Dear Fellow Stakeholders
AS-SALAMU-ALAIKUM


Against the backdrop of Covid-19 breakout in china in December 2019 and possible single digit interest rate implementation plan doing the rounds; the year 2020, though the year was full of uncertainties with regard to life and livelihood caused by Covid-19, started as the year of consolidation for Mercantile Bank Limited (MBL). At the start of the year, MBL set out to nurture the portfolio in hand rather than going for too much expansion in business. Later from April 1, 2020, the Government did go on to implement the single digit interest rate. The bank has always prioritized the concept of sustainability and thus on that note the year 2020 had begun. With unprecedented challenges in the year 2020, like all the other great banking companies, Mercantile Bank Limited (MBL) found a way to persevere through. From the very beginning, MBL has constantly challenged the status quo and strived for even greater levels of excellence by asking the hard questions and adapting. And adapt we did, by complying with all the regulatory norms set out during this pandemic period by various regulatory authorities, by maintaining adequate provision to ensure adequate capital base, we have been able to successfully weather this storm relatively unscathed given the return generated for our shareholders.
 

The first case of Covid-19 was detected in Bangladesh in the month of March, 2020 and then in the later days, the cases kept on increasing. This confronted the Government with a conundrum that no other before it had to face. That is to make sure that the spread of the virus be halted. The Govt. declared special holidays from the last week of March till the end of May, 2020 initially. In this period, the economy had literally come to a standstill. Although, banks were open but to a very limited extend. In this situation, Mercantile Bank Limited came forward and provided services to its customers through digitalization as well as conventional means so that the customers can fulfill their banking needs.
 

To understand how the pandemic has affected Bangladesh as well as other South Asian economies, one has to look at various publications by the Bangladesh Bank. Some of the highlights of these reports project the scenarios. COVID-19 pandemic continued to spread and impacted Bangladesh economy since March 2020, reflecting a sharp decline in growth rate of real gross domestic product (GDP) to 5.24 percent in FY20 as compared to a record high of 8.15 percent growth in FY19 . Likewise, other South Asian countries are not exception as being affected by COVID-19, slowing down their economic growth as well. In response to combat against the possible economic disruptions because of the pandemic, South Asian countries including Bangladesh have taken extensive fiscal measures depending on their own capacities. The economic growth of Bangladesh decelerated to 5.24 percent in FY20 from 8.15 percent in FY19 in the aftermath of the economic slowdown caused by a government-declared lockdown for around two months in the first half of FY20 to prevent the contagion of COVID-19 pandemic. The domestic demand, which comprised of consumption and investment, moderated to 4.23 percent and 6.71 percent respectively in FY20 from 4.33 percent and 8.44 percent respectively in FY19 but the external demand (exports) drastically contracted in FY20 as a consequence of unprecedented, negative growth of the global economy. Unfortunately, the economic growth of the European Union and the USA turned from positive in 2019 to negative in 2020 owing to severely restricted economic activities and diminished demand caused by the rampant spread of the pandemic through these regions to which Bangladesh tended to export more than 80 percent of its ready-made garments RMG. In the first half of 2020, global economic activities suffered a faster and deeper contraction than in the financial crisis of 2007-09 as the pandemic stalled almost all sectors of the economy because of the rapid contagion. So deep is the plunge in global output that the global economic growth contracted by 4.3 percent. The pandemic severely weakened global trade, consumption, services, and the labor market in both developed and emerging markets. Global trade contracted by nearly 3.5 percent (year over year) in the first quarter, reflecting weak demand, collapse in cross-border tourism, supply chain disruptions, and supply dislocations triggered by shutdowns across the world. Inflation in Bangladesh has decreased to 5.29% in December 2020 from 5.57% in January 2020 as the overall economy has slowed down during the year 2020.
 

Bangladesh’s government and Bangladesh Bank (BB) undertook a range of coordinated fiscal, monetary, and macro-prudential policy actions which included stimulus packages and easy credit availability in order to cushion the Bangladesh’s economy from the fallout from the pandemic. The overriding objectives of these policy measures are to minimize the negative impacts of the pandemic and to bring economic activities back to the pre-COVID-19 level. These policy measures are expected to make financing conditions easy for investors, entrepreneurs, and corporate bodies who now can access more favorable financing sources to resume their business in full swing. It is likely that the economy will recuperate from lost investment and consumption and bounce back to the economic growth momentum observed in the last decade. In most of the policy measures, Banks have been in the forefront of all the economic activities i.e. disbursement of stimulus package that has been declared by the Bangladesh Government. As the facilities will be funded from banks’ own source, Bangladesh bank has set the ‘Advance Deposit Ratio (ADR)’ at a higher rate than usual.

 

Mercantile Bank is committed to serve the nation so that the country can recover from this Covid-19 situation. For that it has been working tirelessly to disburse the stimulus package that has been assigned to the bank. The Govt. has already declared a stimulus package of Tk. 50,000 million for the Agriculture sector. The bank has realized that agriculture will play one of the most crucial roles in overcoming the financial crisis. That is why, although the central bank has given a timeline of upto March 31, 2021 to disburse Tk. 700 millions, we have already disbursed Tk. 486.5 million upto December, 2020 which constitutes about 70% of the target achieved. We are confident that in the rest of the time remaining, we will be able to fulfill our target and contribute significantly in recovery of the sector in which most of the country’s workforce is employed. Also in the financial inclusion as well, the bank has disbursed Tk. 260.6 million, which is quite high compared to overall statistics.
 

About a quarter of the population work in the SME Sector of the country and during the Covid-19 this sector was hit quite badly. That is why Govt. allocated Tk. 200,000 million to this sector. Although only about a quarter of the total stimulus package has been disbursed by all the financial institutions combined, Mercantile Bank Limited has been one of the better performing banks by disbursing Tk. 2,019.4 million of its’ allocated Tk. 3,220 million, which constitutes about 63% of the target achieved. The sectors mentioned above were the worst affected sectors during the Covid-19 pandemic and comprises of people who are not rich. As a result, by extending more support to these sectors Mercantile Bank Limited has lived upto its’ reputation of being the bank for the people of Bangladesh. Despite the tough situations posed and the obligations put forth by the central bank, the Bank was always focused on providing maximum returns while ensuring sustainability. While doing so, MBL has not strayed away from complying with all the applicable accounting policies. Bank like the past years has complied with all the accounting policies. There have been no significant changes in accounting policies compared to last year. We would like to mention that IFRS 17 was introduced in the month of May, 2017 and applies to annual reporting periods beginning on or after 1 January, 2023. The Banks can adopt this standard earlier. MBL has not yet assessed in potential impact of IFRS 17 on its financial statements. Apart from this, there are no other standards that are not effective and that would be expected to have a material impact on the bank in the current or future reporting periods. The bank has registered a profit that is competitive, build a strong base for itself for any future turmoil, improved its’ capital base at a level which is quite higher than required by the regulators. It is important to note that 2020 has been a tough year for the whole banking industry. Covid-19 pandemic coupled with a bar of 9% in the loan interest rate has made the situation really tough for all the financial institutions. That is why, we are happy to be able to curtail the interest expenses which is Tk. 16,732.2 million upto December 2020 as compared to 18,116.2 million on 2019. The less interest expense has been made possible because of the more favorable deposit mix. The bank was able to reduce its’ the high cost deposit percentage and increase the No and low cost deposit percentage. As a result of it, we have been able to reduce the Cost of Deposit from 6.92% to 5.32% . This reduction has allowed the bank to maintain a favorable Interest rate spread.

 

 

In 2020, the Bank has registered a steady performance in terms of foreign business. The Import Business of the Bank stood at Tk. 172,773.5 million whereas the Export stood at Tk. 135,418.1 million. The fact that, we have been able to achieve 86% of our target in Import and 85% of our target in export is quite remarkable under the prevailing economic situation. During the year under review, the Bank also handled remittance business of Tk. 30,893.0 million.
 

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 of minimum capital requirement. MBL’s CRAR was 13.61% as on 31 December 2020 against the required MCR of 12.5% (Including capital conservation buffer).
 

Banks are always prone to risks. Bangladesh bank has provided the banks with guidelines addressing the risks and ways to mitigate these risks. One of the risks that need quite an attention is the cyber security risk. Due to current advancement in digitalization, this needs more attention than ever before. Realizing this, MBL has a dedicated ‘ICT Security Unit’ from September, 2019 to specially look after the threats arising from cyber activities. The department conducts quizzes quite a few times in a year. This way all the employees get educated about the recent cyber security issues and that helps prevent any kind of cyber threat that may face the bank.
 

During the year ended 2020, all the financial indicators of the bank i.e. EPS, portfolio growth, profit growth, NPL etc achieved stable positions. The EPS and NAV stands at BDT 2.20 and 22.46 respectively. The Bank has uplifted to the rating of ‘B2’ from Moody’s from ‘B3’ the previous year. The Bank also holds a local credit rating of ‘AA’ with a Stable Outlook from Emerging Credit Rating Limited.
 

MBL provides various kinds of Alternate Delivery Channels like ATM, Debit Card/ Credit Card, Mobile Banking & Internet Banking services and many new customer centric products. The Bank has been trying to reach more and more people through its network of 150 Branches, 185 ATMs and 20 CDMs Along with these, a digital platform named ‘MBL Rainbow’ has been added, which will make the banking more customer friendly and digitalized which is in line with the country’s goal of becoming ’Digital Bangladesh’. With this facility, the customers will be able perform contactless banking more efficiently which is the need of the hour currently.
 

In spite of the Govt. holidays and overall slowdown in the economy, MBL has not stopped expansion of its operation. During the year, MBL has opened 02 (Two) new branches. But, we have been able to expand our services to different parts of the country through 101 agent banking outlets. Along with this, we are going to open 10 Sub-branch in various part of the country. This will help us in reaching more unbanked population which has always been a target of the Bank. Along with traditional banking services, Bank has opened an Islamic banking window named ‘Taqwa’ to cater the needs of the customers who are willing to get Shariah based banking service.
 

In 2020, Mercantile Bank Limited received some notable awards and recognition from various authorities. Mercantile Bank Limited has been awarded jointly the 3rd (Third) prize for Best Presented Annual Reports Award under the banking sector (private) category, and Certificate of Merit under Corporate Governance Disclosure Award in 20th ICAB National Award based on the Annual report of 2019.
 

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 best corporate citizen.
 

Lastly, on behalf of my team, I would like to express my sincere gratitude and acknowledgement, to all our regulatory authorities such as Bangladesh Bank, NBR, BSEC, DSE, CSE and RJSC&F for their continuous support and guidelines from time to time.

 


Wishing you all the best.

Md. Quamrul Islam Chowdhury

Managing Director & CEO



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