Retail banking activities of Mercantile bank Ltd. : measuring customers’ satisfaction

RAB 8 Barisal

Chapter-1:Introduction

 

Background of the study

This report titled “Retail banking activities of Mercantile bank Ltd. – measuring customers’ satisfaction is based on the study done in the internship period in Mercantile Bank Ltd, Elephant road Branch. It contains a concrete idea about the retail banking of Mercantile Bank giving emphasis on its various aspects which topic has been assigned by my supervisor teacher of department of Management studies, which is to be submitted to the department as well as to the bank.

 

Objectives of the study

 

   The objectives of the study are as follows

      To know about retail marketing of MBL.

      To gain practical experience on different functions of different departments like   General Banking, Export Import Business and Loan advances of the Bank.

      To analyze the performance of the bank in terms of deposit, loans and advances, import and export business, foreign remittance and profitability.

      To know about present position of Mercantile Bank Limited (MBL) in competitive market.

 

Methodology of the study

 

While conducting smooth and accurate study everyone has to follow some rules and regulations. In this report I have used both primary and secondary data.

I)  The primary sources of data include the followings:

Face to face conversation with the bank officers and staffs

Direct conversation with the clients

Practical Deskwork.

ii)  The secondary sources of data include as under:

Annual report of Mercantile Bank Limited

Different manuals and publications of Mercantile Bank Limited

Unpublished data received from the Branch

Different text books

Different circulars sent by Head Office of Mercantile Bank Limited and Bangladesh Bank.

 

Limitations of the Study

Like any other study the limitations of this study is not out of questions. But the following factors seem to me the main points of weakness of this study, despite all out co-ordination from the bank officials:

The main constraint of the study is inadequate access to information, which has hampered the scope of analysis required for the study.

 

Limitation of Bank’s policy of not disclosing some data and information for obvious reasons, which could be very much useful.  While collecting data i.e. interviewing the employees, they did not disclose much information for the sake of the confidentiality of the organization.

 

Due to time limitations many of the aspects could not be discussed in the present report.

Since the bank personnel’s were very busy, they could provide me very little time.

 

I carried out such a study for the first time, so inexperience is one of the main constraints of the study.

 

Entrance to every nock and corner of the bank was not possible for me.

 

Chapter-2:Organizational Overview

 

Historical Background of Mercantile Bank Ltd

The institution was originally incorporated as an investment company in June 1999 under the Companies Act-1913, in the name & style of “Mercantile Bank ltd.” Paid up capital of the company was Tk.25.00 core only at that time. Mercantile Bank Ltd performed well for near about 5 branches at that time. The core objective of the company was to play a catalyst role in the capital market of the country by way of participating in security trading, underwriting, etc.

Mercantile Bank- At Present

During last 8 years of its operation Mercantile Bank has acquired commendable reputation by providing sincere personalized service to its customers in a technology-based environment. Over the years, Mercantile bank has built itself as one of the pillars of Bangladesh’s financial sector and is playing a pivotal role in the extending role of the private sector of the economy. Now it has up a new standard in financing in the industrial trade and foreign exchange business.  Its various deposit and credit products have also attracted the clients both corporate and individuals who feel comfort in doing business with the bank. . It is now a progressive commercial bank in private sector. It creates new opportunities for its clients. It gives customized services and maintains harmonious banker-client relationship. At present it is contributing towards formation of national capital, growth of savings and investment in trade, commerce and industrial sector. So now Mercantile Bank has emerged as a major player in the financial sector. The bank has been able to attain a commendable CAMEL rating and its performance has been outstanding in terms of profitability for the year ended 2007. The profit figure at the end of the year stood at Tk. 54.05 core recording an increase of 4.64 corers over the previous year’s figure of Tk. 49.4crore. The paid up capital has increased to Tk. 389 million against Tk. 200 million of 2006.

Under the dynamic guidance of the Board of Directors headed by Chairman Alhaz Mr. Mosharrof Hossain the current Marketing has been arching ahead with new zeal to reach its goal in 2008. The bank is pledged-bound to perform even better in the coming year, opening new branches, adding new and better products and services to its customers at their doorsteps.  The bank has a strong branch network nation wide with 48 branches to effectively address the needs of its cross-segment customer base.

SWOT ANALYSIS OF MBL

SWOT is an acronym which is used to describe the particular strengths, weakness, opportunities and threats that are strategies factors for a specific company.

  1.         i.            Strengths:

      Efficient management.

      Better employee relations.

      Better location of the branch.

      Better financial standing.

      Interesting consumer schemes.

      Quick delivery of foreign exchange.

  1.       ii.            Weakness:

      Inadequate work force.

      Conservative loan facility.

      Interest rate is less than others.

      Online facility is not available.

      Manual registers are used in some cases.

  1.     iii.            Opportunities:

      Market leadership of MBL.

      Growth of the banking sector.

      Sophisticated consumer service scheme of the MBL.

      Make the goodwill.

      Perform services more quickly.

  1.     iv.            Threats:

      Political instability.

      Intense competition.

      Market segmentation.

      Government rules and regulation.

      Economical variation.

      Policy of competitive banks.

 

Target Customer

Due to the predecessor Company’s involvement investment financing sector of the country the bank inherited its top corporate customers. Moreover the bank is involved in import trade financing. Bulk importers of consumer durable, food gains industrial raw materials are its customers. The bank has financed in textile, garments, and SME and apparels sectors. The bank has a tread of choosing customer from diversified groups. The bank has first class customers in the construction sectors involved in high-rise building, heavy construction and roads and high way construction.

Marketing of Mercantile Bank Ltd.

 

Marketing of Mercantile is professional and experienced. Top Marketing and the policy formulation of the Bank are vested on the Board of Directors. The board of directors consists of 13 members headed by chairman. Most of the directors are owners of large business groups having high net worth. The executives and officers of the bank execute the policies and programs formulated by the board. The Managing Director is the chief executive of the bank and he is assisted and supported by other qualified executives like Executive Vice Presidents, Senior Vice President (SVP), Vice President (VP), First Vice President (FVP), First Assistant Vice Presidents (FAVP) and other officers and staffs.

Products and Services

Since the commencement of banking operation; The Mercantile Bank Limited (MBL) has not yet only gained enormous popularity but also been successful in mobilizing deposit and loan products. The bank has made significant progress within a very short time period due to its dynamic Marketing and introduction of various consumer-friendly loan and deposit products. There are also have other departments that can be termed as support and these are Operations, Credit Administration, Financial Control and Human Resource.

 

All the products and services offered by the bank can be classified under three major heads:

 

Personal Banking

Deposit Schemes:

Current deposit

Saving deposit

Short term deposit

Fixed deposit

Sundry deposit

Deposit under scheme

ü  Monthly Saving Scheme

ü  Double Benefit Deposit Scheme

ü  Monthly benefit Scheme

ü  Special Saving Scheme

ü  Ajibon Pension Scheme

 

Credit & Loans:

Consumer Credit Scheme(family type, Freeze, Furniture)

Personal loan

Car Loan

House Loan

Doctors Credit scheme

Small and Medium Entrepreneur

Overseas employment loan

Short loan

LTR

Foreign Currency Account:

Resident Foreign Currency Account

Non-Resident Foreign Currency Account

 

Corporate Banking

Small & Medium Business:

      Cash Credit Hypothecation (CC Hypo)

      Cash Credit Pledge (CC Pledge)

      Secured Overdraft

      SOD against Work Orders

Large Business:

      Short Term Industrial Loan

      Mid Term Industrial Loan

      Long Term Industrial Loan

      Commercial House Building Loan

Foreign Trade:

The Mercantile Limited (MBL) provides solutions in the fields of international business and trade finance.

      Letter of Credit (L/C)

Back to Back Letter of Credit (BTB)

Loan Against Trust Receipt (LTR)

Loan Against Imported Merchandise (LIM)

Packing Cash Credit (PCC)

Export Development Fund (EDF)

Payment Against Document (PAD)

Bank Guarantee

 

Lease Financing

An entrepreneur, under this scheme, may avail of the lease facilities to procure industrial machinery (without having to purchase it by down payment) with easy repayment schedule. The clients also get special rebate in their income-tax payment under the scheme.

 

Financial Products

Financial Products of Mercantile Bank Limited (MBL) are mainly in 03(three) different categories:

These are:-

       Short Term Financing Products

Mid Term Financing Products

Long Term Financing Products

Above categories of financing covers the following areas, which are drafts with at General Credit Division.

Large & Medium Term Loan.

Working Capital Financing in Industrial Units including small industries.

Commercial Credit Scheme and any other new product as and when launched for.

Term Loan in Small Industries.

Term Loan in Commercial House Building at urban area & Transport Loan.

Commercial Loan.

 

Special Services

Consistent with the modern age and competing in a perfectly competitive market, The Mercantile Bank Limited (Mercantile Bank) has introduced some innovative banking services that are remarkable in a country like Bangladesh. The services offered by the bank are as follows:

 

ATM Service

The bank has joined the shared ATM Network Bangladesh with a pool of seven banks. The client of any member bank will have access to any ATM situated at different locations of Dhaka city. This bank’s clients will get 24 hours cash withdrawal and utility bills payment facility.

 

Credit Card

To provide best possible customer services to its clients, the bank is going to launch Master Credit Card shortly.

 

Swift

The bank has become a member of SWIFT and is providing a fast and accurate communication network for financial transactions to their valued clients through uninterrupted connectivity with thousands of user institutions in 150 countries around the world.

 

Chapter 3:General Banking

 

Introduction

 

General banking department is the “Heart” of the all-banking activities. It performs the core functions of bank and operates the day-to-day transactions. It is the storage point for all kinds of transaction of foreign exchange department, loans and advances department and itself. General Banking department generally deals with the following sections: –

      Account Opening Section.

      Cash Section.

      Bills & Clearing Section.

      Accounts section.

Account Opening Section

The relationship between banker and customer begins with the opening of an account by the customer. Opening an account binds the banker and customer into contractual Deposit Account relationship. Mercantile generally gives facility to open the following accounts:

      Current Deposit Account

      Saving Deposit Account

      Short term Deposit Account

      Fixed Deposit Account

Current Account

A current deposit account may be operated in several times during a working day. There is no restriction on the number and the amount of withdraws from a current account and the banker does not allow any interest on the current account. The minimum balance requirement for this account is TK.5000/ and TK 250/- is deducted from the account in case of closing the current account.

A person can open a current a/c or any entity. The entity can be a partnership firm, limited company, proprietorship firm, association, clubs etc.

Savings Account

      A saving a/c is meant for the person of the lower and middle classes who wishes to save a part of their income to meet their future needs and intend to earn an income from their saving.

      The current rate on the deposit amount is 7% and minimum balance requirement is TK. 500/-.

      The entire features are like CD a/c except some restrictions imposed by the bank.

      Accounts may be opened in the name of Club, Association and similar Institutions subject to production of their by laws and Articles of Association acceptable to the bank.

      The number of withdrawals over period of times is limited. Only two withdrawals are permitted per week. But more than that no interest will be paid on rest of the amount for that month.

      The total amount of one or more withdrawals on any date should not exceed 25% of the balance in the a/c unless 7 days advance notice is given.

      If a depositor likes to close his/her A/C service charge of TK.250/- will be        deducted from the A/C.

Short Term Deposit (STD)

According to characteristics, short-term deposit is similar to current deposit except interest. Normally various big companies, organizations, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice.  The deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of savings deposit. Interest is calculated based on daily minimum product and paid two times in a year. Interest rate is 6.00%.

 

STD account rules and regulation are just like current deposit account except following rules:

 

Fixed Deposit Accounts

A fixed deposit a/c is repayable after the expiry of a predetermined period fixed by the customer himself. The period varies from three months to five years. The customer may open his/her a/c for different time periods, which may be for three months, six months, one year, two years, three years, four years, and five years.

Though FDR is an a/c, it is something different from other a/c. FDR is a long-term deposit. Usually customers are allowed to open this a/c for a certain period. The rate of interest varies in accordance with the terms of its period.

The amount of FDR is payable once at a time. After the term for which the a/c was opened, the FDR gets its maturity. Paying the principal amount plus interest less income tax then fulfills the claim.

Cash Section

Cash section of any branch plays a very vital role in general banking department. Because it deals with the most liquid assets. Mercantile has a very equipped cash section. This section receives cash from depositors and pays cash against check, draft, pay order, pay in slip, over the counter. Generally following are the tasks done by the Branch of Mercantile in the Cash Counter section:

Cash payment

Cash receive

Receiving different bills

Working as agent at the time of issuing IPO of different companies

Marketing of funds by maintaining sufficient amount of cash each day

Clearing Section

The amount of Ch       eques, Pay Order (P.O), and Demand Draft (D.D) Collection from other banks on behalf of its customer is a basic function of a Clearing Department.

Mercantile Bank limited is a scheduled Bank. According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks that are the member of the clearinghouse are called as Scheduled Banks. The scheduled banks clear the cheques drawn upon one another through the clearinghouse.

Types of Clearing

      Outward Clearing: When the Branches of our Bank receive cheques from its customers drawn on the other Banks within the local clearing zone for collection through Clearing House, it is Outward Clearing.

      Inward Clearing: When the Bank receives cheque drawn on them from other Banks in the Clearing House, it is Inward Clearing.

 

Precaution should be taken at the time of cheque receiving for Clearing, Collection of IBC, OBC and TRANSFER. Because cheques may be dishonored for any one of the following reasons:

Insufficient fund.

Amount in figure and word differs.

Cheque out of date/ post- dated.

Payment stopped by the drawer.

Payee’s endorsement irregular / illegible / required.

Drawer’s signature differs / required.

Other specific reasons not mentioned above.

 

The dishonor Cheques entry in the Return Register & the party is informed about its Party‘s signature required in the return register to deliver the dishonor cheque. After duration, the return cheque is sent to the party’s mailing address with Return Memo.

 

Bills Collection

If a party gives a Cheque to a branch of Mercantile to collect money from a branch of other bank, which is not situated in the clearinghouse then Mercantile collects money through OBC. Incase of OBC two ways exist to collect money from another bank.

 

Remittance Section

Remittance is significant part of the general banking. The bank receives and transfers various types of bills through the remittance within the country. Obviously the bank charges commission on the basis of bills amount. Mercantile remittances are safe, swift, inexpensive and simple. Different types of remittances remitted by Mercantile Bank are shown in the following figure-

Item

Pay Order

Demand draft

TT

Feature

Pay Order is an instrument that contains an order for payment to the payee only incase of local payment whether on behalf of the bank or its constitution.

 

 

 

 

 

 

 

-It is drawn by one office of a bank upon some another office of the same bank which is payable on demand

-Its payment is to be made to the person whose name is mentioned therein or according to his order.

-T.T stands for telex transfer. This is  a widely used mode of transferring remittances of fund.

-To send money urgently MERCANTILEBL may be requested for TT on payment of a nominal charge and telegram charge.

Information Included

-Name and account of the party who receives the money.

-Amount of money to be transferred

 

-Name of the sender branch

-Name and account of the party who receives the money.

-For security purpose a confidential test number are included in the DD block

-Amount of money to be transferred

-Name of receiver branch

-TT number

 

-TT test number

 

– Name and account number of the payee

 

– Power of attorney number of the sender and receiver of TT.

 

-The amount to be transferred.

Charge/ Commission

Upto Tk 100000  Tk. 12

Upto Tk 500000  Tk. 23

Tk 50000&above Tk.58

-0.10% com of the principle amount.

-Postage charge Tk.15 plus 15% Tax on the commission amount.

-The charge on T.T is Tk.30.00.

-Postage charge is Tk.15.00.

-Commission is 0.10% of the principle amount.

-15% VAT on total commission.

 

Account Section

This is the most confidential department of a bank. Recording all kind of transaction of the branch, confirming their accuracy and preparing statements are the main job of this dept. Now a day, under computerized banking system, the jobs of account dept. become very easy. Now the computer directly prepares the clean cash statement and the supplementary statements on party ledger vouchers. The account also manually doses other works as for extra security.

The function of the accounts dept. can be divided into two parts:

  1. Daily Function,
  2. Periodical Function.

 

Daily Functions

      Posting the a/c to a/c transfer transaction in transfer register,

      Preparation of supplementary statement,

      Computer posting of different transactions that occur in a day the account officer examines whether cashbook has agreed or not.

 

Periodical Functions

The routine periodical tasks performed by the department are as follows:

              The periodical function of this dept. is to prepare different types of statement for its own branch, Head Office, Bangladesh Bank.

              Prepare the monthly salary statements for the employees

Publish the basic data for the branch, which is sent to the Head Office to maintain Cash reserve requirement

Prepare the monthly position for the branch, which is sent to Head Office to maintain liquidity requirement

Prepare the weekly position for the branch comprising of the break of sector wise deposit, credit etc

 

Chapter-4: Loans and Advances

 

Introduction

This is the survival unit of the bank because until and unless the success of this department is attained, the survival is a question to every bank. If this section does not properly work the bank it may become bankrupt. This is important because this is the earning unit of the bank. Banks are accepting deposits from the depositors in condition of providing profit to them as well as safe keeping their interest. Now the question may gradually arise how the bank will provide profit to the clients and the simple answer is – Loans & Advance.

Mercantile Bank, main Branch is a lending branch in loans advances and it grants loans in various sectors, especially in industry and trade and commerce. In the matter of lending purposes this branch follow precautionary policies and sound lending principles especially for project appraisal purposes.

 

Types of loan

Consumers Credit Scheme
Consumers’ Credit is relatively new field of collateral-free finance of the Bank. People with limited income can avail of this credit facility to buy household goods including computer and other consumer durables.

Objectives

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.

Terms & Conditions

Interest Rate   16.00%

Risk Fund   1.00%

Supervision Charge (per year on outstanding balances)   0.25%

Application Fee  BDT 200.00

 

Measuring performance for CCS

Product Name ( %) of satisfaction (%)   Of dissatisfaction (%)No comments Recommendation
Consumer Credit Scheme 59 30 11 Standard

 

A graphical presentation of CCS

 

Car Loan Scheme

Car Loan Scheme has been introduced to enable middle-income people to purchase Cars/SUVs/Jeeps. Government and semi-government officials, employees of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations, teachers of recognized public and private universities and businessmen are eligible for the loan facilities.

 

Objectives

Help fixed-income people buying car

      Interest rate will be charged quarterly rest.

Terms & Conditions

Maximum loan amount is BDT 25.00 lacs.

Tenure of loan is 05 (Five) years

Interest Rate   16.00%

Risk Fund   1.00%

Supervision Charge (per year on outstanding balances)   0.25%

Application Fee  BDT 200.00

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Car loan 80 15 5 Satisfied

 

 

Graphical presentation of car loan satisfaction

 

Special Feature

BDT 7.50 Lac for reconditioned Car/Jeeps/SUVs and BDT 25.00 Lac for new Cars/Jeeps/SUVs.

 

 

Doctors’ Credit Scheme

Doctors’ Credit Scheme is designed to facilitate financing to fresh medical graduates and established physicians to acquire medical equipments and set up clinics and hospitals.

Objectives

Help new F.C.P.S. or post-graduate doctors for setting up chambers and buying medical equipment.

Help experienced doctors for refurbishing chambers and buying medical equipment.

Assist private clinics for acquiring modern medical equipment.

Interest rate will be charged at quarterly rest.

Terms & Conditions

Equity
» For new doctor 10%
» For experienced doctor 15%
» For Hospital, Clinic and Diagnostic Center 20%

Interest Rate 16.00%

Risk Fund Tk. 1.00%

Repayment period 5 years

Credit Limit

» For new doctor 5.00 Lac.
» For experienced doctor 15.00 Lac.
» For Hospital, Clinic and Diagnostic Center 50.00 Lac.

Application Fee BDT 200.00

Service Charge / Ledger Fee 0.25% per year on outstanding balances.

Performance Table of doctor’s credit scheme

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Doctors Credit scheme 30 65 5 Conservative

 

 

A graphical Presentation of doctor’s credit scheme

 

Lease Financing

This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machineries, medical equipments, computers and other items. Terms and conditions of this scheme have been made easier in order to help the potential entrepreneurs to acquire equipments of production and services and repay gradually from earnings on the basis of ‘Pay as you earn.

Objectives

Assist and encourage entrepreneurs for acquiring capital machinery, medical equipment, automobiles etc.

 

Terms & Conditions

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.

Performance table

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Lease Financing 60 20 20 Standard

Lease finance a graphical presentation of satisfaction:

Personal Loan Scheme

Personal Loan Scheme has been introduced to extend credit facilities to cater to the credit needs of low and middle-income group for any purpose. Government and semi-government officials, employees of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations and teachers of recognized public and private schools, colleges and universities are eligible for the loan facilities.

Objectives

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

 

Mode

Interest Rate    16.00%

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 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.

Performance table:

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Personal loan 40 40 20 Should give more  amount

 

 

A graphical Presentation of Personal loan:

 

Small Loan

Small and Medium Enterprise (SME) Financing Scheme has been introduced to assist new or experienced entrepreneurs to invest in small and medium scale industries.

Objectives

Extend credit facility to small shopkeepers.

      Give collateral-free credit

 

Mode

Maximum amount of loan Tk. 2, 00,000.

Interest Rate 16.00%

Risk Fund 1.00%

Service Charge 0.25% per year on outstanding balances

Application Fee BDT 200.00

Loan Limit BDT 2.50 Lac

Repayment period 3 years

      Interest rate will be charged at quarterly rest

Performance Table:

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Small Loan 30 60 10 Should develop area

Graphical presentation:

Satisfaction level of consumer for various type of loan scheme

Research was developed by surveying about 50 people and the finding level of satisfaction shows the performance of people’s interest on it.

 

Product Name ( %) of satisfaction (%) Of dissatisfaction (%)No comments Recommendation
Consumer Credit Scheme 59 30 11 Standard
Car loan 80 15 5 Satisfied
Doctors Credit scheme 30 65 5 Conservative
Personal loan 40 40 20 Should give more  amount
Small Loan 30 60 10 Should develop area
Lease Financing 60 20 20 Standard
Home Loan 90 Good
SME 90 Good

Total satisfactory level:

Comparison with several Banks

Car Loan

Comparison with Prime, BRAC and SCB

Company Name Mercantile Prime Bank Brac Bank SCB
Car Loan 80%-70% 200000 200000 200000
Service charge 1% 1% 1%
Down Payment 10% 0 10
Lone period 5 5 4 5
Risk 1%
Stamp charge 150 470 470 470
Interest Rate 16% 16% 16% 16%

This figure show that on for car loan Mercantile bank gives more facility than others

 

Doctor`s Loan

In here I will compare with Prime, HSBC and SCB

Company Name Mercantile Prime Bank HSBC SCB
Doctor`s 300000- 100000 100000 100000
Service charge 800+100 1% 1% 1%
Down 10%
Lone period 5 5 5
Risk 1%
Stamp charge 150 470 720 470
Interest Rate 16% 16% 16% 16%

In here mercantile bank gives the best facility because service charge and stamp charge is less from other.

 

Small and medium entrepreneur

In here I like to compare with Prime, HSBC and SCB

Company Name Mercantile Prime Bank HSBC SCB
SME 300000-10000000 250000-750000 100000 100000
Service c 800+100 1% 1% 1%
Down 10%
Lone period 5 5 5
Risk 1%
Stamp charge 150 470 720 470
IR 16 For women 10% 15% 16& 16%

 

In here Mercantile Bank giving more facility rather than other because women get more facility. Here service charge and stamp charge is less.

Home loan

Here the competitor banks are Prime, AB bank and BRAC bank

 

Company Name Mercantile Prime Bank AB Bank BRAC Bank
House NO Limit 300000 500000 300000
Service c 1% 1% 1%
down 10%
Lone period 15-20 3 3 3
Risk 1% 1%
Stamp charge 150 470 470 720
IR 16% 16% 16% 16%

 

No limit for this loan no service charge stamp charge is less than others

In here the data shows that Mercantile bank is ahead than others in all sector of Bank.

4.5 Procedures for Sanctioning Loans in Mercantile Bank Ltd

Figure: Lending Procedure Followed by Mercantile Bank Ltd

 

4.6 Loan Classification

Bangladesh Bank issued BCD (Banking Credit Division) circular no. On 16th November 1989, under the title “Revised Procedure of loan Classification and Provision”. In order to strength the credit disciplines and improved the recovery position of loans and advances by the banks, it was measure adopted to deep the financial discipline in place afterwards the interest rate liberalization and change of monetary policy from the one of controlled and qualitative to a one of controlled liberalization qualitative after the eighties in Bangladesh. As per the Mercantile Bank circular for revision procedure for classification of loan and advance and provisioning are given below:-

      Unclassified: – Repayment is regular.

Substandard: – Repayment is irregular have stopped but has responsible prospect of improvement.

Doubtful: – Unlikely to be repaid but special collection efforts may result in partial recovery.

Bad/Loss: – Very little chance of recovery.

 

Recovery of Advance

A bank’s profitability and sustainability mostly depends on the recovery of its outstanding amount. Outstanding amount includes both principal and interest because, 80% of bank’s earnings comes from advances. A poor recovery rate indicates the weak condition of the banking operation and vice versa. But in the mid 80s, there started a loan defaulting culture, which is still in practice. As a result, banking sectors as well as the whole economy is facing a great threat from the defaulters.

 

Recovery Procedure Followed by Mercantile Bank Ltd

Recovery procedure is a lengthy one that requires efforts of the bank, society and legal institutions. It also takes time and money. Like other banks, MERCANTILE Bank follows four steps to recover the outstanding amount. This are-

1. Reminders to the clients

2. Creating social pressures

3. Sending legal notice and

4. Legal action

These four steps are described in detail below-

  1. Reminder to the client is given through a formal communication channel. A letter is written and properly signed on the bank’s papers. This letter is issued several times to remind the honorable loaner to repay his/her outstanding portion.
  1. If the loan amount is not yet repaid after sending a series of letters, then persons create social pressure on the client referred while opening account in the bank.
  2. Legal notice is prepared and sent by Mercantile Bank Ltd when above two steps fails to recover the amount. It is a threat to the borrower.
  3. The last and final step of the recovery procedure is the help from the court. Mercantile Bank Ltd sincerely tries to avoid this kind of situation for its honorable clients but cannot help doing for its own sustainability.

 

Chapter-5:Foreign Exchange Operations

 

Introduction

Foreign exchange is the most vital and income generating department of MBL Bank Ltd. The job of foreign exchange department is to deal with all sorts’ f foreign transactions. MBL Bank’s foreign exchange department is mainly divided into three wings as under:

Import financing

Export financing

Foreign remittance

 

Import Financing

By opening a Letter of Credit on behalf of the customer (importer) in favor of an exporter bank undertakes to make payment to the exporter subject to submission of documents drawn in strict compliance with letter of credit terms giving title to goods to the importer. The details regarding the practical procedures of opening of documentary L/C are as under:

 

Export Financing

This section negotiates the export documents and collects and purchases the export bills. There are two types of credit facilities allowed by the bank to the exporter in relation to export credit:

Pre-shipment Finance

Post-shipment Finance

 

Functions of Export Section

 

Opening of Back to back L/C

Foreign documentary bills for collection (FDBC)

Foreign documentary bills for purchase (FDBP)

Local documentary bills for purchase (LDBP)

Secured Overdraft (SOD) export

Export cash credit

Packing credit

Accepted bills payable (ABP)

 

Procedures for Collection of Export Bills

 

There are two types of procedures regarding collection of export bill. They are as under:

Foreign documentary bills for collection (FDBC).

Foreign documentary bills for purchase (FDBP)

 

Foreign Remittance

MBL Bank is the member of Money Gram and SWIFT networks. Using the services of this global network, non-resident Bangladesh nationals can send money from abroad to their home country within a few minutes without any risk. MBL Bank has also arrangement with foreign money exchange companies like USE Exchange Co.

MBL Bank has given proper stress on foreign exchange remittance business. The garment industries as well as the non-resident Bangladeshis and persons working outside are real assets of remittance business of the country. To motivate and also to ensure increased remittance flow, MBL Bank has made a number of arrangements with various exchange companies. The Marketing is considering taking steps so that the beneficiaries here in Bangladesh can receive the money at their doorsteps. Total amount received by MBL Bank in 2006 was more than US $ 52.56 million.

 

MBL Bank also issues following drafts: –

-Traveler’s Check,

-Foreign Currency Account,

-Endorsement of Cash.

5.4.1 Traveler’s Check

Traveler’s check is very popular method of foreign remittance. It is usually used by the travelers who are willing to remit fund to the place where they are going to visit and encase it from there. Traveler’s check is a substitute for cash and it is the safest method of transferring fund.

Foreign Currency Account

The a/c maintains in foreign currency is known as foreign currency account. The authorized dealers may open foreign currency a/cs in the name of following without prior approval from Bangladesh Bank.

-Bangladesh Nationals residing abroad,

-Foreign Nationals residing abroad or in Bangladesh and also foreign firms registered   abroad and opening in Bangladesh or abroad.

-Foreign Missions and their expatriate employees.

Foreign Currency Account may be of two types-

Non-Resident Foreign Currency Account

Resident Foreign Currency Account

 

Endorsement of Cash

 

Foreign currency cash can also be remitted through endorsement in the passport. In case of endorsing cash on passport, the requirements are same as in case of TC. But the only exception is that the passport holder is not required to be present by himself.

Performance of MBL Bank Ltd. in terms of export, import and foreign exchange over years:

 

Chapter-6:Performance Analysis

 

 Introduction

 

Despite volatile economic atmosphere of the country, the bank performed well in respect of deposit mobilization and profit earning under review. The bank was able to harvest the result of its efforts to enhancing quality of assets and recovery of dues from default borrowers. At the end of the year 2006, the bank’s operating profit stood at Tk. 127.00 as against Tk. 102.00 crore of the year 2005.

 

6.2 An overview of financial summary Of MBL

The authorized capital of the bank remained at Tk. 2500.00 million during the year as before but paid up capital  have to raised up  Tk. 3000 million

 

Asset Composition

Being a conventional bank, its asset includes cash in hand & balances with BB, balance with other banks and financial institutions, money at call & short notice, government & other investments, loan & advances, lease assets, fixed assets including land, building & furniture, other assets (i.e. – advance deposits, interest receivable, sundry assets, advance rent & advance tax) & non banking assets. For the year 2006, and 2007 MBL’s asset portfolio is following:

Return on Asset

Formula Return on Asset = Net Income/Total Asset*100

Year                 Net Income                 Total Asset                  ROA (%)

2007                540.50                         44940.54                     1.20

2006                494.22                         37159.65                     1.32

­

 

6.3.1 Assets Growth

Mercantile Bank has maximum asset in 2007.The assets are increasing gradually. Total assets of Mercantile Bank from 31 December 2007.

 

6.4 Deposit

Bank have collect deposit on 31st December 2007 tk39348 million. On 31 December 2006 the amount of Deposit is tk33332.65 million. This Bank has given some special opportunity towards its consumer since this competition age. Savings account has not raise interest amount but it raise the quality of those account.

 

6.5 Credit

For giving loan SME and very big industries bank has take decision by consortium. In 31st December 2007 total loan amount 31877.86 million taka. On 31st December 2006 advance loan amount is taka 26842.14 million taka. Bank gives loan towards industry Garments factory, SME and many other sections.

 

6.6 Income on interest

In year 2007 bank gain 4450.90million taka from interest, this is more than the previous year amount tk 3498.67 million. It will make clear by this figure.

 

Foreign Transaction

Import

In the changing environment of the year 2007 Bank has create emphasis on giving loan to their consumer. In this year bank in the lien of 17464 debenture bank gives taka 40380.10 million. Bank open some import debenture by this sector those are Capital instrument, Hot roll, Electronics goods, rich, wheat, seeds, SDSO, Palm oil, Cotton, Garments etc

Export

In this section Bank have gives loan some special sector. Thins year bank invest 13078 organization with tk32670.10 million taka.  The main items for exporting are readymade garments, which earning foreign currency huge amount. Some other sector of export goods are Jute goods, leather products, handicrafts, tea, frozen foods, fish and etc

Remittance

In the year bank has created record on earnings remittance, which is tk 3510.40 million. Mainly MBL gain more remittance from those countries in where maximum people are engage with foreign country. Basically the countries are England, UAE, Kuwait, Bahrain, Canada, Itali, and French. Another important thing is that bank has made relationship with some other bank in home.

 

Total income on foreign transaction

In the year 2007 Bank gains 5560.95 million taka, in the year 2006 it 4631.41 million taka. In total income bank gain from interest 80.04%. Exchange gain 7.63%, Commission 6.59%. In 2006 this amount are 75.54%, 8.96%, and 8.18 respectively.

 

6.7 Ratio analysis

Return on Equity (ROE)

 

Formula Net income available to shareholders/ Common equity*100

 

Equity Multiplier

Equity Multiplier = Total Assets/Total Equity capital

 

Year                             Total Asset                  Total Equity                 Equity

2007                            44940.54                     3387.17                       13x

2006                            37159.65                     2554.29                       15x

 

 

 

 

 

Net Profit Margin

Formula Net Profit Margin = Net Income/ Operating Revenues*100

 

 

 

Asset Utilization

 

Year                             Operating Revenue                 Total asset                   Asset utilization

2007                            1385.15                                   44940.54                                 3.08

2006                            1178.76                                   37159.65                                 3.17

 

 

 

 

 

Formula: Asset utilization = Operating Revenue/ Total Asset*100

 

 

DU – Pont Analysis

DU – Pont analysis measures how the profit margin, asset turnover and leverage multiplier combines to determine the rate of returns on equity. It is necessary for summarizing a firm’s financial condition because it decomposes shareholders profitability on three important determinants

1) Expense Control

2) Asset Utilization

3) Debt Utilization

Decomposition of ROE (Three factor analysis)

 

Column                        Asset Utilization

Year                 NPM (%)          Total Asset turnover               Equity Multiplier                     ROE (%)

2007                39.20                           120                                          13x                              15.95

2006                41.92                           1.32                                         15x                              19.35

 

Chapter-7: Recommendations and Conclusion

 

Findings

After the evaluation of performance analysis and on the basis of my study I have got some findings about Mercantile Bank Ltd.

      The customers of Mercantile Bank are satisfied with the price or commission charged by the bank.

      Customer service quality given by Mercantile Bank is not satisfactory at all.

      The bank does not follow modern banking that is totally computer-based. Because all the branches of Mercantile Bank are not yet come under online banking network.

      Besides the General Banking department that provides the customer service is not well decorated such as the office layout is not designed properly.

      The bank also does not apply any marketing strategy like advertisement or any kind of promotional activities to attract deposit or increase export-import business of the bank.

      The Foreign Exchange operation of the bank is not more dynamic and is also time consuming.

      Monitoring activities of the branch manager is not effective enough to detect any kind of default.

 

Recommendations

 

To ensure better progress of Mercantile Bank in future some necessary steps have been recommended here on the basis of observation, collected data and my knowledge and judgment

 

As banking is a service-oriented business, the authority should become more aware about the customer service quality of the bank. Because the business profit of the bank depends on its service quality.

Every branch of the bank should be brought under the online banking network because of giving modern service to the customers.

General banking activities of the bank should be made more computerized. Modern banking activities like phone banking, SMS banking should be implemented in general banking department of the bank.

All the offices of the bank should be decorated with the help of Interior Design Company so that maximum efficacy of the services can be provided.

Different marketing strategies like media advertisement or arrangements of any kind of promotional activities; events to introduce the products and service of the bank should be applied to attract more customers.

Personal relationship should be built with the big customers/depositors. They can be sent different gift items like calendar, diary etc. on different occasions like Eid, New Year etc.

The office layout should be designed in a way so that, there is no chance of confusing customer.

The bank should give emphasis on modernized banking system and latest communication devices to make the foreign exchange operations more dynamic and less time consuming. Because the bank has no alternative but the modernization for sound and stable foreign exchange operation.

Attractive incentive package should be introduced for the exporter that will help to increase the export and accordingly will diminish the balance of payment gap of Mercantile bank Ltd.

Manager of the branch should monitor the activities of the officers so that the clients get efficient service.

 

Conclusion

From the practical implementation of customer dealing procedure during the whole period of my practical orientation in Mercantile Bank limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level computerized transaction is a must. Besides proper training should be given to enhance the quality of the bank staff at all levels of organization. Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from Credit operations. The more the income from Credit operations the more will be the profit of the Mercantile Bank Limited and here lays the success of Credit Financing. Though there are some drawbacks in Mercantile Bank Limited, it can be further reduced in light of the recommendations being discussed above. Finally, it can be argued that this report has become successful to explain the banking practices that are followed by the Mercantile Bank Ltd. and also attempt to harmonize and link the theoretical knowledge, acquired in the MBA program, with the experience gathered in the period of practical orientation

Bibliography

Debnath R. M. (2004), “Business of Banking”, 1st edition, Lotus publishers, Dhaka.

Dessler, Gray, (2005), “Human Resource Management”, 9th Edition, Prentice Hall,India

Kotler, Philip, (2003-2004), “Marketing Management”, 11th edition ,Prentice Hall, New jersey,USA.

Shapiro, Alan C., John Willy (2005), “Multinational Financial Management”, 7th Edition, John Willy & Sons, USA.

Sekaran ,Uma,(2006),”Research Methods for Business”,4th edition, John Wiley & Sons, Inc. New Delhi, India.

Reports & Brochures:

Annual Report of Mercantile Bank 2007

Annual Report of Mercantile Bank 2006

Annual Report of Mercantile Bank 2005

Academic Calendar 2007

www.mblbd.com

 

Appendix

QUESTIONNAIRE:

 

Sample Customer Survey Questionnaire: “A case study on Mercantile Bank Ltd, Measuring customers’ satisfaction on their retail Banking”

Name…………………………………………………………………………………..

Address (Business)…………………………………………………………………..

…………………………………………………………………..

Cell……………………………..

E-mail: ……………………………………….

  1. The Business that are you holding on?
  2. Sole Proprietorship
  3. Partnership
  4. Limited company
  5. Home Business
    1. Before starting business with MBL, to whom you are dealing with?

Name Please    ……………………………………………………………………………..

  1. From when are you dealing with MBL?
  2. At the beginning of this Branch
  3. About 4 years
  4. About 3 years
  5. About 2 years
  1. What type of product/ service mostly you provide to your consumer

Name Please …………………………………………………………………………………….

  1. Do you like to continue relationship with Mbl?

____ definitely would

____ probably would

____ Might/might not

____ probably not

____ definitely not

  1. How frequently does the employee of MBL cooperate with you?

Very frequently           1          2          3          4          5          6          7          infrequently

 

  1. Do you satisfied with the credit scheme of MBL?

Yes

No

No comments

  1. MBL is a private bank your comment?

Probably the best

Probably better

Good

Probably worse

Probably the worst

  1. From your experience MBL is bank, the name stand for?

Powerful          —–: —-: —–: —–: —–: —–: —–     Weak

Unreliable       —-: —-: —–: —–: —–: —–: —–      Reliable

Organized        —–: —-: —–: —–: —–: —–: —–     Unorganized

Modern              —–: —-: —–: —–: —–: —–: —–    Old fashion

Complex          —–: —-: —–: —–: —–: —–: —–      Simple

  1. The MBL charge commission for their credit card service is

Relatively high

High

Moderate

Low

Very low

  1.  Employee of MBL Especially in credit division is?

 

Very Friendly               Friendly

 

 

  1.  Do you think MBL should change its credit division strategy?

____Yes

____NO

____ No comment

 

  1. Please evaluate MBL Credit division accurately?

+5                                             +5

+4                                             +4

+3                                             +3

+2                                             +2

+1                                             +1

High Quality                Poor quality

-1                                              -1

-2                                              -2

-3                                              -3

-4                                              -4

-5                                              -5

 

  1. if you are dealing more than one bank with your export import business, please rank order these bank based on their foreign exchange service (especially credit related service)

 

Name of the Bank                                                    Rank Order

 

1. Islamic Bank Ltd                                          ___________________

2. DBL                                                              ___________________

3. SCBL                                                            ___________________

4. NBL                                                              ___________________

5. HSBC                                                           ___________________

6. Jamuna Bank                                               ___________________

7. EXIM Bank                                                   ___________________

8. IFIC Bank                                                     ___________________

9. Mercantile Bank                                         ___________________

10. Others                                                       ___________________

Do you have any recommendation about the Service of MBL (If Yes write please)

 

………………………………………………………………………………

 

 

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