Report Body 3

Dhaka International University
The Excellent Central of Knowledge

THE OVERALL BANKING ACTIVITIES OF MERCANTILE BANK LIMITED

1 | P a g e
CHAPTER: 1
1. Introduction
1.1 Origin of the Study
1.2 Scope of the Study
1.3 Objective of the Study
1.4 Methodology of the Report
1.5 Limitation

1. Introduction
Modern banks play an important part in promoting economic development of a country.
Bank provides necessary funds for executing various programmers underway in the
process of economic development. They collect savings of large masses of people
scattered throughout the country, which in the absence of the banks would have remained
ideal and unproductive. These scattered amounts are collected, pooled together and made
available to commerce in industry for meeting the requirements.
Economy of Bangladesh is in the group of worlds most underdeveloped economies. One
of the reasons may be its underdeveloped banking system. Government as well as different
international organizations have also identified that underdeveloped banking system
causes some obstacles to the process of economic development. So they have highly
recommended for reforming financial sector.
Banks are becoming more important to the economy as a whole and to local communities
day by day. Certainly banks can be identified by the functions (service or role) they
perform in the economy. Bank is a financial intermediary accepting deposits and granting
loans; offers the widest menu of services of any financial institution. Banks are the most
important financial institution in the economy. They are the principle sources of credit
(loanable funds) for millions of individuals and families for many units of the government.
Banks are also closely watched because of their power to create money in the form of
easily spend able deposits by making loans and investment. Changing in the volume of
money created by banks appears to be closely correlated with economic conditions,
especially the growth of jobs and the presence of absence of inflation. The fact that banks
creates money, which impacts the vitality of the economy. Bank provides individuals and
business with loans that support consumption and investment spending.
Financial Institution perform the essential economic function of channeling funds from
people who have saved surplus funds by spending less than their income to people who
have a shortage of funds because they wish to spend more than their income. The
channeling of fund from savers to spenders is so important to the economy because people
who save are frequently not the same people who have profitable investment opportunities
available to them. The absence of financial market individual lender and investor/

2 | P a g e

borrower can not get together. Without a financial market it is hard transfer funds from
savers to investors/borrower. Financial intermediaries i.e. Depository Institutions like
Commercial Banks, Savings and Loan Associations, and Credit Institutions. It mainly
consists of export, import and other foreign remittance. Direct Investment, export, import
and foreign remittance etc. play an important role in a developing economy. There is a
great opportunity to invest the foreign remittance, which also comes from "wage earners"
working abroad, in several prospective investing fields like energy sector,
telecommunication, information technology etc in our economy.
Measured by total assets, commercial banks are the most important financial intermediary.
Like other financial intermediaries, they perform a critical function of facilitating the flow
of funds from surplus units to deficit units. Commercial banks basically focused on
commercial lending. From the end of 19
th
century they are providing diversified services.
Commercial banks have different sections such as section focusing on lending; a section
helps in foreign trade, a section that collects deposits. This study more or less relates with
all the sections of the activities of Mercantile Bank Limited.
With the globalization and technological innovation in the, banking business has become
competitive. To cope up with this, bankers should have vast theoretical knowledge and
professional knowledge as well as technical basic. MBA is one of the professional degree,
is to provide students with the practical aspect of learning to the organizational setting. For
the attainment of that purpose curriculum and syllabus is designed in a manner so that
students are facilitated to have practical or empirical experience to some extent. As an
MBA student of Stamford University Bangladesh, with major in Finance, I felt financial
institution was my destiny to gather the real practical knowledge. With a view to develop
skilled professional in that area, the internship-training program for MBA students is
mandatory. For that consequence I prefer my internship program in the banking sector and
the organization is the Mercantile Bank Limited.

3 | P a g e

1.1 Origin of the Study
To supply well-versed graduates Stamford University Bangladesh is conducting MBA
program with good reputation. Each of the professional degree needs practical knowledge
of respective field of discipline to be fruitful. To complete MBA program also has an
internship, relating to the exchange of theoretical knowledge into the real life practical
situation. The main purpose of the preparation of the report is due to the partial fulfillment
of the internship program conducted by the Department of Business Administration,
Stamford University Bangladesh.
During the Internship Program, I am under the supervision and guidance of Umme Hanna
Airin Ara, Lecturer, Department of Business Administration, Stamford University
Bangladesh assigned to prepare a report about particular topic among some option which
should be relevant to my practical knowledge within these 3(three) months trimester MBA
program. To fulfillment of the internship program the report is originated entitled The
Overall Banking Activities of Mercantile Bank Limited.
1.2 Scope of the study
The study encompasses the overall banking activities, management, organizational
structure, credit facilities & Foreign Exchange Division of MBL .That is the report mainly
focuses on the overall operation of the Mercantile Bank Limited.
The report highlighted the overall banking activities and performance in the sector of
finance and its impact on the overall economy of the country that means the report is
mainly concern with the financial achievement of Mercantile Bank Limited
1.3 Objective of the Study
General Objective
The General Objective is to prepare & submit a report on the topic The Overall Banking
Activities of Mercantile Bank Limited.
Specific Objective
+ The main objective of the study is to get a clear idea about the Banks and how it runs
and what functions it does.

4 | P a g e

+ To know about the Overall Banking System.
+ To examine the profitability and productivity of the Bank.
+ To familiarize rules and regulation approval of loans and advance procedures.
+ To analyze the banks sources of the funds and how it is collected.
+ To identify the sector where MBL provide the credit facility like: Trade and business,
import, export, garments, fisheries, real estate and micro credit programs thats the
primary parameter of a countrys economic cycle.
+ To analyze the financing systems of the Bank and find out whether the bank needs any
improvement to be done and make greater contribution towards the country's
economy.
1.4 Methodology of the Report
Methodology includes direct observation, face-to-face discussion with employees of
different departments, study of files, circulars, etc. and practical work. In preparing this
report both primary and secondary sources of information have been used.
The primary sources are-
For collecting primary data, I had to ask with the respective officer(s), others like:
O Face to face conversation with the officer
O Exposure on different desk of the bank
O File study
O Personal observation
The secondary sources are-
O Annual Report of Mercantile Bank Ltd.
O Periodicals published by the Bangladesh Bank.
O Different publications regarding banking functions, Operation Manual etc.
1.5 Limitation
Although I have received co-operation from concerning body but most of the time they
were busy with their work thats why, I did not get so many time as I would like to have.
The administration authority, management policy and decision making policy is in the
hand of Head Office. As an MBA student it is needed to gather the experience that how to

5 | P a g e

take the decision when the bank fall into a plan and what its management policy, how to
set up their portfolio, what is their business strategy but a branch does not do so.
The following limitations are apparent in the report:
Time is the first limitation as the duration of the program is very few only.
Another limitation of the report of Bank policy is not disclosing some data and
information for obvious reason which could be very much useful.
It requires lot of assistance from all level officers and staff but as a bank the officer
was busy in doing their jobs.

6 | P a g e

INDUSTRIAL & ORGANIZATIONAL
OVERVIEW

7 | P a g e
CHAPTER: 2
2.1 Introduction
2.2 Banking industry in Bangladesh and its operation
2.3 Organizational Overview of MBL
2.4 Operating and Financial Performance
2.5 Products & Services
2.6 Others

2.1 Introduction
This chapter discusses the overview of the banking sector which gives us a better
understanding regarding the ancient banking and modern banking. After all that deals with
the organizational overview which includes the history, vision, and mission.
A bank is a financial institution whose main objective is the mobilization of fund from the
surplus unit to deficit unit. In the process of acceptance of deposits and provision of loan,
Bank creates money. This characteristics feature sets bank apart from other financial
institutions. A bank is an economic institution whose main objective is to earn profit
through exchange of money and credit instrument.

2.2 Banking industry in Bangladesh and its operation
Bank is very old institution that is contributing toward the development of any economy
and is treated as an important service industry in modern world. Now a day the function of
bank is not limited to with in the same geographical limit of any country. Due to
globalization and free market economy, this industry is facing severe competition in any
country and implementation of WTO will further increase competition. The overall
performance of Bank does not only depend upon the banking industry itself but also on the
performance of economy where it is operating.
After the birth of Pakistan in 1947, the State Bank of Pakistan, the central bank of the
country, came into being in 1948. Later, the National Bank of Pakistan, a commercial
bank was set up in 1949. In all, 36 scheduled commercial banks were in operation
throughout Pakistan. Pakistanis owned most of these banks. Only three of them, namely,
National Bank of Pakistan, Habib Bank, and the Australasia Bank had a branch in East
Pakistan in 1949. During 1950-58, three other Pakistani-owned banks, the Premier Bank,
Bank of Bawalpur and Muslim Commercial Bank had opened branch offices in East
Pakistan. Four Pakistani-owned banks, the United Bank, Union Bank, Standard Bank and
Commerce Bank conducted business in the province during 1959 - 1965. The province
had only two banks owned by local business groups and with headquarters at Dhaka, the
Eastern Mercantile Bank (now PUBALI BANK) and Eastern Banking Corporation (now UTTARA
BANK), established in 1959 and 1965 respectively.

8 | P a g e

The banking system in the territory of Bangladesh grew slowly during the British and
Pakistan periods. There were only 25 bank branches in 1901 and the number grew to 668
in 1946. Creation of Pakistan was a deterrent in the sector as was evidenced by the closure
of bank branches, which came down to 148 in 1950. In 1965, the number rose again to
545. Subsequent years, however, showed dramatic changes in the situation and the number
of bank branches increased to 1,025 in 1970. The banking system in Bangladesh started
functioning with 1,130 branches of 12 banks inherited from Pakistan. Subsequently, these
banks were nationalised and renamed after being merged into six banks. The new names
of the banks were the SONALI BANK (The National Bank of Pakistan, The Bank of Bawalpur,
The Premier Bank), AGRANI BANK (Habib Bank, Commerce Bank), JANATA BANK (United
Bank, Union Bank), RUPALI BANK (Muslim Commercial Bank, Standard Bank), PUBALI BANK
(Australasia Bank, Eastern Mercantile Bank) and UTTARA BANK (Eastern Banking
Corporation).
Banking Operation in Bangladesh
The development process of a country largely depends upon its economic activities.
Banking is a powerful medium among other spheres of modern socio-economic activities
for bringing about socio-economic changes in a developing country like Bangladesh.
Three different sectors like Agricultural, Commerce and Industry provide the bulk of a
countrys wealth. The nourishment of these three is only possible through an adequate
banking facility. The banking service facilitates these three to be integrated in a concerted
way. For a rapid economic growth a fully developed economic system can provide the
necessary boost. The whole economy of a country linked up with its banking system.
With the passage of time the functions of a bank, lending is far by the most important.
They provide both longterm and short-term credit. The customers come from all walks of
life, from a small business of a multi-national corporation having its business activities all
around of the world. The banks have to satisfy the requirements of different customers
belonging to different social groups.
Banks particularly have a very important role in raising of the financial resources because
of their capacity to tap resources from a wider spectrum of people and diversified nature of
their operations. The banking business has therefore, become complex and requires

9 | P a g e

specialized skills. They function as a catalytic agent for bringing about social, economical,
industrial, and agricultural growth and prosperity of the country.
Banks are the custodians of the societys economic resources and if they are socialized, the
socialistic government can acquire with them a tremendous power of intervention in every
type of business enterprise, both large and small and wide spread power of control and
planning over the entire economy. In our country where about 80% of the population lives
below the poverty line, this poverty line can be declined by the success of banks. So bank
plays an active role in the economic development, as a result different types of banks have
come into existence to suit the specific requirements.
I regardless the numbers of bank nature of their functions and activities, a central bank
exists to regulate the activities of other banks. All the commercial private/ nationalized/
specialized banks perform service related activities within the jurisdiction of the central
bank. In our country, Bangladesh, the role of the central bank is entitled to be executed by
the Bangladesh Bank.
BANGLADESH BANK, the central bank of the country, was set up on 16 December 1971 by the
Bangladesh Bank Order 1972. The government accepted the assets and liabilities of the
Deputy Governor's office of the State Bank of Pakistan in Dhaka and declared the
Bangladesh Bank as a fully effective and permanent central bank.
To conduct banking in Bangladesh, all banks have to have licenses from the Bangladesh
Bank under the Bank Companies Act 1991. To be able to get a license, all intending banks
have to be registered with the Registrar of Joint Stock Companies under the COMPANIES ACT
1994, and collect Certificate of Incorporation. Moreover, to collect capital through public
offerings of shares, intending banks have to obtain permission from the country's SECURITIES
AND EXCHANGE COMMISSION.
Banking institutions in Bangladesh can be classified under different groups. Most banks
fall under the category of branch banking i.e. the banks operate through branches at home
and abroad under the control of their head offices. Foreign branches of Bangladeshi banks
have to abide by home country regulations. Under the ownership-based classification,

10 | P a g e

banks in Bangladesh are classified as government/nationalized, private, foreign, and joint
ownership banks. The country had 6 (Six) nationalized commercial banks (NCB) until
1983, when one of them, the Rupali Bank was denationalized. Another government bank,
the Pubali Bank, was denationalized in 1986.
Domestic private banks are the International Finance and Investment Bank (IFIC BANK, estd.
1976), ISLAMI BANK BANGLADESH (1983), UNITED COMMERCIAL BANK (1983), CITY BANK (1983),
NATIONAL BANK (1983), ARAB BANGLADESH BANK (1985), AL BARAKA BANK (1987), EASTERN BANK
(1992), NATIONAL CREDIT AND COMMERCE BANK (1993), PRIME BANK (1995), SOUTH-EAST BANK
(1995), DHAKA BANK (1995), AL-ARAFAH ISLAMI BANK (1995), SOCIAL INVESTMENT BANK 1995),
PREMIER BANK (1996), DUTCH-BANGLA BANK (1996), MERCANTILE BANK (1999), STANDARD BANK
(1999), ONE BANK (1999), EXPORT IMPORT BANK (1999), BANGLADESH COMMERCE BANK (1999),
MUTUAL TRUST BANK (1999), TRUST BANK (1999), BANK ASIA (1999) and FIRST SECURITY BANK
(1999). The three NCBs now operating in the country are the Sonali Bank, Janata Bank
and Agrani Bank. There is a special group of nationalized banks known as specialized or
development financial institutions to support specific economic purposes of the country.
These include two for agricultural development, the BANGLADESH KRISHI BANK (estd. 1973)
and RAJSHAHI KRISHI UNNAYAN BANK (estd. in 1987 with branches of Bangladesh Krishi Bank
in Rajshahi division), one for industrial development, the BANGLADESH SHILPA BANK (estd.
1972) and one for supporting unemployed youths in their self-employment activities, the
EMPLOYMENT BANK (estd.1997). The country has a Co-operative Bank established in 1948, as
the apex institution of all co-operative societies in Bangladesh. The main function of this
bank is to mobilize small savings and assist members of co-operative societies to build up
capital and provide them with loan/financial assistance for the development of
AGRICULTURE, commerce, fisheries, urban and rural cottage industries, etc. It also provides
loan to promote other income generating activities in the society.
Foreign private banks which have branches in Bangladesh are the STANDARD CHARTERED
GRINDLAYS BANK, AMERICAN EXPRESS BANK, STANDARD CHARTERED BANK, STATE BANK OF INDIA, CREDIT
AGRICOLE INDOSUEZ, Hongkong and Shanghai Banking Corporation (HSBC), NATIONAL BANK OF
PAKISTAN, CITIBANK N A, HABIB BANK, and HANVIT BANK.
Some branches of both nationalized and private commercial banks have been permitted to
conduct FOREIGN EXCHANGE business under the Foreign Exchange Regulation Act 1947.

11 | P a g e

Such banks are called authorized dealers and their club or association bears the name
BAFEDA - Bangladesh Foreign Exchange Dealers Association. Apart from the authorized
dealers, more than 400 Money Changers throughout the country are engaged in buying
and selling of foreign exchange.
Depending upon the relationship with and the degree of control of the Bangladesh Bank
banks in Bangladesh are divided into scheduled and non-scheduled banks. Scheduled
banks are enlisted by the Bangladesh Bank under the provisions of section 37 of the
Bangladesh Bank Order 1972. They are promise bound to obey central bank instructions,
rules and regulations especially, those relating to required capital and provisions, statutory
liquidity reserves, audited returns etc. Through scheduling, banks gain special status and
enjoy some special facilities from the central bank such as re-discounting, participation in
the money market, membership of the clearing house and deposit insurance scheme. Non-
scheduled banks do not enjoy such privilege. The list of non-scheduled banks in
Bangladesh includes the Eden Bank, Saidpur Commercial Bank, Comilla Co-operative
Bank, Dinajpur Industrial Bank, Rajshahi Bank, Shankar Bank, Faridpur Banking
Corporation and Madaripur Commercial Bank.
Banks in Bangladesh have correspondent relationship with other banks in foreign
countries in order to sell their services or to purchase services from them.
Although only three in number, nationalized commercial banks dominate banking
activities in the country, especially the mobilization of deposits and making advances.
Their share in total bank deposits on 31 March 2000 was 57.28%, while that of domestic
private banks, foreign private banks, and the specialized banks was 29.01%, 8.42% and
5.29% respectively. The share of NCBs, domestic private banks, foreign private banks and
specialized banks in advances on the same date was 51.66%, 29.25%, 6.03% and 13.06%
respectively.
Laws that directly regulate the banking system of Bangladesh are: Bangladesh Bank Order
1972; Bank Company Act, 1991; Bangladesh Bank (Nationalization) Order 1972;
Companies Act 1913 and 1994; Deposit Insurance Order 1984; Bankruptcy Act 1997;
Insolvency Act 1920; Financial Court Act 1990; Foreign Exchange (Regulation) Act

12 | P a g e

1986; Financial Institutions Act 1993; Financial Institutions Rules 1994; and Co-operative
Societies Ordinance 1984.
Laws that indirectly influence the banking system and for which references are made in
the Banking Company Act 1991 are: Code of Civil Procedure 1898; Code of Criminal
Procedure 1898; Evidence Act 1872; General Clauses Act 1897; Limitations Act 1908;
Negotiable Instruments Act 1881; Penal Code 1860; Trust Act 1882; Transfer of Property
Act; and Bangladesh Chartered Accountant Order 1973.
Figure 1: Banking Operation under BB
Sources: Chowdhry, L.R. (2002, 2
nd
edition), A Text Book On Banker Advances

13 | P a g e
Bangladesh Bank
Commercial Bank
Specialized Bank and Credit
Agents
Co-operative Banks
Nationalized
bank
Private
Bank
Foreign
Bank
Traditional
Bank
Islamic Bank
BKB RAKUB BSB BSRS
BSBL
CCBL
PSC
BASIC Grameen
Bank
Karmasanghtan
Bank
Ansar-VDP
Unnayan Bank

Some words used as a abbreviate form in the diagram are:
BKB - Bangladesh Krishi Bank
RAKUB- Rajshahi Krishi Unnayan Bank
BSB- Bangladesh Shilpa Bank
BSRS- Bangladesh Shilpa Rin Shangshta
BASIC- Bangladesh Small Industries & Commerce.
BSBL- Bangladesh Samabaya Bank Ltd.
CCBL- Central Co-operative Bank Ltd.
PCS- Primary Cooperative Socites.
2.3 Organizational Overview of MBL
2.3.1 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 Authorized Capital of the Bank is Tk. 3000
million and the Paid-up Capital is Tk. 1199.12 million.
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.
Mercantile Bank Limited is a scheduled private commercial Bank established on May 20,
1999 under the Bank Company Act, 1991 and incorporated as a Public Limited Company
under Companies Act, 1994. The Bank started commercial Banking operations from June
02, 1999. From then with in a short time MBL established itself in a strong position in the
economy of the country. It has earned significant reputation in the countrys Banking
sector as Bank and created a wide image in the eye of the people.
The dream of creating MBL, which is A Bank of 21
st
Century, has become successful
because of the initiative of some persons who are the sponsors of MBL. There are 30
sponsors in Mercantile Bank Limited and all of them are highly regarded for their
entrepreneurial competence.

14 | P a g e

2.3.2 Approach of MBL
The aim of Mercantile Bank Limited is to become a leading Bank of the 3
rd
generation by
providing better service to the clients along with other quality operations in Private
Banking Sector. The bank has some mission to achieve the organizational goals. This are-
+ MBL intend to provide the better service for the customer.
+ MBL intend to provide the good return for their respectable shareholders.
+ MBL work as medium of exchange on behalf of their potential clients.
+ MBL is much responsive in case of provide the optimum benefit of the customers.
+ MBL is always concentrated to enhance the competitive advantages by upgrading
banking technologies and information system.
+ MBL believes in discipline growth strategy.
+ MBL always encourages investors to boost up the share market.
+ MBL maintain high standard of corporate and business ethics.
+ MBL intends to play more important role in the economic development of
Bangladesh and its financial relations with the rest of the world through
international trade.
There are also other missions of MBL, which are also plays significant role to reach the
ultimate target.
2.3.3 Objectives & Goal of Mercantile Bank Limited
+ MBL is always ready to maintain the highest quality to services by upgrading
banking technology prudence in management and by applying high standard of
business ethics through its established commitment and heritage.
+ MBL is committed to ensure its contribution to national economy by increasing its
profitability through professional and disciplined growth strategy for its customer
and by creating corporate culture in international banking arena.
+ The objective of MBL is not only to earn profit but also to keep the social
commitment and to ensure its co-operation to the person of all level, to the
businessman, industrialist-specially who are engaged in establishing large-scale
industry by consortium and the agro-based export oriented medium & small-scale
industries by self-inspiration.

15 | P a g e

+ MBL, one of the renowned private banks is committed to continue its endeavor by
rapidly increasing the investment of honorable shareholders into assets.
+ MBL believes in building up strong-based capitalization of the country.
+ MBL is committed to continue its activities in the new horizon of business with a
view to developing service oriented industry and culture of morality and its
maintenance in banking.
+ MBL is always pre-occupied to encourage the inventors for purchasing its share by
creating the opportunity of long-term investment and increasing the value of share
through prosperity as developed day by day.
+ MBL is playing a vital role in Socio-economic development of Bangladesh by way
of linkage with rest of the world by developing worldwide network in domestic
and international operations.

2.3.4 Features of Mercantile Bank Limited
There are so many reasons behind the better performance of Mercantile Bank Limited than
any other newly established banks:
+ Highly qualified and efficient professionals manage the bank.
+ Mercantile Bank Limited has established a core Research & Planning Division
with efficient persons.
+ The bank has established correspondent relationship with 102 of foreign banks.
+ The computerized operation system in all branches of MBL has provided the
frequent and prompt customer service.
+ The strict leadership along with the supervision of efficient management directs all
the branches.
+ The inner environment and team work, of all branches in MBL motivated all
experienced employees to achieve the ultimate objective of MBL.
+ Mercantile Bank Limited has become a member of the SWIFT system to expedite
foreign trade transaction.
+ Mercantile Bank Limited has become introduced some scheme for the purpose of
saving of low income people which are not available in other banks like Ajebon
Pension Scheme.
+ The Bank offer attractive saving rate than other financial institutes.

16 | P a g e

+ Mercantile Bank Limited provides loan to the customers at lower interest with easy
& flexible condition than the others do.
+ Along with the profit generation Mercantile Bank Limited also maintain social
responsibilities.
+ Mercantile Bank Limited changes lower commission from their customer in
comparison with other banks.
+ The Bank always guided their potential customers by giving valuable advise.

17 | P a g e

2.3.5 The Corporate Structure
Board of Directors
Board of Directors, the apex body of the Bank, formulates policy guidelines,
provides strategic planning and supervises business and performance of
management while the Board remains accountable to the company and its
shareholders. The Board is assisted by the Executive Committee and Audit
Committee
Board of Directors
Md. Abdul Jalil, Chairman
Tazneen Aman
Israt Jahan
Farida Begum
A. K. M. Shaheed Reza
Md. Mizanur Rahman Chowdhury
M S Ahsan
Bilkis Begum
Al-Haj S. M. Shakil Akhter
Md. Tabibul Huq
Saber Hossain Chowdhury
Dewan Mujibur Rahman
Audit Committee
A. K. M. Shaheed Reza
Md. Mizanur Rahman Chowdhury
Bilkis Begum
Managing Director & CEO
Executive Committee
Al-Haj S. M. Shakil Akhter
Taznin Aman
Israt Jahan
Farida Begum
M S Ahsan
Al-Haj Mosharref Hossain
Md. Tabibul Huq
A. S. M. Feroz Alam
Saber Hossain Chowdhury
Company Secretary
S.Q. Bazlur Rashid
Auditors
Khan Wahab Shafique Rahman & Co.
Chartered Accountants
Syful Shamsul Alam & Co.
Tax Advisor
K M Hasan & Co.

18 | P a g e

2.3.6 Management Structure
Figure 2: Management Structure of MBL

19 | P a g e
Managing Director and CEO
Additional Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
First Vice President
Assistant Vice President
First Assistant Vice President
Principle Officer
Senior Executive Officer
Executive Officer
Assistant Officer

2.3.7 Function of Mercantile Bank Limited
The functions of commercial Banks are now wide and varied. However, the functions of
Mercantile Bank Ltd. may broadly be classified under the following two categories-
A. Primary Functions; and
B. Secondary Functions
A. Primary Functions
The primary functions of Mercantile Bank Limited are same as other Commercial Banks.
These functions includes-
i. Accepts deposits;
ii. Lends money;
iii. Creates credit;
iv. Creates medium of exchange.
i. Accepts Deposits
The first primary functions of bank are to accept deposits of money from the public
or savers group. The total deposits held by the banker are broadly classified as-
a) Demand deposits
Demand deposits are withdraw able on demand and thus no
Prior notice is needed. Deposits in Current Account and Savings Accounts fall
in this category.
b) Time deposits
Time deposits are repayable on the expiry of a fixed period of time only. Fixed
Deposit Accounts, Recurring Deposit Accounts and deposits payable at
specified notice fall in this category.
The banks usually pay interest on all types of deposit accounts except the
current accounts.
ii. Lends Money
Banking business essentially involves lending. In fact the deposits are accepted for
lending or investment. Depending on the requirements of the borrower, banks lend
money in the forms following-
a) Loans

20 | P a g e

b) Overdraft
c) Cash credit and
d) Bills purchased & discounted
iii. Creates Credit/Money
The creation of credit is one of the important functions of Commercial Banks. In
the ordinary course of business, banks accept deposits from the public and lend
money to its customers. When a bank extends loan, it does not pay the amount in
cash. Rather, the bank credits the amount in the bank account of the borrower and
allows withdrawing the required amount by cheques. In this way, a bank creates
credit or deposits, which are regarded as money and can be used for the purchase
goods and services and also for the payment of debt just like currency notes.
iv. Creation of Medium of Exchange
Commercial Banks usually issues cheque, which circulates like money in the
society and thus creates the medium of exchange.
B. Secondary Functions
Modern commercial Banks like MBL, besides performing the functions, cover a wide
range of financial and on-financial services to meet the growing needs of the time. Some
of these services are available only to the customers while others are available to the
public in general.
The subsidiary services provided by a modern banker may be classified into following
three groups-
i. Agency Services; and
ii. Generally Utility Services
iii. Foreign Exchange Business

21 | P a g e

2.4 Operating and Financial Performance
2.4.1 Branch Information
Figure 3: Site Map

22 | P a g e

Head Office
61, Dilkusha Commercial Area
Dhaka-1000, Bangladesh
Tel: +880-2-9559333, 01711-535960
Fax: +880-2-9561213
SWIFT: MBLBBDDH
Website: www.mblbd.com
Main Branch
61, Dilkusha Commercial Area
Dhaka-1000, Bangladesh
Tel: +880-2-9559333, 9571618, 01711-535961,
01711-643281, 01713-044847
Fax: +880-2-9554410
SWIFT: MBLBBDDH
Dhaka Division
- Dhanmondi Branch
- Karwan Bazar Branch
- Joypara Branch
- Banani Branch
- Board Bazar Branch
- Nayabazar Branch
- Mohakhali Branch
- Mirpur Branch
- Ashulia Branch
- Uttara Branch
- Elephant Road Branch
- Motijheel Branch
- Satmasjit Road Branch
- Konabari Branch
- Gulshan Branch
- Hemayetpur Branch
- Bijoynagar Branch
- Mogbazar Branch
Chittagong Division
- Agrabad Branch
- Khatunganj Branch
- Jubilee Road Branch
- Madam Bibir Hat Branch
- Jhilogja Branch
- O R Nizam Road Branch
- Chowmohani Branch
- Feni Branch
Rajshahi Division

23 | P a g e

- Rajshahi Branch
- Naogaon Branch
- Rangpur Branch
- Bogra Branch
- Sapahar Branch
Khulna Division
- Khulna Branch
Sylhet Division
- Sylhet Branch
- Moulvibazar Branch
Barishal Division
- Recently a branch opened in Barishal Division
2.4.2 Resources
1. Deposit Scheme
Monthly Savings Scheme
Family Maintenance Deposit
Double Benefit Deposit Scheme
Special Savings Scheme
Pension and Family Support Deposit
2. Consumers' Credit Scheme
Small Loan Scheme
Lease Finance
Doctors' Credit Scheme
Rural Development Scheme
Women Entrepreneurs Development Scheme
SME Financing Scheme
Personal Loan Scheme
Car Loan Scheme

24 | P a g e

2.4.3 Performance of MBL-At a Glance
Table 1: MBL at a glance
(BDT in million)
Particulars 2002 2003 2004 2005
Authorized Capital 1200.00 1200.00 1200.00 1200.00
Paid-up Capital 319.77 639.53 799.41 999.27
Assets 16383.17 18324.73 24098.09 28890.48
Deposits 15150.42 16285.19 22385.19 25727.43
Advances 8896.19 10775.95 17669.29 21857.05
Import 15112.50 20380.80 28325.20 33271.90
Export 11377.30 15250.60 17411.00 24108.57
Profit after tax 256.74 215.91 312.58 386.83
No. of Branches 15 20 25 28
No. of Employees 363 492 544 663
Source: Annual Report 2005 of MBL
2.4.4 Financial Position
ASSET PORTFOLIO
Table 2: Asset Portfolio of MBL

Year-2005 (BDT in Million)
Components Amount % of Total
Loans and Advances 21,857.05 75.65
Investments 3,517.68 12.18
Cash 1,878.41 6.50
Money at Call and Short Notice 625.00 2.16
Balances with other Banks 118.19 0.41
Other Assets 894.15 3.10
Total 28,890.48 100.00

25 | P a g e
Asset Portfolio
76%
12%
7%
2%
0%
3%
Loans andAdvances
Investments
Cash
Money at Call and Short
Notice
Balances with other
Banks
Other Assets

Figure 4: Asset Portfolio of MBL
2.4.5 Comparative Statement of Income & Expenditure
Comparative Income position of the Company for the year ended on 31 December 2004
and 2005 are as follows:
Table 3: Income Description of MBL
Description 2004 2005
Interest Discount and similar Income 2,191,648,398 2,595,262,904
Fees, Commission and Brokerage 217,146,130 300, 611, 339
Gain less losses arising from Dealing
Securities
268,210,909 259,202,408
Other Operating Income 94,289,760 192,323,014
Profit less losses on interest rate changes (30,997,398) 82,610,516
Total 2,740,297,799 3,430,010,181
A comparative expenditure position of the Company for the year ended on 31 December
2004 and 2005 are as follows:
Table 4: Expenditure Description of MBL
Description 2004 2005
Interest Fees and Commission 1,531,630,250 1,944,655,065
Administrative Expenses 214,607, 313 280, 405, 091
Other Operating Expenses 156,932,684 214,312,000
Depreciation on Banking Assets 15,366,126 23,404,125
Total 1,918,536,373 2,462,776,281
2.4.6 Net Profit
As of December 31, 2005 the MBL earns at amount to Tk. 386.83 million. During the
period of 2004 the profit was Tk. 312.58 million. So the profit of 2005 is increased than
2004.
2.4.7 Financial Highlights

26 | P a g e

Highlights on the overall financial activities of Mercantile Bank Limited for the year 2006
and 2005.
Table 5: Financial Highlights
(BDT in million)
SL
NO.
PARTICULARS 2006 2005
1 Paid-up Capital 1,199.12 999.27
2 Total Capital Fund 2,554.29 2,045.85
3 Capital Surplus/Deficit 401.50 273.47
4 Total Assets 37,159.65 28,890.48
5 Total Deposits 33,317.65 25,087.43
6 Total Loans and Advances 26,842.14 21,857.05
7 Total Contingent Liabilities and Commitments 20,627.47 14,674.25
8 Credit Deposit Ratio (in %) 85.16 91.68
9
Percentage of Classified Loans against Total
Loans and Advances (in %)
3.79 4.14
10 Profit after Tax and Provision 494.22 386.83
11 Amount of Classified Loans during the year 112.25 179.58
12 Provision kept against Classified Loans 594.00 523.00
13 Provision Surplus 0.0081 0.18
14 Cost of Fund (in %) 9.00 8.42
15 Interest Earning Assets 32,882.99 26,117.93
16 Non-interest Earning Assets 4,276.66 2,772.55
17 Return on Investments (ROI) (in %) 8.76 9.51
18 Return on Assets (ROA) (in %) 1.50 1.46
19 Income from Investments 369.12 314.94
20 Earning Per Share (BDT) 41.22 32.26
21 Net Income Per Share (BDT) 41.22 32.26
22 Price Earning Ratio (approximate) 9 Times 10 Times
2.4.8 Financial Summary

27 | P a g e

Figure 5: Financial Summery of MBL
2.5 Products & Services
2.5.1 Card
MBL cardholder can enjoy the following benefits and much more
No Cash Withdrawal Fee: For withdrawals of cash from
MBL ATM by MBL cardholders no cash advance fee is
necessary and from any other Q-cash ATM the fee is Tk.10
only. MBL is the only bank offering such unique facility.
Moreover, our VISA Cardholders can also withdraw cash
from any Visa logo ATM locally and internationally.
Acceptability: International/Dual card is accepted all over
the world at millions of outlets and ATMs. A Dual card is
also accepted in most of the big cities like Dhaka,
Chittagong, Khulna, Rajshahi, Sylhet at more than 10,000

28 | P a g e

outlets including 4500 POS. It covers various kinds of merchants like hospital, hotel,
restaurant, department store and the card has accessibility to any outlet having VISA logo.
Credit Facility: Mercantile Bank Ltd. Visa Credit card offers maximum 45 days credit
facilities free of interest and minimum payment is 5% of outstanding billing payment for
easy repayment and convenience of the customers.
Supplementary Card: A Principal cardholder (local) may apply for more than one
supplementary card where one supplementary card is free. Expenses made by
supplementary card will be charged to the principal card.
Advance against Credit card: MBL cardholder can take advance as term loan up to 50% of
the card limit to be repaid on the monthly installment basis.
Any POS transaction over TK. 20000 but not exceeding 50% of the credit limit is
convertible to Personal loan/CCS and to be repaid on monthly installment basis.
Repayment period of such loan may be from 6 months to 36 months.
Overdraft Facilities: Overdraft facilities up to 80% of the credit card limit may also be
allowed for payment of the installment of scheme deposit with our Bank.
Payment of Utility Bill: Payment of utility bills like telephone bills, gas bills, electric bills,
water bills, may be settled by card.
2.5.2 Online Banking
Online Banking have so far been activated with 32 (Thirty Two) Branches of the Bank
from January 01, 2006. Online service is now available for all customers Both Cash
deposit and withdrawals, Cheque Deposits and Transfer in CD, SB, STD, Loan accounts
(Cheque Bearing within limit). Monthly Saving account will not fall under Online
transaction service.
Online Banking Times:
Sunday to Thursday, Hours - 9:00 am to 3:00 pm
Saturday ,Hours - 9:00 am to 12:00 noon (only in open branches on Saturday)
Account wise Online Banking Limit (cash withdrawal, deposit and transfer):
Maximum Deposit Limit : Tk. 500,000.00 per transaction
Cumulative deposit shall not be more than TK.10,00,000.00 per day
Maximum Withdrawal Limit : Tk. 300,000.00 per transaction
Cumulative withdrawal shall not be more than TK.600,000.00 per day
Charges for Online Banking:

29 | P a g e

Table 6: Charges for Online Banking of MBL
Intra City* Inter City**
Mode of
realization
Free
Upto BDT 1,00000 - TK. 50.00
Upto BDT 2,00000 - TK. 100.00
Upto BDT 3,00000 - TK. 150.00
Upto BDT 4,00000 - TK. 200.00
Upto BDT 5,00000 - TK. 250.00
Up front Cash
*Intra City Transaction: Branches under Same City Corporation Areas
**Inter City Transaction: Branches outside City Corporation Areas
Service Charge Applicable
2.6 Others
2.6.1 Mercantile Bank Foundation
The Bank has set up Mercantile Bank Foundation for extending benevolent services to the
society. The Bank contributes 1% of operating profit or Tk.4.00 million, whichever is
higher, to Mercantile Bank Foundation every year. The Foundation has been established
with following objectives:
1. Mercantile Bank Prize to 8(eight) eminent personalities of the country for the
outstanding contribution in the fields of Economics and Economic Research, Bengali
Language and Literature, Science and Technology, Education and Culture, Journalism,
Sports, Research on Liberation War and Industry and Commerce.
2. Interest free education loan for the meritorious but poor students
3. To conduct research on Bengali language and literature.
4. Book purchase and Distribution Policy to encourage writers and publishers
of the country.
5. Interest free Loan to the unemployed educated people.
6. Donation for handicapped artists, literature and distressed people.
7. Project for the development of shelter-less children.
2.6.2 R&D: Investing into the Future

30 | P a g e

Excellence in banking operation depends largely on a well-equipped and efficient
Research and Development Division. Such activities require the investment of substantial
resources and a set of qualified personnel with multidisciplinary background. Although it
is not possible at this stage to undertake R&D activities similar to those of the banks in the
developed countries, Mercantile Bank has established a core Research and Planning
Division comprising skilled persons from the very inception of the Bank.
2.6.3 Human Resources Development
In today's competitive business environment, the quality of human resources makes the
difference. The Bank's commitment to attract high quality persons to work for it is
reflected in the efforts of the Bank. In the face of today's globalization, the Bank envisages
to develop highly motivated workforce and equip them with latest skills and technologies.
The Bank evolves human resources development strategy with a view to ensuring good
working environment, a high level of loyalty and commitment, devotion and dedication on
the part of the employees.
2.6.4 Training Division
The Bank has set up Training Institute for providing training facilities to its
executives/officers. The Training Institute has already conducted a number of foundations
and specialized training courses. A number of officers were sent to Bangladesh Institute of
Bank Management (BIBM) and other training institutes at home and abroad for
specialized training on various aspects of banking. The Bank believes in professional
excellence and considers its working force as its most valuable asset and the basis of its
efficiency and strength.
2.6.5 MBL Time Line

31 | P a g e

Figure 6: MBL Time Line

32 | P a g e

GENERAL BANKING
3.1 Introduction

33 | P a g e
CHAPTER: 3
Introduction
3.2 Accounts Opening
3.3 Local Remittances
3.4 Fixed Deposit Receipt (FDR)
3.5 Deposits
3.6 Deposit Schemes
3.7 Collection and Clearing House
3.8 Accounts
3.9 Cash
3.10 Locker Service

Bangladesh is one of the less developed countries. So the economic development of the country
depends largely on the activities of commercial banks. So we need to emphasis whether these
commercial banks are effectively and honestly performing their functions, assigned duties and
responsibilities. In thus respect we need to know about the general banking function of those
banks as well as MBL is to provide the general banking service.
General banking is the starting point of all the banking operations. This is the department,
which provides day-to-day or instant services to the customers. Since bank is confined to
provide the services everyday, general banking is also known as retail banking. Main
Functions of general banking department are the followings:
1. Accounts Opening.
2. Local Remittances.
3. FDR.
4. Different Schemes.
5. Collection and Clearing House.
6. Accounts Section.
7. Cash Section.
8. Locker Service
3.2 Accounts Opening
For building up the relation between Bank and Customer the first step, that is must be
done is to open an account of the customer. Opening of an account binds the same into a
contractual relationship. But the selection of customer is very crucial. In fact, fraud and
forgery of all kinds start by opening of an account by the customer or customers.
Banks success and failure is largely depending on their customers. If customer is fraud,
they may create fraud and forgery by their account with bank and thus destroy good will
of the banks. So, this section takes extreme caution in selecting its customer base.
One of the basic functions of commercial banks is to accept deposits. For accepting
deposits both demand and time, MBL-Kawran Bazar Branch offers the following types of
accounts-
3.2.1 Types of accounts with terms and conditions

34 | P a g e

This part covers only following types of accounts-
A. Current Account
B. Savings Bank Account
C. Short Term Deposit (STD) Account
A. Current Account: No restriction exists on the number of deposits into and
withdrawal from this account. Opening balance must be Tk. 1000 and after than
customer must maintain a minimum balance of Tk. 500. Tk. 50 is charged if
balance falls short of minimum balance.
Interest Rate = No interest.
Generally businessmen open this kind of account.
B. Savings Account: This account can be opened by depositing Tk. 100. Mercantile
Bank requires a minimum balance of Tk. 500 to continue the account. At one time,
depositor can draw maximum 25% or Tk 1000 whichever lower.
Interest Rate = 6%
Individual, Businessmen or personally any one can open this kind of
account.
C. Fixed Deposit Receipt: This deposit is taken for some maturity period. Depositor
isnt allowed to withdraw or deposit money 1 this account.
D. Bearer Certificate of Deposit: Special Characteristics of these accounts are-
Transferable by mere delivery only.
Duration 3-months to 12 months.
This certificate doesnt contain any information about the depositor
It is sold at discount so that the difference between purchase price and face
value becomes the interest earning for the depositors.
Denomination for this account is Tk. 1,00,000. Tk. 50, 000 and Tk. 25,000
Only.
Opening of such account does not require any sort of document or any kind
of information about the depositor.
Interest rate for BCD ranges from 8% to 9/5% depending of amount and
maturity period.
The Bank then issues the following instruments to the customer to operate the
account

35 | P a g e

E Cheque Book: It is used to withdraw money from the account.
E Deposit Book: It is used to deposit money in the account.
In case of issuing cheque book the above mentioned documents and the account opening
form must be checked properly.
3.2.2 Issuing cheque book
For New and Old Account
Fresh checkbook is issued to the account holder only against requisition on the prescribed
application form. In case of old account, requisition made on the prescribed requisition
slip attached with the checkbook issued earlier. Generate a security no randomly for every
check leaf by Manager or authorized person. Prepare the instrument with respective
security no on the back of each leaf and signed by the authorized person. Make necessary
entries in Check Issue Register. Finally issue the checkbook for client (s).
Issue of Duplicate check book
Duplicate checkbook in lieu of lost one should be issued only when an A/C holder
personally approaches the Bank with an application Letter of Indemnity in the prescribed
proforma agreeing to indemnify the Bank for the lost checkbook. Fresh check Book in lieu
of lost, one should be issued after verification of the signature of the Account holder from
the Specimen signature card and on realization of required Excise duty only with prior
approval of manager of the branch. Check series number of the new checkbook should be
recorded in ledger card signature card as usual. Series number of lost checkbook should be
recorded in the stop payment register and caution should be exercised to guard against
fraudulent payment.
3.2.3 Account enquiry
A customer can obtain the statement of his A/C by submission of an application in
prescribed balance enquiry receipt. Normally it is supplied two times in a year. In
addition, customer can know his current deposit position informally.
3.2.4 Transfer of an account

36 | P a g e

Account holder may transfer his account from one branch to another. For this, he/she must
apply with proper reason to the manager of the branch where he is maintaining account.
Manager then requests to the manager of that branch where the A/C holder wants to
transfer his account. Besides, he also sends original copy of account opening form and
signature card and photocopy of application for transferring the account with the balance
remained in the account.
3.2.5 Closing of an account
An account may close-
1. When the customer desirous to close the account.
2. When the account is inoperative for a long time.
3. In case of customers death, insanity or insolvency.
To close an account, the checkbook is to be returned to the bank. The bank makes charges
for the same by debiting the amount from his account and rest amount is then paid to the
customer. Necessary entries are given to the account closing register and computer.
Finally make sure that A/C holder is completely free from all dues.
3.2.6 Accounts opening process
Individual, firms or company anyone can open an account in the bank according to the
banks prescribed form. Applicant must submit required documents with his application
form. Different kinds of documents are required for different kinds of accounts or
applications. For individual only introduction by another account holder of the same bank
may be enough but for firm and others relevant papers/documents must be submitted to
the bank for verifications. There is a manual (Check list for account opening) of the MBL
for general banking division mentioning the required documents for different types of
accounts. The authorized officer scrutinizes the introduction and examines the documents
submitted. If every thing appears as satisfactory, three signatures should be made Verified
by-Officer, Admitted by-Officer and approved by-Manager. For opening accounts one
thing is must that is initial deposit. This should be made in cash no Cheque; no draft is
acceptable for opening account purpose.
Procedure & rules to open a new account

37 | P a g e

Savings account
Before opening of a savings Bank Account, the following formalities must be completed by the
customer:
Requirement
- Introducer
- 2 copies passport size photograph dully attested by introducer
- Valid passport/ ward commissioners identification certificate
- Prescribed account opening form filled in properly by intending account holder
- Putting specimen signatures in the specimen card.
- Fill the KYC form
- Initial deposit Tk. 5000/- only
After fulfilling above formalities, opens an account for the client and provide the customer with
a deposit book and a checkbook in case of savings account and currents account.
Current account (Individual)
Requirement
- Introducer (current account holder)
- Valid passport/ ward commissioners identification certificate
- Fill the KYC form

Joint Account
When an account is opened in the names of two or more persons it is called a joint account.
However, it is desirable that the number should not exceed three. At the time of opening an
account, clear and specific instructions shall be obtained regarding operation of the account and
payment of the balance, if any, to the survivors or surviving members in the event of death of
one or more joint account holders. Account shall be operated by either of us or either of
survivor, or us or both of us jointly or both of us or survivor.

38 | P a g e

Current account (Proprietorship)
No saving account shall be opened in the proprietary concern. Application to open current
accounts will be made on which the name of the proprietor and his authorized signature must be
obtained. All formalities regarding the benefice of the account openers and the introducers rules
of the opening of the accounts etc. must be completed to the absolute satisfaction of the
manager.
Requirements
- Introducer (Current account holder)
- Valid passport/ ward commissioners identification certificate.
- Trade license
- Seal of the firm
- TIN Certificate
- Fill the KYC form.
Partnership
In case of partnership account,
Requirements
- Valid passport/ ward commissioners identification certificate of all partners.
- Trade license
- Seal of the firm
- Partnership deed


39 | P a g e

Current Account (Limited Company)
On having the desire to open an account from a limited company, a MBL Officer asks for the
following documents:
Requirements
- Valid passport/ ward commissioners identification certificate of all directors.
- Trade license of the company
- Memorandum and articles of association of company (certified copy/ photocopy
dully attested by authorized signatory
- Board Resolution
- Certificate of incorporation
- Certificate of commencement of business (for public limited company)
- TIN certificate
- List of directors
- Seal of the company
a. The name of the persons who have been authorized to operate the bank account on
behalf of the company.
b. The name of the persons who are authorized to execute documents with the bank
on companys behalf.
Societies, Clubs and Associations
In case of these sorts of accounts MBL requires the following documents:
- Registration Certificate Under the Societies Registration Act, 1962
- Copies of Memorandum, Articles of Association
- Resolution of the Managing Committee.

40 | P a g e

- Power of Attorney to Borrow.
Non-government Organization (NGO)
The account opening procedure is same but in exception is that the Registration Certificate from
the Social Welfare Department of Government must be enclosed with the application.
Joint Account in The Name of Minor
A minor cannot open an account in his own name due to the incapacity to enter into a contract.
He can open an account in MBL in Joint name of another person who will be guardian of him.
3.3 Local Remittances
Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the
customer (s) to save them from any awkward happening through network of their
branches. There are three modes of remitting funds. These are -
A) Pay Order (PO)
B) Pay Slip (PS)
C) Demand draft (DD)
D) Telegraphic Transfer (TT)
A) Pay Order (PO)
Pay order is an instrument, used to remit fund within a clearing zone. Unlike cheque, there
is no possibility of dishonoring PO. The PO can only be encashed through the branch that
has issued the instrument.
Pay Order (PO) Issuing Process
For issuing a PO, following formalities are to be maintained. These are -
Duly filled up the application form by the customer.
Deposit money either in cash or by cheque with necessary charges.
Prepare the instrument and make necessary entries in the Bills Payable Register
where payees name, date, PO no. etc are noted.
Deliver the instrument to the customer after scrutinized and approved by authority
by taking signature of the customer on the counterpart.

41 | P a g e

Cancellation of PO
The following procedure is followed to refund the pay order by cancellation:
1. Submit written request to refund the pay order attaching therewith the original PO.
2. Verify purchasers signature with the original application form on record.
3. Manager/authorized persons prior permission is required before refunding the
amount of pay order.
4. Pay order should be affixed with a stamp cancelled under proper authentication
and the authorized officers signature on the pay order.
5. No charge is created for cancellation. Refund only the pay order amount.
6. The original entries are to be reversed with proper narration.
7. Record the cancelled pay order in the Pay Order Issue Register.
Loss of Pay Order
If the instrument is lost, the holder is asked to fulfill the following requirements-
1. Holder should inform the bank immediately.
2. Record a GD (General Diary) in the nearest Police Station.
3. Furnish an Indemnity Bond.
Collection of Pay Order
If the payee is a customer of Kawran Bazar Branch, he will deposit it for collection. Then
the branch gives necessary endorsement as a collecting bank. Then the instrument places
the issuing bank through clearing house.
PO Charge
Table 7: PO Charge
Amount Commission VAT on
Commission
150/= to 1,00,000/= 15/= 15%
1,00,000/= to 10,00,000/= 25/= 15%
10,00,000/= and above 50/= 15%
Issuing of duplicate instrument 50/= -

42 | P a g e

Use of pay order
A pay order is issued and paid by the same branch of a bank and as such, the drawer
and the drawer are the same. The person or the organization in whose favor it is issued
is known as payee or the beneficiary. It is some times sold to individual on payment of
value who may or may not be a customer and is called the purchaser.
The purchaser should sign the standard application form giving detailed particulars
and request for issue of pay order. The payee or beneficiary must not appear to be
fictitious. His full name and address should be written on the application. Bank should
recover commission of pay order from the purchaser.
A pay order is divided into three parts viz. The actual pay order, the second counterfoil
to be returned by the payee and the first counterfoil to be retained by the issuing
branch as record.

Characteristics & payment
- It should be paid to the payee or beneficiary after proper identification or it may be
credited to his account.
- A pay order is transferable. As it is a bankers cheque payable to order the payee/
beneficiary may transfer it, by giving proper discharge on its back, to some one
else who receives payment as the transferee.
- It is not generally collected for a persons other that the original payee except in
cases where the depositor is a valued client known to the bank.
- Before making payment the signature of issuing officers should be verified and the
date of payment should be marked in the register.
B) Pay slip
If anybody get any amount from MBL then MBL issue pay slip. He can deposit the pay
slip in any banks any branch.
Meaning & purpose
- A pay slip is a written authorization for making payment-specified person or firm
payable by issuing branch, for a discharged liability of the bank. As pay slip is
originated made payable by the bank in a receipt form there is no need for any
application for its issue.

43 | P a g e

- A pay slip is issued to effect payments on account of bills payable by the bank for
goods and services purchased or availed by it. For example, bank is required to
make payment of bills for the purchase of furniture & fixture, for printing &
stationery and for any other works done on its behalf by the other party on
agreement with the bank.
Characteristics & payment
A pay slip is receipt of payment received by the payee due from the bank. It should be paid to
the payee on proper identification or credited to his account on its being presented duly
discharged by him or revenue stamp of required value. Cash payment should not be made if it is
crossed except to a collecting bank.
C) Demand draft (DD)
DD is called Bankers Draft. It is an instrument, issued by a particular branch, drawn on
another branch of the same bank, instructing to pay a certain sum of money. It is very
popular instrument for remitting fund from one corner of a country to another. DD is
issued in favour of a customer who maintains an A/C with MBL Kawran Bazar Branch. It
can be issued against Cash or Cheque. If DD amount is more than Tk. 50,000/= a test code
is given on IBCA. The A/C treatments will be-
The banker even on receiving instructions from the remitter cannot stop the payment of
the instrument. Stop payment can be done in the following cases-
i) Loss of draft before endorsement: In this case, Draft
reported to be lost, payees endorsement requires verification is marked.
ii) Loss of draft after endorsement: In this case, the branch
first satisfies itself about the claimant and the endorsement in his favor.
Cancellation of DD
To cancel an issued DD, the client has to submit an application. Issuing branch then sends
an Inter Branch Debit Advice (IBDA) to the drawn branch against previously issued Inter
Branch Credit Advice (IBCA). After that the following entries are given-

44 | P a g e

Issue of Demand Drafts
- The customer is asked to complete filling in a form that is treated as an application
as well as voucher. The application form should be checked carefully.
- Commission charges are calculated and inserted in the case provided in the form.
- The voucher given to the customer to deposit the cash with the cashier.
- The cashier receives the cash and delivers the voucher to Remittance Department
against initial in his book.
- Draft is prepared and entered in draft issue Register.
- Branch-wise serial number is given on the draft besides the printed number putting
on oblique (/) in between. The amount protect graphed.
- The draft number is written on the voucher.
- Draft block and the voucher along with the register are sent to the officer in charge
for checking and signatures. He signs the draft and voucher and initials the
counterfoil of the draft and the Register.
- Then the draft and the voucher are sent to the Manager/ Second Officer for second
signature.
- The draft is crossed if customers desires and delivered to him against his
acknowledgement on the voucher.
- If the amount is tendered by a cheque, the drawer to and the purchaser of the draft
should be the same person, i.e. the signature on the cheque and on the application
form must tally.
- A memorandum is issued to the customer if he or she desires.
- The cheque is sent for passing and cancellation.
- After the cheque is passed, similar procedure as explained above is adopted for
issuing draft.
Issuing of Duplicate DD
If the customer wants a duplicate DD, he then is asked to do the following formalities-
1. Throwing an application immediately by the original DD holder.
2. Making a General Diary (GD) in the nearest Police Station.
3. Furnishing an Indemnity Bond.
4. Put a CAUTION mark in the register.

45 | P a g e

5. Inform to the Head Office by the issuing branch
6. Inform all the branches by the HO for stop payment.
7. Issue a new DD (Put the same DD no. and mark DUPLICATE).
DD Charge
Commission @ 0.10% but minimum Tk. 10/=
Postage charge Tk. 30/= (Fixed).
DD cancellation charge Tk. 50/= (Fixed).
Issuing of duplicate instrument Tk. 50/=
D) Telegraphic transfer (TT)
Telegraphic Transfer may be affected at the written request of any person and against value
received from him. A written application on the banks prescribed form duly signed by the
purchaser should be obtained. If the application for issue of telegraphic transfer contains
instruction to debit the account of the purchaser, his signature should be verified. It is however,
preferable to obtain a confirmation cheque from the customer.
The application form is in variably checked on the following points:
- There should be a branch of MBL in the place on which Telegraphic Transfer will be
issued and the said branch has test arrangement with the issuing branch.
- Full name of the payee and his A/C no., in case instructions are to credit his test
arrangement with the issuing branch.
- The amount of T.T Commission and Telegram charges should be received from the
purchaser. The total amount may be paid in cash or tendered by a cheque if he is
customer of the branch. Some times, the customer may also desire to pay the amount of
T.T by cheque and commission and telegraph charges by cash.
- In case of amount tendered by cheque, the drawer on the cheque and the purchaser of
the TT should be the same person, viz., the signature on the cheque and on the
application should tally. Such cheque should be in favor of Mercantile Bank Ltd.
- Now, a cost memo for the TT is to be prepared by the officer under his signature which
contains the amount of TT Commission & Telegram charges & is delivered to the
purchaser.
- Now the officer concerned as to the amount, name of the beneficiary has correctly
prepared the message, instructions regarding mode of payment and place of payment.

46 | P a g e

- The concern officers should correctly prepare the test.
- T.T over telephone may be transmitted on account of valued clients of the bank.
Payment of Telegraphic Transfer
The payment of T.T should be made to the payee or beneficiary after being satisfied in all
respect. The serial number of T.T should be entered in T.T payable register on the relative folio
next to that of previous message on agreement of test. The issuing branch should be
immediately informed if any number is omitted.
- The voucher should be passed. The beneficiary should be intimated the earliest, if
possible may be informed on telephone.
- If the instructions are to be Advise and pay, the T.T receipt should be prepared. The
manager and the officer of the branch should sign after checking the name of the
beneficiary, the amount and the name of the issuing branch. The number of T.T receipt
should be noted in the T.T payable Register and on the decoded manages. The
beneficiary should be advised on the printed prescribed form instead of sending the T.T
receipt.
- When the amounts are credited/ paid the same and should be noted in the T.T payable
register. While making the payment on a T.T receipt, the signatures of the attorney who
have signed be verified cancelled.
- The T.T receipts are not transferable. They should not bear any endorsement. The
beneficiary is too signed on proper revenue stamp in front of the officer. Party
acceptable should attest the signatures of the beneficiary to the bank.
3.4 Fixed Deposit Receipt (FDR)
Fixed deposits are time deposits or time liabilities. These are the deposits in which an
amount of cash is deposited in Bank for a fixed period specified in advance. Before
opening a Fixed Deposit Account a customer has to fill up an application from which
contains the followings-
Amount in figures
Beneficiarys name and address
Time period
Rate of Interest
Date of Issue

47 | P a g e

Date of maturity
How the account will be operated (singly or jointly)
Signature (s)
F.D.R. no.
Special instructions (if any)
After fulfilling the above information and depositing the amount, FDR account is opened
and a FDR receipt is issued and it is recorded in the FDR Register, which contains the
following information-
FDR account no.
FDR (Fixed Deposit Receipt) no.
Name of the FDR holder with address
Maturity period
Maturity date
Interest Rate.
Renewal of FDR
Customer supposes to inform the bank in writing 15 days before the maturity date for
encashment. If not, bank normally renews the amount just after the maturity date. Renewal
will be for previously agreed maturity period.
Loss of FDR
If the instrument is lost from the possession of the holder, the holder is asked to fulfill the
following requirements-
a) Holder should inform the bank immediately
b) Record a GD (General Diary) in the nearest Police Station.
c) Furnish an Indemnity Bond.
On fulfilling the above requirements, MBL bank is then issued a duplicate FDR.

48 | P a g e
0
5000
10000
15000
20000
25000
30000
IN MILLION
2005 2004 2003 2002
YEAR
DEPOSIT
Series1

3.5 Deposits
The Bank mobilized total deposits of Tk. 25727.48 million as of 31
st
Dec, 2005 as
compared to Tk. 22385.19 million as of 31
st
Dec, 2004. Competitive interest rates,
deposits mobilization efforts of the Bank and confidence reposed by the customer in the
Bank contributed to the notable growth in deposits. Efforts are being made to broaden the
deposit base while reducing the average cost of fund.
Figure 7: Deposits of MBL
3.6 Deposit Schemes
Our Various Deposit Schemes
Double Benefit Deposit Scheme (DBDS)
Family Maintenance Deposit (FMD)
Special Savings Scheme (SSS)
Mashik Sanchaya Prokalpa (MSK) Or Monthly Savings Scheme (MSS)
Pension and Family Support Deposit (PFSD)
Double Benefit Deposit Scheme (DBDS)

49 | P a g e

Amount of Deposit Period Amount Payable
1,00,000 6 Years 2,00,000
Family Maintenance Deposit (FMD)
Objectives Mode
Help the retired
persons for investing
their retirement
benefits.
Create investment
opportunities for Non-
Resident Bangladeshi.
Explore investment
opportunities for
school, college,
university etc.
Give investment
opportunities for Trust;
Foundation etc.
Deposit a fixed amount of money
for 05 (Five) years.
Depositor will get a certain sum of
money in each month proportion to
his/her deposit during the entire
tenure.
Benefits:
Tenure of deposit is 05 (Five) years.
Minimum amount of required
deposit is TK.50,000.00 or its
multiple
Deposit Monthly Benefit (Amount in TK.)
1,00,000 1,000
2,00,000 2,000
3,00,000 3,000
Special Savings Scheme (SSS)

50 | P a g e
Objectives Mode
Give maximum benefit.
Help in meeting specific needs like
education, marriage etc.
Deposit becomes double in six years.
Tenure of the deposit is
06(Six) years.

Objectives Mode
Help in meeting specific
needs like education,
marriage etc. .
Deposit a fixed amount of money
for any period up to 15 (Fifteen)
years.
Benefits:
Triple of the amount deposited
after 15 years.
Minimum deposit shall be Tk.50,
000.00 or its multiple.
Deposit Period Amount Payable at Maturity
1,00,000 15 Years 3,00,000
This scheme deposit is discontinued from September 01, 2007
Monthly Savings Scheme (MSS)
Objectives Mode
Build up habit of
savings.
Attract small savers.
Saving for rainy
days.
Monthly installments of various
sizes.
Benefits:
(Amount in TK.)
Period
Monthly Installment
250 500 1,000
Benefits
5 Years 20,625 41,250 82,500
8 Years 40,375 80,750 1,61,500
10 Years 57,500 1,15,000 2,30,000

Period
Monthly Installment
1500 2500 5,000
Benefits
5 Years 1,23,750 2,06,250 4,12,500
8 Years 2,42,250 4,03,750 8,07,500
10 Years 3,45,000 5,75,000 11,50,000

51 | P a g e

Pension and Family Support Deposit (PFSD)
Monthly
Installment
10 Years 15 Years
Pension per month One time Pension One time
500 625 80,000 1,150 1,35,000
1,000 1,250 1,60,000 2,300 2,70,000
2,500 3,125 4,00,000 5,750 6,75,000
5,000 6,250 8,00,000 11,500 13,50,000
This scheme deposit is discontinued from September 01, 2007
3.7 Collection and Clearing House
Customers do pay and receives bills from their counter party as a result, a transaction
happens. A clearing house is such kind of house where all members Bank settled their
inter bank transactions through their Bangladesh Accounts. As the Central Bank,
Bangladesh Bank is the leader of clearing House in Bangladesh. There are 53 members

52 | P a g e
Condition:
Provides monthly income for retired person.
Helps to meet monthly expenses after certain period of time.
One person can deposit a certain sum in every month for certain
tenure and after that period he/she can get monthly income.

Bank in Bangladesh under Central Bank. There are two parties in Clearing House i.e. First
House (Cheque Delivery) and Second House (Return Delivery).
MBL collects the bills on behalf of their customers. Collection mechanisms in MBL are
clearing, Outward Bill For Collection, Inward Bills for Collection.
3.7.1 Clearing
According to the Article 37(2) of Bangladesh Bank Order 1972, the banks, which are the
member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the
cheques drawn upon one another through the clearinghouse. This is an arrangement by the
central bank where everyday the representative of the member banks gathers to clear the
cheques. Banks for credit of the proceeds to the customers accounts accept cheques and other
similar instruments. The bank receives many such instruments during the day from account
holders. Many of these instruments are drawn payable at other banks.
The place where the banks meet and settle their dues is called the Clearinghouse. The
clearinghouse sits for two times a working day. The members submit the claimable cheques in
the respective desks of the banks and vice-versa. Consequently the debit and credit entries are
given. At the debit summation and the credit summation are calculated. Then the banks clear the
balances through the cheque of Bangladesh Bank. The dishonored cheques are sorted and
returned with return memo.
Types of Clearing
Clearing is two types.
- Inward Clearing
- Outward Clearing
- Inward Clearing
In Inward clearing process cheques of Mercantile Bank Ltd, General Branches are
deposited in other banks and sent back to Foreign Exchange Branch of MBL through
clearing house for collection of money. In this process, cheques of General
branch of Mercantile Bank Ltd are sent to the local office of Mercantile Bank at first. Then
the local office sent those cheques to the General Branch.

53 | P a g e

Process of Inward Clearing
After receiving the cheques from the local office of Mercantile Bank Ltd, those cheques are
directly send to the computer section for checking the balance of those specific A/Cs from which
money should be collected. If the required balance is available there then the amount is debited
from that account and the cheque is honored. But in case if the required balance is not available
the authorized officer of clearing department immediately informs to the head of the general
banking or he tries to connect the account holder. If the account holder does not deposit the
required balance immediately the cheque is dishonored. Finally the authorized officer gives all
the entry of those cheques in inward clearing register.
Dishonor of cheque
If the cheque is dishonored, Mercantile Bank sends a memorandum (cheque return memo) to the
customer stating the reason in the following way,
- Refer to drawer
- Not arranged for
- Effects not cleared. May be presented again.
- Exceeds arrangements
- Full cover not received.
- Payment stopped by drawer.
- Payees endorsement irregular/ required.
- Payees endorsement irregular, require Banks confirmation.
- Drawers signature differs/ required.
- Alterations in date/ figures/ words require drawers full signature.
- Cheque is post dated/ out of date/ mutilated.
- Amount in words and figures differs.
- Crossed cheque must be presented through a bank.
- Clearing stamp required/ requires cancellation.
- Addition to Banks discharge should be authenticated.
- Cheque crossed Account Payee Only
- Collecting Banks discharge irregular/ required.

54 | P a g e

Process of outward clearing
For outward clearing cheques, the bearer of the cheque must have an account in General Branch
of Mercantile Bank Ltd. After the submission of the cheque, authorized officer gives the entries
in software, which is provided by Bangladesh Bank. The name of the software is Nikash. After
giving all the entries are printed and are enclosed with the cheques. Then all the cheques with
the enclosed sheets are sending to the local office of Mercantile Bank Ltd. for the collection of
money. The local office sends it to clearing house.
- LBC (Local Bills for Collection) If the cheque presented by customer is the cheque of
JBLs other branch then to collect the money LBC procedure is follow.
- OBC (Outward Bills for collection) - Collection of bills, which is beyond the clearing
range and collected through OBC mechanism.
3.7.2 Procedures for collection
a. Received seal is stamped on the cheque.
b. Crossing of the cheques are done.
c. Payees A/C Credited endorsement is given.
d. Entries are given in the Outward Clearing Register.
e. Clearing seal is given.
f. Cheques are sorted bank wise and entries are given to the
computer (NIKASH 22).
g. Entries are given in the Clearing House Register before
dispatching to the clearing house.
Instruments of other branches
However, the principal branch clears its check as well as the checks of other branches.
Because, no other branch is allowed to represent directly. The other branches send the
instruments along with IBDA. Principal Branch acts as an agent in this case.
Dishonor of Cheque
If the cheque is dishonored, MBL sends a memorandum (cheque return memo) to the
customer stating the reason.

55 | P a g e

Outward bills for collection (OBC)
If the bill is beyond the clearing house then it is collected by OBC mechanism. Customer
deposit cheque, drafts etc. for collection, attaching with their deposit sleep, Instrument
within the clearing house are collected through local clearing house, but the other which
are outside the clearing house are collected through OBC mechanism. A customer of MBL
of Kawran Bazar Branch of Dhaka is depositing a cheque, of Sonali Bank, Naogaon
Branch, Rajshahi. Now as a collecting bank MBL of Kawran Bazar Branch will perform
the following task
Procedure
a. Depositing the cheque along with deposit-slip.
b. Crossing of the cheques are done indicating Principal Branch as collecting bank.
c. Endorsement Payees A/C will be credited on realization is given.
d. Entries are given in the Outward Clearing Register.
Collecting bank can collect it either by its branch or by the drawers bank. They will
forward the bill then to that particular branch. OBC number will be given on the
forwarding letter. Now following procedures will take place in case of the following two
cases.
Bills Collected through Branch
If the bill is forwarded to branch they will collect it through IBC procedure. Collecting
branch will receive an I.B.C.A. from that particular agent branch.
In this case commission will be charged by the collecting branch, not the agent branch and
the drawers bank will send a DD to the collecting branch. Here both the banks will charge
for collection from the customer. It should be scrutinized that D.D. is containing the OBC
number.
Charges of OBC
UP to 25,000/- = 20%
25,000/- to 1,00,000/- = 20%
1,00,001/- to 10,00,000/- = 15% or minimum 2,000/-
Above 10,00,000/- = 15% or minimum 5,000/-

56 | P a g e

Inward bills for collection (IBC)
When the bank collects bills, as an agent of the collecting branch the system is known as
IBC. In this case the bank will work as an agent of the collection bank. The branch
receives a forwarding letter and the bill. Next steps are:
a. Entry in the IBC register, a IBC number given
b. Endorsement given-Our branch endorsement confirmed
c. The instrument is sent to clearing for collection.
3.8 Accounts
Accounts department maintains all records of transactions and all types of statement. At
the end of transaction hour all concerned section sends vouchers of transactions to this
department. Accounts department compares all figures/amount, contents of transactions
with supplementary statement prepared by computer. If any discrepancy arises regarding
any transaction then this department reports to the concerned department. Following are
the activities of accounts department:
To record all transaction in the cash book.
To prepare daily, weekly, monthly, half-yearly and yearly fund position.
To prepare all kinds of statements related to Bangladesh Bank, Head office and
National Board of Revenue (NBR).
To prepare monthly salary statement, provident fund statement and
administrative expenditure statement.
To make charges for different types of duty.
3.9 Cash
Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the
branch. This section deals with all types of negotiable instruments and it includes vault,
used as the store of cash, instruments. Operation of this section begins when the banking
hour starts. Cash officer begins his/her transaction with taking money from the vault,
known as the opening cash balance. Vault is kept in a more secured place. The amount of
opening cash balance is entered into a register. After whole days transaction, the surplus
money remains in the cash counter is put back in the vault and known as the closing
balance. The main functions of this section are-
1. Cash Receipt.
2. Cash Payment.

57 | P a g e

3.9.1 Cash receipt
Cash receipt procedure is given below-
i. The depositor first fills up the Deposit-in-Slip.
ii. Depositor deposits the money.
iii. Officer receives the money, counts and then enters in the Cash
Receipt Register, and finally signs with seal send date the deposit-in-slip.
iv. Slip is then passed to another officer, who enters the receipt details like
serial no, amount, etc. in his register, signs the slip and keeps the banks part of
the slip. Other part is given to the depositor.
v. At the end of the day, entries are cross-checked with the register kept at the
cash counter to see whether the transactions are correct or not.
3.9.2 Cash payment
Some important check points for making the payment are as follows-
Cash payment procedure is given below
i. Customer first deposits the check (s) to the cash section.
Authorized individual checks whether it is materially altered, proper endorsed,
crossed or not. Being satisfied the total requirements; he passes it to computer for
posting. Operator verifies the check leaf security no. If matched, then operator
signs. Otherwise noticed to the individual for stop payment;
ii. Authorized officer is then verifying the signature with the
Signature Card.
iii. If the Authorized officer is conform about the signature
then he/she makes the followings;
Branch Seal.
Pay cash seal.
Signature.
iv. Then send the instrument to the cash payment counter.
v. Cash officer is then asked the bearer to sign on the back of
the instrument. At the same he just enters the payment details in his register and
pays the money to the bearer.
vi. At the end of the day, this information must be tallied with
computer postings to ensure the correctness of payment.

58 | P a g e

3.9.3 Dishonor of Cheque
If the cheque is dishonored, MBL sends a memorandum (cheque return memo) to the
customer stating the reason in the following way;
i. Refer to drawer
ii. Not arranged for.
iii. Effects not cleared, may be presented again.
iv. Exceeds arrangements.
v. Full cover not received.
vi. Payment stopped by drawer.
vii. Payees endorsement irregular/illegible/required.
viii. Payees endorsement irregular/require Banks confirmation.
ix. Drawers signature differs/required.
x. Alteration in date/figures/words requires drawers full signature.
xi. Cheque is posts dated/out of date/mutilated.
xii. Amount in words and figures differs.
xiii. Crossed cheque must be presented through a bank.
xiv. Clearing stamp required/requires cancellation.
xv. Addition to Banks discharge should be authenticated.
xvi. Cheque crossed Account Payee Only.
xvii. Collecting Banks discharge irregular/required.
3.9.4 Sorting of the Voucher
At the day end an authorized officer keep the voucher after doing the following work-
Collects all the vouchers.
Then sort those voucher according to the account. Like Savings, Current,
Loan etc.
Separates the Debit a Credit vouchers.
Check those vouchers with supplementary (Printed from the computer).
Then those vouchers are stored in the store house.
3.10 Locker Service

59 | P a g e

MBL, Kawran Bazar Branch offers their valued customer the Locker Service. This service
helps the customer to keep their important documents, paper, instrument and precious item
in safe and sound.
These facilities are maintained by two responsible and senior personnel. Both the person
maintains separate keys for each account or locker for highest safety.
Locker
In MBL, Kawran Bazar Branch there are two Chamber. Each of them contains 50 Lockers.
According to the size there are different types of locker such as Large, Medium and Small.
Below table will show different types of locker and its charged
Table 8: Locker Information of MBL
Size Total Yearly Security
1 Large 6 2,000/- 2,000/-
2 Medium 20 1,500/- 2,000/-
3 Small 24 1,000/- 2,000/-
Procedure
Must be a savings Account holder.
An application form must be filled up.
Single/Joint operation.
Seal of the company (if required)
2 copies of PP size photos.
Yearly charge must be pain in advance.
Security money is refundable at the time of closing.
Ending Summery
General Banking engaged in cash received, payment, cheque clearing, opening accounts
and local remittance etc. General Banking is the starting point of all Banking operations. It
helps to the customers in various ways.

60 | P a g e

FOREIGN EXCHANGE

61 | P a g e
CHAPTER: 4
4.1 Introduction: Foreign Exchange
4.2 Foreign Trade
Need for Foreign Trade
Back Ground of Banks Involvement
4.5 Types of Foreign Trades Dealt in Banks
Foreign Trade Department
Back-To-Back L/C
4.8 Foreign Remittance

4.1 Introduction: Foreign Exchange
As per Foreign Exchange Act, 1947, foreign currency means and includes all deposits,
credits and balances payable in foreign currency as well as foreign currency instruments
such as drafts, TCs, Bill of Exchange, Promissory Notes and Letters of Credit payable in
any foreign currency. This definition implies that all business activities relating to Import,
Export, Outward & Inward Remittances, buying & selling of foreign commissions, etc.
come under the purview of foreign exchange business. So, this Manual shall seek to give
the necessary guidelines to the dealing officials for proper handling and recording of day-
to-day foreign exchange transactions and also provide some idea about the Rules,
Regulations, Customs and Practices governing the operations of Foreign Exchange
business.
Foreign Exchange means foreign currency and it includes any instrument drawn, accepted,
made or issued under clause (13), Article 16 of the Bangladesh Bank order, 1972. All
deposits, credits and balances payable in any foreign currency and draft, travelers cheque,
letter of credit and bill of exchange expressed or drawn in Bangladeshi currency but
payable in any foreign currencies.
Bangladesh Bank issues Authorized Dealer (AD) license by observing the banks
performance and also the customers associated with the bank for conducting foreign
dealings. MBL, Kawran Bazar Branch is one of an authorized dealer.
4.2 Foreign Trade
Foreign trade constitutes a sizable portion of international transactions of a country. Payment
received for exports and made for imports form a substantial part of its remittances from and to
other countries. In our country a major share of the current balance of payments is made up of
exports and imports of merchandise on private and government account. Thus, trade is the most
important factor-giving rise to payments between countries. Foreign trade is a type of
specialization, which like other forms of specialization increases productive efficiency and
standard of living of the people of the country concerned.

62 | P a g e

4.3 Need for Foreign Trade
Foreign trade enables a country to have a much larger flow and much more diversified form of
wealth than what is possible without it. The residents of a country are able to enjoy the use of
commodities which otherwise may not be available to them at all. There is a wide difference in
respect of the material and human resources, stage of technical and scientific progress, and
possession of capital equipment in different countries. No country is in a position to produce
everything in quantities large enough to provide its people a reasonably high standard of living.
A country, therefore, enters into trade relations with other countries on account of certain basic
differences due to topographical reasons in its economy from theirs.
Commodities are imported because either they cannot be produced in the country at all or can be
produced at a very high cost. Import of such commodities is a convenient and cheaper way of
getting them. In exchange for imports, a country has to export certain articles because normally
imports can be paid for only by exports. A countrys exports usually comprise commodities the
cost of production of which is less than the cost of importing them. Thus the need of the people
of a country for its scarce resources and in exchange the surplus of some of their resources
constitute the import and export stimulate the foreign trade which is intern mobilized by foreign
exchange proceedings.
4.4 Back Ground of Banks Involvement
Banks play a vital role by minimizing the risk of two parties, namely buyer and seller. In
fact without the help of banks we cannot think about a congenial international trade
environment. Now the question comes how banks help international trade. We know that
in a local trade there is a chance to know about each other. But in international trade the
involved parties stay two distant places. For a buyer the following risks are involved-
Risk of non-delivery of goods.
Risk of receiving sub standard goods.
Risk of fraud in goods.
For the seller the following risk is involved-
Risk of non-payment.
To reduce the aforesaid risks and independent system is introduced which will safeguard
the buyer as well as seller in an international trade. Actually banks play due role by getting
into two parties and bind them.

63 | P a g e

4.5 Types of Foreign Trades Dealt in Banks
Foreign trades are mainly of two types. These two are: Import Trade & Export Trade. The
import and export trade of Bangladeshis is controlled under the Import and Export Control
Act, 1950. In normal sense the imports involve outward remittances and the export
involves inward remittances. The terms and conditions of contracts between the importers
and the exporters and the eventual remittances in foreign countries are subject to such
restrictions and formalities as are laid down from time to time by the Import and Export
Control and Exchange control in their respective jurisdiction which the importers and
exporters must comply with.
4.6 Foreign Trade Department
Foreign trade deals with import and export business. That is why; there are two parts in
foreign trade department in MBL.
Import Department.
Export Department.
Import department deals with the import oriented foreign trade while export department
deals with export oriented foreign trade.

64 | P a g e
Foreign Exchange
Import Section Export Section Remittance Section

Import Trade
When a particular country wishes and does bring in some goods and services from another
country, trade occurring between these two countries is called import trade. Import trade means
procurement and purchase of goods and services from another country or countries. Therefore,
purchasing function of international trade is called import trade.
Figure 8: Import Trade of MBL
Export Trade
Selling of goods and services or other sales related function for the transfer of surplus goods or
services for a value or just to merchandise them abroad trade occur between countries. Thus
export or sale of additional goods and services or surplus goods and services is called export
trade. There is another peculiar type of export trade named Re-Export Trade.
Figure 9: Export Trade

65 | P a g e

4.6.1 Import
Imports are foreign goods and services purchased by consumers, firms & Governments in
Bangladesh. To import, a person should be competent to be an importer. According to
Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export
provides and registration (IRC) to the importer.
Import procedures
Registration with CCI&E
a. For engaging in international trade, every trader must be first registered with the Chief
Controller or Import and Export.
b. By paying specified registration fees and submitting necessary papers to the CCI&E.
the trader will get IRC (Import Registration Certificate). After obtaining IRC, the
person is eligible to import.
Purchase Contract between importers and exporter
a. Now the importer has to contact with the seller outside the country to obtain the
Proforma invoice/indent, which describes goods.
b. Indent is got through indenters a local agent of the sellers.
c. After the importer accept the preformed invoice, he makes a purchase contract with the
exporter declaring the terms and conditions of the import.
d. Import procedure differs with different means of payment. In most cases import
payment is made by the documentary letter of credit (L/C) in our country.
Collection of LCA form
Then the importer collects and Letter of Credit Authorization (LCA) from MBL Kawran
Bazar Branch.
Opening a Letter of Credit (L/C)
International environment, buyers and sellers are often unknown to each other. So seller
always seek guarantee for the payment for his goods exported. Here is the role of bank.
Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This
guarantee is called Letter of Credit. Thus the contract between importer and exporter is
given a legal shape by the banker by its Letter of Credit.

66 | P a g e

Parties of L/C
i. Importer-Seller Who applies for opening an L/C.
ii. Issuing Bank-It is the bank which opens/issues a L/C on behalf of the importer.
iii. Confirming Bank-It is the bank, which adds its confirmation to the credit and it, is
done at the request of issuing bank, confirming bank may or may not be advising bank.
iv. Advising/Notifying Bank-is the bank through which the L/C is advised to the
exporters. This bank is actually situated in exporters country. It may also assume the role
of confirming and /or negotiating bank depending upon the condition of the credit.
v. Negotiating Bank-is the bank, which negotiates the bill and pays the amount of the
beneficiary. The advising bank and the negotiating bank may or may not be the same.
Sometimes it can also be confirming bank.
vi. Paying/Accepting Bank-is the bank on which the bill will be drawn (as per condition
of the credit). Usually it is the issuing bank.
vii. Reimbursing bank-is the bank, which would reimburse the negotiating bank after
getting payment-instructions from issuing bank.
Application for L/C limit
Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an
importer submits an application to the Department of MBL furnishing the following
information,-
i. Nature of business.
ii. Required amount of limit.
iii. Payment terms and conditions.
iv. Goods to be imported.
v. Offered security.
vi. Repayment schedule.
vii. Full particulars of bank account maintained with MBL
Kawran Bazar Branch.

67 | P a g e

The L/C Application
After getting the importer applies to the bank to open a letter of credit on behalf of him
with required papers.
Documentary Credit Application Form:
i. Tax Identification Number Certificate.
ii. VAT Registration Certificate.
iii. Membership Certificate of recognized Trade Association as per IPO.
iv. Proforma Invoice: It states description of the goods including quantity, unit price
etc.
v. L/C Form: MBL provides a printed form for opening of L/C (MF-fx 13) to the
importer. This form is known as Credit Application form. A special adhesive
stamp is affixed on the form. While opening, the stamp is cancelled. Usually the
importer expresses his desire to open the L/C quoting the amount of margin in
percentage.
vi. L/C authorization form (LCAF) duly signed by the importer.
vii. The insurance cover note: The name of issuing company and the insurance
number are to be mentioned on it.
viii. IMP form duly signed by the importer.
ix. Forwarding for Pre-Shipment Inspection (PSI): Importer sends forwarding letter
to exporter for Pre-Shipment Inspection. But all types of goods do not require
PSI.
If the importer is an individual
- Current Deposit A/C No.,
- Partnership Deed and Solvency Certificate (If partnership firm),
- Article of Association (If Private Limited Company ),
- Memorandum of Association (If Private Limited Company),
- Certificate of Commencement of Business (If Public Limited Company),
- Photocopy of Trade License (valid),
- Photocopy of VAT Registration Number,
- Photocopy of Tax Identification Number (TIN certificate),
- Import Registration Certificate from CCI&E, (Renewed and valid).
- Required amount of Registration Fee.

68 | P a g e

- IRC issue fee
Table 9: Fees for issuing Import Registration Certificate
IRC Issuing
Fee
Import Limit
Tk. 500 Highest annual imports limit 5 Lac.
Tk. 5000 Unlimited annual import capacity.

Besides, these documents stated above the bank may ask for certain other documents submitted
by the importer prior to issuance of the credit. Like, Photocopy of Membership Certificate of
Chamber of Commerce & Industry, photograph of the applicant, Minimum three copies of Pro-
forma Invoice/Indent/Sale Contract (dully accepting the rate of goods offered) etc.
Bank Scrutiny of the Documents before Opening of the Credit
On receipt of the application form with other required documents submitted by the opener they
are thoroughly scrutinized. The points, which are carefully scrutinized, are followings:
- Indenting the registration number.
- That the IRC is updated or renewed and valid.
- That the goods are marketable and legally importable and that it is not difficult for
the beneficiary to comply with all terms and conditions to be incorporated in the
L/C.
- That the L/C is not going to be opened in favor of the importer.
- That the importer signs it, agreeing terms and conditions.
- That the Insurance Cover Note specifies the date of shipment.
- That it encloses Radioactivity Report in case of food item.
- That the Import Permission (IMP) forms is dully filled in and signed.
- That the liability, as being applied, is under appropriate limit.
- That the amount does not exceed the L/C value and is identical with invoice
amount and that the amount in figure and in word is same.
- That it encloses credit report of the beneficiary in cases when the L/C value is
more than US $ 20,000.

69 | P a g e

- That the tenor, if, the draft is strictly in conformity with the terms stipulated in the
L/C i.e., at sight or sance and that the transcription or partial shipment is allowed.
The terms and conditions of L/C application are consisted with exchange control and import
trade regulation, UCPDC 500. If all the documents are along with application are in order, the
concerned banker will advance with these documents for opening.
Time limit for opening L/C
L/C (s) shall be open within 180 days from the date of issuance of LCAF or from the date
of registration of LCAF with Bangladesh Bank.
Terms of L/C s
Full description of the goods along with quantity and unit price to be incorporated in the
L/C and shall take all precautions to quote the correct H.S. Codes of the goods. Prices to
be quoted on CER or FOB basis according to the P/Invoice or Indent. No import shall be
made on CIF basis without prior approval from the Ministry of Commerce.
All L/Cs should provide for payment to be made against full sets of on board (shipped)
transport documents drawn and/or endorsed to cover by the credit to a destination in
Bangladesh.
All L/Cs must specify submission of signed invoices, certificates of origin & pre-shipment
Inspection Certificate. L/Cs shall also incorporate any other documents which are
mandatory specified for that commodity in the IPO/Public Notices/Bangladesh Bank
Circulars.
It is not permissible to open import L/Cs in favor of beneficiaries or to use shipping
carriers of the countries from which import into Bangladesh are banned by the competent
authority.
Shipment Validity & Expiry
All L/Cs must specify shipment validity as per terms of the Proforma/Invoice or indent or
L/C application. However, shipment validity under any circumstances shall not exceed 9
(nine) months from the date of issuance of LCAF or registration LCAF with Bangladesh
Bank excepting capital machinery and spare parts shipments of which shall be made

70 | P a g e

within 17 (seventeen) months. All L/Cs must stipulate an expiry date and a place for
presentation of documents for payment/acceptance.
Amendments
The Branch may allow amendments to the L/Cs only upon requests of the L/C applicants
that do not violate foreign exchange regulations and import control regulations. Necessary
charges and/or margin (where L/C value is increased by subsequent amendments) also to
be realized/recovered from the customer before amending the L/Cs.
Transmission of L/C to Beneficiary through Advising Bank
Then the transmission of L/C is done through tested telex or fax to advise the L/C to the
advising bank. The advising bank verifies the authenticity of the L/C.
MBL has corresponding relationship or arrangement throughout the world by which the
L/C is advised. Actually the advising bank does not take and liability if otherwise not
requested.
Presentation of the Documents
a. The seller being satisfied with the terms and the conditions of the credit makes
shipment o the goods as per L/C terms.
b. After making the shipment of the goods in favor of the importer the exporter
submits the documents to the negotiating bank.
c. After receiving all the documents, the negotiating bank then checks the
documents against the credit. If the documents are found in order, the bank will
pay, accept or negotiate to MBL.
d. Branch & bank received seal to be affixed on the forwarding schedule.
e. The bill of exchange & transport documents must immediately be crossed to
protects loss or fraudulent.
MBL checks the documents. The usual documents are,
i. Bill of Exchange.
ii. Invoice.
iii. Bill of Lading
iv. Certificate of origin.

71 | P a g e

v. Packing list.
vi. Weight list.
vii. Shipping advice.
viii. Non-negotiable copy of bill of lading.
ix. Pre-shipment inspection report.
x. Shipment certificate.
Lodgment of Documents
If the documents are found in order or the discrepancies in the document if any, are
subsequently accepted by the applicant, the branch will record the particulars of the
documents in the PAD Register (MB fx-05) and following vouchers are to be passed for
completion of lodgment transactions.
Retirement of Documents
Importer is to be advised (MF fx-04) on the date of lodgment of documents with full
particulars of shipment to retire the documents against payment or to dispose the import
documents as per prearrangement, if any. Subsequent reminders (MF fx-05) are also to be
issued every week till retirement of the bill. Such bills will be considered and be reported
as overdue if the importer fails to retire the documents within 21 days of arrival of the
relative import consignments at the port of destination.
Endorsement of Non-Negotiable Copy Documents
A. For clearance of cargo
In the event of non-receipt of import documents relating to goods, which have already
reached the port, the customer may ask the bank to provide a Shipping Guarantee/NOC to
enable them to clear the goods, form the customers. The Shipping Guarantee may be given
on the basis of a written undertaking from the clients. The S/G should state, inter alias,
that he will in due course accept the original documents in spite of discrepancies, if any
and bear the exchange loss on account of fluctuation of exchange rates between the date of
guarantee to actual date of lodgment of original documents, when received.

72 | P a g e

- Branch will check the non-negotiable copy documents with the L/C terms and
make entries of particulars of copy documents in the Shipping Guarantee Issue
Register (MB fx-06)
- Branch will recover Taka equivalent of F.C value of N/N copy documents and
charges from the customer.
- Branch will ensure return back of the shipping indemnity/guarantee from the
shipping company by delivering original shipping documents to the importer after
receipt of original documents form the payee bank.
- Branch will mark cancellation on the shipping indemnity/guarantee returned by
the shipping company through the importer and file it in the respective L/C file.
B. For customer Assessment Purpose
At the request of the importer, branch may endorse Non-negotiable copy documents for
custom assessment purpose. The branch will certify the value of F.C on the copy invoice
and also certify the copy transport documents under single authorized signature.
Endorsement charge is to be realized as per schedule of charges of the bank.

Cancellation of L/Cs
An irrevocable L/C cannot be cancelled without the agreement of the beneficiary and the
confirming bank, if any.
The branch at the request of the importer may approach the L/C advising bank for
cancellation of the L/C and such cancellation will only be effective upon consent of the
beneficiary advised to the branch through the L/C advising bank. However, the branch
may cancel the L/C without the consent of the beneficiary. Advising bank and confirming
bank, if any, if the L/C expires and the branch receives no shipping documents within 15
days of expiry of the L/C. The branch should send a massage to the concerned bank
advising such cancellation and closure of L/C file due to expiry of the same. The branch
then cancels the Reimbursement Authorization that has been provided to the
Reimbursement Bank while opening the L/C. The branch will reverse L/C contra
liabilities, refund margin and recover charges from the L/C applicant as per schedule of
charges.

73 | P a g e

4.6.2 Export
Exports, for obvious reasons, are listed in the priority sector in all developing economies. There
is no doubt in this fact that export trade constitutes the most substantial base for sustaining the
long term development and prospect of a countrys economy. Bangladesh is also now a
developing country. So this fact is equally relevant to the concerned economic soundness of
Bangladesh. We all know about the Balance of Payment. If a countries total import outweighs
its total export, the country is called to be facing drastic negative (unfavorable) balance of
payment. A continuous negative balance of payment of country makes it totally dependent on
others. And thus the economic standing and structure of that country gradually collapse. On the
other hand a positive (favorable) balance of payment shows the greater amount of export by a
country against its total import and shows a sound economic motion. Thus export is a most
import mechanism that helps a country to be dependent and to produce goods or merchandise
either through its internal resource or through procuring resource from external sources.
Whatever the source is the export helps a country to build its capital reserve more promisingly.
Bangladesh is also now very much keen to boost up its export. But the most stumbles blocking
the process is the non-availability of required finance. There is neither adequate capital in the
hands of the exporter to meet up their foreign trade requirements nor their exists an organized
capital market to extend fair hand as help for the finance. In view of this, commercial banks of
this country are the only real friendly base, which recently have started playing a challenging
and pivot role in the business sector through extending both pre and post trade finance to the
exporters and importers.
Export Policy 1997-2004
Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by
post any goods either directly or indirectly to any place outside Bangladesh, unless a
declaration is furnished by the exporter to the collector of customs or to such other person
as the Bangladesh Bank (BB) may specify in this behalf that foreign exchange
representing the full export value of the goods has been or will be disposed of in a manner
and within a period specified by BB.
Target
- To attain highest national growth by increasing export to regional and international
markets;

74 | P a g e

- To reduce gradually the gap between export and import expenditure;
- To produce export commodity at a competitive price aimed at market retention and
promotion;
- To avail the opportunity to enter in liberalized and globalize Post-Uruguay Round
International Market;
- To make goods exportable and more suitable for foreign markets by diversification
and quality improvement;
- To establish backward linkage industry and services and identify higher value
added goods;
- To develop infrastructure for exports;
- To create skilled manpower in export sector;
- To upgrade the quality and grading of commodity to an internationally recognized
level.
The normal export mechanism is much like the procedure maintained in a typical import
mechanism. Whereas in case of import the party is the importer and the bank acts as the opener
of his credit, in case of export the party is the exporter and the bank acts as the negotiator of his
documents. In our country the most promising exporters are the garments industries. About 76%
of the total exports of our country is made by the garments sector. The underlying reason of
success of this sector in exports is the availability of the huge amount of cheap labor. But
because of inadequate supply of locally produced quality fabrics and accessories, we have to
import about 60% of the fabrics and accessories from abroad for use in the garments industry.
This is actually a time consuming and costly process for the garments sector. So considering the
significant contribution of the garments sector in the export trade the private commercial banks
have undertaken an especial arrangement to provide them with export finance, which is called
the foreign Back to Back Letter of credit (BTB).
Bank Operation for Export
As stated earlier, the foreign trade plays a vital role in the economic advancement process of
nation. So the trend or parameters of foreign trade i.e., import and export is of great concern to
the government of a country. By the term Export we mean carrying of anything from the
country of origin to another country in return for a value. The bankers define Export as the
sending of visible things outside the country for sale. The export is important because with the

75 | P a g e

export earnings we met our import bills. Normally a bank provides the following services as
with the party in case of export needs.
Formalities for export L/C
There are a number of formalities, which an exporter has to fulfill before and after
shipment of goods. These formalities or procedures are enumerated as follows,-
1. Obtaining Export Registration Certificate ERC
No exporter is allowed to export any commodity permissible for export from
Bangladesh unless he is registered with Chief Controller of Imports and Exports
(CCI & E) and holds valid Export Registration Certificate (ERC). After applying
to the CCI&E in the prescribed from along with the necessary papers, concerned
officers of the Chief Controller of Imports and Exports issues ERC. Once
registered, exporters are to make renewal of ERC every year.
2. Securing the order
After getting ERC, the exporter may proceed to secure the export order. He can do
this by contracting the buyers directly through correspondence.
3. Signing of the Contract
After communicating with buyer the exporter has to get contracted for exporting
exportable items from Bangladesh detailing commodity, quantity, price, shipment,
insurance and mark, inspection, arbitration.
4. Receiving the Letter of Credit
After getting contract for sale, exporter should ask the buyer for Letter of Credit
clearly stating terms and conditions of export and payment.
5. Procuring the materials
After making the deal and on having the L/C opened in his favor, the next step for
the exporter is to set about the task of procuring or manufacturing the contracted
merchandise.
6. Obtaining EXP
After having the registration, the exporter applies to MBL with the trade license,
ERC and the certificate from the concerned Government Organization to get EXP.
If the bank is satisfied, an EXP is issued to the exporter.
7. Endorsement on EXP

76 | P a g e

Before the exporters with the customs/postal authorities lodge the export forms,
they should get all the copies endorsed by MBL. Before shipment, exporter
submits EXP. form with commercial invoice. Then MBLs officer checks it
properly, if satisfied, certifies the EXP. Without it exporter he cannot make
shipment. The customer must declare all exports goods on the EXP issued by the
authorized dealers.
8. Shipment of goods
Exporter makes shipment according the terms and condition of L/C.
9. Presentation of export documents for negotiation
After shipment, exporter submits the following documents to MBL for negotiation.
a. Bill of Exchange or Draft;
b. Bill of Lading
c. Invoice
d. Insurance Policy/Certificate
e. Certificate of origin
f. Inspection Certificate
g. Consular Invoice
h. Packing List
i. Quality Control Certificate
10. Examination of Document
Banks deal with documents only, not with commodity. As the negotiating bank is
giving the value before repatriation of the export proceeds it is advisable to
scrutinize and examine each and every document with great care whether any
discrepancy (s) observed in the documents. The bankers are to ascertain that the
documents are strictly as per the terms of L/C Before negotiation of the export bill.
Bank officers assigned for examining the export documents may sue a checklist for
their convenience.
11. Negotiation of export documents
Negotiation stands for payment of value to the exporter against the documents
stipulated in L/C. If documents are in order, MBL purchases (negotiates) the same
on the basis of banker-customer relationship. This is known as Foreign
Documentary Bill Purchase or FDBP.

77 | P a g e

If the bank is not satisfied with the documents submitted to MBL gives the
exporter reasonable time to remove the discrepancies or sends the documents to
L/C opening bank for collection. This is known as Foreign Documentary Bill for
Collection or FDBC.
4.7 Back-To-Back L/C
The branch may open back to back import L/Cs against export L/Cs received by export
oriented industrial units operating under the bonded warehouse systems, subject to
observance of domestic value attained requirement prescribed by the NBR/Ministry of
Commerce from time to tome A Back-to-Back mechanism involves two separate L/Cs.
One is master Export L/C and another is Back-to-Back L/C.
4.7.1 Features of back-to-back L/C
a. Is an Import L/C to procure goods/raw materials for further processing?
b. Is opened based on Export L/C.
c. Is a kind of Export Finance?
d. Export L/C is at Sight but back to Back L/C is at Usance.
e. No margin is required to open Bank to back L/C.
4.7.2 Checklist to open back-to-back L/C
The following instructions should be complied with while opening Back-to-Back Import
L/Cs
1. The unit requesting for this facility should possess valid IRC, ERC and valid
bonded warehouse license.
2. The branch shall hold the Master Export L/C affixing banks lien stamp thereon
and be kept in safe for security purpose.
3. The master export L/C should have validity period adequate to cover the time
needed for importation of inputs, manufacture of merchandise, and shipment to
consignee.
4. The back-to-back L/C value shall not exceed the admissible percentage of net FOB
value of the relative mater export L/C (as per prescribed value addition
requirement). For computation of net FOB value of a master export L/C, the
freight charge, insurance cost and commission if payable by the exporter shall be

78 | P a g e

deducted from the L/C value. If the freight element is not shown separately a
freight certificate from the shipping company or agent should be asked for.
5. The back to back import L/C shall be opened on up to 180 days usance (DA) basis
except in ease of those opened against Export Development Fund administered by
Bangladesh Bank in which case the back to back L/C will be opened on sight (DP)
basis.
6. Interest for the usance period shall not exceed LIBOR or the equivalent interest
rate in the currency of settlement.
7. All amendments of the master export L/C should be noted down carefully to rule
out chances of excess obligation under the back-to-back import L/C.
8. Back to Back L/C can either be local or foreign. Inland BTB L/Cs denominated in
foreign exchange may be opened in favor of local suppliers! Manufacturer of
inputs against master export L/C and BTB L/Cs may in turn be opened for import
of inputs against inland BTB L/C in favor of local supplier/manufacturer under
bonded warehouse system up to value limits applicable as per prescribed value
addition requirement.
4.7.3 Papers required opening back-to-back L/C
a. Import registration certificate & export registration certificate.
b. L/C application and LCA form.
c. Performa invoice or indent (in case of an agent).
d. Insurance policy.
e. IMP form.
4.7.4 Steps to issue back-to-back L/C
a. Obtain all required papers.
b. Check the credit limit.
c. Prepare offering sheet if regular credit line is available.
d. Mark lien on the master L/C.
e. Issue the L/C.
4.7.5 Payment under back-to-back L/C
Payment of BTB L/Cs shall be made at maturity, out of export proceeds. The required
foreign exchange out of repatriated export proceeds will be set-aside in a separate foreign

79 | P a g e

currency account called F.C held for BTB L/C in single pool system separately for each
and every industrial unit. The branch will pay BTB bills according to their maturity within
3 working days from date of realization of export proceeds.
If export proceeds are not available, the ABP liability should be liquidated by grant of
SOD.
4.8 Foreign Remittance
The basic function of this department are outward and inward remittance of foreign
exchange from one country to another country. In the process of providing this remittance
service, it sells and buys foreign currency. The conversion of one currency into another
takes place at an agreed rate of exchange, in where the banker quotes, one for buying and
another for selling. In such transactions the foreign currencies are like any other
commodities offered for sales and purchase, the cost (convention value) being paid by the
buyer in home currency, the legal tender.
According to Foreign Exchange Regulation Act 1947, the commercial banks or the authorized
dealer who has the Bangladesh Bank authorization can do Foreign Exchange. According to this
Act, TC (Traveler Cheque), Drafts are included in Foreign Exchange. SIBL, Foreign Exchange
Branch provides its customer with the foreign remittance facilities by issuing Foreign Demand
Drafts, Traveler Cheque, Endorsing passport for cash etc.

Table 10: Foreign Remittance
(BDT in Million)
Foreign
Remittance
2006 2005 2004 2003
2,989.10 679.10 671.30 474.00

80 | P a g e

Figure 10: Foreign Remittance through MBL
4.8.1 Workings of this department
Overall supervision of Foreign Remit. Dept.
Foreign TT payments & Purchase of F. Drafts, preparations of F.B.P.
(Foreign Bill Purchased).
Issuance of outward TT & FDD.
Issuance of proceed responding certificate (PRC).
Foreign Collection, Bangladesh Bank Clearing Check Collection, which
comes from all branch of MBL.
Withdrawal from F.C. A/C.
Encashment of T.C. & Cash Dollar and Sterling Pound.
Deduction of Tax and VAT. On behalf of Bangladesh Bank.
Preparation of related statements including convertible Taka Accounts.
Preparation of IBCA & IBDA and Balancing of Collection and other
special assignment as desired by Department in charge.
Balancing of Account Statements.
Compliance of audit & inspection.
Statement of all related works submitted to Bangladesh Bank.

81 | P a g e

4.8.2 Inward Foreign Remittance
Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D.,
M.T. and Bills etc. sent from abroad favoring a beneficiary in Bangladesh.
Remittance received against Export to be reported to Exchange control Department of
Bangladesh bank prescribing from (EXP Form )
Remittances received from abroad to be reported to Exchange control Department of
Bangladesh bank prescribing from i,e Inward remittances equivalent to US$ 2000/- and
above will be reported by Bangladesh bank prescribing from (Form C) .
4.8.3 Outward Foreign Remittance
Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts,
Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills
retired.
Two forms are used for Outward Remittance of Foreign Currency, are;
1. IMP Form : All outward remittance on account of Imports.
2. TM Form : For all other outward remittances.
4.8.4 Remittance facilities
a) Private Remittances
i. Family remittances facilities.
ii. Remittances of membership fees.
iii. Education.
iv. Remittances of consular fees.
v. Remittances of evaluation fees.
vi. Travel.
vii. Health & medical.
viii. Seminars & workshops.
ix. Foreign nationals.
x. Remittances for Hajj.
xi. Other private Remittances.

82 | P a g e

b) Official and Business Travel
i. Official visits.
ii. Business travel quota for new exporters.
iii. Business travel quota for importers.
iv. Exporters retention quota.
c) Commercial Remittances
i. Opening of branches or subsidiary companies abroad.
ii. Remittance by shipping, airlines and courier services.
iii. Remittance for royalty and technical fees.
iv. Remittance on account of training & consultancy.
v. Remittance of profits of foreign firms.
vi. Remittance of dividends.
vii. Subscription of foreign media services.
viii. Fees for return monitors.
ix. Adv. of Bank Products in mass media abroad.
x. Bank charges.
xi. Sundries.
4.8.5 Travelers Cheque
It is the safest way to carry money from one country to another. It can be change in any country
of the world. Even if the Traveler Cheque (TC) is lost then the holder of the T.C can inform it to
the bank and the bank will inform it to the agencies so that no one can en-cash the T.C while
issuing a Traveler Cheque (T.C) a signature is needed, so that no one can en-cash it except the
holder and also another signature is needed in encashment in front of the banker. So Traveler
Cheque (T.C) is the safest way to carry out side the home country.
A customer is permitted to endorse maximum US$ 3000 per year for travel in countries other
than SAARC countries and US$ 1000 for travel in SAARC countries. If SAARC countries are
to be visited by road then maximum US$ 500 can be endorsed per passport per year. At a time
cash cannot be endorsed over US$ 500.
Issue of Travelers Cheque
There are some requirements, which are to be fulfilled by the TC publisher:
- Passport holder himself to be present to issue TC purchasing.

83 | P a g e

- The passport has to be a valid one.
- Air ticket has to be confirmed.
- Steps involved in issue of TC:
- After verifying all these documents, the customer as asked to fill up prescribed
application form.
- In the application the customer states the amount he is willing to endorse and it is
to be verified that his required amount is within the stipulated amount.
- Then the customer pays cash or by debiting his account the Travelers Cheque is
issued.
- Endorsement is given on the passport and on the ticket. Customer fills up the
Travel and miscellaneous form.
- Purchase application form is prepared and handed over to the purchaser along with
the Traveler Cheque.
- Entry is given in two registers: Travelers Cheque Issue Register, Travelers Cheque
On Hand Register.
Payment of Travelers Cheque
When a customer wants to encash his TC, he has to show his passport and it is to be verified
from the passport that he has traveled outside the country. Then -
- The TC will have to be scrutinized very strictly;
- If everything in the TC is in order then the customer will be asked to give signature
on the place of Counter Signature;
- If the signature agrees with the one in place of the signature of the holder then
the payment will be made through giving cash to the customer or crediting his A/c;
- Travelers Cheque will be crossed and endorsement given on the back of the
received TC.
4.8.6 Endorsement of cash
Cash Foreign Currency can also be remitted through endorsement in the passport. In case of
endorsing cash on passport, the requirements are same as in case of travelers cheque. But the
only exception is that the passport holder is not required to be present by himself.

84 | P a g e

4.8.7 Credit Card
Through its Credit Card, Mercantile Bank Limited has not only initiated a new scheme but also
brought a new life style concept in Bangladesh. Now the dangers and the worries of carrying
cash money are memories of the past.
Credit Card comes in both local and international forms, giving the client power to buy all over
the World. Now enjoy the conveniences and advantages of Credit Card as you step into the new
millennium. Need to maintain FDR (Fixed Deposit Receipt) in MBL in any branch.
4.8.8 Issue FDD
If any draft is send to the name of any organization from abroad then the draft is fill-up
from C where the draft holder is to fill-up who has send this draft, from where this draft
has been sent etc. whether family purpose or not, if the draft has been family purpose then
no VAT is required against the draft. For payment of draft concerned officer maintains a
register, which is called Register for foreign Currency paid.
4.8.9 Foreign currency account
The accounts maintained in foreign currencies are known as foreign currency account. The
Authorized Dealers may open foreign currency accounts in the names of followings without
prior approval from Bangladesh Bank.
- Bangladesh nationals residing abroad.
- Foreign nationals residing in Bangladesh and also the foreign firms registered
abroad and operating in Bangladesh or abroad.
- Foreign Missions and their expatriate employees.
Branches are mainly deals with two types of foreign currency accounts, namely:
- Non-Resident Foreign Currency Deposit Account (NFCD).
- Resident Foreign Currency Deposit Account (RFCD).
Non-Resident Foreign Currency Deposit Account (NFCD)
All nonresident Bangladesh nationals and persons of Bangladesh origin including those having
dual nationality and ordinarily residing abroad, may maintain interest bearing time deposit
accounts named Not-Resident Foreign Currency deposit (NFCD)Accounts with the Ads.

85 | P a g e

Eligible persons:
- Bangladesh nationals working and earning abroad.
- Bangladesh nationals serving with Embassies /High Commission of Bangladesh in
foreign countries including officers/Staff of Govt./Semi
Govt./Autonomous/nationalized sector posted/Deputed abroad.
- Shore staff posted abroad (Crew of BSC not entitled).
- Foreign nationals and companies registered and /or incorporated abroad,
institutional investors and 100% (Hundred Percent) Foreign owned industrial unit
of EPZ (Minimum Amount USD 25000/- or equivalent).
Resident Foreign Currency Deposit (RFCD)
Ordinary resident of Bangladesh may open and maintain Resident Foreign Currency Deposit
(RFCD) accounts with foreign exchange brought-in at the time of their return from travel
abroad. Any amount brought in with declaration to Custom Authorities in form FMJ and up to
US$ 5000/- brought in without any declaration can be credited to such accounts.
Deposit
The depositors must submit a declaration mentioning the date of return from abroad and the
amount of Foreign exchange brought in at the time of crediting to RFCD account to the effect
that Foreign exchange (i) is not a receipt against export of goods or services from Bangladesh
(ii) is not a commission due from abroad arising from business in Bangladesh.
4.8.10 Telegraphic Transfer (TT)
TT is one of the important tools of foreign currency from one country to another. The person
who wants to send TT to the abroad at first he /she has to deposit amount mentioned in voucher
to the cash department. The bank branch through their respective NOSTRO account that is
maintaining any foreign bank account outside the country generally performs it. The originating
bank sends a message to the paying foreign bank for making payment against the mentioned TT
account number. The foreign make payments to the party and also make debit account against
respective bank. At the same time foreign bank send advice to Head Office ID division for
acknowledgement the payment.
Ending Summary

86 | P a g e

Foreign Exchange department is doing well, rendering all the services related to
international trade and remittance. It also involves handling of import business through
opening letter of credit and handling of export business.

87 | P a g e

INVESTMENT

88 | P a g e
CHAPTER: 5
5.1 Introduction
5.2 Principles of Loans and Advances
5.3 Credit Facilities
5.4 MBLs Loans and Advances
5.5 Credit Schemes
5.6 Loan Application Form
5.7 Cs for analysis Risk
5.8 LRA (Lending Risk Analysis): Credit Risk Evaluation
5.9 Processing and Screening of Credit Proposal
5.10 General Procedure for Loans and Advances
5.11 Legal Framework for Loan Recovery
Different Micro Credit Program
5.13 MBL Position in Loan & Advances
5.14 MBL Position in Classified Loan
5.15 Ending Summery

5.1 Introduction
Investment operation of a Bank is of vital importance as the greatest share of total revenue
is generated from its maximum risk is centered in it and the very existence of a bank
mostly depends on prudent management of its investment portfolio. As such for efficient
deployment of mobilized resources in profitable, safe and liquid investment, a sound, well
defined well planned and appropriate Investment policy framework is necessary pre
requisite for achieving the goal of the bank. It is there fore essential to have a clearly
defined and balanced investment policy prescribing the procedure for implementation
there of on the basis of which banks investment portfolio shall be planned and budget
shall be prepared for promotion of Investment.
Loan and Advance
The Loans & Advances department is very important is very important part of the branch
operation that also provides administrative support for the lending activities of the branch.
The Loans & Advances department provides and effective perfect check and balance on
funds lend to clients and that the transaction is within approved limit for borrower and
amount. In MBL, Kawran Bazar Branch, a big amount of loans and advances are
sanctioned every year.
5.2 Principles of Loans and Advances
All lending will be adequately secured with acceptable security and margin
requirements as lay down by the Head Office Credit Committee.
Loans and advances shall be normally funded from customers deposits of a
permanent nature, and not out of short-term temporary funds or borrowings from
other banks or through short-term money market operations.
Credit evaluation will include:
a) Prevalent credit practices in the market place.
b) Credit worthiness, background and track record of the borrower.
c) Financial standing of the borrower supported by financial statements
and other documented evidence.
d) Legal jurisdiction and implications of applicable laws.
e) Effect of any applicable regulations and laws.
f) Purpose of the loan/facility.

89 | P a g e

g) Tenure of the loan/facility.
h) Viability of the business proposition.
i) Cash flow projections.
j) Quality and adequacy of security, if available.
k) Risk taking capacity o the borrower.
l) Entrepreneurship and managerial capabilities of the borrower.
m) Reliability of the sources of repayment.
n) Volume of risk in relation to the risk taking capacity of the Bank
Company concerned.
o) Profitability of the proposal to the Bank or company concerned.
Exception will require approval of the Board of Directors.
5.3 Credit Facilities
The credit facilities extended by MBL are-
Credit
Funded Non-funded
Overdraft Letter of Credit
Consumers Credit Bank Guarantee
General Loan
Hire Purchase
Staff Loan
Term Loan
Cash Credit (Hypo)
PAD
LTR
Packing Credit
5.4 MBLs Loans and Advances
MBL is almost new financial institution in the Banking Sector. MBLs loans and advances
are broadly categorized by following four ways:
The Position of Loans & Advance of Marketing of Limited is given in the below:


90 | P a g e
0
5000
10000
15000
20000
25000
INMILLION
2005 2004 2003 2002
YEAR
LOANS & ADVANCE
2005
2004
2003
2002

Figure 11: Loans & Advances of MBL
Application of funds in 2006
Loans 16603815787
Cash Credit 2539579016
Overdrafts 5056631328
Foreign Bill Purchased 2642113572

Figure 12: Credit Mix on MBL
CREDIT PORTFOLIO
Table 11: Credit Portfolio of MBL
Year-2005 (BDT in million)
Sectors/Segments Volume %

91 | P a g e

Exports ((RMG) 5,793.43 26.51
Trade Finance 4,078.53 18.66
Food, Beverage, Edible Oil etc. 2,973.64 13.60
NBFIs 1,721.60 7.88
Construction and Housing 1,693.31 7.75
Engineering (Iron and steel/electrical) 757.89 3.47
Textile (Linkage Industry) 576.08 2.64
Hospital and Medical Services 315.45 1.44
Paper and Publication 272.99 1.25
Plastic and Plastic Materials 266.27 1.22
Telecommunication 252.75 1.16
Glass and glass products 245.62 1.12
Transportation 177.27 0.81
Pharmaceuticals 152.04 0.70
Information Technology 48.33 0.22
Others 2,531.85 11.58
Total 21,857.05 100.00

92 | P a g e

Figure 13: Credit Portfolio of MBL
Uses of the funds inside in Bangladesh
Table 12: Use of Fund
2003 2004 2005 2006
Loans, CC, OD 10,333,803,745 17,053,533,183 20065170273 24200026131

93 | P a g e
Credit Portfolio
26%
19%
14%
8%
8%
3%
1%
1%
12%
Exports ((RMG)
Trade Finance
Food, Beverage, Edible
Oil etc.
NBFIs
Construction and Housing
Engineering (Iron and
steel/electrical)
Textile (Linkage Industry)
Hospital and Medical
Services
Paper and Publication
Plastic and Plastic
Materials
Telecommunication
Glass and glass products
Transportation
Pharmaceuticals
Information Technology
Others

Figure 14: Use of Fund of MBL
Loans
- Loan General
- Term loan
- Time loan
- House building (Commercial)
- Consumer credit scheme (CCS)
- Loan Against Trust Receipt (LTR)
- Packing Credit
- Lease Finance
- Hire Purchase
- Payment Against Documents (PAD)
- Staff loan (car)
- Staff loan (building)
- Personal loan

94 | P a g e

Over Draft
- SOD against the FDR/DPS/DBDS/SS
- SOD against work order
- Cash Credit (Hypothecation)
Others
- Credit card
- Export Development Fund (EDF)
- Other credit schemes
Overdraft (OD): It is a continuous advance facility. By this agreement, the banker allows
his customer to overdraft his current account up to his credit limits sanctioned by the bank.
The interest is charged on the amount, which he withdraws, not on the sanctioned amount.
Secured Overdraft (SOD): Branch sanctions SOD against different securities like FDR,
MSP, MBDS, DBDS, SS, Sanchaypatras and Work Orders.
The processes of extending SOD are as follows-
i) The party must have a current A/C with the branch
ii) If the ownership of the firm is proprietorship, then a trade license
must be submitted and in case of a limited company, all the
documents required to open a current A/C, should be submitted.
The financial statements of the concerned firm should also be
submitted.
iii) The party must maintain a good transaction with the branch and
have a good turnover rate.
iv) The party will apply to the officer in charge of credit department of
the branch for SOD arrangement
v) The concerned officer of the branch will give him a Credit
Application form and the party will have to fill up this form. In this

95 | P a g e

form he discloses all the information about his concern, purpose of
the loan, description of security, etc.
vi) The concerned officer will prepare a Credit Line Proposal where
he writes about the business concern, details of proprietors/
Directors of the concern, management structure, the existing credit
facilities, the particulars about the facilities that asked for-such as
margin limit, date of expiry, details of security, and any other
relevant information. Then the proposal is sent to the Head Office,
General Advances Division for approval.
vii) The responsible Department of the General Advances Division will
appraise the proposal and if it seems to a viable then the loan will be
sanctioned.
viii) After the loan is sanctioned, the branch will issue two copies of a
sanction advice, where all the terms and conditions set by the bank
is mentioned. The borrower is advised to write, accepted on the
original copy if he/she is satisfied with the terms and conditions of
the bank and retain the duplicate one as record.
Terms and condition
+ It may cancel by Bank without assigning any reason.
+ It may cancel if the client fail to pay in due time.
Cash Credit (CC): By this arrangement, a banker allows his customer to
borrow money up to a certain limit. CC is a favorite mode of borrowing by
traders, industrialists, etc. for meeting their working capital requirements. It is
operated like overdraft account. Depending on the needs of the business, the
borrower can draw on his cash credit account at different time and when he gets
money can adjust the liability. MBL charges interest on the daily balance of the
account. Based on charging securities, there are two forms of cash credit-
1. Cash Credit (Hypothecation): Hypothecation is a legal transaction whereby goods are
made available to the lending banker as security for a debt without transferring either the
property in the goods or possession. The banker has only equitable charge on stocks,

96 | P a g e

which practically means nothing. It is given against registered mortgage of land and
building, hypothecation of goods and personal guarantee of Directors.
2. Cash Credit (Pledge): Pledge is the bailment of goods as security for payment of a
debt or performance of a promise. Transfer of possession is the judicial sense. In
case of pledge goods the bank acquire the possession of the goods or a right to hold
goods until the repayment for credit with a special right to sell after due notice to
the borrower in the event of non-repayment. It is not applicable in Kawran Bazar
Branch.
The processes of opening a CC a/c are as follows-
1. The interested party must have a current A/C and good
transaction with the branch;
2. Applies for CC pledge or hypothecation arrangement;
3. Fills up the Application form as provided by the respective
officer;
4. The concerned officer prepares a Credit Line Proposal
detailing all relevant information;
5. Sends the CLP to the Head Office, General Advances Division
for necessary action;
6. Head Office, General Advances Division examines the proposal
and if finds it viable then sanctions it and sends it to the branch;
7. The branch issues two copies of Sanction Advice one for its
own record and the other for the party to keep.
Interest rate
The rate of interest is 14%
Terms and condition
+ Insurance policy to be obtained against the stocks to be hypothecated covering fire
and RSD risk at the cost of the customer.
+ Stock report to be submitted on monthly basis
+ Banks reserve the right to cancel or call back sanctioned credit limit.

97 | P a g e

Hire Purchase: This is another form of consumer credit. The feature of Hire
Purchase that usually a deposit has to be paid and the rest of the purchased price
e is separated over the period of six months, two years or sometimes even longer
the article regarded as the property of the Bank until the final payment has been
made. Loans are normally allowed to those parties who have either fixed source
of income or who desire to pay it in lump sum.
Interest rate
Interest rate on the hire purchase is only 14%
Terms and condition
+ The durable will be covered by first party comprehensive insurance policy of each
year will be borne by the client.
+ Retailed feasibility report containing marketing, financial, technical, socio-
economic aspects showing detailed break-up of project cost and other usual
financial analysis duly supported by its assumption.
General Loan: When an advance is made in a lump sum repayable either in
fixed monthly installments or in lump sum and on subsequent debit is ordinarily
allowed except by way of interest, incidental charges etc. Loans are normally
allowed to those parties who have either fixed source of income or who desire to
pay it in lump sum.
Interest rate
Interest rate on these types of loan for both only 15%
Terms and condition
+ It may cancel by the Bank without assigning any reason.
+ It may cancel if the client is a defaulter.
+ All the formalities must be completed.

98 | P a g e

Consumer Credit: People with limited income can avail of this credit facility to
buy any household commodities. The borrower must confirm about his
profession to the bank.
Terms and condition
+ All the documents related with the articles must be hypothecated to the bank.
+ The client will bear additional cost.
+ The installment will be repaid according to prescribed form by the bank.
+ Service charge 1% and risk fund 1% for house hold item.
Bank Guarantee: A letter of guarantee has special significance in the business
of banking as a means to ensure safety of funds lent to the customers. In case, if
the borrower is unable to provide the security of tangible assets or the value of
the assets falls below the amount of the loans and borrowers personal security is
not considered sufficient, an additional security is sought by the banker in the
form of a guarantee given by a third person.
Terms and condition
+ The banks legal adviser must verify all security documents.
+ When the principal debtor defaults in fulfilling this obligation or promise the
liability bestow on guarantor.
+ Bank reserves the right to cancel or amend the terms and condition partly or
wholly at its direction without assigning any reason whatsoever.
5.5 Credit Schemes
Our Various Credit Schemes
Consumers Credit Scheme (CCS)
Car Loan Scheme
Doctors Credit Scheme
Lease Financing
Personal Loan
Small Loan

99 | P a g e

Consumers Credit Scheme
Objectives Terms & Conditions
Help fixed-income people
for buying house hold
durable.
For the amount up to Tk.
1, 00,000 the period is two
years.
Interest rate will be charged
quarterly rest.
Interest Rate 16.00%
Risk Fund 1.00%
Supervision Charge (per year
on outstanding balances)
0.25%
Application Fee BDT 200.00
Special Feature
The loan amount is directly
credited to the customer's
account.
Car Loan Scheme
Help fixed-income
people for buying
car
Interest rate will be
charged quarterly
rest.
Maximum loan amount is BDT 25.00
lacs.
Tenure of loan is 05 (Five) years
Risk Fund 1.00%
Supervision Charge (per year on
outstanding balances) 0.25%
Application Fee BDT 200.00
Special Feature
BDT 7.50 Lac for reconditioned
Car/Jeeps/SUVs and BDT 25.00 Lac for
new Cars/Jeeps/SUVs.

100 | P a g e

Raise the standard of living of
rural people.
Initiative to break the vicious
cycle of poverty.
Enhance the purchasing power
of rural people.
Group Formation
30 person in a group
1 group leader
6 sub-groups consisting 5 person each
in a group
1 sub-group leader in each sub-group
Credit Limit
Maximum Tk. 5,000 per person.
Gradually enhanceable up to Tk.
10,000.
Interest Rate 14.00%.
Risk Fund 1.00.
Service Charge 0.25% per year on
outstanding balances.
Repayment period 1 years.
Security: Group guarantee, no collateral
Lease Financing
Assist and encourage entrepreneurs for
acquiring capital machinery, medical
equipment, automobiles etc.
Lease period 3 to 7 years
Lease rent @ 16.00%
Risk Fund 1.00%
Service Charge 0.25% per year on
outstanding balances.
Security
Primary: Ownership of fixed items.
Collateral: Landed property, Bank
Guarantee, ICB Unit Certificate etc.
Personal Loan Scheme
Objectives Mode
Help fixed-income people
for buying house hold
Durable
For the amount up to Tk.
3,00,000 the period is 03
(Three) years.
Interest rate will be
charged quarterly res
Risk Fund 1.00%
Supervision Charge
(per year on outstanding
balances) 1.00%
Application Fee BDT 200

Special Feature
The loan amount is directly credited to

101 | P a g e

the customer's account.
Loan limits BDT 3.00 Lac or 8 times
of monthly evidenced income,
whichever is lower.
Repayment period Maximum 3 years
that is 36 monthly installments.
5.6 Loan Application Form
The starting point of project appraisal is the receipt of will-documented loan applications
from the Sponsors (Client) in the banks standard questionnaire form and duly signed by
the prospective borrower.
For any Type of credit facilities relating to the working capital, trade finance, project
finance and contract work, Clients/borrowers, must filled an application form with
following information. Loan Application From of Mercantile Bank Limited asks the
following information about the client.
Name of Firm/Company/Individual
Business Address
Permanent Address
Constitution/Status (Sole Proprietorship! Partnership! Public Ltd. Co/private Ltd.
Co.)
Date of Establishment and Place of incorporation
Background and Business Experience
Particulars of Assets:
O Land/Building
O Bank Deposit
O Stock/Shares
Nature of Business
Statement of Liabilities with other Banks
Financial Statements for the last 3 years explaining the following terms
a) Capital Funds/Net Worth

102 | P a g e

Paid up Capital
Retained Earnings
General Reserve
b) Balance Sheet Statistics
Current Assets
Fixed Assets
Current Liabilities
Term liabilities
Capital/Equity
Total Liabilities
For working capital finance clients/borrowers must provide the following information:
Annual Production
Annual Sales
Cash flow Statements
5.7 Cs for analysis Risk
In addition to the formal credit appraisal, the credit of MBL tries to judge the possible
client based on some criteria. These criteria are called the Cs of good and bad loans.
These Cs are described bellow:
i. Character: Make sure that the individual or company you are leading to
has outstanding integrity.
ii. Capacity: Make sure that the individual or company you are leading to
gas the capability of repaying your loan.
iii. Conditions: Understanding the business and economic conditions can
and will change after the loan is made.
iv. Capital: Make sure that the individual or company you are leading to
has an appropriate level of investment in the co.
v. Collateral: Make sure that there is a second way out of a credit but
do not allow that to drive the credit decision.
vi. Complacency: Do not rely on past history to continue. Start alert to what
can go wrong in any loan.
vii. Carelessness: Documentation, follow-up and consistent monitoring are
essential to high quality loan portfolios.
viii. Communication: Share credit objectives and credit decision making both

103 | P a g e

vertically and laterally within the bank.
ix. Contingencies: Make sure that you understand the risk; particularly the
downside possibilities and that you structure and price the
loan consistently with that understanding.
x. Competition: Do not get swept away by what others are doing.
5.8 LRA (Lending Risk Analysis): Credit Risk Evaluation
Credit officer of the Bank evaluate the risk related to the loan during proposal writing.
They evaluate the risk on the basis of the given information by the client; sometime officer
do the physical inspection of the project. An accurate appraisal of risk in ant credit
exposure is highly subjective matter involving qualitative and quantitative judgment,
where Quantitative factors refer to the analysis of financial statement ratios.
Quantitative factors refer to the assessment of management, industry position,
Customer/Supplier relations, account performance and reputation.
Bank Usually analyzes both quantitative and qualitative factors is a combined way for
assessing borrowers financial position, In evaluating any credit proposal, the credit
officers of the bank uses the following distinct and logical steps:
Evaluating the past performance of the borrower.
Assessing the risk of failure by identifying factors in the borrowers
present condition and past performance, this indicates likelihood of
success to repay the loan.
Forecasting the probable future condition of the borrower and deciding
whether to accept or reject a loan proposal.
Setting terms and conditions of credit facilities.
Obtaining the sanction documents and disbursing the loan.
Monitoring performance and ensuring repayment/recovery.
The most pertinent and prime part of the process is assessment of risk of failure to repay
deals with the overall lending risk combining;
Business Risks.
Financial Risks Management Risks.
Security Risks.

104 | P a g e

Environmental Risks.
The following basic aspects are taken into consideration while conducting business risks,
Financial Risks Management Risks, Security Risks, and Environmental Risks.
5.8.1 Business Risks
Credit officers analyze the risk on the basis of the given information by the customer.
Credit officer see the description of business, its characteristics, whether the business is
labor intensive or capital intensive, competitive or monopoly. Industrial projects are
appraised to determine its size, maturity and diversification, they also analyze the
suppliers bargaining power, reliability, availability and sources of supply, and Sales
analysis is conducted to determine the products current demand, unsatisfied demand,
future demand and competition.
5.8.2 Financial Risks
Financial risk assessment is another important part of the proposal. Credit officers do the
financial appraisal is to assess the viability of the proposed project in terms of the
operation in the future year and its financial soundness. To ensure the current solvency as
well as the continued solvency during the currency of loan of its client, bank analyzes the
following financial aspects:
O Investment outlay and cost of the project.
O Means of financing.
O Cost of capital.
O Cash Flow Analysis.
O Internal Rate o Return.
O Analyzing Balance Sheet and Income Statement to determine
liquidity, profitability, and debt management.
O Sensitivity analysis and Ratio Analysis.
5.8.3 Management Risks
O High degree of employee turnover.
O Inefficient financial control.
O Lack of willingness to adapt the changing situation.
O Unaware of different market position.

105 | P a g e

5.8.4 Security Risks
Collateral is one of the important parts for a credit proposal. Security risks refer to
inadequacy of collateral offered and supported by liquidation analysis in terms of
marketability, valuations of security and legal issues. It is the risk that the bank falls to
realize the security. Security risks involve:
Obtaining a favorable judgment.
Perfection level of security documents.
Getting possession of security society or govt.
Change in weather may affect the demand.
Realized security value may be less than the exposure.
Increasing duration of liquidation process.
5.8.5 Environmental/Economic Risks
A project must be judge from the larger social point of view. It includes:
Large industries may pollute air and water by the residue like gas and other
dangerous chemical liquid, such projects may be considered as environment
unfriendly.
Product or service may be banned by the d of the product.
5.9 Processing and Screening of Credit Proposal
MBL strictly followed some common regulatory, which are governed, by Banking
Companies Act, Bangladesh Bank and the Law of the State. Not only that MBL screening
any credit proposal very carefully from the root level.
In case of taking the credit facilities customers first contact with the branch office. They
place their credit proposal to the branch then the credit section of the branch takes
necessary steps i.e. discussing with the customers regarding different issue of the credit, to
judge whether the investment will be viable or not. The credit section informed the client
regarding different formalities about taking the credit. If the credit section is satisfied
about the proposal then the proposal is send to the credit department of the MBL. The

106 | P a g e

credit committee critically analyzes the proposal by discussing and by calculating different
aspects to make sure that the proposal will be profitable for the MBL.
Figure 15: Flow Chart of Credit Proposal
From the credit committee the proposal send to the Board of Bank for approval. If the
board found that the proposal is sound in every respect then the proposal is approved.
5.10 General Procedure for Loans and Advances
The following procedure is applicable for giving loans to the customer. These are-
a) Information Sheet
b) Application for Credit Line
c) Collecting CIB report from Bangladesh Bank
d) Making credit line proposal
e) Project appraisal
f) Head office approval
g) Sanction letter
h) Documentation
i) Disbursement
j) Monitoring
k) Recovery
a) Information Sheet
Information Sheet is the prescribed form provided by the respective branch that contains
basic information of the borrower. It contains following particulars-

107 | P a g e
Flow Chart
Customers Branch
Office
Credit
Committee
Board

i. Name of the concern with its factory location, Office
address and Tel No.
Name of the main sponsors with their educational
qualification.
iii. Business experience of the sponsors, details of past and
present business, its achievement and failures, name of all the concerns wherein
the sponsors have involvement.
iv. Income tax registration no. with the amount of tax paid for
the last three years.
v. Details of unencumbered assets (movable & immovable)
personally owned by the sponsors.
vi. Details of liabilities with other banks and financial
institutions including securities held there against.
vii. Purpose of loan sought from MBL.
viii. Estimated cost of the project & means of finance.
b) Application for Credit Line
After receiving the first information sheet from the borrower Bank official verifies all the
information carefully. He also checks the account maintains by the borrower with the
Bank. If the official becomes satisfied then he gives application for credit line form to the
prospective borrower. The Application for Credit Lines Contain the following particulars.
i. Name, address, telephone, telex no. & cable address.
Date & place established/incorporated,
status/constitution.
iii. Names of major shareholders (in excess of 5%). State
relationship between shareholders.
iv. Names and net worth of directors/partners/owners with
background & relationship with each other (Net worth statement of each person to
be attached as per format).
v. Capital structure & how the capital is deployed in
business.

108 | P a g e

vi. Details of properties/assets of the applicant, with
valuation against each type of property/assets and details of charges against them.
vii. Names and addresses of subsidiaries/affiliates/allied
concerns, stating relationship with applicant, nature of business and borrowings
from banks against each (including BCCI)
viii. Nature & details of business.
ix. Latest audited/un-audited balance sheet and profit & loss
statement attached will be submitted by;
x. Management structure (Including their experience and
qualification).
xi. Names & address of other bankers, sanctioned facilities
& liabilities outstanding with details of securities there-against.
xii. Type, extent and period of credit facilities required.
xiii. Purpose of facility, repayment arrangement (with dates
and amount), sources of repayment;
xiv. Details of securities offered & any other relevant
information.
c) Collecting CIB Report from Bangladesh Bank
After receiving the application for credit line, MBL sends a letter to Bangladesh Bank for
obtaining a report from there. This report is called CIB (Credit Information Bureau)
report. Basically branch seeks this report from the head office for all kinds of loans. The
purpose of this report is to being informed that whether the borrower has taken loan from
any other bank, if yes, then whether the party has any overdue amount or not.
d) Making Credit Line Proposal
If the officer thinks that the project is feasible then he will prepare a Proposal, MBL
prepares the proposal in a specific from called credit line proposal. It contains following
relevant information:
Borrower;
Date established, constitution;
Main sponsor/director with background;
Capital structure, address;

109 | P a g e

v. Account opening date, introduced by, type of business,
particulars of previous sanctions;
vi. Existing vis--vis proposed credit limits;
vii. Particulars of proposed/additional facilities;
viii. Security (Existing & Proposed/Additional);
ix. Movement of accounts;
x. Components on the conduct of the accounts;
xi. Details of deposit, liabilities of allied concerns, liabilities
with other banks.
xii. CIB report.
xiii. Stock position (Pls. Provide St. report);
xiv. Rated capacity of the project (Item wise);
xv. Production/purchase during the period;
xvi. Sales during the period;
xvii. Business received for the period (Last three years);
xviii. Earning received for the period;
xix. Associated lending/business risk (s);
After fulfilling the previous particulars, the officer places the CLP to the BCC (Branch
Credit Committee). BCC is then finding out the right borrower by considering the
following 5 Cs. These are character, capital, capacity, collateral, condition.
Selection of right borrower: The borrower has to be creditworthy and competent enough to
run the proposed industry. Following are the considerations-
Preference given for educated/knowledgeable sponsors, who know about their
business concern, have technically know-how and expertise in the field of
proposed industry;
Who have own land and building for running the project;
Client with innovative ideas;
Client must have net worth more than 2.5 times of the equity required for
investment in the project;
Who have good dealings with the bankers/outside parties and has social contacts
and standings;

110 | P a g e

Have an A/C with MBL Kawran Bazar Branch;
After approving the proposal by BCC, branch then sends the CLP to the respective
division in Head Office. After receiving the CLP with application for credit line,
resolution copy made in the special meeting of the BCC, branch investigation report on
borrowers real estate, statement of stock and bank statement (statement of account), the
respective divisions then divide the loan proposals into SSI (Small-scale industries) and
MSI (Medium scale industries) according to the limit. For SSI the limit is up to 10 crore
and for MSI it is 10 crore and above. Then the respective officer goes for project appraisal.
e) Project Appraisal
It is the pre-investment analysis done by the officer before approval of the project. Project
appraisal in the banking sector is needed for the following reasons:
i) To justify the soundness of an investment
ii) To ensure repayment of bank finance
iii) To achieve organizational goals
iv) To recommend if the project is not designed properly
Basically Head Office is engaged in appraising the following projects
a) Proposal for sanctioning a term loan.
b) Proposal for sanctioning a working capital.
c) Proposal for sanctioning a term loan and working capital.
d) Proposal for renewal of advance limit.
e) Proposal for enhancement of advanced limit.
f) Proposal for enhanced renewal of advanced limit.
g) Proposal for extension of repayment period.
Techniques of Project Appraisal in ICD
An appraisal is a systematic exercise to establish that the proposed project is a viable
preposition. The appraising officer checks the various details submitted by the promoter in

111 | P a g e

first information sheet, application for credit line and CL. MBL considers the following
aspects in appraising a proposal:
a) Technical viability
b) Commercial viability
c) Financial viability
d) Economic viability
The head office (HO) mainly checks the technical, commercial and financial viability of
the project. For others HO is dependent on branchs information. But when the loan size is
big, then the HO verifies the authenticity of information physically.
f) Head Office Approval
The respective officer of HO appraises the project by preparing a summary. Then he sends
it to the Head Office Credit Committee (HOCC) considers the proposal and takes decision
whether to approve the loan or not. If the loan is approved by the HOCC, the HO sends the
approval to the concerned branch with some conditions. These are like:
Drawing will not exceed the amount of bill receivables.
The tern over in the account during the tenure of the limit should not be less than
four times of the credit limit.
All other terms and conditions, as per policy and practice of the bank for such
advance to safeguard the bankers interest shall also be applicable for this sanction
also.
Bank may charge/alter/cancel any clause (s) of the sanction without assigning any
reason whatsoever and that shall be binding upon the client unconditionally.
Branch shall not exceed the sanctioned limit.
Required charge documents with duly stamped should be obtained.
Drawing shall be allowed only after completion of mortgage formalities and other
security arrangement.
g) Sanction Letter

112 | P a g e

After getting the approval from the HO, the branch issues the sanction letter to the
borrower. A sanction letter contains the following particulars amongst other details:
a) Name of borrower.
b) Managing partner
c) Nature of Facility
d) Amount
e) Expiry
f) Rate of interest
g) Purpose
h) Security
i) Other terms and conditions: Other terms and conditions are like-
i. Before availing the loan all documentation formalities must be
completed.
ii. Registered power of attorney in favor of MBL to sell the
mortgaged property without the consent of the court or owner of the lender.
iii. DP note and other usual charge documents/undertakings etc. duly
stamped must be signed and submitted to the authority before the disbursement of
loan.
iv. The loan shall be governed by all other terms and conditions as per
policy and practices of the bank that will be applicable for the sanction to safe
guard interest of the bank.
v. The bank reserves the right to amend, modify or withdraw any or
all the terms of the loan at any time without assigning any reason whatsoever or to
terminate/call back the loan facility at any time for which bank or its official
cannot be held responsible for any loss (s) for such cancellation of the loan.
The borrower receives the letter and returns a copy of this letter duly signed by him as a
token of having understood and acceptance of the terms and conditions above.
h) Documentation of loans and advances

113 | P a g e

In spite of the fact that banker lends credit to a borrower after inquiring about the
character, capacity and capital of the borrower, he must obtain proper documents executed
from the borrower to protect him against willful defaults. Moreover, when money is lent
against some security of some assets, the document must be executed in order to give the
banker a legal and binding charge against those assets. Documents contain the precise
terms of granting loans and they serve as important evidence in the law courts if the
circumstances so desire. That is why all approval procedure and proper documentation
shall be completed before the disbursement of the facilities. The documents for loans and
advances can be classified into two categories, namely Charge documents & Security
documents.
Mode of Charging Securities
MBL Kawran Bazar Branch practices these two types of securities.
f. Primary securities:- Cash or cash equivalent that is easily liquidated or
convertible into cash. Example-FDR, Sanchaypatra, DP Notes, etc.
g. Secondary securities:-These securities are tangible securities which can be
realized from sale proceeds or transfer of property. Example-immovable
properties like land, buildings, etc.
The modes of charging securities are as follows-
a) Pledge
b) Hypothecation
c) Lien
d) Mortgage
Lien: Lien is the right to retain possession and not right of ownership. Banks lien is
general lien over its own financial obligation to clients. Property under lien cannot be
realized/sold and proceeds there of cannot be appropriated without notice to the owner and
sometimes without courts order.
Hypothecation: This is mortgage of movables by an agreement and here neither
possession nor ownership is transferred. Hypothecated goods cannot be sole out/disposed
off without notice and courts order. However, if a special power of attorney is taken in
that case can be disposed off without going to the court.

114 | P a g e

Pledge: Pledge is the bailment of goods as security for payment of a debt or performance
or promise. Here, title and ownership are not transferred. Pledge goods may be sold out
and proceeds there of may be appropriated towards adjustment of Liability in case of
failure of the borrower to repay or fulfill the terms and conditions.
Mortgage: Mortgage is the transfer of interest in immovable property to secure the
repayment of money advanced. Ownership remains with the mortgagor. In case of
equitable mortgage, Court Order is necessary and in case of registered mortgage courts
order is not necessary for sale/disposal of the mortgaged property for adjustment of
advance.
Proper and correct documentation is essential not only for the safety of an advance but
also necessary for taking legal action against the debtors in case of non-payment or dues.
Depending on the types of the Loans and Advances different types of documents may be
required, such as-
For Loan:
Demand Promissory Note
Letter of Partnership/Board Resolution
Letter of Arrangement
Letter of disbursement
Letter of pledge
Letter of hypothecation
Trust Receipts
Letter of lien and ownership (in case of advance against shares)
Letter of lien for packing credits
Letter of lien
Letter of lien and transfer authority
Legal documents for mortgage of property
Overdraft:

115 | P a g e

Letter of Continuity
Letter of lien
Letter of lien and ownership
Legal documents for mortgage of property.
Cash Credit:
Demand promissory Note
Letter of Pledge
Letter of lien
Letter of lien and ownership
Legal documents for mortgage of property.
Bills Purchased:
Letter of hypothecation of bill
i) Disbursement
After verifying all the documents the branch disburses the loan to the borrower. A loan
repayment schedule also prepared by the bank and given to the borrower.
j) Monitoring
Follow-up
After the disbursement of the loan bank officials time to time monitor the loan by physical
observation of the activities of the party. It is done in the following manner:
Constant supervision

116 | P a g e

Working Capital Assessment.
Stock Report analysis.
Loan classification
Classification Scale
i. Unclassified : Repayment is regular.
ii. Substandard : Repayment is irregular or stopped
but has reasonable prospect of Improvement.
iii. Doubtful debt : Unlikely to be repaid but special
collection efforts may result in partial recovery.
iv. Bad/Loss : Very little chance of recovery.
Classification Procedure
Classification procedure for all types of bank loans including industrial loans is governed
by the guidelines contained in BRPD Circular No. 16 issued by Bangladesh Bank in 6
th
December 1998 and subsequently revised partially through BRPD Circular No. 9 issued in
14
th
May 2001. According to the revised guidelines the principal of credit classification
and provisioning are defined as under:
With a view to classifying, loans & advances will be categorized into four different
categories. Such as:
Continuous Loan.
Demand Loan.
Fixed Term Loan.
Short Term Agricultural and Micro-Credit.
k) Recovery
The loan classification procedure for all types of loan is governed by the guidelines
contained in BRPD Circular no 16 dated 06.12.98 issued by Bangladesh Bank and
subsequently revised partially through BRPD Circular no 9 and 10 dated 14.05.2001.
According to this circular If any borrower fails to repay his amount or installment within
the following time period then it will fall under the following classification status.
5.11 Legal Framework for Loan Recovery

117 | P a g e

After being classified, bank goes for loan recovery by legal action. Head office appoints
legal advisers and advises to the branch to file a suit against the defaulted leaned. MBL
generally suits files under the Artha Rin Adalat 1990. Besides, other loan recovery acts are
as follows through these are not applicable in MBL.
2. Public Demand Recovery Act-1913.
3. Bankruptcy Act-1997.
4. Negotiable Instrument Act-1881 section 138 for insufficient fund (In case of
term loan).
5.12 Different Micro Credit Program
MBL provides different types of micro credit programs among the poor/mid/lower class
categories person. Mainly the bank provides micro credit loan among the minimum and
fixed income group of people.
Micro Credit Program of MBL
Mercantile Bank Limited is performing 5 types of Micro-Credit Program in the name of
different head. These are:
i. Consumer Credit scheme.
ii. Small Loan Scheme.
iii. Lease Finance.
iv. Doctors Loan Scheme and
v. Rural Development Scheme.
5.12.1 Consumer Credit Scheme
Consumer Credit is a relatively new field of collateral free finance of Bank People with
limited income can avail of this credit facility to buy households goods including car,
computer and other consumer durable.
The main objective of this scheme is to help the lower mid class people for purchase
different types of household equipments and also help to the mid class people for buy
car/microbus for personal use.

118 | P a g e

MBL has some limitations to take loan under CCS. That is very much important to the
bank to recover the loan/disbursement amount within due time. Some of them are:
1. The consumer should be at least Govt./Non-Govt. officer.
2. In case of business, that should be established and the Bank should accept that.
3. Applicants working place/business firm must be under Dhaka City
Corporation.
4. Applicants age limit should be 15 to 50.
5. Guarantor should be sign in the Guarantor Latter and main application form
where indicated.
6. Working place/business firm of Guarantor must be under Dhaka City
Corporation.
7. Applicants will give two attested photographs.
5.12.2 Small Loan
This scheme has been evolved especially for small shopkeepers who need credit facility
for their business and cannot provide tangible securities. Payment should be made by
monthly within the 1
st
week of every month. Incase of car maximum loan amount can be 4
month installment amount is compoundly made. Lubricant facilities of this scheme are
that the loan amount directly placed to the consumer account and not necessary and
collateral security for this loan.
5.12.3 Lease Finance
This scheme has been designed to assist and encourage the genuine and capable
entrepreneurs and professionals for acquiring capital machinerys medical equipment,
computers and other items which may help them to be economically self reliant. This
scheme helps to improve of industries in the country.
Securities
Primary the applicant will mortgage his/her all documents of property and than land, Bank
grantee, Shanchay Patra, LCD unit certificate etc.
Facilities
Terms and condition of this scheme have been made easier than ever before in order to
help the potential entrepreneurs to acquire equipment of production and services and repay
the liability gradually from earning on the basis of Pay as you earn.
Interest Rate

119 | P a g e

Rate of return of Lease Finance per annum 16% and service charge 1% and risk fund 1%
of Loan amount for one time Loan amount will be paid within 3 to 7 years depend on lease
category.
5.12.4 Doctors Credit Scheme
Doctors Credit Scheme is designed to facilitate financing to new doctors, established
doctors, Clinic and Hospitals with in easy terms. This scheme helps to make chamber,
purchase treatment instruments etc for FCPS or postgraduate holder Doctors.
Loan Amount
For new Doctors Tk. 5 Lac, experienced doctors Tk. 15 Lac and for hospital clinic and
diagnostics center Tk. 50 Lac.
Interest Rate
Rate of return of Doctors Loan scheme per annum 13% and risk fund 1000/- per
1,00,000/- for on time. Loan amount will be paid within 5 Years.
5.12.5 Rural Development Scheme
Rural Development Scheme has been evolved for the rural people o the country to make
them self-employed through financing various incomes generating activities. This scheme
is operated through the rural branches of Mercantile Bank Limited. This scheme tries to
develop rural people and increase purchasing power among the rural branches of
Mercantile Bank Limited.
5.13 MBL Position in Loan & Advances
A summary of loan disbursed by the MBL is shown below according to their nature:
Nature wise Loans & Advances
Table 13: Nature wise Loans & Advances of MBL
2006 2005 2004 2003
Continuous 6,494,624,591 5,659,518,591 5,435,601,271 3,914,305,531
Demand Loan 10,176,764,000 8,136,182,000 5,673,207,000 3,526,330,000
Term Loans up to 5
Years 7,203,875,000 5,590,142,000 4,519,403,000 2,163,710,000
Term Loans above 5
Years-Staff loan 2,966,876,112 2,471,211,737 2,041,081,000 1,171,600,000
Total 268,422,139,703 21,857,054,328 17,669,292,271 10,775,945,531

120 | P a g e

The different amount of loans and advances in 2002, 2003 and 2004 are given below
Loans, Cash Credit and Overdraft (Inside Bangladesh)
Table 14: Loans, Cash Credit and Overdraft of MBL
2006 2005 2004 2003
Loan General 3,484,648,859 3,798,084,299 4,015,731,055 1,488,418,882
Term Loan 2,500,426,177 1,095,944,846 - -
Time Loan 1,242,842,356 402,563,672 - -
SME Financing 17,671,935 - - -
LTR 3,992,041,976 4,719,757,598 3,092,342,601 1,953,529,552
Packing Credit 367,713,525 266,915,201 264,237,134 220,487,135
Lease Finance 254,250,158 119,691,503 107,938,877 131,399,863
Hire Purchase 2,145,276,305 1,569,707,157 1,669,656,378 1,310,409,868
PAD 626,942,173 371,956,702 513,871,828 293,266,287
Cash Credit(Hypo) 2,539,579,017 2,350,827,171 2,404,981,777 1,669,482,337
Overdraft 5,056,631,328 3,619,062,004 3,161,803,457 2,560,515,897
Consumer Credit 18,128,613 121,477,709 138,538,403 169,983,183
House Building Loan 1,214,092,106 985,899,780 962,105,696 264,880,686
Staff Loan 217,323,112 115,524,737 71,364,363 63,762,979
EDF Loan 64,987,099 239,900,236 194,693,855 102,910,883
Other credit scheme 176,628,569 179,786,229 112,777,744 73,481,680
Personal Loan 134,601,230 105,137,189 55,949,640 -
CCS 121,763,916 - - -
Credit Card 24,477,677 2,934,240 315,732 594,864
Total 242,000,261,31 20,065,170,273 16,766,308,540 10,303,124,096
In the above table it is seen that the total loan and advances in 2005 was 20,065,170,273
which was6% higher than 2004, where loans and advances was 30%and in 2003 the loan
and advance was 19% higher than 2002. But from 2002 to 2005 MBLs provided loan
increased 15% to 36%, so we can conclude that the loan and advance offered have an
attractive criteria or the management was good enough in offering the loans.

Provisions for Loans & Advances
Table 15: Provisions for Loans & Advances of MBL
2005 2004 2003 2002
Specific provision for
Classified loan 3274008368 523,000,000 342,800,000 145,300,000
General provision for 299338819 214,338,819 173,138,819 103,138,819

121 | P a g e

unclassified loan
Total provision 3573347187 737,338,819 515,938,819 248,438,819
General provision for Unclassified Loan and Advances
Table 16: General provision for Unclassified Loan and Advances
2006 2005 2004 2003
Provision held at the
Beginning of the Year 214338819 173,138,,819 103,138,819 88,138,819
Additional Provision For The
Year 85000000 41,200,000 70,000,000 15,000,000
General provision
299338819 214,338,819 173,138,819 103,138,819
Provision for the Classified Loans and Advances
Table 17: Provision for the Classified Loans and Advances
2005 2004 2003 2002
Provision held at the
Beginning of the Year 523000000 342,800,000 145,300,000 12,300,000
Fully provided Debts written
off - - - -
Recoveries of amounts
previously written off - - - -
Specific provision for the year - - - -
Recoveries and provisions no
longer required - - - -
Net charge to profit and loss
account 71000000 180,200,000 197,500,000 133,000,000
Specific provision for
classified loans and
advances
594000000 523,000,000 342,800,000 145,300,000
MBL keep the provisions not only for the unclassified loans but also provisions are kept
for the loans, which are classified. In the above table we can see the position of this
provision for four consecutive years.
5.14 MBL Position in Classified Loan
Classifications of Loans & Advances as per BB Circular
Table 18: Classifications of Loans & Advances of MBL

122 | P a g e

2006 2005 2004 2003
Unclassified 25,824,149,703 20,951,311,328 16,943,125,271 10,331,923,531
Sub-Standard 97,296,000 188,765,000 177,334,000 186,981,000
Doubtful 91,383,000 63,111,000 217,454,000 209,898,000
Bad/ Loss 829,311,000 653,867,000 331,379,000 47,143,000
Total 26,824,139,703 21,857,054,328 17,669,292,271 10,775,945,531
From the following table it can be seen that the amount of classified loans and advances as
per the BB Circular, increased from 2002 to 2005. From 2002, which was 8,896,193,113
and it was respectively increase in 2003, 2004 and 2005 by the amount of 1,879,752,418;
6,893,346,740 and 4,187,762,057.
Number of clients and amount of outstanding and classified loan to whom loans and
advances sanctioned more than 15% of total capital of the bank is shown below:
Classified Loans sanctioned more than 15% of Total Capital
Table 19: Classified Loans sanctioned more than 15% of Total Capital
Number of the clients 42 45
Amount of the outstanding advances (funded) 5864100000 5,743,600,000
Amount of classified advances 299761000 216,500,000
5.13 Ending Summery
In Bangladesh all banks involved in credit department operation & Mercantile Bank Ltd.
is one the success fully loan service providers. This report certainly reflects that as a part
of Mercantile Bank Ltd. this wing not only Generates suitable amount of revenue but also
provides satisfactory Clint service compared to the other non back member houses as it is
secured and reliable for share trading.

123 | P a g e

Findings, Recommendation & Conclusion

124 | P a g e
CHAPTER: 6
6.1 Findings
6.2 Recommendation
6.3 Conclusion

6.1 Findings
Now a day Mercantile Bank Limited performs better in the banking sector but it has not
achieved the best the banking sector. Inspite of having their well reputation, there are
some problems in their services and policy implication. However, from the study of this
bank I have observed some lacking of its operation during my internship period which is
furnished below:
- Growth in assets of the bank depends on how fast deposits grow. But in the
deposits side MBL is facing some problems from their competitors because the
competitors are giving higher interest rate in deposit.
- Number of branches of MBL is not enough to serve the potential customers than its
rival banks. The bank is concentrating less in the rural area than urban area for that
it cannot reach to the entire rural people like any other nationalized public bank
such as Sonali Bank Ltd. Janata Bank Ld.etc;
- Lack of proper coordination between different departments in the banks.
- MBL committed to their prospective customer to honor its cheque within 30
seconds after submission but unfortunately most of they are unable.
- Centralization of MBL some times in turn leads to slow down of their activities.
- MBL has introduced Q-Cash service in the city. But unfortunately all the Branches
of MBL are not providing this service. Like wise Kawran Bazar Branch has not
stated of Q-Cash Card service thats way their customer is heading to the other
Bank for this facility.
- Lack of customer motivation power in the personnel of customer service
department (general banking department) which often dissatisfy the valued
customers.

125 | P a g e

6.2 Recommendation
I would like to share the following suggestions that I have made after analyzing of the
above findings-
E The number of customer is increasing. To keep the commitment MBL must in
crease its manpower so the customer gets their result without wasting time.
E MBL should take necessary action to motivate its officers to encourage them to
work hard to make them believe that they are also a part of the team and the
bank does think about them.
E Management should place right person in the right place.
E Try to establish decentralize management so that decision-making authority will
reach the root level, which will ensure prompt services and increase the
decision-making capabilities and confidence of the employees.
ECost central mechanisms should be followed through budgetary control and
standard costing devices.
E Fund management of the bank should be more efficient. This will reduce the
average cost of working fund.
E Accounting system of the bank should be computerised.
E MIS cell should be developed through internal, tax e-mail etc.
E Productivity measurement should be done from time to time through
developing customer services.
E Stuck up advances should be reduced through more recovery at lower rate of
interest.

126 | P a g e

6.3 Conclusion
In the internship period I have gathered a different type of experience. It is a well-
established statement that practical situations always differ from theoretical explanation.
During the internship program at Karwan Bazar Branch of Mercantile Bank Limited
almost all the desks have been observed. And I have found that theory deviates from
practice more or less. I have observed the function of General Banking, Foreign Exchange,
and Credit department of MBL, which will help me a lot in my professional career.
As a private commercial bank, MBL is trying its best to extend their service to the public.
MBL, Kawran Bazar Branch provides all kinds of commercial banking services to its
customers. Foreign Exchange department is doing well, rendering all the services related
to international trade & remittance. Though the advance of the Kawran Bazar Branch is a
little high, the credit department will be in a good position if the Branch manages to
recover that. General banking is engaged in cash receipt, payment, cheque clearing,
opening accounts and local remittance etc.
But it is a great opportunity for me to get used with the operational environment of
commercial banking of MBL. I have tried by soul to incorporate the internship report with
necessary relevant information. It can be said that Mercantile Banks future prospect in the
financial sector is good. But it need to change some policy, management should monitor
all the work of branch level, take strong decision and implement them

127 | P a g e

BIBLIOGRAPHY
Book:
Besley, Scott; F. Bringham, Eugene, Essentials of Managerial Finance, Twelfth
Edition, The Dryden Press
Bernstein, Leopold A.; Wild, Jhon J., Financial Statement Analysis, Sixth Edition,
Irwin McGraw-Hill
Weygandt, Jerry J.; Kieso, Donald E.; Kimmel, Paul D., Accounting Principles,
Sixth Edition, Jhon Willey & Sons, Inc.
Horngren, Charles T.; Sundem, Gary L.; Stratton, William O., Introduction to
Management Accounting, Twelfth Edition, Prentice-Hall of India Private Limited
Griffin, Ricky W., Introduction to Management
Rose, Peter S., Commercial Bank Management, International Edition, Irwin
McGraw-Hill
Hemple, George H., Bank Management, Second Edition, John Wiley & Sons, Inc.
Journals:
MBL Annual Report; 2004, 2005, 2006 & 2007 (half-yearly, unauthorized)
Operational manual
Lecture sheet serve from MBL training institute
Different types of Brochures of MBL
Internet:
http://www.mblbd.com
http://www.bangladeshinfo.com
http://www.bangladesh-bank.org

128 | P a g e

Report Body 3

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Report Body 3

Uploaded by

Copyright:

Available Formats

Dhaka International University

The Excellent Central of Knowledge

You might also like