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MANAGING DIRECTOR & CEO'S REVIEW
Dear Fellow Stakeholders

AS-SALAMU-ALAIKUM

 

It is my immense pleasure to present the performance of the Mercantile Bank for 2018. This year Mercantile Bank achieved sustainable value through pursuing pragmatic strategic direction and competent navigation in line with fiscal and monetary policies. My review will help you to take a closer look on how the Bank confronted many challenges and delivered enhanced value to all stakeholders.

 

Prevailing Macro Economic Conditions

The Asian region’s expanding economic contribution, particularly Chinese market dominance and India’s widening trade impact, weighed positively from a global standpoint and further widened horizons for neighboring countries including Bangladesh. In a positive development, global economic conditions continued to stabilize with the world output growing by 3.80%, moving steadily away from past recession, but still faced with various challenges such as the political uncertainties in the Middle East and radical economic policy changes of dominant world powers. As the outlook for the global economy has darkened, strengthening contingency planning, facilitating trade, and improving access to finance will be crucial to navigate current uncertainties and invigorate growth. Hence, robust economic growth is essential to reducing poverty and boosting shared prosperity.


 

Major Economic Indicators and impact on Banking Sector in Bangladesh

Domestic credit increased by 5.74 percent and stood at TK. 10,80,307.90 crore in December 2018 over end June 2018 as compared to the increase of 6.95 percent to Tk. 9,52,534.80 crore during the same period of the previous fiscal year. Domestic credit growth slowed down during the reported period due to decrease in credit to private sector. Credit to Private sector increased by only 5.65 percent in December 2018 over the end of June 2018 as compared to the increase of 9.14 percent during the same period of the previous fiscal year. However, Public sector credit growth increased by 6.46 percent in December 2018 over the end of June 2018 which decreased by 7.94 percent during the same period of the previous fiscal year.

 

Inward Remittances increased by 8.03 percent and stood at US$ 7,489.13 million during July-December 2018 against the increase of 12.41 percent during the same period of the previous fiscal year.

 

Exports increased by 14.42 percent and stood at US$ 20,499.87 million during July- December 2018 against the increase of 7.15 percent during the same period of the previous fiscal year.

 

Current account balance recorded a deficit of US$ 2,558 million in July-November 2018 as compared to the deficit of US$ 4,744 million during the same period of the previous year. Lower deficit in current account emerged from decrease in deficit both in trade account and service account.

 

Foreign exchange reserves of BB decreased by US$ 0.97 billion and stood at US$ 31.05 billion as on 15 January 2019 from US$ 32.02 billion as on 27 December 2018 as Bangladesh Bank made payments to Asian Clearing Union (ACU) amounted to US$ 1,145.80 million as on 08 January, 2019.

 

Inflation on twelve-month average basis (Base: FY2005-06=100) decreased to 5.54 percent in December 2018 from 5.58 percent in November 2018 mainly due to decrease in food inflation. Point to point general inflation also decreased marginally to 5.35 percent in December 2018 from 5.37 percent in November 2018 due to decrease in both food and non-food inflation. As such, the purchasing power is in increasing trend due to such lowering inflation rate.

 

In the light of above hurdles in the Macro perspective, Banking Sector had a rough ride to cap the interest rate on deposits at 6% and the lending rate at 9% from July 1, 2018. Visualizing the pave, the Regulators had to take the decision to provide private banks with a raft of privileges, including 1% reduction in Cash Reserve Ratio (CRR) and 2.5% reduction in corporate tax. Noteworthy to be mentioned here that rising NPL, liquidity crisis, increased competition, establishing good governance in the recent thirst of regulators, recent scams & increased regulatory pressure are among the top most challenges in the contemporary situation. However, MBL had a remarkable progress in functioning, regulatory development & financial inclusion towards creating a sustainable, profitable and forward-looking banking sector over several years.

 

Capital Wise Achievement

The progress of MBL has been demonstrated in terms of six forms of capital employed in value generation which includes sustainability impacts with comparatives and forecasts where applicable. Thus, MBL has continued to uphold greater corporate transparency during our twenty years business journey leading to better integrated thinkers, streamlining the core business process to derive sustainable wealth for greater interest of our key stakeholders. Details of each capital have been discussed in Management Discussion & Analysis Segment.


 

Financial Capital

MBL’s Net Interest Income was increased by 20.61% as compared to that of the previous year whereas, the Operating Profit has decreased slightly by 0.11% on 31 December, 2018 over the previous year. With the increase of business volume (loans and advances) by more than 12.31% as on 31 December 2018, the operating expenses were increased by not more than 4% as compared to previous year. MBL recorded 0.56% year-on-year (YoY) decrease in its net profit after tax to BDT 3,000.94 million in 2018.

 

Human Capital

Underpinning MBL’s long term-success is a team of 2,305 highly skilled employees who drive MBL’s strategy and facilitate the unparallel customer experience. As an employer of choice, MBL’s unique value proposition includes competitive salary and benefit packages and numerous opportunities for career and skill development in a dynamic and challenging environment. To obtain Sustainable Development Goal-8: Decent Work and Economic Growth; MBL pursues a comprehensive suite of HR policies which cover all relevant aspects such as recruitment, training and development, performance management, compensation and benefits, industrial relations, occupational health and safety and administrative matters.

 

Manufactured Capital

MBL has opened 138 branches including 22 AD Branches across the country to provide seamless services to its customers. Besides, we have 162 ATMs, 20 CDMs and 2 subsidiaries namely ‘Mercantile Bank Securities Ltd (MBSL)’ and ‘Mercantile Exchange House (UK) Limited’. We have 2 Off-shore Banking Units (OBU) operating at Gulshan and Chattogram EPZ areas. In addition, we have now the state of art centralized ‘MBL Contact Center’ to provide banking services to customers’ doorstep on 24/7 basis. During the year, MBL is also in the process of establishing 2 new subsidiary companies: ‘MBL Asset Management Limited’ for exploring new avenue in the Asset Management services & other value added services in the capital market and ‘MBL MyCash Limited’ for rendering better Mobile Financial Services.

At Mercantile Bank we are adopting latest technology “Temenos-T24” Core Banking Solutions which ensures real time integrated banking services. Mercantile Bank is strengthening its foothold, both in terms of latest technology and need-based products for its clients. By being operationally excellent in all

we do ensures that we invest sustainably in this manufactured capital to unlock future growth opportunities, while managing our cost base by unlocking synergies and efficiencies.

 

Intellectual Capital

Our Intellectual Capital encompasses our heritage, culture, strong brand image, governance, leadership styles, management philosophy and approach to risk management and relationships with all stakeholders. Mercantile Bank has demonstrated its strong commitment to create culture of innovation by introducing a product “Udayan” to provide funds at a comparatively lower interest rate to young graduated entrepreneurs having talent and urge to innovate and create but have lack of initial funds.

 

In recent years, we have recruited industry expert technical specialists and professionals to ensure better services to our valued customers. In addition, we focus on enhancing the technical and soft skills of our employees as a part of continuous improvement. It was also a matter of recognition by Moody’s Rating (B1) in 2018 for the first time.

 

Social and Relationships Capital

As a Charter Citizen, MBL plays an important role in building a strong and thriving society through its rigorous corporate social responsibilities and also assist in achieving the sustainable development goals for the greater interest of the stakeholders. As a token of recognition, MBL was awarded by National Productivity Organization (NPO) under the Ministry of Industries of the Government of the People’s Republic of Bangladesh for “National Productivity and Quality Excellence Award- 2016” in this year. It is also mentionable that this award was given as recognition of Customer Service, CSR activities and overall good governance of the Bank.

 

Natural Capital

We operate in an environment where there are immediate constraints on the availability of resources, such as electricity, and growing concerns about future supply constraints of other natural resources, such as clean air and water. In this context, the case for more sustainable business practices is clear; driving our business to reduce our consumption or impact on our natural resources is our logical strategy. MBL Offices have been designed to utilize maximum usage of natural lights, which reduces energy consumption substantially compared to other conventional building. Around one third of the bulbs being used in this office are of energy savings type. We are saving around 40% electricity (used for lighting purpose) by using the day light in our Offices. Moreover, MBL has already installed solar panels in 54 branches. Besides, the Bank financed green financing as per Bangladesh Bank’s guidelines.

 

MBL’s Performance Highlights

 

Wealth Creation

 

Earnings per Share Growth

Earnings per share (EPS) have witnessed a rising trend over the past five years. MBL continued to maximize shareholder wealth during the year with sound earnings per share (EPS) of BDT 3.68.

 

Net Asset Value (NAV) per Share Growth

NAV per Share stood at BDT 22.93 due to stable in profit after tax. The NAV growth during the year was stable in comparison with last year.


 

Market Capitalization Growth

MBL’s stable performance was well noticed by our investor community, touching to the market capitalization at BDT 14,668.56 million in 2018.

 

Loans and Advances

Bank’s Loans and Advances, which are well diversified, have grown by 12.31% during the year under review. Total loans and advances of the Bank at the end of 2018 reached to BDT 224,230.61 million as against BDT 199,660.72 million in December 2017. MBL remained one of the market leaders in terms of asset and liability growth among the 3rd generation private commercial Banks.

 

Non-Performing Loan (NPL) Management

The business priority of MBL is also to curb non-performing loans by maintaining quality assets. The MBL’s credit approval process has been framed to unveil and assess the unforeseen inherent risk so that assets quality will not deteriorate in the long run. Meanwhile, the ongoing focus on NPL management ensured that recoveries remained on track, with NPLs for 2018 at negligible levels due to tightened monitoring and followup mechanisms to minimize the numbers being transferred to the inactive customer base. Added emphasis on reducing the inactive customer base saw a special incentive scheme being offered to expedite recoveries from this segment, a move that led to reduction in the inactive customer base. At the end of 2018, NPL stood at 4.82%

 

Foreign Business

In 2018, the Bank has made a remarkable growth in terms of foreign business. The Import Business of the Bank grew by 2.96% whereas the Export Business grew by 17.49% during the year 2018. The Bank recorded BDT 196,389.70 million import business at the end of the year 2018 against BDT 190,753.60 million in December 2017. Export business stood at BDT 158,307.70 million in 2018 against BDT 134,752.90 million in 2017. During the year under review, the Bank also handled remittance business of BDT 35,943.00 million.

 

Strong Capital Base

We are committed to maintain a strong capital base to support business expansion, provide a cushion against unforeseen risks, safeguard shareholder wealth and foster investor confidence. The policy allows taking advantage of emerging opportunities and invests further in the core business to enhance shareholder returns. The Bank’s capital management framework includes a capital adequacy assessment process to ensure that the Company can mitigate current and future risks and achieve its strategic objectives. We maintained capital to total risk weighted asset (CRAR) consistently over the period above the threshold (11.87% of RWA) of minimum capital requirement. MBL’s CRAR was 13.28% as on 31 December 2018 against the required MCR of 11.87% (Including Buffer Capital). To support healthy business and ensure compliance with the Basel III Capital Accord in line with Bangladesh Bank, MBL issued Subordinated Bond of BDT 3,000 million to strengthen the Tier 2 capital in 2018.

 

Preparation of Financial Statements

The financial statements of Mercantile Bank Limited and its subsidiaries have been prepared in accordance with the Securities and Exchange Rules, 1987 as well as the provisions of International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) as applicable in Bangladesh or as per requirements under the Financial Reporting Act, 2015 as the case may be, unless otherwise specified in the referred Rules and other rules related to the issue or issuer of securities. The

utmost due care was taken in preparing Financial Statements in compliance with Notification No. BSEC/CMRRCD/2006-158/208/Admin/81, Dated: 20 June 2018.

 

Changes in accounting policies and estimation in addition with description of the effect on financial performance or results and financial position as well as cash flows in absolute figure for such changes have been described in the notes to the Financial Statements.

 

Risks and Concerns

The management of MBL has given greater emphasis on continuous improvement in risk management, and set their performance goals in line with overall strategic objectives. Keeping in pace to survive in this competitive environment, the Risk mitigation plan of the bank has been detailed out in Risk Management Segment of this Annual Integrated Report 2018.

 

Corporate Social Responsibility

The MBL’s CSR and Sustainable Finance Committee overseas all community investment programmes and is tasked with identifying, evaluating, planning and executing activities in line with the Social Investment Framework described in Sustainability Analysis Segment. In fact, we consider our community programmes to be a tripartite agreement between the Mercantile Bank, employee and the community. We encourage all MBL employees to participate in the Bank’s community projects and offer them guidance to ensure proper conduct in line with MBL’s values when in carrying out such projects.

 

As parts of its CSR activities, this year MBL awarded education scholarship worth BDT 13.60 million among 915 poor & meritorious students who passed in 2017 under three category of J.S.C, S.S.C & H.S.C. across the country. MBL also awarded scholarships to the 289 meritorious children of MBL family who are studying at various levels from Class-I to Bachelors Degree, O level & A level. In 2018, Mercantile Bank awarded 5 eminent personalities with “Mercantile Bank Award 2018” for their outstanding contributions in different areas. Besides, MBL has newly introduced ‘MBL Young Bankers’ Appreciation Award’2018 among the young talented private commercial bankers in this year. Basically, the aim of this award is to inspire young bankers and make them more professional. Moreover, Mercantile Bank Limited celebrated International Women’s Day through a gala event to recognize women’s contribution in social development and also to motivate them to increase their capacity towards sustainable development of the economy.

 

Contribution to the National Exchequer

MBL regularly pays corporate tax on time, sometime even before it falls due as required and asked by the tax authority. We also deposit excise duty, withheld tax and VAT to govt. exchequer on time deducted from employees’ salary as well as on bills from third parties including vendors. During the calendar year 2018 we contributed BDT 6,239.78 million to national exchequer as tax, VAT and excise duty. We paid corporate tax of BDT 2,210.66 million while deposited withheld tax of BDT 3,390.11 million, VAT of BDT 293.46 million and Excise Duty of BDT 256.28 million during the year 2018.

 

Good Governance Initiatives

Our corporate governance framework and policies and procedures built up over the years assisted the Board and the management to manage the business with prudence having identified the relevant risks and opportunities. This structure and sound governance approach enabled the management to exercise a high level of oversight, in driving the business towards achieving its corporate goals and implementing sustainability agenda. Robust and effective controls together with audit checks were implemented across the business to ensure compliance with regulatory and statutory requirements and safeguard corporate assets.

 

Awards and Recognitions

It has already announced that MBL has achieved the 2nd place in Category- ‘A’ (Large Industry Category) of the “National Productivity and Quality Excellence Award- 2016” by National Productivity Organization (NPO) under the Ministry of Industries of the Government of the People’s Republic of Bangladesh.

 

Mercantile Bank Limited has also been awarded “Top Ten Remittance Award 2017” by Center for NRBs for providing commendable remittance services. In addition, Mercantile Bank has been awarded ‘Certificate of Merit’ in the category of Corporate Governance disclosures at the 18th Institute of Chartered Accountants of Bangladesh (ICAB) National Award for Best Presented Annual Reports in 2017. ICAB also conferred upon us the ‘Certificate of Merit’ for Best Presented Annual Reports in the year 2013, 2015 & 2016. Besides, Bangladesh Bank has selected Mercantile Bank Limited (MBL) as the best primary dealer (PD) of Bangladesh during the quarter April-June, 2017.

 

Strategic Focus in 2019

Our strategy is to continue the business with better management in corporate/ commercial business and diversification of portfolios. The following are the major priorities for 2019:

 

  • Concerted efforts and marketing to procure more lowcost deposits with a view to reducing cost of deposits and improving Net Interest Margin (NIM) of the Bank.
  • Emphasizing on SME, Agri-credit and Retail Credit to make the loan portfolio more diversified.
  • Focusing on disciplined Credit Risk Management especially credit appraisal process including documentation and monitoring with a view to maintaining strong asset quality.
  • As banking industry is predicted to remain highly competitive with low interest margins, fee-based income and non-funded incomes shall be a strategic imperative in 2019.
  • Maintaining asset quality by restricting increment of nonperforming assets through early detection, monitoring, corrective action plans, shared information and disclosures to keep future recurrence in check.
  • Strengthening the recovery against rescheduled, classified and written-off loans for reducing NPLs to a large extent through intensive recovery measures and further arresting fresh slippages.
  • Taking all required steps to maintain its position as a fully compliant bank in line with regulatory guidelines.

 

A Note of Thanks

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 support and assistance, guidelines and cooperation provided to the Bank from time to time. We have a dedicated team who are well equipped to meet the challenges of modern and highly competitive banking industry while remaining compliant to all regulatory issues. I would like to thank the MBL team for their passion and effort to attain the corporate vision, mission and strategic objectives at the same time ensuring that our core value remains consistent. My sincere note of gratitude goes to our dynamic Board of Directors for their valuable and judicious policy support and timely decisions to steer the Bank for being the finest corporate citizen.

 

Wishing you all the best.

Md. Quamrul Islam Chowdhury
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