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Report of Managing Director & CEO
Dear Shareholders,
I am pleased to present our performance on all core areas of operations of our Bank during last year before our valued shareholders, respected members of the Board of Directors and all other stakeholders. I believe that your prudent evaluation of our performance and valued guidance will pave the way for sound and sustainable growth of Mercantile Bank. We are relentlessly endeavoring to position ourself as one of the finest financial institution in the industry.

World Economic Scenario
In the past year, global economic conditions experienced positive development but there were distractions and pace of progress was not as expected. US economy had shown signs of recovery because of upturn of employment opportunities as an effect of acceleration of effective private demand for goods and services. European Union Countries are still struggling to come out of the economic stagnancy affected during the worldwide meltdown in 2008. Germany, because of its resilience fared well. In 2013, emerging market economies of China and India came out of the cyclical peaks and they are maintaining steady growth dynamics. The spillover effects of emerging market economies will have a positive impact on the world economy. The pace of global growth rate at 3.7% and trade growth is expected to hover around 4.9% in the current year. The world economy during last year had given positive signals but its sustainable result will largely depend on the growth momentum to be maintained in 2014.

Bangladesh Economy
Bangladesh economy during 2013 did not perform up to expected levels, due to political instability which mostly dominated the last quarter of the year. The Government forecasted the growth rate of 6.5%, but actual growth rate will be approximately 6.0% during the current fiscal. Inflationary pressure generally negates the benefit of growth, which was around 8.0% during 2013. Export and inward remittance flow was moderate while import growth was negative, especially of capital machinery and industrial raw materials. This led to higher foreign exchange reserve as well as Current Account surplus. Prospective investors of the private sector had adopted "wait and see" policy. Recent statistical reports indicate that investment registration of local entrepreneurs with the Board of Investment (BOI) in 2013 was around BDT 424.49 billion and number of registered industrial projects was 1,197 as against 1,655 projects were registered to the tune of 507.86 billion during the corresponding previous year. Investment growth trend declined by 16% in the year 2013 compared to 2012. Besides, inflow of Foreign Direct Investment (FDI) was sluggish and the country's capital market suffered serious setback due to a downturn of confidence level of investors. Economic growth momentum raise investments in the public and private sectors. Our country's export market is around USD 27.00 billion, of which garments exports constitute USD 22.00 billion. The withdrawal of GSP facility by the US has had an impact on our image as our exports to the USA as a single country hovered around USD 5.00 billion. Therefore, the material impact is not significant. The Government of Bangladesh has been trying it's best to restore back the GSP facility in consideration of its impact on the country's image to the outside world.

MBL's Financial Performance in 2013
2013 posed a challenging year for the banking industry due to a major downturn in business activities. In the midst of this, we adopted the strategy of consolidation of our position by reducing costs, focusing on existing business to keep up the growth momentum. This positively reflected in our year-end business performance. During the year, we focused on up-gradation of the key financial indicators like maintaining capital adequacy, ramping up quality of lending assets, recovery of non-performing loans, broadening low and no cost deposit base and thereby ensuring risk return trade-off in our banking operations. The operating profit of the Bank edged up to BDT 4,255.70 million during the year 2013, registering growth by 27.01% compared to the previous year 2012. Profit before tax increased to BDT 3,228.70 million in the year 2013 from BDT 2,381.45 million in the year 2012, registering growth of 35.58%. The profit growth momentum bears the testimony that despite the challenges in and around us, we performed well in terms of our financial result by achieving targets almost on all sectors of our banking operations.

Balance Sheet Position
Amidst the sluggish investment environment, total loans and advances of the Bank grew by 4.36%, but total deposit base declined by 5.70% in 2013 over that of 2012, reducing Bank's interest payable cost by 1.09% in 2013. During the year, we have emphasized on restructuring of our deposit mix with a view to keeping down the cost of fund as well as to build up the sustainable deposit base by reducing our dependence on large corporate deposits. At the end of the year 2013, total deposits stood at BDT 124,566.97 million. Loans and Advances on the other hand increased to BDT 97,688.50 million at the end of 2013 as against that of BDT 93,610.87 million as at December 2012. Total Assets of the Bank stood at BDT 144,841.87 million at the end of 2013. Total Shareholders' Equity increased to BDT 12,574.24 million in 2013 experiencing 15.10% growth over that of 2012.

Achievement in Foreign Exchange Business
We as a matter of priority intend to ensure hassle-free remittance services to our expatriate Bangladeshis living in different countries like USA, United Kingdom, UAE, KSA, Kuwait, Bahrain, Canada, Italy etc. Our Bank attaches utmost importance in providing customer friendly services to expatriate Bangladeshis. Our money transfer agreements with the strategically important companies like Western Union, MoneyGram, Xpress Money, Placid Express, Instant Cash Worldwide, Prabhu Money Transfer, Trans-Fast Remittance, etc. play an instrumental role in enabling us providing desired level of services to the remitters. During 2013, Bank's remittances stood at BDT 12,434.70 million. We always participate in different fairs and campaigns both at home and abroad with a view to creating awareness among our expatriates on the positive side of remitting their hard earned money through banking channels. The country's benefit, by their value added contributions to the cause of the national economy is also highlighted. MBL also made noteworthy contribution in facilitating the Import and Export business of the country. During the year our Bank's exports was to the tune of BDT 71,671.50 million while import was at BDT 100,685.60 million.

Launching of Diversified Financial Products
MBL launched several deposit and credit products befitting requirements of different segments of customers. In designing its products MBL always endeavor to make superior value additions for its clients. Its deposit products are Monthly Savings Scheme, Family Maintenance Deposit Scheme, Double Benefit Deposit Scheme, Super Benefit Deposits Scheme (SBDS), Education Planning Deposits Scheme and Special Savings Scheme. The prominent product based loans and advance products are inter alia, 'স্বপ্ন নিবাস' - Home Loan, 'সোনার তরী' - Car Loan, 'আকাঙ্ক্ষা' - Overseas Employment Loan, 'চাকা' - SME Loan, 'অনন্যা' - Women Entrepreneurs SME Loan, 'কুটির' - Cottage Loan, and 'নবান্ন' Agricultural Loan. It is gratifying to note that our multidimensional products have created enthusiasm among the targeted segments of clienteles.

Credit Cards
MBL at its startup period of operation opened the window of credit card services by launching Q-Cash proprietary cards. In June 2006, we diversified our card service products by adding VISA dual prepaid card, VISA Dual Hajj Card, VISA Credit Card and Debit card with added facilities like Card cheque service, SMS alert services, bill through e-mail, issuance of supplementary card, longer interest free period etc. At the end of 2013, we have as many as 120 own ATM booths and 20 cash deposit machines (CDM) at different important hubs of the country.

Agriculture & SME financing
Agriculture and SME are the two main priority sectors of finance. In order to facilitate agricultural activities and promote small and medium enterprises, MBL is financing these two sectors directly as well as through partnerships with NGOs. Mercantile Bank has established Agriculture Credit Department and SME division. At the end of 2013, credit portfolio in agriculture rose to BDT 2,217.90 million. It was BDT 1,421.18 million in 2012. SME financing of the Bank stood at BDT 7,250.00 million in 2013 against BDT 4,597.81 million in 2012, registering a growth rate of 57.68%.

Sustainable Growth
One vision of the Bank is to act in a socially responsible manner, so that our activities in different core areas of operations can make value additions to society. Our obligation to society is ensuring welfare oriented banking services where profit and well-being of our stakeholders will co-exist and be complementary. Keeping these objectives in view, we intend to ensure compliance with regularity bindings and continue to make value addition on our shareholders investment.

Sophisticated Technology
Technological sophistication is the precondition for attaining comparative advantage in today's modern and highly competitive banking industry. We are continuously putting due emphasis on strengthening our IT platform and at the same time continuously providing more IT based solution for our customers and for improving our operations work-flow. From the beginning, MBL has adopted modern technologies to provide fast tracking services to clients. We have introduced on-line real time banking and SMS banking services for our customers. We are providing 24 hours banking services to our clients through our ATM booths across the country. After full implementation of our Core Banking Solution "TEMENOS T24", a world class proven technology platform, the entire automated service network of the Bank will become much more efficient. Our endeavors towards incremental improvement of tech savvy modules continue and will bring efficiency and quality to our operations for ensuring superior value services to our customers.

Mobile Financial Services
To fulfill our vision of 'Inclusive Banking' and with the approval of Bangladesh Bank, MBL launched its own mobile banking service 'MyCash". In Mobile Banking system, basic mobile handsets are being used as bank accounts and will serve as a wallet for the transaction of money. This is an innovative idea of economic inclusion of low income un-banked people. Additionally this product is also for the much needed domestic and international transfer of money through mobile phones for all categories of people.

Human Capital Development
We believe that Human Resources are the most valuable asset for the Bank. Success in banking operations depends largely on the quality of human resources. It is our continuous endeavor to establish an open and enabling environment where our people can work with self respect, dignity and scope for smooth career progression. We believe that our investments in Human Resource Development are key to sustainable growth profit orientation. We have in our Bank, dedicated and highly professional pool of workforce voicing our corporate slogan, 'Efficiency is our Strength'. The Management is continuously trying to upgrade the knowledge and skill levels of its employees through arranging training both at home and abroad for broadening their world view in this knowledge based global economy.

Corporate Social Responsibility (CSR)
MBL believes that, true success does not consist in profit maximization, but in doing something good for the less privileged. This is our ultimate source of satisfaction as a responsible corporate citizen. With a view to performing CSR activities, MBL has established a Foundation namely Mercantile Bank Foundation in 2000. Each year a certain percentage of operating profit is contributed to the Foundation targeting to carry out various benevolent and charitable activities. Mercantile Bank "Abdul Jalil Education Scholarship" provides scholarships to poor and meritorious students. It awards few personalities of the society for their outstanding contribution in various fields. Financial assistance in health sectors, assisting the victims of natural disasters, development of sports and talents, sponsorship for the mentally and physically challenged are some of the CRS activities carried out each year by Mercantile Bank Foundation. During the year 2013, MBL donated BDT 83.10 million for their CSR activities.

Off-Shore Banking Unit (OBU)
Ever since OBU launching in 2011, MBL has been offering Off-Shore Banking services through its two Units located at Chittagong Export Processing Zone and Gulshan Branch. During the year 2013, our Off-shore banking units made net profit of USD 2.33 lakh, equivalent to BDT 18.09 million. We are also endeavoring to further activate the OBU'S for attaining desired result oriented performance in future.

MBL Subsidiaries
Considering the emerging market demand and our commitment to customers satisfaction, MBL launched two subsidiaries namely Mercantile Bank Securities Limited (MBSL) and Mercantile Exchange House (UK) Limited. MBSL started on 27 June 2010 for stock and securities market operation. At present, it has 7 branches across the country. Targeting to provide superior remittance services to the Bangladeshi expatriate working in UK, MBL has launched 'Mercantile Exchange House (UK) Limited', which commenced its business operation at Birmingham on December 06, 2011. Second branch of Mercantile Exchange House (UK) Limited was inaugurated in London, on September 20, 2012. Bangladeshis living and working in the UK are remitting their hard earned money through the banking channel by leveraging our service oriented facilities. There is a continuous and steady rise in inbound remittance from our operations in the U.K.

Contribution to Exchequer
MBL made significant contribution to the government revenue. We are proud that as one of the largest taxpayers in the country, we have become an important source of revenue for the Government of Bangladesh. As per law, the Bank calculates and deducts income tax, VAT and excise duty from various services for onward deposit to the government exchequer. It is noteworthy that in 2013 we have made a provision of BDT 1,250.00 million for payment to the National Exchequer as Corporate Tax.

Basel II Capital Accord
Basel II is a risk management technique for the Bank and MBL is committed to implement Basel II in its true form and spirit. Therefore, we continue to strengthen our capital, funding and liquidity position and we are well placed to meet future regulatory requirements under more stringent regulatory requirements. As at 31 December 2013, the Bank's Basel II Tier 1 capital ratio was 9.81% and Tier 2 capital ratio was 1.62%, compared to 9.16% and 1.67% at 31 December 2012 respectively. In the meanwhile, we are in the final stage to raise Bank's capital. We will issue second tier sub-ordinated bond which will leverage our balance sheet. This process will be completed by June, 2014.

Separate Risk Management Division
For better risk management, MBL has formed a separate Risk Management Division (RMD). RMD identifies risks as well as measures to manage banking related risks efficiently. The division undertakes Stress Tests as per Bangladesh Bank's policy guidelines. Core objectives of Stress Test are measured to ascertain resilience capacity of the Bank under exceptional but plausible shocking events. All these are providing us a better understanding of managing and mitigating risks.

Green Banking Endeavors
As part of Green Banking, MBL is supporting loans to environment friendly proposals and declining projects which are non-compliant. We have established a separate Green Banking unit and various measures have been adopted. Our focus and encouragement are on financing ETP or water treatment plants in existing Textiles and Readymade Garments sectors. Additionally our Green Banking Division is providing loans for the Renewable Energy and Energy Efficiency sectors like Solar, Bio Gas, Energy Savings directives in line with Bangladesh Bank's Green Banking Policies.

Network Expansion
We are continuously expanding our network across the country for attaining geographical and demographic dividend. At the end of 2013, we have 91 branches and two subsidiaries i.e. Mercantile Bank Securities Limited with 7 branches and Mercantile Exchange House (UK) Limited with two branches. We intend to increase the number of branches of MBL as well as its subsidiaries in 2014. We are hopeful to sign more agreements with various overseas companies across the world in future. Apart from these, we have planned to increase the number of ATM booths across the country for meeting the demand of 24 hours cash withdrawal facilities of our customers. As at year end our total Teller Machine stood at 120.

Upcoming Challenges and Our Preparation
Banking industry is becoming increasingly competitive. Modern and hi-tech business is replacing conventional banking. Banks are handling similar financial products. Hence, quality services and efficient management will make the difference and help in achieving sustainable growth.

In order to be successful in the phase of this ever changing competitive arena, our strategy is to continue the business that we do well i.e., better management of our exposure in corporate/ commercial business and diversification of portfolio; expansion of business in potential areas like SME, Agriculture and Retail. Venturing of new and innovative ideas like project in Renewable Energy, Energy efficiency pro-friendly environment projects will assist sustainable growth. Focus on IT development for efficient customer services and broadening of larger customer base; relentless efforts in mobilization of remittances with an ever increasing network of exchange houses both at home and abroad is also necessary. We will continuously focus on mobilization of no-cost and low-cost deposits; effective management of operating costs; maximization of fee based income; strengthening our Primary Dealer operations to optimize spin-off earnings.

We are relentlessly working to provide our customer with quality and prompt services. Tackling the uncertainty challenges of the economy coupled with rising expectations of quality services and demand for lowering of interest rate will be major factors in determining and positioning of banks. We are hopeful of handling those challenges well.

Acknowledgement of Debt of Gratitude
On behalf of management of the Bank, I express my appreciation and thanks to the Government of the People's Republic of Bangladesh, Governor and other officials of Bangladesh Bank, Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE) and Registrar of Joint Stock Companies and Firms for their continuous help and assistance, valuable guidelines and co-operation provided to the Bank from time to time.

We have a professional and dedicated team of management who are well poised to meet the challenges ahead in the stiff competitive banking industry. It is our continuous endeavor to be more competitive through implementation of different strategic measures both from short and long term perspectives. I am very much thankful to all my colleagues in the Bank for their profuse help and efforts to attain the corporate vision, mission and strategic objectives by upholding our ingrained institutional core values. I acknowledge my debt and gratitude to the respected members of the Board for their valuable and judicious policy support to navigate this institution in the right direction for taking it to a higher place of sustainable growth.
M. Ehsanul Haque
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