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Report of Managing Director & CEO
Dear Shareholders,
At the outset, on behalf of the management I express my gratitude to all valued clients, patrons, well-wishers and shareholders for continuous support and co-operation to your Bank. Like earlier, our endeavor towards enhancing shareholders' value by delivering better financial results continued in 2012.

On the occasion of the 14th Annual General Meeting of MBL, it is my pleasure to have an overview on world economy and domestic economy. I would also take the privilege to report the Bank's performance in 2012 while forecasting its prospects and challenges in the years to come.

World Economy
World economic conditions improved modestly in the last half of 2012. During this time, global growth increased to about 3.2%. Emerging market economies, the main source of acceleration marked 5.1% growth in 2012. Global growth is projected to increase marginally to 3.5% during 2013, but not at rates recorded in 2010‚Äď11. Supportive policies have underpinned much of the recent acceleration in activity in many advanced economies, but weakness will weigh on external demand and on terms of trade of commodity exporters.

Policy actions have lowered crisis in the Euro area and the United States. Advance Economies are expected to grow by 1.4%, whereas emerging economies are projected to grow by 5.5% in 2013. If crisis risks remain under control and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the Euro area and risks of excessive near-term fiscal consolidation in the US. Policy action must urgently address these risks to sustain the world economic recovery.

Bangladesh Economy:
With the exception of few occasional lapses, Bangladesh has been credited with maintaining decent macroeconomic balances for the past few years. That situation came under stress at the close of 2011. Macroeconomic stability appeared to be under pressure due to: double digit inflation rate, unfavorable balance of payment position, pressure on foreign exchange reserve, depreciation of Taka, persistent instability in the stock market and difficulties in mobilizing foreign financing.

In 2012, Bangladesh economy managed to address all those issues. Therefore, macro economic stability appeared back on track. It achieved 6.32% GDP growth in FY2011-12 which is consistent of last decades GDP growth performance. Accommodative monetary policy of Bangladesh Bank helped bringing inflation to single digit in 2012. Point to point inflation reduced from 11.59% in January 2012 to 7.69% in December 2012.

Both Export and Import marked moderate growth in FY2011-12. Export and Import growth was 5.93% and 5.52% respectively in FY2011-12 over FY2010-11. However, Import in the first half of FY2012-13 showed negative growth of 8.11%, partly due to lower food grain and consumer goods imports due to existing high food stocks and excellent domestic harvests. Export on the other hand maintained a positive growth of 7% during the first half of FY2012-13. Foreign Remittance Inflow marked substantial growth of 22% during the first half of FY2012-13 as compared to 10.24% growth over the corresponding period in FY2011-12.

Foreign exchange reserves increased persistently during 2012 and stood record high at around USD 12.8 billion in end December 2012 which is equivalent to about 4 months of import cost. Pro-active steps to secure alternative sources of external financing for oil imports, lower import demand especially food-grains, positive export growth combined with strong remittance growth contributed for this record foreign exchange reserve. Domestic currency Taka remained largely stable appreciating by 2.6% in July-December, 2012 due to this foreign currency reserve.

Large volume of government borrowing from banking channels occured due to decline in foreign aid inflows, subsidy payments and low levels of non-bank borrowing. This created pressure in macro economic stability in FY2011-12. During FY2011-12 net credit to government from the banking channel was BDT 184.7 billion. Government borrowing from banking channel during the first half of FY2012-13 has been restrained to BDT 58.9 billion, which is around 29% of the budgeted amount. Broad money growth in November 2012 is 18.6% above the 16.2% program target due to higher growth of remittance.

MBL's Financial Performance in 2012
The year 2012 was challenging for the banking industry and for our Bank as well. High cost of deposits, sluggish trend in the country's capital market, cautious monetary policy and lower import payments affected us adversely. Bangladesh Bank's new rules for loan classification and provision in 2012 required more provisions against classified loan. To comply with Bangladesh Bank's guideline a larger amount of provision was to be kept to safeguard Bank's health. MBL's operating profit reduced to BDT 3,350.78 million in 2012 from 3,501.67 million in 2011. Due to the higher requirement of provisioning against classified loan, net profit before tax reduced to BDT 2,381.45 million in 2012 from BDT 3,004.17 million in 2011.

Balance Sheet Position
Amidst sluggish investment and disciplined financial system, balance sheet of the Bank marked reasonable growth in 2012. Total Deposits and Loans and Advances grew by 29.17% and 17.01% respectively in 2012 over 2011. At year end 2012, total deposits stood at BDT 132,093.64 million compared to BDT 102,262.02 million in 2011. Loans and Advances on the other hand increased to BDT 93,610.87 million at the end of 2012. In December 2011, it was BDT 79,999.80 million. Total Assets of the Bank marked 32.16 % growth and stood at BDT 154,040.18 million at the end of 2012 as compared to BDT 116,553.01 million in 2011. Total Shareholders' Equity increased to BDT 10,924.55 million in 2012 showing 13.10% growth over that of 2011.

Achievement in International Business
MBL made noteworthy contribution in facilitating the import and export of the economy. Import business of the Bank increased to BDT 113,430.10 million during 2012 as compared to BDT 95,008.70 million in 2011 indicating 19.39% growth. The Bank handled BDT 81,477.10 million of export business in 2012. In terms of remittance business, the growth of 120.88% in 2012 over 2011 was spectacular. The bank procured BDT 15,792.80 million of inward remittance in 2012 as compared to BDT 7,150.00 million in 2011.

Diversified Deposits & Loans Products
Customers' need are foremost. We always emphasize on launching new products and review existing products in order to meet customers' financial need. In 2012, we have launched two new deposits products naming Super Benefit Deposits Scheme (SBDS) and Education Planning Deposits Scheme (EPDS). In addition, our existing deposit products- Monthly Savings Scheme, Family Maintenance Deposit Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Deposit Scheme, Advanced Benefit Deposits scheme, 1.5 Times Benefit Scheme and Special Savings Scheme are highly popular. In case of loan products, Home Loan, Car Loan, Overseas Employment Loan, SME Loan, Women Entrepreneurs SME Loan, Cottage Loan, and Agricultural Loan have attained enthusiasm among the people at home and abroad.

Dynamic Card Services
MBL started its credit card operation in 2002 with Q-Cash proprietary cards. In June 2006, VISA Brand Card was launched. VISA dual prepaid card, VISA Dual Hajj Card, Credit Card and Debit card have been introduced in the Bank with various up-to-date facilities. There are withdrawal through Pay Order, SMS alert services, bill through e-mail, Issuance of supplementary card, longer interest free period etc. 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 facilitating customer convenient and care. As on December 31, 2012 total number of ATM booth increased to 115. MBL earned BDT 24.00 million operating profit from card business during the year 2012.

Agriculture & SME financing
Agriculture and SME are the priority sectors of financing in MBL. In order to facilitate the agricultural activities and promote small and medium enterprises, MBL is financing these two sectors with the assistance of Bangladesh Bank and different Micro Financing Institutions (MFIs). To facilitate Agriculture & SME Credit, the Bank has already established seperate Agriculture Credit Department and SME division. It has also inaugurated 5 SME/ Krishi branches in remote areas of the country. In future, the Bank will launch more SME and rural branches to enhance this sector. At the end of 2012, total Agricultural loan increased to BDT 1,421.18 million from BDT 679.81 Million as on December 2011. On the other hand, SME financing of the Bank stood at BDT 4,597.81 million in 2012 against BDT 3,833.56 million in 2011 registering 19.94% growth in 2012 over 2011.

Sustainable Growth
In an attempt to attain sustainable growth we prioritize on superior customer services, wide range of products, skilled work force, team work, diversified portfolio, prudent fund management. We are careful in our expense management and effective execution of business strategies. To sum up, we want to maximize our shareholders' value while remaining continuously compliant to different regulatory bodies thus contributing directly to economic growth.

Sophisticated Technology
Technological sophistication is a precondition for attaining comparative advantages in this modern and highly competitive banking arena. We are putting due emphasis on strengthening our IT division and at the same time continuously providing more IT based products to our customers. From the beginning, MBL has adopted modern technologies to make services easier and quicker for 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 ‚ÄúTEMENOS T24‚ÄĚ, a world class proven technology platform, which will be implemented this year. Our endeavor to continuously improve technological support will bring greater efficiency to operations and enable continuous value added services.

Mobile Banking
To fulfill our vision of ‚ÄėInclusive Banking' MBL will forge agressively ahead in achieving cash based services across the corner of Bangladesh. This will be through a network of agents using the cell phone service infrastructure.

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. 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. We believe that our investments in Human Resource development are key to sustainable growth and profit. The Bank has a talented work force. We nurture that talent even more effectively through continuous and need based training. Bank plans to hire, develop and retain its Human Resources based on the right level of skills and talent to meet current and future needs. In recruiting fresh graduates we follow competitive process of recruitment, which eventually ensures efficient and skilled human capital for the Bank.

Corporate Social Responsibility (CSR)
MBL is committed to the society. We believe that, true success does not consist in profit maximization but in looking forward to help the under privileged. With a view to performing CSR activities, MBL has established a Foundation 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 to undertake various benevolent activities. For instance, Mercantile Bank Abdul Jalil Education Scholarship, awards to intellectual personalities of the society for their outstanding contribution. The Foundation has programmes for donation to health, education and natural disaster, development of sports, talent development, etc. During the year 2012, MBL donated BDT 85.90 million for CSR activities.

Off-Shore Banking Unit
MBL launched off-shore banking unit in 2011. Performance of Off-Shore Banking unit was satisfactory in 2012. Two units of Off-shore banking unit achieved BDT 9.67 million as operating profit during 2012 as compared to BDT 0.46 million during 2011.

MBL Subsidiaries
Considering the market demand and our commitment to serve the customers, 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. MBSL has 7 branches across the country. Targeting to provide superior remittance services to the Bangladeshi expatriate working in UK, MBL has launched ‚ÄėMercantile Exchange House (UK) Limited', which commenced its business operation at Birmingham on December 06, 2011. Second branch of Mercantile Exchange House (UK) Limited was opened in London, on September 20, 2012. We believe that such endeavor will contribute towards attracting more remittance business through the banking channel.

Commitment to Government
MBL made significant contribution to the government's effort in collection of revenue. We are proud that being one of the largest taxpayers in the country, we have become an important source of revenue for the Government of Bangladesh. As per law, Bank deducts income taxes, VAT and excise duty from various services at source. Besides, the Bank also pays income tax on its earnings. In 2012, the Bank has made a provision of BDT 1,000.00 million for the National Exchequer.

Basel II Capital Accord
Risk based capital adequacy i.e. Basel II came into effect fully in the banking industry of Bangladesh from January 01, 2010 after parallel run with Basel I during 2009. MBL believes that Basel II is not merely a quarterly reporting system but rather a new risk management technique for the Bank. Therefore, MBL is committed to implement Basel II properly. Complying with Basel II requirement the Bank maintained adequate capital by ensuring optimum mix of Tier 1 and Tier 2 capital. The Bank has been generating most of its incremental capital through issuance of bonus shares and retention of profit. Furthermore, there is an instance of raising capital amounting to BDT 1,430 million in 2010 by issuing Right Shares. Bank's Capital Adequacy Ratio (CAR) consistently remains much higher than the statutory requirement.

Separate Risk Management Division
For better risk management, MBL has formed a separate Risk Management Division (RMD). RMD identify, measures and manages risks efficiently. The division undertakes Stress Tests as per Bangladesh Bank's guidelines. Core objectives of Stress Test are to measure the survival capacity of the Bank under some exceptional but plausible shocking events.

Green Banking
As a part of Green Banking, MBL is providing support to the activities that are not harmful to the environment. We have established a separate Green Banking unit and various measures have been adopted to ensure Green Banking. Among others, green financing, creating awareness among employees for efficient use of water, electricity and paper, giving preference to preservation of ecosystem while financing commercial projects and reuse of equipments are some initiatives for turning MBL as a Green Bank.

Network Expansion
Bearing the slogan of √Ēevsjvi e¬®vsK√ē 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 2012, we have launched 11 new branches. As a result, at the end of 2012, we have 86 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 two branches. We aspire to augment the number of branches of MBL as well as Mercantile Exchange House (UK) Limited in the year 2013. We hope to sign more agreements with various overseas companies across the world. 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. All these actions will strengthen our business network in the local as well as global financial market.

Economic Outlook for 2013
The year 2013 will be a challenging year for the economy partly because of political unrest and partly for the adverse impact of global economic slowdown on exports. Export growth may be affected due to a delayed recovery in Europe and the USA. While global growth prospects for 2013 are expected to be marginally better than 2012, they remain highly uncertain in key trading partner countries, particularly in Europe. The US showing some signs of recovery but overall the growth prospect for 2013 in advanced economies remains bleak. Besides, threat from US to cancel Generalized System of Preference (GSP) facilities in their market on the ground of poor working atmosphere for the labor and their right may decelerating export growth rate. As a pre-election year, 2013 will be a year of increased political unrest. Therefore, economic activities may be hampered. Domestic and Foreign Direct Investment may be stalled following the go-slow taken by the investors amid political uncertainty. Besides, the unavailability of gas and power may continue to adversely affect investments growth and employment. Capital market, another area of discomfort is yet to stabilize. Real investors' confidence has not been restored. Ongoing downward trend in real estate business is also expected to continue in 2013. Under these circumstances, achievement of 7.2% GDP growth target set in FY2012-13 would be a challenge for the economy.

Upcoming Challenges and Our Preparation
Banking industry is getting competitive day by day. Modern and hi-tech banking business is replacing traditional banking. All banks are handling almost identical financial products. Approval of some new banks will intensify the existing competition in the banking industry in near future. Hence, quality services and efficient management will make the difference for us and help in achieving sustainable growth and a leading position in the industry.

In order to be successful in the backdrop of this rapid changing competitive sector, we have prepared ourselves accordingly. Our strategy is to continue the business that we do well. Better management of our exposure in corporate/ commercial business and diversification of portfolio are our focus. Others are expansion in potential areas like Agriculture, Retail and SME business; further expansion in small and agricultural loans; venturing of new and innovative ideas; continuous focus on IT development for efficient customer services and expand to larger customer base; relentless efforts in mobilization of remittances with an ever increasing network of exchange houses both at home and abroad; 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 our profitability. We are relentlessly endeavouring to provide our customers with quality and prompt services. We have planning and progressing with sophisticated technology, innovative products and quality human capital. Our officers and executives are well equipped with contemporary knowledge regarding banking and economy. We work to devise the potential strategies to ensure ‚ÄúRisk Return Trade off‚ÄĚ.

Acknowledgement
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.
M. Ehsanul Haque
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