 2010, MBL, from its foundation provided scholarship among the numerous poor but meritorious students across the country under the category of JSC, SSC and HSC. As a part of fostering the creative and constructive works, MBL each year on its founding anniversary award some noted intellectual personalities of the society for their outstanding performance in the respective field. Besides, the activities of the Foundation and the Bank are found in the areas of health and education, natural disaster, development of sports, talent development, capacity development in banking sector etc. In the year 2011, MBL donated BDT 49.40 million for CSR activities.
MBL Subsidiaries
Considering the demand of the markets and our total commitment to support and serve the customers from different angle, MBL launched two Subsidiaries namely Mercantile Bank Securities Limited (MBSL) and Mercantile Exchange House (UK) Limited. MBSL formed on 27 June 2010, to deal with stock dealing and broking and as a subsidiary it started its separate operation from
14 September 2011. Till now, MBSL has 7 branches and in order to make this service available all over the country, it has been decided for further expansion of branch network of the securities. With a view to providing faster, easier and superior remittance services to the Bangladeshi expatriate living and working in UK, MBL has launched exchange house in UK in the name and style ‘Mercantile Exchange House (UK) Limited’, which commenced its business operation at Birmingham in UK on December 06, 2011. We believe that such endeavor will widen the opportunity of the Bank to serve the customer from different aspect with utmost care.
Commitment to Government
MBL has contributed significantly to the governments effort in collection of revenue and we are proud that we are one of the largest taxpayers in the country and therefore, an important source of revenue for the Government of Bangladesh. As per law, Bank deducts income taxes at sources, VAT and excise duty from various payments and services and deposits the same to government exchequer. Besides, Bank also pays income tax on its earnings. In 2011, the Bank has made a provision of BDT 1,250.00 million for the National Exchequer.
Basel II Capital Standard
Risk Based Capital Adequacy (Basel II) refers to the assessment of adequate capital required to address various types of risks inherent with banking business. Basel II came into effect in the banking industry of Bangladesh from January 01, 2009. After parallel run with Basel I during 2009, Basel II came into force fully from January 01, 2010. Following two stages of MCR i.e. 8% in January-June of 2010, and 9% in July — June 2011, the banking industry is currently facing 10% MCR.
Mercantile Bank believes that Basel II is not merely a quarterly reporting system rather it is a new risk management technique for the banks. Therefore, MBL is committed to implement Basel II properly and for this purpose MBL has formed Basel II Implementation Unit and Supervisory Review Process (SRP) team to ensure smooth and timely adoption of Basel II Accord. For better risk management MBL has also formed a separate Risk Management Unit for identification and measurement of risk of the Bank and relates the risk to capital adequacy of the Bank. Currently, Bank’s consolidated CAR is 10.60% which is higher than the minimum requirement of 10.00%.
Green Banking
Green Bank refers to an ethical, social responsible and a sustainable bank. Green Banking is to provide innovative green products to support the activities that are not hazardous to environment and help to conserve the environment. It aims to use the resources of a bank with responsibility avoiding spoilage and giving priority to environment and society. We have established a separate Green Banking unit and a lot of measures have been adopted including green financing, created awareness among the employees for efficient use of water, electricity and paper, giving preference to preservation of eco system while financing commercial projects and reuse of equipments aiming to turn our Bank as Green Bank.
Network Expansion
Bearing our slogan of 
we want to reach the people with our banking services no matter whether they are urban or rural. For that, we are continuously expanding our network across the country. In 2011, we have launched 10 new branches. As a result, at the end of 2011, we have 75 branches including 5 SME/ Krishi branches and two subsidiary i.e. Mercantile Bank Securities Limited with 7 branches and Mercantile Exchange House (UK) Limited with single branch. We aspire to augment the number of branches of MBL to 90 and branches of MBSL to 15 across the country by the end of the year 2012. Apart from these, we have planned to increase the number of ATM booth across the country for meeting the demand of 24 hours cash withdrawal facilities of our customers. We are hopeful to inaugurate more Exchange Houses in this year across the world to facilitate remittance arrangement. More Remittance Agreement with various Overseas Companies from different parts of the World will be signed to strengthen our business network in the global financial market and to facilitate remittance flow.
Challenges in 2012 and Our Preparation to Confront
The year 2012 will be a more challenging year for the Banking Industry of Bangladesh. Government borrowing from the banking channel is likely to continue in 2012. As a result, private sector might face fund crisis due to crowding out effect which will adversely impact the private investment as well as total output. Moreover, the increased government borrowing, upward revision of energy prices, further depreciation of domestic currency would aggravate the existing inflationary pressure of the economy in 2012. Besides, the unavailability of gas and power may continue to adversely affect investments growth and employment.
Pressure in Balance of Payment (BOP) is unlikely to mitigate very soon as probability of getting a momentum in remittance and export earning within a short time period is almost nil because European as well as the US economy is facing fresh downturn. Furthermore, there are possibilities that Non-performing Loan (NPL) of Banks may rise with major export sectors coming under price, deferment orders and reduced demand threats in the international market. Consequently, depreciation of domestic currency against dollar may be intensified even in 2012. Collapse in capital market is another cause of concern for the economy. Although, the prime minister of our country has already intervened this market to stabilize it, but bringing the retail investors’ confidence in the capital market will remain a big challenge in 2012. Political stability, another crucial factor for economic growth will also be a challenge for the government in the coming years. So, the year 2012 might be a very crucial one for the banking industry.
Now a days, our banking industry is more competitive and the concept of typical banking has already been evaporated. Modern and technology-based banking has taken the place of traditional banking. Again, all the banks are handling similar products and hence, quality services and efficient management is really an important matter for achieving sustainable growth and leading position in the industry. In 2012, this phenomenon is also expected to be increased further.
In order to be successful in the backdrop of this ever- changing and competitive arena, taking the ongoing stiff competition of the industry as challenge, we firmly believe, we have prepared ourselves accordingly. Our strategy is to continue to do the business that we do well. Better management of our exposure in corporate! commercial business and diversify our industry wise portfolio within this segment; Expansion of business into areas of potentialities like Agriculture, Retail and SME business; Further expansion in micro finance with NGOs; venturing of new and innovative ideas; Continued focus on IT development for efficient customer service and expand to larger customer base; Continue our efforts in mobilization of remittances with an ever increasing network of exchange houses both at home and abroad; Intensify the growth of low and no-cost deposit; Effectively manage our costs to standardized cost income ratio at global best practice levels; Pursue multiple sources of revenue for the Bank, like non-interest, fee based income and Treasury Products; Strengthen our Primary Dealers (PD) operations to optimize spin-off earnings- are some measures with which, we are concentrating to accelerate.
We are relentlessly working to provide our customer with quality and quick services. Moreover, we have come forward with sophisticated technology and new products as per requirements of our clients. Our officials are well equipped with contemporary knowledge regarding banking and economy. As a result, they can foresight the future and devise the potential strategies to ensure “Risk Return Trade off” .
Acknowledgement
On behalf of the management of the Bank, I express my deepest appreciation and heartiest thanks to the Government of the People’s Republic of Bangladesh, Governor and Other officials of Bangladesh Bank, Securities and Exchange Commission (SEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and Registrar of Joint Stock Companies and Firms for their cordial help and assistance, valuable guidelines and cooperation provided to the Bank from time to time.
I do firmly believe that we have a dedicated, devoted and hardworking team who can make the dream true by meeting financial and operational objectives of the Bank as well as the needs and expectations of our customers and people of the country. I would like to thank the MBL team for their passion and heartiest efforts to attain our corporate vision, mission and strategic objectives while ensuring that our core value remains consistent. My sincere note of gratitude goes to our dynamic Board of Directors for their valuable guidance, prudent and very timely decisions to direct the Bank to today’s glorious position and establish MBL as truly a
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