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MANAGING DIRECTOR & CEO'S REVIEW
Bismillahir Rahmanir Rahim
Assalamualaikum
Dear Shareholders,
Our performance in the year 2016 bears the testimony that we have succeeded to address the strategically important core areas of banking operation as part of our long term strategy to take this institution to the next trajectory of sustainable growth. During the immediate past year, we focused on booking of quality assets and at the same time to consolidate our credit portfolio by taking measures of remediation. I believe that your prudent evaluation of our performance and valued guidance will pave us the way for sound and sustainable growth of Mercantile Bank. We are relentless in our endeavor to reposition ourselves in the banking industry as one of the strongest banking institutions of the country. We keep high on our agenda of priority to maximize the value of investments of our all category of dignified shareholders and at the same time to make value addition in the cycle of the economic growth of the country at large by expansion and diversification of our credit portfolio across the thrust sectors of the economy.
GLOBAL ECONOMY
Global growth almost remains within the projected threshold and hovered around 3%, while the economic growth in the USA slides during first half of the year which may be considered as the corollary effect of Brexit but ultimately its long term impact proves to be insignificant. The world economy is expected to gain traction in the year 2017 weathering the emerging headwinds. In the year 2016, the growth trend of advanced economies had plunged to 1.6 % while the growth paradigm of emerging and developing economies is expected to take up turn in the current year after experiencing 5 years of consecutive downhill trend. In advanced economies, a modest and uneven recovery is expected to continue, with a gradual narrowing of output gaps. The slowdown and rebalancing of the Chinese economy, lower commodity price, and strains in some large emerging market economies will continue to weigh on growth prospect in 2016-17. Indian growth rate is projected to be 7.6% during 2016. The projected pickup in growth in the next two years-despite the ongoing slowdown in China-primarily reflects forecasts of gradual improvement of growth rates excepting the countries like Brazil, and some other countries in the Middle East which are in economically distressed situation because of overall instability.
BANGLADESH ECONOMY
Bangladesh has an impressive track record of growth and development, aspiring to be a middle-income country in coincidence with its golden jubilee celebration as an independent country. The countrys goal to become an upper-middle-income country by 2021 will require even stronger annual growth of 7.5%–8%. Robust investment and solid consumption are required to catapult the economy to the next growth trajectory. Despite a decrease in remittances from Middle East countries due to the plunge in oil prices, low price pressures and rising wages have bolstered household purchasing power. Bangladesh has transformed its economic structure over the last 2 decades, reaping the benefits of investment in the ready-made garments (RMG) sector and overcoming challenges such as the global financial crisis and the removal of preferential markets with the expiry of the Multi-Fiber Agreement in 2005. Lack of energy infrastructure, uncertainties in property ownership and lack of self-discovery in non-RMG sectors are significant barriers for private investment. Some of the policies that allowed the country to grow and prosper in the last few years will become less effective, and the economy will need to “switch gears” to consolidate the growth momentum appreciating that the domestic economy become concentrated in a few sectors necessitating the diversification of the exportable as well as destinations.
MBLS PERFORMANCE HIGHLIGHTS
MBL in the year 2016 focused on consolidation of its balance sheet by taking remedial measures for streamlining non-performing loans in its portfolio. Even though the different factors of domestic economy were not favorable enough to eke out the desired level of profitability. In the year 2016 we had to make downward adjustment of the interest rate / loan pricing under the stiff competition in financial market as well as regulatory pressure to ensure compliance with the stringent terms & conditions. Our internal policy priority is to stay compliant under any circumstances. As a result of concerted efforts of all the members of MBL family under the prudent policy guidance of our board, we succeeded in attaining consistent profit growth by keeping down the growth of NPLs and ensuring efficiency in the process of intermediation of the available fund and by reining in the cost of deposit for creation of desired level of interest spread.

In the year 2016 banking industry as a whole was in the face of manifold challenges the notable ones are subdued credit demand, growing cost sensitivity among the corporate borrowers and their strong preference to avail of the foreign currency loan. To face externalities we have taken two pronged initiatives one is to consolidate our portfolio through streamlining of nonperforming asset and at the same time to expand our business portfolio and thereby striking balance between liquidity and profitability. Our concerted effort with respect to NPL management yielded 5.13%. During the year we also focused on liability management and prioritized to rationalize cost of deposit to generate satisfactory interest margin in the process of intermediation.
During the year 2016 our deposit base surged by 6.71% to BDT 165.26 billion in comparison to 2015 while position of loan and advance portfolio experienced growth by 19.45% to 150.91 billion in comparison to the immediate past year. Here it is notable that our endeavor to reining in the cost of deposit by mobilizing no cost / free float deposit yielded good result as the cost of deposit came down to 6.25% in 2016 from 7.52% in 2015. During the year our export performance increased by 20.22% to 113.04 billion while import registered growth by 16.49 % to 139.77 billion. Our banks home bound remittance experienced consistent growth which figured at BDT 24.05 billion during the year.
BASEL III CAPITAL ACCORD
Basel III is a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision to strengthen regulation and supervision and reduce risks of the banking sector globally. MBL is committed to implement Basel III 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 2016, the Banks Basel III Tier 1 capital ratio was 8.35% and Tier 2 capital ratio was 4.68%, compared to 8.52% and 3.34% at 31 December 2015 respectively.
BUSINESS STRATEGY
During the year under review, our focus and strategy was concentrated on sustainable long-term growth of business, better deposit mix, improving the quality of assets, rationalizing operating cost, improving operational efficiency and productivity of resources, better and faster customer service, expansion of branches, mobile banking services, offering a number of new products in retail banking, SME financing and card services and strengthening the overall risk management and corporate governance system.
SOPHISTICATED TECHNOLOGY
Technological sophistication is the precondition for attaining comparative advantage in todays 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 customer-centric services to clients. We have introduced on-line real time banking, SMS and Internet banking services for our customers. We are providing 24 hours banking services to our clients through our ATM booths across the country. The banks core banking software “TEMENOS T24”, a world class proven technology platform, which is an excellent technology platform fine-tuned to achieve efficiency in its operations.. 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.
HUMAN RESOURCES
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.
GREEN BANKING
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 for 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 Green Banking Policies.
CORPORATE SOCIAL RESPONSIBILITY
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. Foundation also 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 2016, MBL donated BDT 66.90 million for their CSR activities.
UPCOMING CHALLENGES AND OUR OUTLOOK
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 and Energy efficiency pro-friendly environment projects will assist sustainable growth; focus on IT development for efficient customer services and broadening of larger customer base; concerted 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 and challenges of the economy coupled with rising expectations of quality services and demand for lowering of lending rate will be major factors in determining and positioning of banks. We are hopeful of handling those challenges well.
ACKNOWLEDGEMENT
On behalf of management of the Bank, I express my appreciation and thanks to the Government of the Peoples 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 and we are also trying 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 with competitive edge.
Kazi Masihur Rahman
Managing Director & CEO
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