“Credit Operation Process of Mercantile Bank Limited”
CHAPTER ONE ORGANIZATION OVERVIEW 1.1 Background of Mercantile Bank Ltd During the booming years of the banking industry of Bangladesh a group of highly successful local entrepreneurs conceived an idea of floating a commercial bank with different outlook. As per their views the idea was competence, excellence and consistent delivery of reliable service with superior value products. Consequently, Mercantile Bank Ltd. was created and commencement of business started on 2nd - June 1999. The founders are well-reputed tycoons of Bangladesh in the field of trade and commerce and their stake ranges from diversified business sectors of the country. Mercantile Bank Ltd. has consistently turned over good returns on Assets and Capital. Until the year 2009, the bank has achieved an operating profit of Tk. 3847 million and its capital funds stood at Tk. 7859 million. Out of this, Tk. 1054 million represents retained earnings and Tk. 2844 million consists of paid up capital by shareholders. Even after the business environment and default culture, quantum of classified loan in the bank is very insignificant and stood at less than 1.76%. The bank’s current capital adequacy ratio of 10.88% is in the market. Mercantile Bank Ltd. has already made significant progress within a very short period of its existence. The bank has been graded as a top class bank in the country through internationally accepted CAMEL (Capital, Asset, Management, Earnings and Liquidity) rating. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. Mercantile Bank Ltd. has already made significant progress within a very short period of its existence. The bank has already occupied an enviable position among its competitors after achieving success in all areas of business operation. The bank offers all kinds of Commercial Corporate and Personal
Banking services covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. 1.2 The Best Bank Award For the four year in a row, Mercantile Bank Limited won the prestigious ICAB Award for being the best bank in Bangladesh and SAFA Merit Award for published accounts and reports. To be recognized by mandate so comprehensive and by a body of such experts as the Institute of Chart Accountants Bangladesh and South Asian Federation of Accountants is a matter of great honor and pride. Mercantile bank Limited dedicated this triumph to their patrons, customers, shareholders and employees. They believe that their customer’s loyalty and hard work is the factor that makes them “a bank with a difference” in the eyes of one and all.
1.3 Company Vision, Mission& Objectives Vision Every Company has their own vision. By fixing vision they can set their future growth. Mercantile Bank Ltd has its own vision to be leader in the banking industry. To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.
Mission To build Mercantile Bank limited into an efficient, market driven, customer focused institution with good corporate governance structure. Continuous improvement in business policies, procedure and efficiency through integration of technology at all levels.
Objectives To have a strong customer focus and to build a relationship based on integrity superior services and mutual benefit. •
To work as a team to serve the best interest of the group.
•
To work for continuous business innovations and improvements.
•
To value and respect people and make decisions based on merits.
•
To provide recognition and rewards on performance.
•
To have sustained growth, improved and wide spectrum of products and services.
Core Values: For CustomersTo provide the most courteous and efficient service in every aspect of its business To be innovative in the development of new banking products and service For EmployeesBy promoting well- being of the members of the staff. For ShareholdersBy ensuring fair return on their investment through generating stable profit. For CommunityBy assuming the role as socially responsible corporate entity in a tangible manner through close adherence to national policies and objectives. …………………….Upholding ethical values and best practices
1.4 Organization Structure Mercantile Bank Limited is being managed by highly skilled professionals with long experience in banking. They constantly focus in understanding and anticipating customer needs and as the banking scenario undergoes changes so does the banks operations, to be in par with the market condition. Now we would look into each of the four basic management activities Planning, Organizing, Staffing and Leading & Controlling that the bank practices, in order to stay on top of its competitors. 1.4.1 Planning Mercantile Bank has done its planning within the purview of the corporate plan. The overall planning approach in Mercantile Bank is top-down. Management of Mercantile Bank Ltd can be categorized into two broader teams, one is the Top Management group and other one is the Mid Level Management team. The top level management team usually comprises of the Board of Director’s where the meetings are headed by the Bank’s Chairman. Long terms goals are usually discussed in these high profile meetings, where the bank owners decides, for example, what should be the targeted profit for the next fiscal year.
1.4.2 Organizing The term organizing for Banks is no different from any other business; it is the way through which the day to day activities of the bank are carried out for smooth operation. Mercantile Bank has two approaches when it comes to organizing its business, one is the Branch Based Approach and the other is the Department Based Approach. In the Branch Based Approach, each individual branch is treated as a separate identity and is head by a branch manager. The branch manager is directly responsible for the performance of that particular branch, and is liable to the top management. Profit targets, deposit targets and others targets alike are all handed over to these individual branches The Department Based Approach is similar to that of the branch based approach, where each department operates as a separate unit but sometimes collaborates in order operate more efficiently or to solve a common problem. Such departments are also treated as a separate entity but are much more specialized in one particular area of business unlike a branch which has to be involved in multiple tasks. For example, the Human Resource Department is responsible for recruiting employees for the bank and also to look over the performance appraisal of individual employees. Example of few other departments at Mercantile Bank Ltd are: Human resource Department, Financial and Administration Department, Monitoring and Inspection Department, Marketing, Personal Relation Department, Merchant Banking and Investment banking, Treasury Division, International Division, General Services Division, Computer and Information Technology Department, Credit Division, Corporate Affairs Division, Card division.
Organogram of Mercantile Bank Ltd
Board of Directors
Executive Committee of the Board
Policy Committee of the Board
Board Secretariat
Board Audit Cell
Managing Director
Senior Executive Vice President
D.M.D
H.R.D Marketing Division
Investment Division
Internationa l Division
Research & Developmen t
F.A.D Credit Committee General Service Division
Monitoring & Inspection Division
Treasury Unit Public Relation 1.4.3 Staffing Division
Corporat e Banking Division
Computer
Hiring the right people for the right position is perhaps one the most important function of any organization and it is more so for banks since it operates in the service industry. This function of management is the responsibility of the Human Resource Department for Mercantile Bank Ltd. Staffing not only deals with recruitment but is also involved in giving training to employees, performance appraisal and many other related activities. Recruitment at Mercantile Bank is of two basic types, one is the hiring of fresh new graduates and other is the recruitment of experienced employee.
Every year new graduate students are
recruited at the entry level as Management Trainee and as well as Trainee Officer, depending on individual qualification. For each of the this entry level post, applicants has to sit for several written assessment before moving on to a series of interview, from where only the brightest are chosen. On the other hand someone having previous banking experience might not have to sit for any written exam but is directly assessed by the top or mid level management through interviews. 1.4.4 Leading and Controlling The current success of Mercantile bank ltd is certainly because of its expert team of management whether it be the Branch Manager or the Department Head, each has their equal shares in making this Bank a success. The top management level of Mercantile Bank comprises of very experienced individual who has climbed up the corporate ladder from within the bank itself or is someone who has been working at some other banks and is experienced. The head of each branch belongs to the mid level management unlike the department heads who usually belongs to the group higher in the corporate ladders. An employee form the top management level is likely to be responsible for several small departments of the bank, until and unless the department requires very high skills. The executives from the mid and the top level management is also responsible for the well being of all the employees working under them. For this appraisal function the manger of each branch has to fill out Annual Appraisal Report (AAR) each year to evaluate the performance of individual employee, based on which promotions, increment and bonuses are given out. 1.4.5 Business Activities Mercantile Bank Limited provides a full range of products and services to its customers, some of which are mentioned below with a brief overview of the major business activities.
1.4.6 Consumer Finance There are branches and finance centers under this division with a qualitative workforce of employees. Some of the services provided by this division are unsecured personal loans, credit cards, and vehicle related lease etc. 1.4.7 Personal Banking There are branches with highly qualified workforce provide various kinds of loans, various types of accounts, cheques, card money etc. 1.4.8 Corporate Banking & Institutional Banking There are some branches under this division. The services provided by this division are International Trade Management, Institutional Banking, Custody, and Cash Management. 1.4.9 Islamic Banking: The Islamic Banking Division in consonance with the syndication Unit of the Head Office has successfully concluded syndication Finance to a client of our Islamic Banking Branch. This Islamic Product Syndication is first ever in the history of Islamic Banking in the country. The Bank is under correspondence with Bangladesh Bank regarding operation of Islamic Banking Branches through a Subsidiary. In Dhaka, there is a Islamic Banking Branch Mirpur-10. 1.4.10 Custodial Service MBL equator fulfills its strategic commitment to provide custody and clearing services. Equator’s focuses are on the following: •
Commitment to quality
•
Dedication to customer needs
•
Sustained investment in people and systems
1.4.11 International Trade Management
This division is operational throughout the group and MBL’s core strength is trade finance and services. With an experience, Mercantile Bank has developed knowledge of trade finance, which is world class. Principle services to importers include imports letter of credit, import bills for collection and back-to-back letters of credit facilities. Services provide to exporters include export letters of credit, direct export bills, bonds, and guarantees. 1.4.12 Cash Management Mercantile Bank recognizes the importance of cash management to corporate and financial institutional customers, and offers a comprehensive range of services and liquidity management. 1.4.13 Institutional Banking Mercantile Bank Limited provides a wide range of services to institutional clients, commercial, merchant and central banks; brokers and dealers; insurance companies; funds and managers, and others. It provides relationship managers who are close to their customers and speak local language. This wide network of institutional banking facilities includes transaction, introduction, problem solving and renders advice and guidelines on local trading condition. 1.4.15 Treasury Treasury operations had been consideration as an important avenue for income generation purpose within Head Office. In fact, in the past, income from treasury operation was quite sizable and significant to the total income generated by the bank. The treasury division publishes daily and weekly currency newsletters, which provide analyses of currency trends and related issues. Seminars and workshops are conducted for customers from time to time on foreign exchange related topics. Mercantile Bank is one of the first local banks in Bangladesh to integrate treasury dealings of local money market and foreign currency under one Treasury umbrella. The bank has handled significant volumes of treasury over the last several years. 1.4.16 Electronic Banking Electronic Banking provides various types of support through a wide range of operating systems, sweeping transactions accessions with the provisions of reporting features or other special functions. 1.4.17 Foreign Exchange Business
Over the years, foreign trade operations of the bank played a pivotal role in the overall business development of the bank. The bank has established relationship with as many as 110 new foreign correspondents abroad thereby raising the total number of correspondents to 350. 1.4.18 Online Branch Banking The bank has set up a Wide Area Network (WAN) across the country to provide online branch banking facility to its valued clients. Under this scheme, clients of any branch shall be able to do banking transaction at other branches of the bank. Under this system a client will be able to do following type of transactions: •
Cash withdrawal from his/her account at any branch of the bank.
•
Cash deposit in his/her account at any branch of the bank irrespective of the location.
•
Cash deposit in other’s account at any branch of the bank irrespective of the location.
•
Transfer of money from his/her account with any branch of the bank.
1.4.19 SWIFT Mercantile Bank Limited is one of the first few Bangladeshi banks, which have become member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1999. SWIFT is a member-owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund Transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world. 1.4.20 Information Technology in Banking Operation Mercantile Bank Limited adopted automation in banking operation from the first day of its operation. The main objective of this automation is to provide efficient and prompt services to the bank's clients. At present, all the branches of the bank are computerized. At branch level, the bank is using server-based multi-user software under UNIX operating system to provide best security of automation. 1.5 Corporate Profile of Mercantile Bank Limited:
Board of Directors MD. Abdul Jalil, MP
Chairman
M. S. Ahsan
First Vice Chairperson
Golum Faruk Ahmed
Second Vice Chairperson
Alhaz Akram Hossain
Chairman, Executive Committee
Md. Anwarul Haque
Director
Mr.Monsuruzzaman
Director
Mr. Subrata Narayon
Director
Mrs.Bilkis Begum
Director
Tabibul Haque
Director
ASM Firoz Alam
Director
Mr. Amanullah
Director
1.6 A Brief of Mercantile Bank Limited, Banani Branch: Branch Code: 0106 Among the Sixty Three Branches of Mercantile Bank, Banani Branch is one of the most reputed and respected Branches in all aspects. From the very beginning, this branch is contributing a lot to the bank. A brief of Mercantile Bank Limited, Banani Branch is given below: Manager (HOB): Abdullah Md. Zaki Hasan, Senior Vice-President Manager (Operation): Md. Faiz Ahsan, First Vice President Credit in Charge: AYM Abdullah Haroon, First Vice President Foreign Exchange in Charge: Saiful Karim, First Assistant Vice President General Banking in Charge: Sayeda Sultana, First Assistant Vice President Total number of employees: 34 Mercantile Bank Banani Branch has three main departments, which are •
General Banking Department
•
Credit Department
•
Foreign Exchange Department
CHAPTER TWO INTRODUCTION 2.1 Origin of the Report This report is an outcome of Internship Program, a part of MBA program of Department of Accounting & Information Systems, University of Dhaka. The topic of the report is “Credit Operations Process of Mercantile Bank Limited.” Actually this is a feedback of theoretical part of the MBA program. And this report is prepared to fulfill the finishing requirement of the MBA program. As we know that the internship is an agreement between a University and an organization that offers an opportunity for a student to undertake a temporary work assignment, but as I am an employee of this bank that enables me to have realistic exposure to organizational conditions. My supervisor Mr. Swapan Kumar Bala (Associate Professor), Department of Accounting & Information Systems authorized me to prepare the report.
2.2 Rationale of the Study: This research report is an individual assignment as a part of the internship course under the MBA curriculum of Department of Accounting & Information Systems. The primary objective of the report is to study “Credit Operation Process of Mercantile Bank Limited” with particular reference to the Bank’s Banani Branch and recommend measures for further improvement. Over the last decade, the Credit policy has become more diverse as well as much larger. This research report is a practical study on Credit Operation Process of Mercantile Bank Limited. 2.3 Statement of the Problems: What are different types of Credit Policy of Mercantile bank Limited? What are the activities of the different departments of Mercantile Bank Limited (MBL)? What is the Credit Facilities of Mercantile Bank Ltd? What are the selection criteria to provide different loan? What are the conditions of different loans of MBL? What are the expectations of customers of Mercantile Bank Ltd? What are the disbursement and recovery procedures of different loans? 2.4 Scope of the Report The report is basically divided into two parts: •
The Organization Part
•
The Project Part
The organization part of the report focuses upon the organizational structure and the financial services offered by MBL. The study also concentrates upon the actual lending activities of the company, its exposure to the various sectors and its performance. The project part of the report basically focuses on the Credit policy of Mercantile Bank Ltd. I have also tried to focus the different types of credit facilities, documentation and the procedure of the loan.
2.5 Delimitation of the Study Although I have got co-operation from my fellow colleagues of Mercantile Bank Ltd. Branch and Head office, they could not manage enough time to deal with my report. On the way of my study, I have faced the following problems that may be termed as the limitations/shortcomings of the study.
Budgeted times for the Study The first obstruct is time itself. Due to the time limit, the scope and dimension of the study has been curtailed. I could not spend sufficient time for my study because as I am a full time employee of the bank and as it is a very busy branch I could not make full concentration to make this report. Data Insufficiency It was very difficult to collect data as it was at AD Branch. But for better interpretation I had collect some information from the Head office, because of some divisional and confidential problem, I could not get enough information. So for better interpretation I could not get sufficient data. Lack of Records Sufficient books, publications, Facts and Figures are not available. These constraints narrowed the scope of the accurate analysis. If these limitations were not been there, the report would have been more useful and attractive. Confidentiality Secrecy or confidentiality is a crucial matter in this organization. As a new employee it was not possible for me in this short period to reach those secret topics. It will difficult to find out the gap between rules and regulations and real life practice. Insufficient Library Facility: Most of the commercial banks have own modern, rich and wealthy collection of huge and various types of banking related books, Journals, Magazines, Papers, Case Studies, Term Papers, and Assignments etc. 2.6 Objectives Of The study The broad and specific objectives of the study are: a. Broad Objectives: The broad objective of the report is to study the Credit Operation Process of Mercantile Bank Limited and this report was to use the theoretical concepts, gained in the classroom situations, in analyzing real life scenarios. b. Specific Objectives: The specific objectives are:
•
Observing and understanding the activities of the different organization: Mercantile Bank Limited (MBL)
•
To know the enterprise selection criteria to provide different loan
•
To know the study’s and conditions of different loans
departments of the host
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To know the expectations of customers of Mercantile Bank Ltd.
•
To know the disbursement and recovery procedures of different loans
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To know the financial statistics of Mercantile Bank Ltd.
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Prepare a Recommendation for developing an ideal platform for a proper Credit Operation Process
CHAPTER THREE METHODOLOGY OF THE STUDY 3.1 Sources of data In conducting the study, data and information have been collected from different sources. All these data were collected from the secondary sources and very few from primary sources. The sources of data include the following: 3.1.1 Primary Sources are as follows •
Personal observation
•
Short interview of managers and related desk officers of the different (General Banking, Credit and Foreign Exchange) departments of the bank
•
Desk work in different section/division
3.1.2 Secondary Sources are as follows •
Annual report of Mercantile Bank Limited
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Credit Manuals, Different Banking Circulars
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Consultation of related books and publications
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Vouchers, leaflets, loan files, of the bank
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Files, balance sheet, Employee Training Guide, Loan Documents and various documents of Mercantile Bank Limited
3.2 Data Analysis The study includes both qualitative and quantitative analysis of Banking practices and monitoring tools. There were certain limitations regarding the study that is summarized below: •
Deficiencies in data required for the study.
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Inaccurate or contradictory information.
•
Field practice varies with the standard practice that also created problem.
•
Time provided for conducting the study is another important constraint.
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Sometimes the concerned personnel cannot provide enough time due to rush banking hours.
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Another limitation was that the data gathered could not be verified for accuracy.
CHAPTER FOUR CREDIT OPERATION OF MERCANTILE BANK LIMITED
4.1 Introduction Lending is the principal function or the ‘Bread and Butter’ of a banking company. It applies most of its resources to loans and advances in favor of a broad spectrum of clientele ranging from housewives to mammoth size conglomerates. ‘Loans & Advances’ is the survival unit of the bank because until and unless the success of this department is attained, the survival is a question to every bank. . Banks are accepting deposits from the depositors in condition of providing profit to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide profit to the clients and the simple answer is – Loans & Advance. Bank provides advances to the borrowers for the following reasons: •
To earn profit from the borrowers and give the depositors profit.
•
To accelerate economic development by providing different industrial as well as agricultural advances.
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To create employment by providing industrial loans.
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To pay the employees as well as meeting the profit groups.
For banks, credit is continuous process. Recovery of one credit gives rise to another credit. In this process of revolving of funds, bank earns income in the form of profit. A bank can invest its fund in many ways. Bank makes loans and advances to traders, businessmen, and industrialists. Moreover nature of credit may differ in terms of security requirement, disbursement provision, terms and conditions etc. The Loan and Advance department is responsible for the following jobs. •
Meeting the requirements of existing and potential customers
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Meeting the requirements of Head Office and Customers of General
•
Credit to cooperate with other departments for smooth operation
•
Preparing CIB and CL Statements
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Preparing Credit Proposal and Statement
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Administration of Retail Credit
There are different types of loan, which is provided by MBL. To cope up with changing situation they introduce their own credit policy. They provide loan for different income group and received tremendous response from the customer. At Mercantile Bank Limited, Banani branch, the credit division is sub-divided into two sections: 1. Corporate Banking & Credit Operation and 2. Retail Banking & Credit Operation. 4.2 Work Flow of Corporate Banking & Credit Operation: 4.2.1 Sanction of a Credit Facility: Step 1- Corporate Banking Unit provide “Pre-inspection report” to evaluate the feasibility of the project or genuine requirement of the customer. If the result is positive, a complete proposal is created. Step 2- Corporate Banking Unit submit draft proposal/office note to Credit Risk management (CRM) unit of the branch.
Step 2
Step 3
Step 1 Step 4 Step 6
Step 7
Step 5
Step 8
Step 9
Step 10
Step11
Figure: Work Flow Step 3- CRM unit scrutinizes the proposal from different views of risk and compliance to the existing rules and regulations of the bank. Step 4- CRM unit places the proposal in front of branch credit review committee (BRC). Corporate Unit presents the proposal and defends the proposal as and when required. Step 5- BRC gives their opinion about the proposals for getting approval from the respective authority. They can suggest corporate unit to submit a revised proposal to CRM after making
necessary changes if it is required. (If changes are required, again the process is followed from step 1). Step 6- If the proposal is beyond the branch delegation, it is sent to the head office. 4.2.2 Disbursement of Credit Facility: Step 7- After getting approval, CRM will issue sanction advice favoring the customer. Step 8- CAD will take necessary actions to complete the documentation formalities as per sanction terms and conditions. Step 9- After completion of documentation, Credit Administration will provide the credit facility to the customer. 4.2.3 Monitoring and Recovering of Credit Facility: Step 10- CRM will monitor and follow up the credit portfolio of the branch. Step 11- If any A/C becomes NPL, Branch Credit Monitoring & Recovery unit will ensure recovery of bank dues. 4.2.4 Documentation: The term Documentation means any written record, writing, instruction or direction that serves as important evidence in respect of a transaction. Documentation may be defined in other words as execution of documents in proper form and according to law.
4.2.5 Types of Documentation: In documentation, each type of advances requires different types of documents. The documents vary depending upon type of security being accepted and nature of charge being created. There are 2 types of documents, i.e. Charge Documents and Legal Documents.
4.2.6 Charge Documents: Charge documents also vary depending upon type of security being accepted and nature of charge being created. In practice, there are mainly the following 2 types of charge documents:
1. Common Charge Documents: This document is required for all kinds of credit facilities. These are DP Note (Single, joint and several), Letter of Agreement/Arrangement, Letter of Authority, Letter of Revival, Supplementary Agreement and balance Confirmation Slip.
2. Other Charge Documents: This depends on the type of security and nature of advance. Some of them commonly used are Letter of Installment, Letter of Continuity, and Letter of Undertaking.
4.2.7 Stamping: All documents must be properly and duly stamped before or at the time of execution by the borrower. An unstamped or insufficiently stamp document is only scrap of paper in the eye of Law and hence can not be accepted as evidence in the court and can never form the basis on any suit in the court. There are 3 kinds of stamps mainly used
Adhesive Revenue Stamp
Special Adhesive Stamp
Non-Judicial Stamp.
Some of the different types of charge documents, its use and stamping are as under: Name of Charge Documnts Common Charge Documents DP Note (Single) DP Note (Joint and Balance Several) Certificate Letter of Agreement/ Letter of Revival Arrangement Supplementary Agreement Personal Guarantee Special Charge Documents Letter of Installment Letter of Continuity Letter of Undertaking
Nature of Loans
Type of Stamp
Value of stamp
All Types of Loan All Types of Loan All Types of Loan All Types of Loan All Types of Loan All Types of Loan All Types of Loan
Revenue Stamp Revenue Stamp Revenue Stamp Special Adhesive No stamp is Required Stamp No stamp is Required Special Adhesive
Tk.20/Tk.20/Tk. 4/Tk.150/-
Term Loan Continuous Loan Hire Purchase, CCS
Stamp No stamp is Required No stamp is Required No stamp is Required
Tk.150/-
Table: Charge Documents 4.2.8 CIB Report: Bangladesh Bank has been collecting, collating and processing various types of Money and Banking statistics from scheduled banks and other financial institutions. Apart from the Govt. of Bangladesh and Bangladesh Bank, various national and international organizations are using these data for monetary and other economic policy purposes. The Credit Information Bureau (CIB) of Bangladesh Bank has undertaken the task of collecting the detailed credit information in its proper perspective so that these can be exchanged by the banks. Thus, all banks have to inform and report correct credit information to Bangladesh Bank. Mercantile Bank, Banani Branch also reports the CIB report to Bangladesh Bank through the Head Office. This CIB report helps the scheduled banks and other financial institutions in getting loan applicants’ information and expedites approval process. The CIB form is segregated into the following 3 segment: CIB - 1A
: For Individual / Institution
CIB - 2A
: Owner information if borrower is institution
CIB- 3A
: Information of group / Related Business concern
4.3 Credit Risk Grading Credit risk grading is an important tool for credit risk management as it helps to understand various dimensions of risk involved in the underlying credit transaction. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a bank or a branch. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the loan price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various
facilities, what are the various risk mitigation tools to put a cap on the risk level. At the post-sanction stage, the bank can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. This manual explains the credit risk grading framework which will help to determine borrower’s risk grade accurately and timely. It describes the elements of an effective internal process for grading credit risk. It also provides a comprehensive discussion of the objectives and general characteristics of the effective credit risk grading system. FUNCTIONS OF CREDIT RISK GRADING Well-managed credit risk grading systems promote bank safety and soundness by Facilitating informed decision-making. Grading systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns. GRADING
SHORT NAME
NUMBER
Superior
SUP
1
Good
GD
2
Acceptable
ACCPT
3
Marginal/Watch list
MG/WL
4
Special Mention
SM
5
Sub standard
SS
6
Doubtful
DF
7
Bad & Loss
BL
8
CRG of Mercantile Bank Ltd: Mercantile bank follows a strict Credit Risk Grading policy. They tend to be more reserved while assessing customer’s financials and grade accordingly. A example of CRG is given in Appendix A 4.4 Types of Loan: Bank loans can be of two types depending on whether the credit offered to the customer is funded by bank or not. If the bank finance the customer with the banks own fund are termed as funded loans. Funded loans are consisted of personal loans, SOD and other types of loans where bank forwards the money to customers.
On the other hand non funded loans are which the bank has no fund involve. For example Letter of Credit. Where the customer pays the entire amount which needs to be credited. The bank just offers a channel, using that channel as an intermediary secured transaction can be made.
Loans Funded Loans
Non Funded Loans
4.5 Funded Loans: Mercantile Bank Limited Banani Branch Offers Three Types of Funded Loans for its customers whether a corporate client or individual
Funded Loans Continuous Loan
Term Loan
Demand Loan
Corporate
Retail
Staff
List of loan services provided by MBL
Continuous Loan
Term Loan
Demand Loan
Secure Over Draft FDR
Corporate
Secure Over Draft Work Order
Secure Over Draft Schemes Secure Over Draft General Secured Over Draft Financial obligation Cash Credit Hypothecation Cash Credit Pledge
Loan General Hire Purchase Lease Finance House building Commercial Retail Consumer Credit scheme Advance against Salary scheme Any Purpose Loan Education Loan Travel Loan Marriage Loan CNG conversion Loan Hospitalization Loan. Staff Consumer Credit Scheme House Building Loan Car Loan
Letter of Trust Receipt Payment Against Document Inland Document Bills Purchase Foreign
Document
Bills
Purchase Inland Bills Purchase
4.6 Continuous loan: In this mode of loan, within a fixed amount and fixed period of time, one can receive and deposit money several time. MBL provide different types of continuous loan: •
Secured Over Draft- financial obligation
•
Cash credit- hypothecation
•
Cash credit- pledge
•
Secured Over Draft- General
•
Secured Over Draft- FDR
•
Secured Over Draft under Scheme
4.6.1 Secured Over Draft- Financial Obligation: Mercantile Bank Limited gives loan against any type of instruments such as FDR, SS (Special Scheme) etc. It is not mandatory that the deposited instrument must be issued from the issuing bank. If the borrower does not have any instrument in any bank, then he/she can use third party for issuing the loan. If third party gives permission of taking loan by depositing his/her instrument only then bank will sanction loan. If the instrument is issued from another bank, loan issuing bank will send a letter for seeking permission for lien that as security. When bank gets positive replay, loan issuing bank will sanction loan. Client must have a SB/CD a/c in the bank. However, In Banani Branch, generally SOD is given only against instruments issued from MBL. •
Credit upper limit: Bank will sanction loan depending on the reliability of the client. But maximum amount is 80% of the instrument.
•
Interest rate: 3.5% above from the instrument rate. Interest will be charged on quarterly outstanding.
•
Payment period: The loan is to be repaid within a specific period of time.
•
Security: Any type of instrument such as FDR, SS, etc.
•
Procedure for application:
•
Fill up the application with required documents
Two passport size photographs, duly attested by an officer of the branch.
Discretionary power: The branch can sanction this type of loan. But if the limit is higher than 80% or interest rate is lower than 3.5%, than it is beyond the mandated power of the authorizing branch.
•
Disbursement of loan: Before disbursing the loan, the following are to be collected:
D.P notes
Letter of continuity
FDR duly discharged by holder on revenue stamp under the words “Received payment” on the back of the FDR
•
Agreement for pledge of securities
Security delivery letter
Revival letter
Letter of authority to appropriate the proceeds of pledged FDR
Letter of authority to debit borrower’s account for incidental changes
Letter of acceptance of the terms of the loan.
In case the pledged FDR’s stand in the third party’s name:
Double party D.P. note
D.P. note delivery letter
Letter of continuity
Agreement for pledge of securities
Security delivery letter
FDR duly discharged by holder on revenue stamp under the words “Received payment” on the back of the FDR
Letter of authority to appropriate the proceeds of pledged FDR
Letter of guarantee
Revival letter-1&2
Letter of authority to debit borrower’s account for incidental changes
Letter of acceptance of the terms of the loan.
4.6.2 Cash Credit-Hypothecation: This type of loan is issued for businessperson. Bank will issue loan against the products of the shop. Party has the possession of those products but bank has the control over those products. •
•
Requirement of the clients:
Party has to submit monthly report of their product
Product should be insured
The prospective borrower must have a CD a/c with the branch of the bank from where s/he wants to avail the loan
•
Bank procedure: Bank will collect all required information from CAB (Credit information Bureau)
•
Credit ceiling: Loan amount depends on the total product of the shop. Bank will sanction a marginal amount among the product.
•
Interest: Interest may vary from 12.5% to 13% and it will be charged on quarterly outstanding
•
Security: Bank kept collateral as building, land.
•
Requirements for disbursement of loan: • D.P. note • Letter of arrangement • Letter of disbursement • Simple deposit of original title deed of the ownership of the shop or possession deed/ agreement or lease deed of agreement with personal guarantee of the landlord in case of rented premises. • Guarantee bond on Tk. 150/- non-judicial stamp as per our approved format from the guarantor acceptable to the bank • Acceptance of the terms and conditions of the loan. • Letter of authority to debit the account with incidental and other changes • Up to date trade license • Mortgage deed • Mortgage property • Bia deed
4.6.3 Cash Credit-Pledge: In CC-pledge, both the control and possession are under the bank. Part by part, the party will repay the loan and receive/ release their products. •
Requirement of the clients:
Party has to submit monthly report of their product
Product should be insured
The prospective borrower must have a CD a/c with the branch of the bank from where s/he wants to avail the loan
•
Bank procedure: Bank will collect all required information from CIB (Credit Information Bureau)
•
Credit ceiling: Loan amount depends on the total product of the shop. Bank will sanction a marginal amount among the product.
•
Interest: Interest may vary from 12.5% to 13% and it will be charged on quarterly outstanding
•
Security: Bank kept collateral as building, land.
•
Requirements for disbursement of loan: •
D.P. note
•
Letter of arrangement
•
Letter of disbursement
•
Simple deposit of original title deed of the ownership of the shop or possession deed/ agreement or lease deed of agreement with personal guarantee of the landlord in case of rented premises.
•
Guarantee bond on Tk. 150/- non-judicial stamp as per our approved format from the guarantor acceptable to the bank.
•
Acceptance of the terms and conditions of the loan.
•
Letter of authority to debit the account with incidental and other changes.
•
Up to date trade license.
•
Mortgage deed.
•
Mortgage property.
4.7 Retail Loan: Here, the borrower will take the whole amount at a time and has to deposit/ repay loan within specified time. MBL provides different types of term loan: •
Consumer Credit scheme
•
Advance against Salary scheme
•
Any Purpose Loan
•
Education Loan
•
Travel Loan
•
Marriage Loan
•
CNG conversion Loan
•
Hospitalization Loan.
Consumer Credit Scheme (CCS) Objectives The objective of this loan is to provide essential Household durables to the fixed income group (Service holders) and other eligible borrowers under the scheme. Items of Investment i.
Refrigerator / Deep Freeze
ii.
Television / VCR / VCP / Dish Antenna
iii.
Music Center
iv.
Motor Car / Motor Cycle
v.
Air –Cooler / Air – Conditioner
vi.
Personal computer
vii.
Washing Machine
viii.
Household Furniture & Fixtures
ix.
Sewing Machine
x.
Kitchen appliances like Oven, Toaster, Pressure Cooker, Blender etc.
xi.
Any other item not specified above but considered essential.
Eligibility The criteria to become eligible for availing the facility under the scheme are given below: I. The borrower must be confirmed official of any of the following organizations: a) Government Organization. b) Semi-Government Organization / Autonomous body. c) Multinational Organizations.
d) Banks & Insurance Companies. e) Reputed Commercial Organizations. f) Professions. Period of Investment: Maximum three years. Client’s Equity Prescribed margin as fixed by Head Office from time to time on the total value of the articles shall have to be deposited with the bank by the client as equity before disbursement of loan. Mode of Disbursement Client will procure the specified articles from dealer / agent / shops acceptable to Bank. All papers / Cash memos etc. related to the procurement of the goods will be in the name of bank ensuring ownership of the goods. Wherever applicable, the ownership shall be transferred of the client after full adjustment of Bank’s dues. The client shall have to bear all the expenses of license, Registration, Insurance etc. of the articles wherever necessary. The insurance will be with the Bank mortgage clause. The borrower shall pay the premiums by debt to his account. The client shall have to bear the cost of Repair & maintenance of the acquired articles. Mode of Recovery Dues shall be recoverable in equal monthly installments. The monthly installment shall be payable by the 8 th of every month, but the first installment shall be payable by the 5 th of the subsequent month of disbursement. In other way, deduction from the monthly salary of the client wherever applicable, by his employer. In this regard the concerned employee shall authorize irrevocably his employer to deduct the said amount from his monthly salary. The client can only revoke this authority with the concurrence of the bank. Household Durable Loan Necessity and needs are constantly changing phenomena in our efforts to improve the quality of life. That necessity cannot always wait for savings to accumulate. Mercantile Bank has taken care of customer’s necessity when it comes to financing of utility products. Household loan is sanctioned for household durables to purchase. The maximum loan limit sanctioned for this purpose is Tk.5 Lac. To be eligible the applicant should have a bank account in any bank with in Bangladesh and should have satisfactory transaction. Businessman can also set up their business with the loan. In that case, the applicant must have a business record of at least three years. If the applicant is a service holder then the applicant’s monthly income must be minimum Tk.10000 and if the applicant is self-employed then the applicant’s monthly income must be Tk.25000 at a minimum. But if the applicant has own house in Dhaka then the minimum monthly income would be Tk.15000. In case of service, the minimum employment period is one year. The age limit of
the borrower must be between 21-60 years (at the time of repayment). Maximum Loan Period is four years. Down payment is 10%. Required Documents •
Employer Certificate for Service Holders
•
Photocopy of Trade License for Businessmen
•
Photocopy of Tin Certificate, if any
•
Bank Account Statement of last six months
•
Photocopy of Passport, Telephone (T&T) Bill, if any .
•
Two Personal Guarantees
•
Undated Cheques
Security
Car Loan There are minimum criteria to get the loan. If the applicant is a service holder then the applicant’s monthly income must be at least Tk.20000 and if the applicant is a business man then the income must be at least TK.40000. The age limit of the borrower must be between 25-60 years. The down payment of the loan must be 10%. Car Loan only sanctioned for the cars manufactured in Japan. The car for which the loan will be sanctioned must not be older than 2004 model Japanese Car. Bank generally does not invest for the car exceeding 20 laces. Exceptional cases may be considered if the bank is satisfied about the repayment capacity of the client as well as client’s social status. The loan is sanctioned for six years at a maximum. Interest on car loan is 16%. Doctors Loan As part of the global phenomenon medical profession is changing fast. With ever changing environment, groundbreaking products and equipments are coming to the market. Keeping that in mind and with a vision to support and promote medical service MBL has introduced Doctor’s Loan. The applicant at least minimum graduate in Allopathic medical science/ Dentistry. If the applicant doctor is employed then the monthly income of the borrower must be at least Tk.10000. In case of self employed (Doctor Practicing independently having chamber or clinics), the applicant’s monthly income must be at least Tk.25000. The age limit of the borrower must be between 25-65 years (at the time of repayment). If the eligible borrower is a general practicing Doctor then according to bank’s policy the loan limit is up to Tk. 5 lac. If the eligible borrower is a postgraduate Doctor (Specialist) then according to bank’s policy the loan limit is up to Tk. 10 lac. Down payment is 10%. The maximum Loan Period is five years. Advance against Salary To face unpredictability in life MBL has introduced Loan against salary. This produced is tailored to provide loan to fixed income people against their salary to mitigate any emergency need. Any
self employed or service holder can be benefited under this loan scheme if the minimum employment period is one year. To be eligible the applicant should have a bank account in any bank with in Bangladesh and should have satisfactory transaction. The maximum loan limit sanctioned for this purpose is Tk.3 Lac. If the eligible applicant is a bank holder of MBL then he will get 8 times higher of his/her take total take home salary per month at a maximum. If the applicant has maintaining account in different bank then he will get 6 times higher of his/her total take home salary at maximum. The age limit of the borrower must be between 21-65 years (at the time of repayment). Maximum Loan Period is three years. Required Documents •
Employer Certificate
•
Photocopy of Tin Certificate, if any
•
Bank Account Statement of last six months
•
Photocopy of Passport, Telephone (T&T) Bill, if any
•
Undated Cheques
•
Lien on Service benefit of the concerned employee from the employer
Security
Any Purpose Loan Any purpose includes the type of loan, which cannot be classified to any other category. It can be going out, sending children abroad, shopping or any other need. To become eligible for availing the facility the applicant’s monthly income must be minimum Tk.10000-12000. In case of service, the service holder must have a permanent job. The age limit of the borrower must be between 25-65 years. (At the time of repayment). Maximum loan sanctioned for this purpose is 3, 00,000. Only this loan is sanctioned in cash. Maximum loan period is 3 year. Education Loan For higher education parents of a student can apply for the loan. Here, the applicant would be the guardian having income and the beneficiary would be the child of that applicant. If the applicant is a service holder then the applicant’s monthly income must be minimum Tk.12000 and if the applicant is self-employed then the applicant’s monthly income must be Tk.25000 at a minimum. To be eligible the applicant should have a bank account in any bank with in Bangladesh and should have satisfactory transaction. The age limit of the applicant must be between 25-60 years (at the time of repayment). Maximum loan sanctioned for this purpose is Tk.5, 00,000. Maximum loan period is 4 year.
Travel Loan When planning an overseas vacation or making a trip to chosen exotic location, financing may be an issue. This loan is to facilitate for those who loves to travel. For travel purpose, any self employed or service holder can apply for this loan scheme. In case of businessman the applicant must have at least five years of successful track record. The eligible applicant’s monthly income must be between Tk.10000-Tk. 25000. The age limit of the borrower must be between 25-65 years (at the time of Repayment). The maximum loan limit sanctioned for this purpose is Tk.2 Lac. Maximum Loan Period is three years. Required Documents
Employer Certificate for Service Holders
Photocopy of Trade License for Businessmen
Photocopy of Tin Certificate, if any
Bank Account Statement of last six months
Photocopy of Passport, Telephone (T&T) Bill, if any
Evidence thereof
Security
Undated Cheques
Two personal guarantees
Marriage Loan Mercantile Bank’s marriage loan enables people to organize and celebrate the marriage in style. Any self employed or service holder can be benefited under this loan scheme. The maximum loan limit sanctioned for this purpose is Tk.3 Lac. The eligible applicant’s monthly income must be between Tk.10000-Tk. 25000. Besides, the age limit of the borrower must be between 25-65 years (at the time of repayment). The maximum Loan Period is three years. Required Documents
Employer Certificate for Service Holders
Photocopy of Trade License for Businessmen
Photocopy of Tin Certificate, if any
Bank Account Statement of last six months
Photocopy of Passport, Telephone (T&T) Bill, if any
Evidence thereof
Security
Undated Cheques
Two personal guarantees
Home Loan Mercantile Bank offers an easy-to-avail home loan with convenient repayment options. The maximum loan limit sanctioned for this purpose is Tk.75, 00,000. Maximum loan period is 15 years. The age limit of the borrower must be between 25-60 years. Incase of new construction home borrower will get 60% loan of the total cost. Incase of apartment purchase borrower will get 70% loan. Incase of purchase old apartment borrower will get 50% loan. CNG Conversion Loan There are some criteria to become eligible for availing the facility. First, if the applicant is a service holder then the applicant’s monthly income must be at least Tk.12000 and if the applicant is a businessman then the income must be at least TK.25000 (Living on rent house). Besides, In case of house owner, the service holder applicant’s monthly income must be at least Tk.10000 and if the applicant is a businessman then the income must be at least TK.15000. Finally, The age limit of the borrower must be between 21-65 year. (at the time of repayment)Eligibility borrower can avail the facility to purchase more than one article but the amount of total loan shall not exceed the maximum limit fixed by Head office from time to time. Further loan may be allowed to the same borrower if 50% of the previous loan is recovered from him but the same shall not exceed the maximum limit. Like car loan, its down payment is also 10%. The loan is sanctioned for one and half year at a maximum. Hospitalization Loan For better treatment any self employed or service holder can apply under this loan scheme if the minimum employment period is one year. In case of service holder then the applicant’s monthly income must be minimum Tk.12000 and if the applicant is self-employed then the applicant’s monthly income must be Tk.25000 at a minimum (Living in rental). If the applicant is selfemployed and lives in own house then the applicant’s monthly income must be Tk.15000 at a minimum. In case of Government/Semi Government employee the minimum monthly income must be Tk.10000. The age limit of the borrower must be between 25-65 years (at the time of repayment). The maximum loan limit sanctioned for this purpose is Tk.5, 00,000. Maximum Loan Period is two year.
Required Documents
Employer Certificate
Photocopy of Tin Certificate, if any
Photocopy of Passport, Telephone (T&T) Bill, if any
Security
Personal guarantee from an individual having means, standing and social
Status acceptable to the bank and another from his/her family
Undated cheques in favor of the Bank covering the whole amount
Letter of Assurance from the Employer / Authority.
4.8 Non Funded Loans: When bank act as an intermediary through providing guarantee for work or import-export purpose, the bank does not involve its fund rather it asses the customers fund and provide a guarantee are non funded loans. Non-funded loans of Mercantile Bank Limited are
Non-Funded Loans
Bank Guarantee
4.8.1
Letter of Credit
Bank guarantee:
Bank guarantee is another form of loan and advance facility that the bank issues and arranges on behalf of its clients. In the ordinary course of business, customers sometimes request the bank to support a trading transaction by giving a guarantee to a third party. As a service to the customers, banks issue guarantees of various types on behalf of the customers to third parties. By this, the bank undertakes a contingent liability on behalf of its customers. There are three type of bank guarantee:
Bank Guarantee
Bid Bond
•
Performance Guarantee
Advance payment Guarantee (APG)
Bid bond: This type of BG is issued on behalf of the contractor in favor of firm/company, giving a sort of guarantee for payment of money in case tender has been approved and contractor is not willing to proceed with it.
•
Performance guarantee: the bank on behalf of contractors undertaking to make payment of penalty in the non-fulfillment of their performance of contract or supplying goods as per contract issues Performance guarantees.
•
Advance payment guarantee (APG): It is a common practice in international trade to make advance payment to the exporter by the importer. In order to be safe, the importer wants a bank guarantee arranged by the exporter that ensures the importer that payment made by him in advance is not lost. This type of guarantee is known as advance payment guarantee. Requirements of the clients: Client must have SB/CD a/c in that bank. Interest and other charges: No interest is charged for BG. Bank charge commission @ 0.5% over the total amount/ quarter and VAT (commission @15%) and stamp cost. Security:
•
After getting approval of the BG a margin amount will be transfer from parties CD/SB a/c as security.
•
At the time of issuing BG a liability will be created to the party a/c. The liability amount is equal to the amount they are showing as BG.
•
Counter guarantee: Bank will take a counter guarantee document from the party as a security. By this way bank will receive guarantee form the party.
• •
Discretionary power: BG will be sanctioned from the Head Office. Returning procedure:
After finishing the work party will return the BG to the bank.Bank will reverse the liability and return margin to party a/c. 4.8.2 Documentary Credit/Letter of Credit (LC) Documentary Credit is an assurance of payment by the bank. It is an arrangement under which the bank at the request of the buyer or on its own undertakes to make payment to the seller provided specified documents are submitted. Documentary Credit is an arrangement whereby a bank (issuing bank) acting at the request and on the instruction of a customer (the applicant) or on its own behalf undertakes to make payment to or to the order of a third party (the beneficiary) or to accept and pay bills of exchange (draft) drawn by the beneficiary, or authorize another bank to negotiate against stipulated documents provided the terms and conditions to the credit are complied. Thus, documentary credits are akin to bank guarantees. In popular language, they are known as letters of credit (L/Cs). Parties of documentary credit Parties to the documentary credit may be an issuing bank, an advising bank, a confirming bank, a reimbursing bank or a negotiating bank. •
Issuing Bank: The Issuing Bank or the Opening Bank is one which issues the credit, i.e., undertakes to make payment provided the terms and conditions of the credit have been complied with. The payment may be at sight if the credit provides for sight payment, or at maturity, dates if the credit provides for deferred payment. Especially the issuing bank should satisfy himself on the credit worthiness of the applicant.
•
Advising Bank:
The Advising Bank advises the credit to the beneficiary thereby
authenticating the genuineness of the credit. The advising bank is normally situated in the country/place of the beneficiary. •
Confirming Bank: A Confirming Bank is one which adds its guarantee to the credit opened by another bank, thereby, undertaking the responsibility of payment/negotiation/acceptance under the credit in addition to that of the issuing bank. A confirming bank normally does so if requested by the issuing bank and it is normally the advising bank.
•
Paying or Accepting Bank: It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
•
Negotiating Bank: A Negotiating Bank is the bank nominated or authorized by the issuing bank to pay, to incur a deferred payment liability, to accept drafts or to negotiate the credit.
•
Reimbursing Bank: A Reimbursing Bank is the bank authorized to honor the reimbursement claims in settlement of negotiation/acceptance/ payment lodged with it by the negotiating bank or accepting bank. It is normally the bank with which the issuing bank has account from which payment is to be made.
Types of documentary credit
Letter of Credit
Sight L/C
Deferred L/C
Cash L/C
L/C Under EDF
Back-ToBack L/C
Documentary credit is following types: •
Revocable credit: A revocable credit is one where the issuing banks at liberty to revoke i e. cancels the credit at any time.
•
Irrevocable credit: An irrevocable L/C is one, which cannot be revoked, amended or modified by the issuing bank.
•
Depending on the payment mode L/C can be divided in two types. These are -
•
Sight L/C: The bank pays the stipulated sum immediately against the exporter’s presentation of the documents.
•
Deferred L/C: The bank agrees to pay on a specified future date or event, after presentation of the export documents.
•
CASH L/C
•
Generally bank requires 25% margin for opening cash L/C. The rest 75% will be recovered after
reaching the Bill of Exchange from the foreign exporter.
•
L/C UNDER EDF
•
Exporter development Fund is created by Bangladesh Bank to give encourage to the exporter in Bangladesh.
•
BACK-TO-BACK L/C
•
It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/Cs. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.
•
In Mercantile Bank Limited, Banani Branch, several types of L/C is opened. For example, a L/C number “1747-09-01-001” denotes:
•
1747- Foreign Exchange Code for the Branch.
•
1970- L/C opened in the year 2009.
•
Cash L/C. Likewise, 02- Cash L/C Deferred, 03- BTB L/C At Sight Local, 04- BTB L/C Deferred Local, 05- BTB L/C EDF Foreign, 06- BTB L/C Deferred Foreign, 09- EPZ At Sight.
4.9 Loan classification: Loan classification attempts to categorize the debt information in a systematic manner. Loan classification is defined in terms of degree of risk associated with loans. Classification of loans mean and include only such assets of the balance sheet of a bank which do not yield interest income and which have remained past due for some quarters. Loans are generally categorized in two types:
Loan
Classified loan
Unclassified loan
•
Classified loan:
If any continuous credit is not adjusted/ renewed within expiry date, the loan will be treated as classified/ irregular loan from the next day of the expiry date. Loans are classified which are judge to have a reduced chance of repayment. Classified loan can be three types:
Classified Loan Specially Mentioned Account
Sub Standard
Doubt Full
Bad and Loss •
Specially Mentioned: If the loan unadjusted for three months or more but less than six months, the loan will be treated as “substandard”.
•
Sub Standard: Unadjusted loans for six months and above but less than nine months will be treated as “doubtful”.
•
Doubt Full: If the period is nine months or more, the loan will be classified as “bad”. o
•
The above time frame is applicable in respect of demand loan also.
Bad And Loss: If the period is twelve months or more, the loan will be classified as Bad and Loss Account.
•
Unclassified loan:
Unclassified loan are those, which are repay regularly. Objectives of loan classification:
To Find out net worth/ adjust capital of a bank
Help for assessing financial soundness of a bank.
Calculate the required provision and the amount of interest suspense
Put the bank on sound footing in order to develop sound banking practice in Bangladesh.
Importance of loan classification: •
To strengthen credit discipline
•
To improve loan recovery position
•
Make planning for future course of loan.
Classification Rate: Particulars General provision on unclassified general loans and advances/investments General provision on unclassified small enterprise financing General provision on unclassified loans/investments for housing finance and on loans for
Rate 1% 2%
professionals General provision on unclassified consumer financing other than housing finance and
2%
loans for professionals General provision on special mention account Specific provision on substandard loans and advances/investments Specific provision on doubtful loans and advances/investments Specific provision on bad/loss loans and advances/investments
5% 5% 20% 50% 100%
Particulars
2004
2005
2006
2007
2008
2009
Nonperforming loans (NPLs) 326 % of NPLs to total loans and 1.98%
353 1.52%
308 0.96%
367 0.82%
777 1.35%
1323 1.76%
advances Provision
232
365
545
895
1040
174
127
309
478
734
for
unclassified 172
loans Provision for classified loans
249.44
4.10 LEGAL FRAMEWORK FOR LOAN RECOVERY: After being classified, if the borrower is disable to adjust the loan then the bank can take the following legal actions by filing suit, •
Filing certificate cases under Public Demand Recovery Act-1913.
•
Filing money suitcases under Artha Rin Adalat-1990.
•
Filing Bankruptcy cases under Bankruptcy Act-1997.
•
Filing cases under Negotiable Instrument Act-1881 section 138 to 141 for insufficient fund. (In case of term loan)
CHAPTER FIVE FINDINGS OF THE REPORT Findings:
5.1 Assessment •
Mercantile Bank is among the best of Bangladeshi banks. Ratings reflect its reasonably sound financial condition, with its big structure with 58 branches as well as the challenging operating environment in Bangladesh. Although it has grown rapidly since its inception, it has maintained a far healthier financial profile than the problematic state banks or other private banks.
•
MBL has been profitable since its first year of operations. Profits were low in 1998 when the bank incurred losses on its ill-timed stock market investments, but MBL has reported an average ROE of 41% (2002 ROE: 30%) between 1999 and 2002. The fact that the average inflation in Bangladesh has been around 6% during this period, the bank's real return has been strongly positive.2008 it made a good prospect but it lost its growth in 2009 due to economic instability. In 2008&2009, Return on average equity was 30.68%& 20.58%.
•
However, MBL's NPL ratios are somewhat pleased by the strength effect of its rapid loan growth, which has averaged about 35% between 1999 and 2002. Also, inclusive of restructured loans, the bank's NPL ratio at June 2003 may be about 2.5%, but nevertheless, extraordinarily low compared with its peers. On the negative side, nearly 72% of the bank's NPLs (which grew by 86% in absolute terms during 2002) are in the 'loss' category, but as noted above, our concerns are somewhat muted thanks to the bank's ample reserves. In 2009,MBL NPL to total loan and advances 1.76 percent.
•
MBL is well capitalized by local standards with a Total CAR of 12.43% (although this ratio has been declining since 1999) and equity to assets ratio of 6.06% at end of 2009.
•
MBL is primarily a corporate bank focusing on trade finance. Its loan distribution is about 40% towards large companies, 35% to SMEs, and 10% to small companies. Consumer lending is very small.
5.2 Expansion of network for Retail and SME MBL has enhanced its activities during 2009. It plans in extending the business to existing clients through more product range and penetrates new markets through expansion of network in rural and semi-urban areas. 5.3 Employee motivation To cultivate, develop and motivate MBL's people, rewarding the excellence and motivating the mediocrity shall continue.
5.4 Summary of Financial Performance Despite the challenges, MBL maintained the progress in many lines of businesses during 2009. The total operating revenue in 2009 was Tk.5778 million and operating expenses was Tk.1931 million. The operating profit before provision & tax registered an impressive growth of 52.84 percent during the year. The operating profit before tax stood at Tk 3847 million in 2009, an increase of 18.12% from the previous year. Deposits of the Bank increased by Tk.17509 million during 2009 indicating a growth rate of 24.83 percent. Loans and advances of the bank increased by Tk.17473 million indicating a growth rate of 30.29 percent. In 2009, total import of the bank was Tk.91424 million and export was Tk.68550 million. 5.5 More savings products More savings products with attractive features are in the process of being developed for the small savers, which will be rewarding for both the customer and MBL. Corporate Credit MBL's corporate business provides tailored services to corporate, institutional clients. Commercial lending comprises of major type of corporate credit and continued to remain the major segment of the business. Our strategy is to provide comprehensive service to the clients of this segment who are the large & medium size corporate customers. Corporate clients include sole proprietors, partnerships, incorporated businesses and publicly quoted companies. The financing is based on both conventional and Islamic Shariah mode. The products based on Islamic Shariah are disbursed through Islamic Banking Branches. In order to comply with the risk management, exposure in particular sector is closely monitored to remain within the approved limit set by the Board. Concentration of loans is given at note (5.5). Corporate loans include the following: •
Commercial loans: MBL provides a complete range of services to its corporate clients that include trade-financing services like traditional documentary credit, and post import finance etc.
•
Export financing: A complete range of export financing like back to back documentary credit, packing credit, bills discounting and collection of bills are provided to the corporate clients.
•
Industrial financing: Under this product a complete service is provided which includes term loans, working capital, import financing for capital machinery and raw materials and other receivable financing, infrastructure financing, leasing etc.
•
Syndication financing: MBL is maintaining a leading role in syndication market. The Bank so far concluded 15 syndicated deals of near to Tk 9,000 million as Lead Arranger and Agent for its corporate clients. The sectors of financing through syndication now include textiles, pharmaceutical, chemical, cement, ceramic, steel, float glass, micro finance, food and allied infrastructure. Besides, to serve its corporate clients and to expand the base of its corporate
clients MBL participated in syndication deal arranged by other banks and financial institutions. The Syndication Unit also arranged 27 visits program for participating lenders to observe the operational status and monitor the implementation of the projects. •
Infrastructure Financing: Underdeveloped infrastructure is one of the major obstacles for private sector development in Bangladesh. Lack of efficiency in public sector services has imposed significant cost and
5.6 Credit The credit portfolio of the MBL includes loans and advances provided under conventional terms and Investments provided as per Islamic Shariah of profit sharing basis. The credit portfolio increased by Tk 17473 million during 2009. Credit covers following core areas: Corporate, SME, Retail and Credit Card, Investment Banking. Findings: 5.7 Performance Ratios: This report is based on Credit Management of Mercantile Bank Ltd. To clearly reveal the condition of the bank, this section demonstrates the ratios of last 6 years including chart, to get an easy and fast view of the performance of the bank and the credit quality. The Ratios are•
Current Ratio
•
Debt equity ratio
•
Capital Measures
•
Return on average equity
•
Return on average assets
•
Yield on average advance
•
Cost of funds on average deposits
•
Credit deposit ratio
•
Cost income ratio
•
Earning base in assets (average
•
Net interest margin on average earning assets
Current ratio Particulars Current ratio
2004
2005
2006
2007
2008
2009
0.96
1.06
1.00
0.88
0.97
.88
The liquidity position indicates that the Bank did not retain any idle liquid asset. However, the liquidity position should be more improved because it decreased in 2008.
0.9 6
2004
Fig 1: Current Ratio
1. 0 6
2005
1
2006
0.88
2007
0.9 7
2008
0.88
2009
Debt equity ratio Particulars Debt equity ratio
2004 8%
2005 7%
2006 7%
2007 7%
2008 7%
2009 6.45%
This high ratio indicates that mainly debt capital was used to finance the assets. So the Bank is highly leveraged.
8
7
2004
7
2005
7
2006
7
2007
6.45
2008
2009
Fig 2: Debt equity Ratio
Net interest margin on average earning assets Particulars 2004 2005 Net interest margin on 4.36% 4.41%
2006 3.68%
2007 3.23%
2008 2.97%
2009 2.28%
average earning assets A performance metric that examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments. Calculated
4.36%
as:
4 . 4 1% 3.68%
3.23%
2 .97% 2 .28%
2004
2005
2006
2007
2008
2009
5.8 Financial Statistics The highlights of financial position for the last 5 years are given below: ( Taka in Million)
Particulars
2005
2006
2007
2008
2009
Interest income Interest expenses Net-interest income Non-interest income Non-interest Expenses Net Non-interest income Profit before provision and tax Provision for loans and assets Profit after provision before tax Tax including deferred tax Profit after tax Balance Sheet Authorized Capital Paid-up Capital Total Shareholder's equity Deposits Long-term liabilities Loans and advances Investments Property, Plant and Equipment Earning Assets Net current assets Total assets Current ratio Debt equity ratio Other Business Import Export Remittance Guarantee Business Inland letter of credit Capital Measures Total risk weighted assets Core capital (Tier-I) Supplementary capital (Tier-II) Total Capital Tier-I capital ratio Tier-II capital ratio Total capital ratio Credit Quality Non performing loans (NPLs) NPLs to total loans and advances (%) Provision for unclassified loans
2641 1616 1025 946 824 121 1146 82 1064 452 612
3446 2271 1175 1232 886 346 1520 320 1201 633 568
5199 3698 1500 1732 1101 631 2131 390 1741 689 1052
7170 5267 1903 2913 1559 1354 3257 910 2347 946 1401
9096 7126 1970 3808 1931 1877 3847 1384 2463 1232 1232
1000 1000 2240 28069 7371 23220 3084 322 27131 (1299) 32362 1.06 7%
4000 1400 2808 36022 11406 31916 3940 372 36727 31 41506 1.00 7%
4000 1750 3860 54724 16877 45010 7844 412 55458 5286 60899 0.88 7%
4000 2275 5273 70512 15267 57683 12698 660 72798 1338 79588 0.97 7%
10000 2844 6697 88021 31044 75156 23103 1375 100261 9962 110437 0.88 6.45%
36747 19502 2140 4085 4267
40303 28882 3688 5303 5405
52639 41801 15050 5386 10174
70617 51316 15905 7033 11943
91424 68550 22669 10010 11242
23050 2240 236 2476 9.72 1.02 10.74
31890 2808 369 3177 8.80 1.16 9.96
44324 3860 549 4409 8.71 1.24 9.95
55485 5261 1122 6383 9.50 2.00 11.50
72253 6265 1594 7859 8.67 2.21 10.88
353 1.52% 232
308 0.96% 365
367 0.82% 545
777 1.35% 895
1323 1.76% 1040
5.9 SWOT Analysis Strength o
Mercantile bank Ltd has been stood first in CAMELS Ratings.
o
One of the premier private sector banks in Bangladesh.
o
A good number of experienced bankers in its management.
o
MBL has good number of branches.
o
Better customer service has been proved than other private sector banks.
o
Mercantile bank has already established a favorable reputation in the banking industry of the country.
o
MBL has an interactive corporate culture.
Weakness o
Lack of modern information technology being practiced.
o
Newer in the personal loan market.
o
Low remuneration package.
Opportunities o
People are interested in getting personal loan with lower interest rate.
o
New branches will be opened in different part of Bangladesh.
o
New employees (fresh graduates and experienced) are recruited every year.
o
Personal loan market is the most happening market in banking sector.
o
In this competitive environment MBL must expand its product line to enhance its sustainable competitive advantage.
Threats o
A loan default culture is still a major drawback for making advance/loan.
o
New banks are coming up with new ideas, products and services.
o
The contemporary banks of MBL such as Dhaka bank, Eastern Bank and Dutch bangla Bank are its major rivals.
CHAPTER SIX SUGGESTIONS
Suggestions
Although the bank is in very good position and there is still some scope of improvement, I had seen a few glitches, at the time of my internship period. Based on my experience at Mercantile Bank Limited, Banani Branch, I would like to put the following suggestions: •
Though the Mercantile Bank Limited introduced ATM card service but there is few ATM booths. Customers are asked to use others banks ATM., so more ATM booth should be introduced to facilitate that particular service.
•
Mercantile Bank Ltd. Conduct few promotional activities regarding their offering which creates less pull effort.
•
The number of Brochure is not sufficient to supply information to the clients for their quarry. The deplorable picture is seen in all departments.
•
There should be student-oriented products. Many students are willing to open up accounts, but the service charge is inflexible for them to maintain.
•
Many students cannot go aboard for higher study because of bank guarantee. Mercantile bank can start student bank guarantee or student visa support services for the student.
•
Setting proper planning for each and every work as well as for the whole department.
•
Increase the remuneration package for the employee because When, I was doing my internship in Mercantile Bank Limited, I see the bankers are doing so hard work for the bank.
•
Reduce the service charge for account and other service charge. Reducing the service charge the can collect more client
•
Reduce the interest charge for retail and corporate clients. The main income for a bank is loan product .By reducing interest rate bank can earn more loan and interest.
•
Assigning necessary manpower for every job. I see some department in the bank the manpower is limited than their needs.
•
Proper Credit Planning and Management. Without proper credit planning the credit department will face more risk. The bank will in loss because banks income depends on loans and advances.
•
Borrower Selection carefully if any borrower do not get loan for the mistake of the bankers.
•
Appropriate Financial Analysis of Borrower’s Business. It is important for the borrowers because borrower loan sanction depends on the financial analysis.
•
Monitor the loan sanction process carefully. It is very much important for the bank because without proper documents if any borrower will not get the loan.
•
Proper maintenance of files and necessary files and documents on daily basis.
•
Proper managerial observation and cooperation. Proper managerial observation and cooperation bank cab be efficient.
•
Developing motivational program and training program. A bank with a difference-it the philosophy of MBL, so the bank should always motivated and trained up their employees.
•
Ensure that every one working in Software knows it properly and giving them personal ID and the bank should use the best software for their bank.
•
Mercantile Bank Ltd. can changed their current software because most of the time I see their face software problem. Otherwise it wills bad impact for the bank.
•
Bank can increase their current ratio. The bank current ratio was decreases than previous year. It is not good for a bank. More ratios are good for bank.
•
Return on average assets and equity decreases in last year. It is not good for a bank. The bank should more importance for the return. Earning per share (EPS) also decreases, so the bank should implication for the EPS.
CHAPTER SEVEN CONCLUSION
Conclusion: Banking is the business of providing financial services to the private individuals, corporations, government agencies, and business and industries. This report is an effort to reflect a clear idea about the strategies, activities and difference performances of Mercantile Bank Ltd. regarding its commercial activities with a special reference to Credit operation or Business. The researcher was assigned it in the Banani Branch of Mercantile Bank Limited (MBL) as an intern. I present this report on the basis of the knowledge and experience gained during the internship period. Throughout the report my objective is to seek and find out the main reasons of this prosperity / success of Mercantile Bank Limited. Lending is a heart of a commercial Bank. It has two types of loans and advances. Both of them are profitable assets for a bank to competitive in the market. But the condition is that loan or advances must have the quality and quantity. It is therefore, indispensable for a Bank to have a well thought policy for executive to perform its lending operation. This report contains the overall policy and various stages of Credit Operation. The Mercantile Bank’s philosophy - "A bank with a difference" has been precisely an essence of the legend of success in Bangladesh. The bank has proved to be successful by offering quality services to its customers in time. Most of employees of Mercantile Bank are very efficient (with few exceptions); everyone knows their work very well and can perform efficiently to produce the best output.
Mercantile Bank limited started with a vision to be the most efficient financial intermediary in the country and it believes that the day is not far off when it will reach its desired goal. Mercantile Bank Limited looks forward to a new horizon with a distinctive mission to become a highly competitive modern and transparent institution comparable to any of its kind at home and abroad. Bibliography •
Frederic S. Mishkin, The Economics of Money, Banking and Financial Markets, 7 th Edition.
•
George Foster, Financial Statement Analysis, 2nd Edition.
•
Oxford Dictionary Of Finance And Banking-From international to personal finance, Indian Edition, New Edition 2008-2009
•
Audited Financial Statements 2004-2009 of Mercantile Bank Limited
•
Annual Report of Mercantile Bank Limited 2004-2009.
• •
Brochures of products of Mercantile Bank Ltd Mercantile Bank Limited Official Site (www.Mercantile-bank.com.bd)
•
Bangladesh Bank, Official Site: (www.bangladesh-bank.org)
•
World Bank, website: (www.worldbank.org)
•
Asian Development Bank, website: (www.adb.org)
•
Credit Rating Agency of Bangladesh ltd., website: (www.crab.com.bd)
•
www.investorwords.com
•
www.bangla2000.com
•
www.wikipedia.org
•
Gordon, E. & Natarajan, K., Banking: Theory, Law & Practice, Himalaya Publishing House, Mumbai, 1996
•
Ahmed Nasiruddin. (1989), Banking And Finance Compendium: 1 st edn Standard Printing and Packages: Dhaka
Appendix A CRG Sheet Reference No:
Date: 1-1-2010
Borrower: Group Name (if any): Branch: Industry/Sector:
XYZ Ltd. Aggregate Score: ___82______ N/A Banani Branch Export Oriented Risk Grading: Acceptable Composite
Date of Financials:
PROJECTED
Completed by: Approved by: Number 1
Grading Superior
Short SUP
Score Fully cash secured, secured by Government/International
2 3 4 5 6 7 8
Good Acceptable Marginal/Watchlist Special Mention Substandard Doubtful Bad & Loss
Criteria Weight A. Financial 50% Risk 1. Leverage: (15%)
GD ACCPT MG/WL SM SS DF BL
Guarantee 85+ 75-84 65-74 55-64 45-54 35-44 <35 Score
Parameter Less than 0.25×
15
0.26× to 0.35 x
14
Debt Equity Ratio (×) - Times
0.36× to 0.50 x
13
Total Liabilities to Tangible
0.51× to 0.75 x
12
Net worth
0.76× to 1.25 x
11
1.26× to 2.00 x
10
All calculations should be
2.01× to 2.50 x
8
based on annual financial
2.51× to 2.75 x
7
statements of the borrower
More than 2.75×
0
(audited preferred). 2. Liquidity: (15%)
Greater than 2.74×
15
2.50× to 2.74 x
14
2.00× to 2.49 x
13
1.50× to 1.99 x
12
1.10× to 1.49 x
11
0.90× to 1.09 x
10
0.80× to 0.89 x
8
0.70× to 0.79 x
7
Less than 0.70×
0
Current Assets to Current Liabilities
Actual Parameter
Current Ratio (×) - Times
Bank
Score Obtaine
50%
d 13
1.54
12
Greater than 25%
15
20% to 24%
14
15% to 19%
13
10% to 14%
12
7% to 9%
10
4% to 6%
9
Sales
1% to 3%
7
4. Coverage: (5%)
Less than 1% More than 2.00×
0 5
More than 1.51× Less than 4
3. Profitability: (15%) Operating Profit Margin (%) Operating Profit ×100
Interest Coverage Ratio (×)-Times
2.00×
Earning Before Interest & Interest on debt
Criteria B.
Weight
3 0
Less than 1.00×
Business/Industry
18%
50
Parameter
Risk 1. Size of Business (Sales in
Score
> 60.00
5
30.00 – 59.99
4
10.00 – 29.99
3
borrower’s
5.00 – 9.99
2
business measured by the most
2.50 – 4.99
1
recent
< 2.50
0
> 10 years
3
> 5 - 10 years
2
The number of years the borrower
2 - 5 years
1
has been engaged in the primary
< 2 years
0
BDT crore) the
year’s
Preferably
based
total
sales.
on
audited
financial statements 2. Age of Business
line of business.
44
Actual Parameter
of
5
1.24×
size
2.63
More than 1.00× Less than
Total Score–Financial Risk
The
14
More than 1.25× Less than 2 1.50×
Tax (EBIT)
24.60
Score Obtaine d
47.08
4
0
0
Criteria 3. Business Outlook
Weight
Favorable
3
Favourable
Stable
2 Score 1
Actual
0
Parameter
Slightly Uncertain Parameter Cause for Concern
A critical assessment of the medium term prospects of the borrower, taking into account the industry,
market
share
Score Obtaine d
and
economic factors. 4. Industry Growth
5. Market Competition
6. Entry/Exit Barriers
Total
3
Strong (10%+)
3
Good (>5% - 10%)
2
Moderate (1% - 5%)
1
No Growth (<1%) Dominant Player
Good
2
0 2
Moderately
1
Moderately
1
Competitive
Competitive
0
Highly Competitive Difficult
2
Average
1
Easy
0 18
Score-Business/Industry
Difficult
2
12
Risk Criteria C. Management
Weight 12%
Parameter
Score
Parameter
Risk
1. Experience (Management & Management The quality of management based
on
the
aggregate
Management
Team
Obtaine
14 years
d 5
1-2 years
3
5–10 years in the related 3 line of business
number of years that the Senior
5
Score
related line of business
Team)
More than 10 years in the
Actual
1–5 years in the related line 2 of business
No experience
0
Ready Succession
4
Succession within 1-2 years
3
Succession within 2-3 years
2
Succession in question
0
has been in the industry. 2. Second Line/ Succession
3. Team Work
Total
Very Good
3
Moderate
2
Poor
1
Regular Conflict
0 12
Score-Management
Moderate
2
10
Risk Criteria Weight D. Security 10%
Score Parameter
Parameter
Risk 1.
Security
Coverage
(Primary)
Fully
pledged 4
Regd.
cash
Hypo.
facilities/substantially
covered/Reg. Mortg, for HBL
2
nd
2 Charge/Inferior charge
Simple hypothecation/negative
1
lien on assets.
(Property Location)
No security Registered
0 Mortgage
on 4
Municipal area 3
property. Registered
Mortgage
Pourashava/semi-urban
on area 2
property
Equitable
RM
on 3
Porashava
Corporation/Mercantile
ed 3
Registered Hypothecation
Obtain
3
(1st charge/1st Pari passu charge)
2. Collateral Coverage
Score
Actual
Mortgage
or
No 1
property but plant & machinery 0 as collateral
Negative lien on collateral
No collateral
area
Criteria Weight 3. Support (Guarantee)
Personal guarantee with high 2
2
2
net worth or Strong Corporate Guarantee Personal Parameter Corporate
Score Guarantees Guarantee
or with 1
Actual Parameter
Score Obtain ed
average financial strength
No Support/Guarantee 0 10
Total Score- Security Risk Criteria E.
Weight 10%
Relationship Risk 1. Account Conduct
Parameter
Score
More than 3 (three) years
5
8
Actual Parameter
Score Obtain ed
4
4
New
2
2
2
0
0
accounts with faultless record
Less
than
3
(three)
years
4
accounts with faultless record
Accounts having satisfactory 2 dealings
with
some
late
payments
0
Frequent Past dues & Irregular
2. Utilization of Limit
dealings in account More than 60%
2
(actual/projection)
40% - 60%
1
Less than 40% Full Compliance
0 2
Some Non-Compliance
1
No Compliance
0
Personal accounts of the key 1
3. Compliance of Covenants / Conditions
4. Personal Deposits
business Sponsors/ Principals The extent to which the
are maintained in the bank, with
bank maintains a personal
significant deposits
banking relationship with the
key
sponsors/principals.
business
No depository relationship
0
Criteria Weight Total Score-Relationship Parameter
10 Score
Risk Grand Total- All Risk
100
Actual Parameter
Score 8Obtain ed 82
Appendix B Few Lists of Important Acronyms ATM
= Automated Teller Machine
BB
= Bangladesh Bank (Central Bank of Bangladesh)
Bank
= Mercantile Bank
B/S
= Bad-Loss
BAS
= Bangladesh Accounting Standard
CRR
=Cash Reserve Requirement
CRG
=Credit Risk Grading
CSR
= Corporate Social Responsibility
CPI
= Consumer Price Index
CDBL
= Central Depository Bangladesh Limited
CBS
= Core Banking Software
CRISL
= Credit Rating and Information Services Ltd.
DEPZ
= Dhaka Export Processing Zone
DP
= Depository Participations
EPS
= Earning Per Share
FY
= Fiscal Year (July to June)
GDP
= Gross Domestic Product
IT
= Information Technology
IMF
= International Monetary Fund
IAS
= International Accounting Standard
ICAB
= Institute of Chartered Accountants of Bangladesh
IPO
= Initial Public Offering
LC
= Letter of Credit
NII
= Net Interest Income
NPL
= Non-Performing Loan
NCBS
= National Commercial Banks
PCBS
= Private Commercial Banks
MBL
= Mercantile Bank Limited
PECL
= Mercantile Exchange Co. Pte. Ltd.
RWA
= Risk Weighted Assets
RMG
= Readymade Garments
R&D
= Research and Development
ROA
= Return on Assets
RD
= Recovery Division
ROE
= Return on Equity
SME
= Small and Medium Enterprise
SOP
= Standard Operating Procedure
SLR
= Statutory Liquidity Requirement