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Chairman's Message
Dear Shareholders,

AS-SALAMU-ALAIKUM


The year under review saw Mercantile Bank Limited (MBL) clearly forging ahead, and becoming an impactful player within the banking industry of Bangladesh. The Bank’s strategic and financial performance during the year was commendable given the challenging operating environment and it is indeed my pleasure to welcome you all to the twenty first Annual General Meeting and present to you the Annual Report for the financial year ended 31 December 2019.

The Bank continued to deliver on its commitment to shareholders with a Return on Equity (ROE) of 10.99% and an Earnings per Share (EPS) of BDT 2.32. Bank’s Net Asset Value Per Share (NAVPS) stood at BDT 22.31 which is a clear indication that the bank is on the right track of value creation. The Board has proposed a 16% dividend (11% Cash & 5% Stock) for approval at the forthcoming annual general meeting, up from 15% Stock Dividend in the previous year. The dividend declared is a clear affirmation of our commitment to deliver consistent value to our shareholders whilst ensuring we enhance our equity base, to empower our growth strategy and comply with the regulatory and prudent capital requirements.

OPERATING ENVIRONMENT

Against a difficult backdrop that included intensified US-China trade and technology tensions as well as uncertainty on Brexit, momentum in global activity remained soft in 2019. There were positive surprises to growth in advanced economies, but weaker-than-expected activity in emerging markets and developing economies. Growth was better than expected in the United States, Japan and the Euro area. Among emerging market and developing economies, GDP in China was stronger than forecast. Elsewhere in emerging Asia, as well as in Latin America, activity has disappointed. Despite the upside surprises in headline GDP for some countries, data more broadly paint a picture of subdued global final demand, notably in fixed investment. Inventory accumulation of unsold goods lifted first quarter GDP in the United States and the United Kingdom, while soft imports boosted output in China and Japan. Bangladesh is steadily maintaining economic growth. The country achieved on average more than 6 percent growth rates for more than one decade. From FY2015-16, Bangladesh has achieved GDP growth rate of more than 7 percent over four consecutive years. In FY2018-19, GDP growth stood at the record highest 8.15 percent which was 7.86 percent in the previous fiscal year. Continuing the earlier trend, the average per capita national income increased to US$1,909 in FY2018-19, up by US$58 from the previous fiscal year.

PERFORMANCE IN 2019

In this operating context, the Bank performed satisfactorily to record total assets and operating profit growth of 8.57% and 15.92% respectively during the year. MBL’s NPL ratio remains below 5% which compares favourably against the industry average. The Bank continued to deliver on its commitment to shareholders with a Return on Equity (ROE) of 10.99% and an Earnings per share (EPS) of BDT 2.32. The Bank’s gross loans and advances growth of 5.65% to BDT 23,689.04 crore was supported by 7.71% growth in its deposit base, reflecting the bank’s strengthening deposit base and brand recognition.

KEY STRENGTHS OF MBL

Our people are the backbone of our business and main driving force of the MBL brand. The commitment to our employee is a continuous and ongoing process. Our aim is to create an environment where our employees stay motivated, empowered and feel recognized for their work which enables them to learn and grow with the company. In 2019, we recruited 201 new employees who will enrich our diverse workforce.

MBL has 148 branches including 22 AD Branches across the country to provide seamless services to its customers. Besides, we have 181 ATMs, 20 CDMs and 2 subsidiaries namely ‘Mercantile Bank Securities Ltd (MBSL)’ and ‘Mercantile Exchange House (UK) Limited’. We have 2 Offshore Banking Units (OBU) operating at Gulshan and Chattogram EPZ areas. In addition, we now have the state of art centralized ‘MBL Contact Center’ to provide banking services to customers’ doorstep on 24/7 basis. At Mercantile Bank we are upgrading our Core Banking Solutions (CBS) Temenos T24 to version R19 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. Moreover, the Bank has broadened its horizon through rendering banking services to underserved population with ‘MBL Agent banking’ which will expand the financial inclusion of the country. By being operationally excellent in all we do ensures that we invest sustainably to unlock future growth opportunities, while managing our cost base by unlocking synergies and efficiencies.

SOLID BALANCE SHEET AND STRONG LIQUIDITY

The successful consolidation of all our business segments is one of the things we determined we needed in order to maintain our growth. The second is our financial strength: in a number of key dimensions, Mercantile Bank has been stable and doing better than almost all of our leading peers.
- Our capital to risk weighted ratio (CRAR) satisfactorily meets our regulatory requirement.
- We have strengthened our balance sheet considerably over the years and improved its quality.
- Our market risk levels and our credit risk losses have been low.
- Our liquidity reserves are better and well above the levels required by our regulators.
- Our NPL ratio is 4.86% which is far below the industry average rate.

STRONG GOVERNANCE PRACTICES

Backed with a strong and experienced Board, befitting its aspiration to become a leading bank of prominence, the Board of Directors remains committed to ensure the highest standards of corporate governance throughout the organization with the objectives of safeguarding the interests of all stakeholders and enhancing the shareholders’ value and financial performance of the Bank.

The Board of MBL always takes strategic decisions emphasizing good corporate governance to protect the interests of Shareholders and other stakeholders at large, increasing their confidence and establishing their trust. They always guide the Bank towards the goal set by the Shareholders, ensuring the highest standards of integrity, accountability, transparency, ethics and professionalism of the management dealing with banking business. For smooth functioning of the Bank, three supporting committee of the Board; Executive Committee, Risk Management Committee and Audit Committee are relentlessly providing guidance and direction to the Management since the inception of the Bank.

MBL discloses all material facts to the Stakeholders for taking their timely economic decisions. MBL, depending on the structure, size, and location of the Branches and strength of its manpower, has delegated duties and powers to the Management. The Bank has appointed Chief Financial Officer (CFO) to look after the overall financial affairs meticulously. Company Secretary has also been appointed to provide advice to the Board of Directors/Management and to comply with statutory requirements.

We firmly believe that sound control culture has been established within the Bank. External Auditors are appointed by the Shareholders in the AGM. They audit the accompanying Financial Statements of the Bank and provide opinion whether the Financial Statements reflect the true and fair views and have been prepared in accordance with applicable rules and regulations. For an effective control system, separate and independent Divisions, namely Internal Control & Compliance Division (ICCD) and Board Audit Division are functioning within the Bank. Internal Audit team of the Bank conducts their regular audit functions based on different manuals, instructions, guidelines and procedures laid down by regulatory bodies and the Board of the Bank from time to time. The Board undertakes prompt actions to protect the Bank and shareholders wealth based on internal audit reports.

COMMITMENT TO SUSTAINABILITY

At Mercantile Bank Limited (MBL), our sustainability strategy is connected to our vision of making finest corporate citizen. Guided by our core values of customer delight, innovation, socially responsible, shareholders value, ethical values, caring for human resources and commitment, we are at the heart of society and we want to be a positive force in it. One of the ways we do this is with corporate social responsibilities (CSR) under various programs including sponsorship of arts, culture and sports programs, donations to charitable organizations and education scholarships. As a responsible corporate citizen, we have made concerted efforts to embed the principles of sustainability to our daily operations and processes. These efforts are reflected in the Bank’s diverse workforce, environmental and social screening criteria, lending towards underserved segments of the economy and ongoing investment in community engagement projects. These initiatives are discussed in further detail in subsequent sections of this Annual Report. The Bank’s holistic approach to value creation is also reflected in its corporate reporting and the Bank has continued to enhance the quality and readability of its Integrated Annual Report. The Bank’s commitment towards transparent reporting was recognised at the ICAB Best Presented Annual Report Awards 2018 and at several times.

OUTLOOK 2020

In 2020, our top most challenges shall be to attain quality asset portfolio, to reduce the amount of classified loans, to increase non-interest earning businesses, and to avail low cost refinance schemes so that the cost of funds could be reduced and the desired reduction in lending rate (single digit) can be achieved. Our strategies next year will include: exploiting the growing rural deposit basket by setting up smaller low cost rural sub branches and agent banking booths. We are also going to start Islamic banking window operations. Cross selling of different products and services including retail to corporate customers will also get the top most priorities in the year. In addition, we are going to explore new business avenues for ensuring a wide range of services through establishing two subsidiaries in the name of ‘MBL Asset Management Limited’ and ‘MBL MyCash Limited’.

As I write to you, the global as well as Bangladesh’s economic growth is expected to be significantly impacted by the spread of the COVID-19 and the resulting disruption of economic activity. As the global supply chain interrupted due to international shutdown, demand for manufactured goods has declined, particularly posing risks to the garment sector of Bangladesh. Worldwide lockdown situation could further worsen the export and remittance income of the country. Besides, The national shutdown also impacts private consumption risking loss of many businesses. Continuing for long, this situation could lead to the unemployment problem. However, the government has ramped up action to curb the health emergency, protect people, especially the poorest and most vulnerable, and came up with various financial stimulus packages, scaled-up social protection programs and an easing of financial conditions for fast economic recovery. We are committed to help the government tackle the pandemic, accelerate recovery, and build resilience. We expect that the outbreak can be brought under control quickly and the economic activity can recover within the second half of 2020.

ACKNOWLEDGEMENTS

The Board members are committed to work relentlessly for protecting the interest of our valued shareholders and depositors and make distinctive value additions on their contributions to the cause of this Bank. On behalf of the Board, I would like to thank our shareholders, customers and business partners for their constant support, trust and patronization. We also appreciate the contribution made by our Auditors, Legal Advisors, Consultants and Correspondents for their time befitting and prudent roles. My heartfelt appreciation goes to the management, all executives and officers for their dedicated services to forge ahead the interest of our beloved institution. My gratitude to the Government of the People’s Republic of Bangladesh, Officials of Bangladesh Bank, officials of Bangladesh Securities and Exchange Commission, Financial Reporting Council, Bangladesh Dhaka Stock Exchange, Chittagong Stock Exchange and National Board of Revenue. Last but not the least, thanks to my colleagues in the Board who have always been supportive and agile in our endeavor to navigate the institution in the right direction.

Warm regards,



Morshed Alam, MP
Chairman
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