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Chairman's Message
Bismillahir Rahmanir Rahim
Assalamualaikum
Dear Stakeholders,
I am delighted in presenting Annual Report along with the Audited Financial Statements for the year ended on 31 December, 2016. I believe that the presentation of the Annual Report bears immense importance for all the stakeholders, regulators for evaluation of our performance of the last year. MBL had another good year, with excellent financial result that reinforces our confidence in the strategy. The core businesses of the Bank have taken favorable growth which is the result of dedicated efforts put by all the rank and file employees of the bank and the prudent action plan taken by the senior management.
GLOBAL & REGIONAL BUSINESS ENVIRONMENT
For the last five years the global economy has been in a low-growth trap, with growth disappointingly low and stuck at around 3%. Persistent growth shortfalls have weighed on future output expectations and thereby reduced current spending and potential output growth. Global trade and investment have been weak, limiting the advances in labour productivity and wages that are required to support sustainable consumption growth. However, fiscal policies, both implemented and proposed, could, if effective, catalyse private economic activity and push the global economy to a modestly higher growth rate of around 3.5% by 2018.

Financial market sentiment toward emerging market economies has improved with expectations of lower interest rates in advanced economies, reduced concern about China’s near-term prospects following policy support to growth, and some firming of commodity prices. But prospects differ sharply across countries and regions, with emerging Asia in general and India in particular showing robust growth and sub-Saharan Africa experiencing a sharp slowdown. In advanced economies, a subdued outlook dominates the overall socio-economic dynamics and on the other hand anti globalization policy platforms are apparently gaining more attention.

In face of the global economic challenges, Bangladesh economy experienced positive changes on many fronts critically important for its accelerated growth over the past few years. Economic condition of Bangladesh is on stable position with a positive near-term macroeconomic outlook. Declining inflation, rising reserves, contained fiscal deficit and stable public debt are the positive signal for economic development. Thus the significance of the year 2015 is noteworthy. Because of supporting policy of Bangladesh Bank GDP increased from 6.51% in 2015 to 7.11% in 2016. Declining inflation rate from 6.19% in 2015 to 5.57%. Public and private consumption, investment and net foreign trade position have not shown positive indication. Revenue income has fallen and Remittance has slided in the first half of the current fiscal. However, it is expected that our domestic economy will perform better from the macroeconomic perspective and inflationary pressures will be kept under reasonable control having no effect on our growth.
DOMESTIC BANKING INDUSTRY
Bangladesh's financial sector is dominated by the banking sector. During the year 2016, the banking industry of Bangladesh experienced competition amongst the private and public banks. During Q1FY17, the banking sector indicators showed some concerns compared to that of the preceding quarter. The ratio of gross NPL to the total outstanding loans of the banking sector increased further from 10.06% at the end of June 2016 to 10.34% at the end of September 2016. However, the ratio of net NPL to the total outstanding loans of the banking sector decreased to 2.77% from 2.81% during the same period. The provision shortfall position of the banking sector slightly improved at the end of September and stood at BDT 43.8 billion from BDT 44.5 billion at the end of June 2016. The Capital adequacy ratio (CAR) stands at 10.3% in September 2016, same as the level of June 2016. On the other hand, monthly interest rate spread for all banks, measured as the difference between the monthly weighted average interest rate on advances and deposits, continued to stay below 5% during Q1FY17. Monthly weighted average call money rate decreased marginally from 3.70% in June 2016 to 3.64% in September 2016.
MBL PERFORMANCE-2016
In 2016 we continued significant progress amidst challenging operating environment. Banking sector saw moderation in profitability, rising Non-Performing Loans (NPLs) and a continuing trend in asset quality deterioration reflecting the challenges in the operating environment and the consequential effect of rapid credit growth. Credit expansion decelerated dramatically during the year due to lack of private investment. There was pressure on borrower credit profiles and cash flows; and there was pressure on banking spreads in the wake of a declining interest rate regime where asset portfolios in the industry were getting re-priced faster than the liability portfolios.

Despite such clouds hovering in the environment, Mercantile Bank limited performed well in 2016 in term of operating profit and return on assets. Bank mobilized deposits of BDT 165.26 billion as on December 31, 2016 compared to BDT 154.87 billion in 2015. Total loans and advances stood at BDT 150.91 billion at the end of 2016, which was BDT 126.34 billion in 2015. Earnings per Share (EPS) stood at BDT 3.01. Non Performing Loan (NPL) ratio was 5.13% in 2016. Total Shareholders’ Equity increased to BDT 16.81 billion in 2016. Return on Average Assets was 1.15% and Return on Average Equity was 13.78% as on December 31, 2016. Net Interest Margin (NIM) stood at 3.43% at the end of 2016.
BUSINESS MODEL
Our employees are truly dedicated to their work and serving the customers with extraordinary service. We have relationship driven and personalized service and will also remain the focus of our business model. We are committed to providing you with the best possible banking relationship and continue the relationship with Mercantile Bank Ltd for investing in your future. It nicely complements the Bank’s culture of service, where our employees’ dedication and commitment to customers continue to be driving forces in our performance.
INFORMATION TECHNOLOGY
The bank’s core banking software Temenos T24, which is an excellent technology platform fine-tuned to achieve efficiency in its operations. In order to provide prompt service to the valued customer’s efforts were given on automation, developing procedure and reducing manual operations. Information technology of MBL enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets. Technological development of the Bank tremendously increased its customer service as well as established trust worthiness among the stakeholder.
CORPORATE GOVERNANCE PRACTICE
The corporate governance involves a set of identifiable relationships among the stakeholders of the Bank i.e., Board, Management, Shareholders, Depositors, Business Clients, Regularity Authorities and in the process to achieve common goals. To meet institutional objectives, Management, Board of Directors are committed. For the sake of providing strategic support to the Board, different committees namely, Executive Committee, Audit Committee and Risk Management Committee are active within the respective terms of reference with ultimate objective to take this financial institution to the next trajectory of sustainable growth.

Good corporate governance, we believe is a predominant issue for banks to obtain depositors and customer confidence. We are always alert in upholding their interest at any cost as we are largely indebted to them. As a measure of compliance with the prudential directives, the Board after dispassionate assessment of the background, competency and professional outlook has appointed two Independent Directors. These Independent Directors are making significant value addition in the overall process of governance. Their level of competence and exposure in diversified and relevant fields, matches with the vision and inspiration of the Bank.

External Auditors are unanimously appointed by the shareholders in the AGM. In the present state of overall conditions we are increasingly focused in establishing better internal control through reinforcement of the mechanisms.
CORPORATE SOCIAL RESPONSIBILITY
Mercantile Bank as a corporate citizen is very much active to the cause of society specially in meeting its obligations to the less privileged. Mercantile Bank Foundation was setup in 2000 with the prescribed policy to contribute one percent of the Bank’s operating profit or BDT 4.00 million, whichever is higher to the foundation. The areas of our contribution under the banner of corporate social responsibility (CSR) are well diversified across different segments as well as geographical areas. Our contributions are in the sectors of Education, Healthcare, Disaster Management, Art and Culture, Sports etc. and our annual expenses was BDT 66.90 million in 2016.
OUTLOOK & CHALLENGES
The past year was characterized by uncertain and volatile global economy, fragile consumer and corporate confidence, stagnant investment growth and political uncertainty which was challenging for the Bank and its customers. This gloomy outlook is changing and we feel encouraged to see significant improvements in the macro environment in the coming year with the positive turn of some fundamental economic indicators.

The Bank will continue to function in a disciplined and prudent manner while focusing on consolidated and sustainable growth. The Bank’s priority is to maintain a robust and stable financial and operating platform, which will facilitate us to support our customers and provide substantial return to shareholders. We intend to continue to fight like the strongest contender. We will maintain focus on organic growth, our capacity to respond to change, loyalty to our values, and maintaining our expertise in cost risk, and growth management. The Bank will continue to track untapped areas for maximization of economic benefit through our operational activities

We are optimistic that the overall economy of Bangladesh in 2017 will be better in comparison to 2016. We will be poised to deliver performance oriented results by not only focusing on profit but more on superior value additions in product and banking services. We intend to make our lending activities more cost effective by continuing our focus on interest payable factors as part of our strategic goal.
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 level of 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, Dhaka Stock Exchange, Chittagong Stock Exchange. Last but not the least my 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.

With warm regards,
Shahidul Ahsan
Chairman
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