ASA UNIVERSITY BANGLADESH

Assignment On
Ratio Analysis of Mercantile Bank Limited Course title: Principles of Financial Course Code: FIN-214

Submitted to:
Mohd. Takdir Hossan Course Instructor Faculty of Business Studies ASA University Bangladesh

Submitted by
Name ID 071-12-320 071-12-320 071-12-320 071-12-320 071-12-320 Section Semester Summer-2010 Summer-2010 Summer-2010 Summer-2010 Summer-2010

Date of Submission: August 31, 2010

Acknowledgement
On behalf of the Board of Directors, I wish to extend our sincere gratitude to all of our valued shareholders who have over the years supported us in our quest to take Mercantile Bank to greater heights of achievement and success. I also intend to thanks our valued clients for their continuous support. The confidence that the shareholders and clients have on us has always been the source of our strength and inspiration. We are thankful to the Government of the People's Republic of Bangladesh, Governor of the Bangladesh Bank, Securities and Exchange Commission, Dhaka Stock Exchange, Chittagong Stock Exchange, our respected Shareholders, valued Customers, Patrons and Well-wishers for keeping their faith and trust on us to move forward. Finally, I wish to thank all my colleagues in the Board for their important contribution to the Bank's strategic thinking and most for their strong leadership in view of the current operating environment. Their relentless support and commitment during the year were invaluable. I also appreciate the Management Team and the dedicated Staff Members of the Bank for their untiring commitment, loyalty and sincerity to the Bank. We believe Mercantile Bank Limited is in great shape and well poised to meet the challenges of 2010 and beyond. We have a fine team of people, a shared set of priorities, a proud tradition of success and are eagerly looking forward to another year of success.

History:
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. The Bank commenced its operation on June 2, 1999. The Bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country. Vision: Would make finest corporate citizen. Mission: will become most caring, focused for equitable growth based on diversified deployment of resources, and nevertheless would remain healthy and gainfully profitable Bank.

Objectives:
to achieve positive Economic Value Added (EVA) each year. to be market leader in product innovation. to be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency. to be one of the top five Financial Institutions in Bangladesh in terms of market share in all significant market segments we serve. to achieve 20% return on shareholders' equity or more, on average.

Performance of the Bank in 2009: The Year 2009 was the challenging one for the
financial sector. The incessant fall-out of international credit market due to world economic meltdown resulting sluggish growth has put significant pressure on financial performance of banks and financial institutions worldwide. Mercantile Bank Ltd. Achieved continuous growth in almost all arenas of its business despite this economic crisis, facing intensified competition of the industry. The Bank remained in financial strong position with its continued focus on the vision of becoming country's finest corporate citizen, providing excellent and need-based customer service. The Bank mobilized deposits of BDT 58.30 billion as at December 31, 2009 compared to BDT 49.54 billion, till 2008. Total loans and advances stood at BDT 48.30 billion at the end of 2009 that was BDT 41.99 billion at the end of 2008. Import business stood at BDT 60.59 billion in 2009 compared to BDT 56.53 billion in 2008. Export business stood at BDT 46.30 billion in 2009 as against BDT 43.11 billion in 2008. The Bank collected foreign remittance of BDT 5.06 billion in 2009 compared to BDT 4.72 billion in 2008. In 2009, the Bank was able to make profit before Tax of BDT 1.66 billion as compared to 1.28 billion indicating 29.73% growth. Net profit attributable to shareholders stood at BDT 807.52 million. The return on equity remained 18.80% during 2009 and Earning per Share (EPS) stood at BDT 37.41. Non Performing Loan (NPL) ratio reduced to 2.54% in 2009 as compared to 2.86% in 2008. MBL made adequate provision against Classified Loans which is significantly higher than last year. Adequate provision made the Bank stronger than before. Tier-1 Capital stood at BDT 4.24 billion at the end of 2009 compared to that of BDT 3.47 billion at the end of 2008. Tier-2 Capital reached to BDT 758.91 million at the end of December 2009 as compared to that of BDT 660.29 million at the end of 2008. Return on Assets (ROA) increased to 1.22% in 2009 from 1.10% in 2008 and Return on Equity (ROE) also increased significantly to 18.80% from 17.75% in 2008. The Capital Adequacy Ratio (CAR) increased to 10.48% in 2009 as against that of 10.17% in 2008. Net Interest Margin (NIM) stood at 3.58% at the end of 2009, suggesting a healthy growth in Net Interest Income.

Prospects in 2010:
The year 2010 has started with a new hope and potential. New opportunities for the banking industry are waiting, including Mobile and Internet Banking. With a political government in power and a strong foreign exchange reserve of more than 10 billion USD, the hope that the congenial business atmosphere will prevail is not illusory. Political stability is an important issue in this regard. A stable political situation boasts up the confidence of the investors. As a result, economic activities of the country are expected to get its momentum. This vibrant economic condition will certainly go in favor of the banking industry. Under these circumstances, we do strongly believe that with the patronization and co-operation of our valued clients and shareholders, our efficient and energetic workforce would be able to achieve significant growth in 2010 and subsequent years by capitalizing the new opportunity created in the banking sector. Future Outlook of MBL While the year 2010 is expected to be a tough one for the financial service sector, as the global financial turmoil is not over and the resurgence of the world economy is sluggish. However the Board of Directors of the Bank is optimistic about the Bank's prospects and success in upcoming days. The Bank in 2009 achieved continuous growth almost in all arenas of its business and the Bank is well positioned to enter into the New Year 2010 with a strong management team. In 2009 we made good progress in executing the Bank's strategic agenda and priorities. Opportunities to further strengthen our business are becoming increasingly evident as the environment becomes more challenging, which presents us with a range of organic growth and acquisition opportunities. However, the Board recognizes that the future is uncertain and that in the current environment its first priority is to ensure that the Bank continues to maintain its strong financial position. We do believe that continuation of our superior services, adoption of new products and technologies, harmonious banker-customer relationship, embellishment of our human resources with various trainings, prudent business policies, better risk management and corporate governance system will help us to handle this challenge more efficiently.

Challenges in 2010 for MBL In FY2009, Bangladesh economy experienced a moderate growth rate of 5.88%, where target level of growth for FY2010 is 6.0%. World Bank predicted that Bangladesh Economy would grow by 5.4% whereas Asian Development Bank (ADB) came up with yet another projection saying that the Bangladesh economy would shrink from 5.4% to 5.2%. Bangladesh experienced adverse effects from the global downturn, primarily through slower growth of exports and workers' remittances, and damped investment sentiment. Still, it has maintained relatively strong expansion, reduced inflation, and kept a current account surplus mainly with the help of huge remittance inflow. The mediumterm trajectory will depend heavily on the Government's ability to implement reforms, which include substantially boosting budget revenue and raising infrastructure investment in FY2010 as dampened global demand could weigh on exports and workers remittances. With this backdrop, 2010 will be another challenging year for the financial institutions of Bangladesh. Decline in garments and other export items, continued pressure on interest margins, fees, commission and exchange earnings and increased provision requirement will pose a challenge to the financial institutions during 2010 also. Sound political environment. Financial Product and Services The Bank has launched a number of financial products and services since its inception. Among these, Monthly Savings Scheme, Family Maintenance Scheme, Double Benefit Deposit Scheme, Quarterly Benefit Deposit Scheme, 1.5 Times Benefit Deposit Scheme, Advance Benefit Deposit Scheme, Consumer Credit Scheme, Small Loan Scheme, Lease Finance Scheme, Overseas Employment Loan Scheme, Car Loan Scheme, Home Loan Scheme and SME Loan have received wide acceptance among the people.

Deposit Products
Monthly Saving Scheme It is our significant product; introduced to attract small savers for building up their habit of savings and thereby build up a healthy capital base for the economy. The monthly installments are in various sizes and one can adopt the schemes for a period of 08 years or 10 years. Investor gets a lump sum (principal plus interest) at the maturity of the scheme. Installment amount should be deposited within the first 10 days of each month. The incumbent depositor can get a loan facility of maximum 80% of his deposited amount. At the end of 2009, BDT 13.58 billion was deposited against that of BDT 9.79 billion in 2008 recording 38.71% growth in this scheme. Monthly Benefit Deposit Scheme Under this scheme, depositor will get a certain sum of money in each month proportion to his/her deposit during the entire tenure. Benefit starts right from the first month of opening an account under this scheme and continues upto five years. On maturity, the principal amount is paid back. Objectives of this scheme are: help the retired persons for investing their retirement benefits, create investment opportunities for Non-Resident Bangladeshi, etc. Minimum deposited amount is BDT 50,000 or its multiples and the tenure is Five (05) years. This scheme is also known as "Family Maintenance Deposit Scheme (FMD)". Under this scheme total amount of BDT 1.86 billion was deposited upto the end of 2009. Double Benefit Deposit Scheme Under this scheme, deposited amount will be double in a tenure of Seven and Half (7.5) years. Minimum deposited amount should be BDT 10,000 or its multiples. Loan may be granted up to maximum 80% of the deposited amount, but minimum principle amount

must be BDT 20,000. At the end of 2009 total amount of BDT 6.93 billion was deposited under this scheme. Quarterly Benefit Deposit Scheme The 'Quarterly Benefit Deposit Scheme' will be maintained for a period of 3 (three) years and the minimum amount of deposit is BDT 50,000.00 (fifty thousand) or its multiples. Interest will be paid on quarterly basis. Benefit starts right from the first quarter of opening the account. On maturity, principal amount will be paid back. Savings account is needed to maintain this scheme. Loan may be granted up to maximum 80% of the forced encashment value on the date of loan processing. During the period of continuation of loan, quarterly benefits will be credited only to the loan account. Deposit under this scheme increased to BDT 229.40 million in 2009 from BDT 145.35 million in 2008. Times Benefit Deposit Scheme Under the '1.5 Times Benefit Deposit Scheme' a deposit of minimum BDT 50,000.00 (fifty thousand) or its multiples will be received for a period of 4.25 years. On maturity, 1.5 times of the deposited amount will be paid back to the account holder. In case of premature encashment interest will be paid on Saving A/c Rate. However, no interest shall be paid if premature encashment takes place before expiry of 1 (one) year. Loan may be granted up to maximum 80% of the deposited amount. Advance Benefit Deposit Scheme Under this Scheme, one can deposit a certain amount of money for two years. The depositor will receive the benefit on yearly basis. The benefit amount of first year will be received in advance at the time of deposit. On maturity, the depositor will get back the principal amount with the benefit amount of second year. That is Interest is paid in two phases, first phase paid initially BDT 9,500 and second phase paid BDT109,520 after maturity against BDT 1,00,000. Loan may be granted up to maximum 70% of the deposit. This is Also known as "Agrim Munafa Amanat Prokolpo (AMAP)". BDT 76.92 million was deposited under this scheme at the end of 2009.

Loan Products Consumer Credit Scheme Consumer Credit Scheme is one of the popular areas of collateral-free finance of the Bank. People with limited income can avail of credit facility to buy household goods including computer and other consumer durables. Total exposure under this scheme was BDT 49.83 million at the end of 2009. Small Loan Scheme This scheme has been designed especially for the businessmen longing for credit facility for their business and can't provide tangible securities. Total amount of BDT 15.40 million was deployed under this scheme at the end of 2009. Lease Finance This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machinery, medical equipments, computers, vehicle and other items. Flexibility and term and conditions of this scheme have attracted the potential entrepreneurs to acquire equipments of production and services and repay gradually from earnings on the basis of "Pay as you earn." Total exposure under this scheme was BDT 356.50 million at the end of 2009. Doctors' Credit Scheme Doctors' Credit Scheme is designed to facilitate financing to fresh medical graduates and established physicians to acquire medical equipments and set up clinics and hospitals and thereby make the medical facilities upgraded and available to the mass people. BDT 7.06 million was disbursed under this scheme till the end of 2009.

SME Loan Scheme Small and Medium Enterprise (SME) Loan Scheme has been introduced to provide financial assistance to new or experienced entrepreneurs to invest in small and medium scale industries with a comparatively low rate of interest as the same is assisted by the Bangladesh Bank with refinancing facilities. Exposure under this scheme experienced significant growth of 44.39% and amounting to BDT 983.39 million at 2009 end from that of BDT 681.08 million at the end of 2008. Personal Loan Scheme Personal Loan Scheme has been introduced to extend credit facilities to cater the needs of low and middle-income group for any purpose. Total Loans and Advances under this scheme increased to BDT 364.38 million up to 2009 from that of 279.78 million at the end of 2008. Car Loan Scheme Car Loan Scheme has been introduced to enable middle-income people to purchase Cars/SUVs/Jeeps. Government and semi-government officials, employees of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations, teachers of recognized public and private universities and businessmen are eligible for this loan. Total amount of BDT 201.98 million was disbursed under this scheme up to December 2009. Home Loan Scheme To meet the growing need of housing for middle and lower-middle income people, MBL has introduced Home Loan Scheme. We also support the Bangladesh Bank's Home Loan Refinance Scheme. The Scheme will also boost up the growth of housing sector. Such loan shall be available for purchase or construction of new apartments for self-residing purpose.

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Industry Overview
World Economy in 2009 The Year 2009 was much crucial for the world economy, as it had to pass through such an incessant economic catastrophe, originated in USA with the debacle of sub-prime mortgages, which no one witnessed since 1930's. The economic slowdown was so widereaching that almost every economy of the world had been affected mainly from September 2008. The world economy's deepest post-war downturn has resulted in higher rate of unemployment in many countries including robust economies like Russia, USA, UK, Japan, China, and India. The economic disaster had impelled huge increase in corporate defaults worldwide. International business volume had been dwindled significantly. Country leaders around the world together with big economic wigs came up with billion dollar rescue packages to address this unique disorder which has been treated as delayed response to counter the adverse impact of this meltdown. During 2009, financial conditions improved more than projected. Emerging economies started to drag the world economy back to normality, mainly backed by the strong performance and stabilization of Asian economies. Declining rate of economic activities has been moderating gradually. International trade volume started to augment with time. Despite these positive signs, it is not easy to expect as regards faster revitalization of the world economy, as the stabilization of the economies is not smooth. Moreover, continuing drawing out of supports from public policies has also constrained the financial systems still in impaired situation. However, it is expected to witness a positive growth in 2010. According to IMF, world output will expand by 3.1% in 2010 following a contraction of 1.1% in 2009. Real GDP growth in emerging country is forecast to reach almost 5 % in 2010, up from 1.75 % in 2009.

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Bangladesh Economy in 2009 In spite of this world economic fall down since 1930's Great Depression, Bangladesh Economy remained resilient in 2009, attaining 5.88 % Real GDP growth in the fiscal year 2008-09. Though it was the lowest growth over the last 5 years, performance of the economy was satisfactory compared to that of other developing nations. Almost all the macro-economic indicators showed positive trend during the period under review. Export earnings recorded 10.12% growth and import cost augmented by 4.06% in FY2009 over FY2008. Inflation remained at tolerable stage in the last few months of 2009. Foreign Exchange Reserve touched US$ 10 billion in November 2009, which is a milestone for Bangladesh Economy. The GDP growth target has been set at 5.5-6% in the current fiscal year 2009-10 considering the depressed world economic scenario. But recent emerging trend of inflation, declination of both Export and Import over the first 5 months of current fiscal, sluggish domestic as well as foreign investment certainly pose evident threat towards 6% growth target in Fiscal Year 2009-10. However, Bangladesh Bank, in its first Monetary Policy of FY 2010 (June-January) expressed its optimism to attain 6% growth in the mentioned time period. Bangladesh Bank Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank (BB) has been working as the central bank since the country's independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government's monetary policy and implementing it thereby. The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

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SERVICES (Accounts, FDR, PDS, Deposit Scheme) Current Account Generally this sort of account opens for business purpose. Customers can withdraw money once or more against their deposit. No interest can be paid to the customers in this account. If the amount of deposit is below taka 1,000 on an average the bank has authority to cut taka 50 from each account as incidental charge after every six months. Against this account loan facility can be ensured. Usually one can open this account with taka 500. One can open this sort of account through cash or check/bill. All the banks follow almost the same rules for opening current account. Savings Bank Account Usually customers open this sort of account at a low interest for only security. This is also an initiative to create people's savings tendency. Generally, this account is to be opened at taka 100. Interest is to be paid in June and December after every six months. If money is withdrawn twice a week or more than taka 10,000 is withdrawn (if 25% more compared to total deposit) then interest is not paid. On an average, all the banks give around six percent interest. Special Services Some Banks render special services to the customers attracting other banks. Internet Banking Customers need an Internet access service. As an Internet Banking customer, he will be given a specific user ID and a confident password. The customer can then view his account balances online. It is the industry-standard method used to protect communications over the Internet. To ensure that customers' personal data cannot be accessed by anyone but them, all reporting information has been secured using Version and Secure Sockets Layer (SSL). Home Banking Home banking frees customers of visiting branches and most transactions will be automated to enable them to check their account activities transfer fund and to open L/C sitting in their own desk with the help of a PC and a telephone.

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Electronic Banking Services for Windows Electronic Banking Service for Windows (EBSW) provides a full range of reporting capabilities, and a comprehensive range of transaction initiation options. The customers will be able to process all payments as well as initiate L/Cs and amendments, through EBSW. They will be able to view the balances of all accounts, whether with Standard Chartered or with any other banks using SWIFT. Additionally, transactions may be approved by remote authorization even if the approver is out of station. Automated Teller Machine (Atm) Automated Teller Machine (ATM), a new concept in modern banking, has already been introduced to facilitate subscribers 24 hour cash access through a plastic card. The network of ATM installations will be adequately extended to enable customers to nonbranch banking beyond banking. Tele Banking Tele Banking allows customers to get access into their respective banking information 24 hours a day. Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to other accounts irrespective of location either from home or office.

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Mercantile Bank Limited

Performance Analysis Related Items
Items 2007 (ml TK) Current Asset Current Liabilities Total Debt Net- Profit before Tax Net-Profit After Tax Earning before interest & Tax Interest Total Assets
Market price per share of common stock

2008 (ml TK) 21605 17280.4 52311.39 1581.51 615.88 5106.00 4045.97 55928.72 348.25 17986.78 683.00 3470.09

2009 (ml TK) 24348.69 19361.31 61870.26 1911.70 807.52 6066.17 4755.90 66166.52 395.00 21584.13 1032.83 4296.25

29160.93 28454.4 42011.23 1385.14 540.50 3686.41 3159.29 44940.54 415.61 14988.98 593.20 2929.30

No. of shares outstanding Fixed Asset Total Shareholders Equity

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Current Assets & Current Liabilities Calculation

(BDT in Million) BDT in Current Assets Cash Balance with other Banks and FIs Money at call & short term otice Short term Investment<12month
Short term loans &advances<12 Month

Million 2007 3717.35 209.2 520 1797.42 22691.44 225.52 29160.93 2607.1 14077.17 218.7 21605 1615.62 16315.43 609.62 24348.69 2008 4374.12 327.91 2009 4790.15 1017.87

Other short term assets Total Current Liabilities Borrowing from BB & Other Banks Deposit<12month
Bills payable & Other Accounts<12month

774.25 25574.78 889.88 1215.49 28454.4

2326.33 12635.32 677.76 1640.99 17280.4

1842.83 15988.4 789.04 741.04 19361.31

Provision Total

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2007

Liquidity and Funding 1. Current Ratio=Current Asset/ Current Liabilities

=29160.93/28454.4

=1.02483:1 2. Quick Ratio= Current Asset/ Current Liabilities

=29160.93/28454.4

=1.02483:1

Leverage 1. Debt Ratio=Total Debt/ Total Asset

= 42011.23/44940.54*100 =93.48

2. Debt Equity Ratio= Total Debt/ Total Equity =42011.23/2929.30

=14.34173011

3. Times Interest Earned Ratio=EBIT/Interest Charges =3686.41/3159.29 =1.166847614 4. Fixed Charged Coverage= Earning before interest & Tax/ Interest =3686.41/3159.29 =1.166847614 Since there is no Lease payment, the Fixed Charged Coverage is the same as Times Interest Earned Ratio.

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Profitability 1. Net Profit Margin= NOI/ Earning before interest & Tax =540.49/3686.41*100 =14.66169 2. Return on Asset=NOI/Total Asset =540.50/44940.54*100 =1.20% 3. Return on Equity=NOI/ Common Equity =540.50/2929.30*100 =18.45% 4. Earning Per Share= NOI/ No. of Shares =540499295/14988980 =36.06

Market 1. Price Earning Ratio=Market price per share of common stock/ EPS = 415.61/36.06 =12 times (Approximately) 2. Book value Per Share =Common stock equity/ No. of shares outstanding =2929303879/14988980 =195.4305 3. Market/Book value ratio=Market Price per share/Book value per share =415.61/195.43 = 2.126643811

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2008
Liquidity and Funding 1. Current Ratio=Current Asset/ Current Liabilities =21605/17280.4 = 1.2502604:1 2. Quick Ratio= Current Asset/ Current Liabilities =21605/17280.4 = 1.2502604:1

Leverage 1. Debt Ratio=Total Debt/ Total Asset

=52311.39/55928.72*100

=93.53% 2. Debt Equity Ratio= Total Debt/ Total Equity

= 52311.39/3470.09 =15.07:1

3. Times Interest Earned Ratio=EBIT/Interest Charges

=5106.00/4045.97 =1.26

4. Fixed Charged Coverage= Earning before interest & Tax/ Interest

=5106.00/4045.97 =1.26

Since there is no Lease payment, the Fixed Charged Coverage is the same as Times Interest Earned Ratio.

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Profitability 1. Net Profit Margin= NOI/ Earning before interest & Tax =615.88/5106.00*100 =12.061888 2. Return on Asset=NOI/Total Asset =615.88/55928.72*100 =1.10% 3. Return on Equity=NOI/ Common Equity =615.88/3470.09*100 =17.75% 4. Earning Per Share= NOI/ No. of Shares =615883381/17986780 =34.24

Market 1. Price Earning Ratio=Market price per share of common stock/ EPS =348.25/34.24 =10 times (Approximately) 2. Book value Per Share =Common stock equity/ No. of shares outstanding =3470093732/17986780 =192.92 3. Market/Book value ratio=Market Price per share/Book value per share =348.25/192.92 =1.8051524

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2009
Liquidity and Funding 1. Current Ratio=Current Asset/ Current Liabilities
=24348.69/19361.31

= 1.257595:1 2. Quick Ratio= Quick Asset/ Current Liabilities

=24348.69/19361.31

= 1.257595:1

Leverage 1. Debt Ratio=Total Debt/ Total Asset =61870.26/66166.52*100 =93.5069 2. Debt Equity Ratio= Total Debt/ Total Equity =66166.52/4296.25 =15.401 3. Times Interest Earned Ratio=EBIT/Interest Charges =6066.17/4755.90 =1.2755 4. Fixed Charged Coverage= Earning before interest & Tax/ Interest =6066.17/4755.90 =1.2755 Since there is no Lease payment, the Fixed Charged Coverage is the same as Times Interest Earned Ratio.

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Profitability 1. Net Profit Margin= NOI/ Earning before interest & Tax =807.52/6066.17*100 = 13.31186 2. Return on Asset=NOI/Total Asset =807.52/66166.52*100 =1.22% 3. Return on Equity=NOI/ Common Equity =807.52/4296.25*100 =18.80% 4. Earning Per Share= NOI/ No. of Shares =807516869/21584130 =37.41 Market 1. Price Earning Ratio=Market price per share of common stock/ EPS = 395.00/37.41 =11 times (Approximately) 2. Book value Per Share=Common stock equity/ No. of shares outstanding =4296251741/21584130 =199.05 3. Market/Book value ratio=Market Price per share/Book value per share =395/199.05 =1.984426

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Trend Analysis
Liquidity & Funding 2007 Current Ratio 1.02:1
Current Ratio
1.4 1.2 1 Ratio 0.8 Current R 0.6 0.4 0.2 0 2007 2008 Year 2009

2008 1.25:1

2009 1.25:1

2007 Quick Ratio 1.02483

Q uick R atio 1.4 1.2 1 Ratio 0.8

2008 1.2502604

2009 1.257595

Q uick R atio 0.6 0.4 0.2 0 2007 2008 Y ear 2009

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2007

2008 1.25026 1.25026

2009 1.2576 1.2576

Liquidity & Funding:

Current Ratio Quick Ratio 1.02483 1.02483
Total liquidity & Funding
1.4 1.2 1 Ratio 0.8 0.6 0.4 0.2 0 2007 2008 Y ear 2009 Liquidity & Funding: C urrent R atio Q uick R atio

Interpretation & Comments on Liquidity & Funding: Since Mercantile Bank Limited is a Banking financial institution; there are no inventories in the institution. For this reason the current ratio and quick ratio are MBL increases its capacity in 2007 and after that year its current and quick ratios are increased in every year. MBLs quick liability payment capacity is very strong in every year and basically its trend of quick ratio is satisfactory, but on the other hand companys current liability payment ability is not very strong because it has near about one and something assets for meeting its short term current liabilities. So this position is not satisfactory for a bank and it has to increase its ability of paying and meeting its short term liability by increasing its current assets portion. We know the standards for current ratio is 2:1, but the current ratios of MBL are below the standard line. On the other hand standard level for quick ratio is 1:1 and the quick ratios of MBL are belonging in the standard line. So current assets should be increased or current liabilities should be decreased for increasing the level of current ratio.

Leverage

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Debt Ratio

2007 93.48181
Debt Ratio 93.54 93.53 93.52 93.51 Ratio 93.5 93.49 93.48 93.47 93.46 93.45 2007 2008 Year 2009

2008 93.53225

2009 93.5069

Debt Ratio

Debt Equity

2007 14.34173
Debt Equity 15.6 15.4 15.2 15 Ratio 14.8 14.6 14.4 14.2 14 13.8 2007 2008 Year 2009

2008 15.074938

2009 15.40099

Debt Equity

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2007 Times Interest Earned Ratio 1.166848

Time interes
1.3 1.28 1.26 1.24 Ratio 1.22 1.2 1.18 1.16 1.14 1.12 1.1 2007 2008 Year 2009

2008 1.2619965

2009 1.275504

Times Interest Earned Ratio

2007 Fixed Charged Coverage 1.166848

Fixed charge
1.3 1.28 1.26 1.24 Ratio 1.22 1.2 1.18 1.16 1.14 1.12 1.1 2007 2008 Year 2009

2008 1.2619965

2009 1.275504

Fixed Charged Coverage

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Leverage:
Debt Ratio Debt Equity Times Interest Earned Ratio Fixed Charged Coverage 2007 93.4818 14.3417 1.16685 1.16685 2008 93.5322 15.0749 1.262 1.262 2009 93.5069 15.401 1.2755 1.2755

Liverage
2500 2000 1500 1000 500 0 Lev erage: 2007 0 0 0 0 Year 93.4818 14.3417 1.16685 2008 93.5322 15.0749 1.262 2009 93.5069 15.401 1.2755

Interpretation & Comments: Debt ratio measure the proportion of total assets financed by the firms creditors. Trend of debt equity ratio is belongs near about 14 to 15 times. That indicates debt financing were 14 to 15 times higher than equity financing. So this trend and this position are not very good condition for a bank because it also discourages new creditors to lend their money to MBL. This trend is increasing in each year but it should be improved by the MBL by financing more shareholders equity. Trend of Times Interest Earned Ratio is not satisfactory for the organization because it earned near about one and something more from the amount that they have to pay as interest. We said earlier that MBLs have big amount of debt capital. For this reason they have to pay big amount of money as interest charged by the creditors. MBLs follow this structure for getting tax deductibility. But 27

they have to a big amount for interest charging by the creditors. So, trend of Times Interest Earned Ratio should be increased either by decreasing debt capital or by increasing earning volume of the organization. Since there is no Lease payment, the Fixed Charged Coverage is the same as Times Interest Earned Ratio. So, overall leverage ratio shows that MBL finances their capital fund by debt financing most for getting tax deductibility from the government. But at the same time they should consider the creditors view point toward the more debt financing organization. So overall leverage ratio and its trend are moderate satisfactory and should be improved and should be modified by the management and the owners of the MBL.

Profitability: 2007 14.66169

NM P 1 6 1 4 1 2 Value 1 0 8 6 4 2 0 20 07 20 08 Y ear 20 09 NM P

NPM

2008 12.061888

2009 13.31186

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ROE

2007 18.45151
ROE 19 18.8 18.6 18.4 Value 18.2 18 17.8 17.6 17.4 17.2 2007 2008 Year

2008 17.748243

2009 18.79593

ROE

2009

2007 EPS 36.05978

2008 34.240891

2009 37.41253

EPS 38 37 Value 36 35 34 33 32 2007 2008 Year 2009

EPS

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2007 ROA 1.2027

ROA 1.25 1.2 Value 1.15 1.1 1.05 1 2007 2008 Year

2008 1.1011874

2009 1.220436

ROA

2009

Profitability: 2007 NPM ROE EPS ROA 14.6617 18.4515 36.0598 1.2027 2008 12.0619 17.7482 34.2409 1.10119 2009 13.3119 18.7959 37.4125 1.22044

Profitability
4 0 3 5 3 0 Values 2 5 2 0 1 5 1 0 5 0 N PM R E O Y ear EPS R A O 2007 2008 2009

30

Interpretation and Comments: NPM measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. The higher the NPM the better will be the condition of the firm. MBLs NPM ratio trend shows that NPM decreased unto 2008 from 2007 and again increase in 2009. So NPM condition of MBL is satisfactory. Return on equity measures the return earned on the stockholders investment in the firm. Generally the higher the rate of ROE the better will be the condition of the firm. MBLs ROE trend is deceasing in year to year. That indicates earning rate from MBLs is decreasing that dissatisfy the owners to invest in the firm. We know the standard level for ROE is 10% to 15% and in this case the condition of MBLs is satisfactory for providing return to their shareholders. ROA measures the overall effectiveness of management in generating profit with its available assets. The rate of ROA of MBL is not satisfactory.

Market
Price Earning Ratio 2007 12 times
P rice E rn g R tio a in a 1 .5 2 1 2 1 .5 1 1 1 P rice E rn g R tio a in a 1 .5 0 1 0 9 .5 9 P rice E rn g a in R tio a 20 07 1 2 20 08 1 0 20 09 1 1

2008 10 times

2009 11 times

31

BV

2007 195.4305

2008 192.92468

2009 199.0468

B V 20 0 19 9 18 9 17 9 16 9 15 9 14 9 13 9 12 9 11 9 10 9 19 8 20 07 20 08 Ya er 20 09

Values

B V

MBV

2007 2.126643811
MV B 2 .2 2 .1 Values 2 1 .9 1 .8 1 .7 1 .6 20 07 20 08 Y ear 20 09

2008 1.8051524

2009 1.984426

MV B

32

Market:
2007 Price Earnings Ratio(times) BV
MBV

2008 10 192.925 1.8051524

2009 11 199.047 1.984426

12 195.431 2.126643811

Market
2500 2000 Values 1500 1000 500 Ratio(times) Market: Earnings MBV 0 BV Series1 Series2 Series3

Year to year(2007-09)

Interpretation and Comments: Price Earning Ratio (times) measures the amount that investors are willing to pay for each dollar of a firms earnings, the higher the P/E ratio the greater is investor confidence. The level of P/E ratio indicates the degree of confidence that investors have in the firms future performance. Price Earning Ratio of MBL is satisfactory in each year. MBV provides an assessment of how the investors view the firms performance. Firms expected to earn high returns relative to their risk typically sell at higher M/B multiple. It relates the market value of the firms shares to their book- strict accounting value. Market to Book value ratio is satisfactory for MBL. So, overall market ratios of MBL are also satisfactory.

Price

33

Highlights of all Ratios 2007 2008 2009

Liquidity &Funding:
Current Ratio Quick Ratio 1.02483 1.02483 93.48181 14.34173 1.166848 1.166848 14.66169 18.45151 36.05978 1.2027 1.25026 1.25026 93.53225 15.07494 1.261997 1.261997 12.06189 17.74824 34.24089 1.101187 1.257595 1.257595 93.5069 15.40099 1.275504 1.275504 13.31186 18.79593 37.41253 1.220436

Leverage:
Debt Ratio Debt Equity Times Interest Earned Ratio Fixed Charged Coverage

Profitability:
NPM ROE EPS ROA

Market:
Price Earning Ratio (times) BV
MBV

12 195.4305 2.126643811

10 192.9247 1.80515

11 199.0468 1.98443

Final Comments: Overall Performance of MBL is satisfactory.

34

Appendix
Balance Sheet
Mercantile Bank Limited Balance Sheet as at December 31, 2009
PROPERTY AND ASSETS Notes Cash Cash in hand (Including Foreign Currencies) Balance with Bangladesh Bank and Sonali Bank Limited (Including Foreign Currencies) Balance with Other Banks and Financial Institutions In Bangladesh Outside Bangladesh Money at Call and Short Notice Investments Government Others Loans and Advances Loans, Cash Credit, Overdraft etc. Bills Purchased and Discounted Fixed Assets Including Premises, Furniture and Fixtures Other Assets Non-Banking Assets Total Assets LIABILITIES AND CAPITAL Liabilities Borrowings from other Banks, Financial Institutions and Agents Deposits and other Accounts Current Accounts and Other Accounts Bills Payable Savings Bank Deposits Fixed Deposits Deposits Under Schemes Other Liabilities Total Liabilities Capital/ Shareholders' Equity Paid-up Capital Statutory Reserve Other Reserves Surplus in Profit & Loss Account Total Shareholders' Equity Total Liabilities and Shareholders' Equity OFF BALANCE SHEET ITEMS CONTINGENT LIABILITIES Acceptances and Endorsements 3 2009 (BDT) 4,790,155,210 498,486,173 4,291,669,037 1,017,865,437 764,122,864 253,742,573 9,664,722,134 9,175,729,563 488,992,571 48,295,546,954 44,574,237,307 3,721,309,647 1,032,825,043 1,365,400,824 66,166,515,602 2008 (BDT) 4,374,119,340 443,342,558 3,930,776,782 3 27,911,508 177,928,388 149,983,120 6,264,705,100 5,681,107,430 583,597,670 43,419,362,481 38,787,868,658 4,631,493,823 682,999,856 859,623,164 55,928,721,449

5 6

7 7.A 7.B 8 9

10 11 11.1 11.2 11.3 11.4 11.5 12

1,842,825,721 55,553,083,656 7,425,229,434 789,044,669 4,392,947,478 19,215,499,453 23,730,362,622 4,474,354,484 61,870,263,861 2,158,413,400 1,555,373,902 105,410,663 477,053,776 4,296,251,741 66,166,515,602

2,326,325,000 46,374,178,835 5,831,638,360 677,763,825 3,020,870,440 17,501,418,866 19,342,487,344 3,758,123,882 52,458,627,717 1,798,677,900 1,222,833,902 86,769,523 361,812,407 3,470,093,732 55,928,721,449

13.1 14 15 16

A 17

8,054,757,500

8,157,477,000

35

Letters of Guarantee Irrevocable Letters of Credit Bills for Collection Other Contingent Liabilities Total Other Commitments Documentary credits and short term trade related transactions Forward assets purchased and forward deposits placed Undrawn note issuance and revolving underwriting facilities Undrawn formal standby facilities, credit lines and other commitments Total Total Off-Balance Sheet Items Including Contingent Liabilities (A+B)

17.1 17.2 17.3 17.4 B

4,161,302,647 8,546,632,687 56,785,690 937,694,607 21,757,173,131

3,640,902,808 7,281,346,277 73,305,882 764,829,154 19,917,861,121

21,757,173,131

19,917,861,121

These Financial Statements should be read in conjunction with the annexed notes (1 to 38)

36

Profit and Loss Account For the year ended December 31, 2009
Notes Interest Income Less : Interest Paid on Deposits, Borrowings etc. Net Interest Income Investment Income Commission, Exchange and Brokerage Other Operating Income Total Operating Income Salaries and Allowances Rent, Taxes, Insurance, Electricity, etc. Legal Expenses Postage, Stamps, Telecommunication etc. Stationery, Printings, Advertisements etc. Chief Executive's Salary and Fees Directors' fees Auditors' Fees Depreciation & Repair of Fixed Assets Other expenses Total Operating Expenses Profit before Provision Provision against Classified Loans Provision against Unclassified Loans Other Provisions Total Provisions Total Profit before Taxes Provision for Taxation Net Profit after Taxation Retained Surplus brought forward from previous year Appropriations Statutory Reserve Retained Surplus Earning Per Share (EPS) 29 These Financial Statements should be read in conjunction with the annexed notes (1 to 38) 18.1 19 18.4 20 21 2009 (BDT) 6,066,171,939 4,755,901,859 1,310,270,080 696,663,198 1,059,887,629 425,089,853 2,181,640,680 3,491,910,760 807,198,037 184,168,069 7,994,350 27,205,921 82,341,385 6,450,000 4,055,400 709,000 96,423,954 363,666,775 1,580,212,891 1,911,697,869 159,621,000 80,300,000 9,000,000 248,921,000 1,662,776,869 855,260,000 807,516,869 2,076,907 809,593,776 332,540,000 477,053,776 809,593,776 37.41 2008 (BDT) 5,106,008,463 4,045,970,142 1,060,038,321 520,333,916 917,199,841 333,960,039 1,771,493,796 2,831,532,117 611,587,111 155,724,646 5 ,045,236 27,045,459 6 3,499,399 6 ,450,000 2 ,163,600 500,000 74,617,737 303,383,441 1,250,016,629 1,581,515,488 117,958,107 77,174,000 104,700,000 299,832,107 1,281,683,381 665,800,000 615,883,381 2,266,026 6 18,149,407 256,337,000 361,812,407 618,149,407 28.53

23 24 25

26 23.1 22 27 28

12.5 12.5 12.5

12.4

Financial Highlights
Highlights for the year 2009 and 2008 (BDT in millions)
SL NO. 1 2 Paid-up Capital Total Capital Fund PARTICULARS 2009 2,158.42 4,995.43 2008 1,798.68 3,387.17

37

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Capital Surplus/Deficit Total Assets Total Deposits Total Loans and Advances Total Contingent Liabilities and Commitments Credit Deposit Ratio (in %) Percentage of Classified Loans against Total Loans and Advances (in %) Profit after Tax and Provision Amount of Classified Loans during the year Provision kept against Classified Loans Provision Surplus Cost of Fund (in %) Interest Earning Assets Non-interest Earning Assets Return on Investments (ROI) (in %) Return on Assets (ROA) (in %) Income from Investments Earning Per Share (BDT) Net Income Per Share (BDT) Price Earning Ratio (approximate)

226.86 66,166.52 58,033.47 48,295.55 21,757.17 83.22 2.59 807.52 261.24 629.70 1.09 8.81 57,471.28 8,695.24 8.75 1.22 696.66 37.41 37.41 11 Times

120.41 55,928.72 49,538.35 43,419.36 1 9,917.86 87.65 2.96 615.88 348.47 5 78.20 9.19 4 9,941.85 5,986.87 10.46 1.10 520.33 28.53 28.53 12 Times

38

CASH FLOW STATEMENT Mercantile Bank Limited For the year ended December 31, 2009
2009 (BDT) A. Cash Flows From Operating Activities Interest Received Interest Paid Fees and Commission Received Payment to the Employees Payment to suppliers Income Tax Paid Received from other operating activities Exchange Gain Other Operating Income Payment for other operating activities Rent, Taxes, Insurances and Electricity Legal Expanses Postage, Stamps and Telecommunication Auditors' Fees Repair and Maintenance Chief Executive's Salary and Fees Directors' Fees Other Expenses Operating profit before changes in Operating Assets and Liabilities Increase / Decrease in Operating Assets and Liabilities Loans and Advances to other Banks Loans and Advances to Customers Other Assets (Item-wise) Advance Deposits Stock of Stationery Suspense Account Stamps in Hand Advance Rent Excise Duty Clearing Adjustment DD paid without advice Premium on Bond Mercantile Bank General Account Adjusting Account Debit Deposit from other Banks Deposit from Customers Other Liabilities on account of Customers Other Liabilities Net Cash Received from Operating Activities Cash Flows From Investing Activities Sale proceeds of Fixed Assets Dividend Received Purchase/Sale of Property, Plant and Equipment Purchase/Sale of Shares (4,674,471,704) (375,768,145) ( 138,572) (3,349,021) (246,553,307) (98,143) (56,804,386) (5,687,684) ( 907,421) (62,229,611) (483,499,279) 9,780,256,481 1,858,866,802 7,795,976,977 7,590,576 (269,834,977) (148,225,421) (5,316,085,710) (325,165,611) (1,000,588) (10,414,961) (23,985,407) (881,385) (88,559,508) 42,400 (240,000) (200,126,162) 1,552,075,000 4,194,277,066 26,251,607 1,802,474,929 501,877 2,457,119 (154,376,501) 215,272,192 6,539,977,880 (4,154,550,199) 488,656,221 (807,198,037) (82,233,119) (687,994,874) 1,001,161,940 571,157,810 430,004,130 (607,226,990) (181,530,859) (7,994,350) (26,386,862) ( 709,000) (16,433,744) (6,450,000) (4,055,400) (363,666,775) 1,690,592,822 2008 (BDT) 5,423,137,314 (3,424,865,486) 459,036,752 (486,587,111) (63,499,399) (638,616,891) 788,994,91 458,155,089 330,839,823 (386,477,514) (154,613,531) (5,045,236) (27,045,459) (500,000) (11,329,772) (6,450,000) (2,163,600) (179,329,916) 1,671,122,577

B.

39

C.

Other Investment activities Net Cash from Investing Activities Cash Flows from Financing Activities Receipts from Issue of Loan Capital & Debt Securities Paid for Repayment of Loan and Debt Securities Received by Issue of Share Dividend Paid Net Cash from Financing Activities Net Increase/(Decrease) of Cash and Cash Equivalent (A+B+C) Effect of Exchange Rate Changes on Cash & Cash Equivalent

(2,784,895,223) (3,195,365,045) 4,600,611,932

(805,427,081) (741,572,394) 1,060,902,535

E F

Opening Cash & Cash Equivalent Closing Cash & Cash Equivalent (D+E)*

10,383,138,278 14,983,750,210

9,322,235,743 10,383,138,278

These Financial Statements should be read in conjunction with the annexed notes (1 to 38)

40