1. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
1
Functions & Process
Involved
In
SME Banking Of
Mercantile Bank Ltd.

2. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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Internship Report
On
“Function and Process Involved in SME Banking of Mercantile Bank Ltd”
Course Name: Practicum
Course Code: BUS - 490
Prepared to
Prof. Dr. M Alimullah Miyan
Chair,
College of Business Administration
Prepared by
Sazzad Hossain
ID # 12102434
Program: BBA
Date of Submission: August 16, 2015
IUBAT- International University of Business Agriculture and Technology

3. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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LETTER OF TRANSMITTAL
August 16, 2015
Prof. Dr. M Alimullah Miyan
Chair, College of Business Administration
IUBAT- International University of Business Agriculture and Technology
4, Embankment Drive Road, Uttara Model Town
Sector # 10, Dhaka-1230, Bangladesh
Subject: Submission of Internship Report.
Dear Sir,
Here is my internship report on “Function and Process Involved in SME Banking of
Mercantile Bank Ltd” that you have assigned me to submit as a partial requirement for the
course BBA Internship. This course gave me an opportunity to have an exposure to the
working experience of Mercantile Bank Limited. I have acquired a good understanding on
operational performance activities of Mercantile Bank Limited..I have tried my best level to
put meticulous effort for the preparation of this report. Any shortcomings or fault may arise
as my unintentional mistakes; I will wholeheartedly welcome any clarification and suggestion
about any view and conception disseminated through this report.
May I, therefore, wish and hope that you would be gracious enough to accept my effort and
oblige thereby.
Sincerely Yours,
…………………………
Sazzad Hossain
ID: 12102434
Program: BBA

4. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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SUPERVISOR‟S CERTIFICATE
This is to certify that the Internship Report on “Function and Process Involved in SME
Banking of Mercantile Bank Ltd” is prepared by ―Sazzad Hossain” ID: 12102434
Department of CBA, as a mandatory requirement of Bachelor of Business
Administration (BBA) from IUBAT This report is an original work completed under my
supervision.
He is permitted to submit the Internship Report.
-------------------------------------------------
Abdullah Al Yousuf Khan
Faculty
College of Business Administration (CBA)
IUBAT — International University of Business Agriculture and Technology
Uttara, Dhaka

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ACKNOWLEDGEMENT
At the very beginning I would like to express my deepest gratitude to almighty Allah for
giving me the strength and the composure to finish the task within the scheduled time. At the
beginning of this report, I deem it is to record my appreciation & gratitude to few persons who
made my journey smooth and helped me to prepare this report in many ways. I am deeply in
debt to my supervisor Abdullah Al Yousuf Khan for his whole hearted supervision to me
during the preparation of the report. His suggestions and comments to make the report a good
one was really a great source of spirit for me.
My Sincere thanks goes to, A. K. M. Hasanuzzaman,FVP and Head of Branch, Mercantile
Bank Limited, Ashulia Branch, Ashulia. He gives me this opportunity to complete my
internship in this Bank.
It was my great privilege to work with Mirza Yahia Uddin Ahmed (Manager Operation),
Md. Shaheen Ahmed (Assistant Officer), of Ashulia Branch, Mercantile Bank Limited
whose valuable support helped me to prepare this report in a constructive way.
I am also grateful to all of the officers and employees of Mercantile Bank Limited who
extended their wholehearted cooperation to me despite their huge workload during this
internship. At last I must mention the Wonderful working environment of this bank that
enabled me to gather practical knowledge about the Banking.
However, to my best, I tried very hard and worked very sincerely on this report to make an
informative one.
At last my sincere apology goes to the readers for my conceptual and printing mistakes, if
there is any.

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STUDENTS DECLARATION
I am Sazzad Hossain student of BBA, International University of Business Agriculture &
Technology. Hereby declare that the report an titled “Function and Process Involved in
SME Banking of Mercantile Bank Ltd” is an original work done by me under the
supervision Abdullah Al Yousuf Khan, Faculty, College of Business Administration,
International University of Business Agriculture &Technology. I further undertake to
indemnity the Mercantile Bank Limited against any loss and damage arising from breach of
the forgoing obligation.
____________
Sazzad Hossain
ID:12102434
Program: BBA
Major in Finance &Banking

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Table of Content
Preparatory Part
Particular Page No.
Title Page i
Letter of Transmittal ii
Supervisors certificate ii
Acknowledgement vi
Students Declaration v
Table of Contents vi-viii
Executive Summary ix
Chapter1 Introduction Part
SL Particular Page No.
1.1 Introduction 1
1.2 Origin of the Report 2
1.3 Objective of the Report 3
1.4 Scope of the Report 4
1.5 Limitations 5
1.6 Methodology 6
Chapter 2 Organizational Part
SL Particular Page No.
2.1 Mercantile Bank Limited: An Overview 7
2.2 Historical Background 8
2.3 History- Key Milestones 9
2.4 Corporate Information at a Glance 10
2.5 Nature of Business 11
2.6 Paid up Capital 11
2.7 Subsidiaries 11
2.8 Capital Base 12
2.9 Credit Rating 12
2.10 Mission 13
2.11 Vision 13
2.12 Objectives 14
2.13 Core Values 14
2.14 Way Forward 15
2.15 Business Ethics 15
2.16 Products and Services 16-18
2.17 Division & Department 19-20
2.18 Internal Environment Analysis 21-27

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2,19 External Environment Analysis 28-31
2.20 Corporate Social Responsibility 32
2.21 Current Performance 33-39
2.22 Financial Highlights 40
Chapter 3 Report Part
SL Particular Page No.
3.1 Small & Medium Enterprises (SME) 41
3.2 SME Finance in Bangladesh 42
3.3 General SME Guidelines by Bangladesh Bank 42-43
3.4 SME Financing in Mercantile Bank Limited 43-44
3.5 Products and Services of SME 44
3.6 SME Products Policy Guideline 45-50
3.7 SME financing products 51-52
3.8 Credit Principles that govern SME Loan 53
3.9 Loan Processing Procedures for a SME Loan Application 54-66
3.10 Risk Avenues & Preventive Measures 66-67
3.11 Comparing Different Banks With MBL 68
3.12 Comparative Analysis of SME Credit Scheme 69
3.13 Comparative Analysis of SME Credit 70
3.14 A Brief Profile of MBL‘s Ashulia Branch 71-73
Chapter 4 Actual Task Part
SL Particular Page No.
4.1 Task done by me 74
4.2 Account Opening Section 74-77
4.3 Credit Department 77-80
4.4 Cash Section 80
4.5 Clearing Section 81
4.6 Issuing Pay-Order 82
4.7 Fast Track 83
4.8 Findings regarding Mercantile Bank Ltd 84
4.9 Recommendations 85
Chapter 5 Project Part
SL Particular Page No.
5.1 Problem Statements 85
5.2 Project Time Line 85
5.3 Gantt chart of project time Allocation 86
5.4 Gantt chart of project time Allocation 86

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5.5 Objectives of the Study 86
5.6 Methodology 87-88
5.7 Hypothesis Development 89
5.8 Hypothesis Testing 90-97
5.9 Research Findings 98
5.10 Recommendations 99
5.11 Conclusion 100
Chapter 6 Appendix Part
SL Particular Page No.
6.1 Bibliography 101
6.2 Mercantile Bank Limited All Branches 102
6.3 Glossary 103
6.4 Annexure: Questionnaire 104-105

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EXECUTIVE SUMMARY
The internship report is designed basis on my theoretical knowledge and Practical experience.
It is designed to have a practical knowledge while passing through the theoretical
understanding. The report is the result of three months internship program with Mercantile
Bank Ltd. Ashulia Branch, Ashulia, Savar Dhaka. The report is contained Introduction,
overview of MBL, SME Financing, Job analysis, project activities, and Conclusion.
In Introduction part I have focused on the concept about the study, Objective of the report and
limitations of the report also have been discussed. The main objective of the study is to
provide a brief picture on the functions and process of SME Financing. The limitations have
been time limit, confidentiality, knowledge and experience etc.
In the second chapter I discussed a brief history of Mercantile Bank Ltd. Here represents an
overview on MBL. This chapter also includes Mission, Strategies, Management structure,
Goal and Objective, Financial products & services, Branch information, Departments,
Financial performance analysis with graphical presentation, SWOT Analysis and some basic
information about their banking activities. 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.
The next chapter I have discussed about their overall SME Financing Process. This part
contains basically the theories of SME Banking. Products and services of SME, Loan
Procedures and recovery of Loan also discussed in the report Part. I further have discussed
about the Approval Process of SME, Risk Avenues & Preventive Measures of Mercantile
Bank. This part contains the performance of SME of MBL. By this part we can understand the
current position of mBL by their present SME Financing.
At the end of my study, I have mentioned the findings according to the research part. Here I
have mentioned some recommendations for the Mercantile Bank Limited what activities they
can follow. I hope they will be benefited from those recommendations and then overall
conclusion is given according to my point of view.

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Chapter: One
Introduction Part

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1.1 Introduction__________________________________
Banks are the blood of economy; banking system plays very important role in the economic
life of the nation. The total money circulation of the economy is done through the banks. In a
developing country like Bangladesh banks perform key role to make equal distribution of
fund in all sectors of the economy. Side-by-side the banks also need to maintain profitability
to ensure their continuity. But the intense competition between the banks exposes the banks
to more risk and requires them to make innovation to sustain in the economy. SME financing
is a new innovation in banking industry of Bangladesh. SME contributes more to the
development of a developing country.
Bangladesh is a developing country and the development of a developing country depends on
the development of root people. The significance of small and medium enterprises‘ is very
much in the development of the whole economic situation of Bangladesh. Since this sector is
labor intensive and the gestation period is smaller that‘s why it contributes more to increase
National income and employment opportunity of the country. In Bangladesh, SME sector
performing great job for poverty alleviation and reducing gender discrimination. Now SME is
viewed as ‗employment generating machine‘ which helps to accelerate economic growth,
reduce unequal distribution and poverty alleviation.
Banking sector has a vital role to play in the economic activities and development of any
country. The whole scenario of the economy of a country can be ascertained by examining
the condition of the banking sector. To develop SME sector, the contributions of banks and
financial institutions are enormous. According to the guidelines of Bangladesh Bank, the
commercial banks provide SME financing to the people at flexible terms and conditions to
boost this sector. Beside profit motive the commercial banks also perform corporate social
responsibility by enhancing SME financing. Not only finance the banks are also providing
guidelines and training to the people to enrich their small and medium enterprises.

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1.2 Origin of the Report______________________________
I have prepared this report as a part of fulfillment of my practicum which is an integral part of
the BBA program under the department of ―Finance and Banking‖ in the faculty of College
of Business Administration of International University of Business Agriculture and
Technology.
This subject is 9 credit hours course and duration is four months. This report is prepared for
Prof. Dr. M Alimullah Miyan, Chair in CBA, IUBAT. The main objective to do internship is
gathering practical knowledge before joining a professional field. As an intern, I worked in
Mercantile Bank Limited for 3 months. And during my internship period I got the
opportunity to perform different task related with MBL and these broaden my own perception
about the operation of the other company also.
I was assigned in the Ashulia Branch Mercantile Bank Limited. I started the internship there
from 17th
May, 2015 to17th
August, 2014. I have worked in General Banking department
under the Operations. The report attempts to analyze the Function & Process Involved in
SME Banking in Mercantile Bank Limited.

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1.3 Objective of the Report__________________________
The crucial Objective of the study is to development an understanding about the practical
banking activities and to relate them with the theoretical knowledge acquired from the banks.
1.3.1 Broad objective:
The main objective of the study is to highlight the present SME financing involved in
Mercantile Bank Limited and to suggest measures to make SME financing more purposeful
and effective.
1.3.2 Specific objective:
However, the specific objectives of the study are as follows:
 To become familiar with the SME product policy guidelines maintained by
Mercantile Bank.
 To analysis the SME Lending procedures maintained by Mercantile Bank.
 To observe SME Lending activities of Mercantile Bank Limited.
 To state the present condition of SME financing of Mercantile Bank
 To analyze the overall performance of Mercantile Bank over the years.
 To give some suggestions to overcome the problem of SME.
 To examine the overall performance of MBL in the SME sector in terms of loans
disbursement and recovery.
 To point out the positive aspects and problems encountered by the SME Financing
Unit of MBL and the ways to overcome the problems.
 To examine the recent strategies and initiatives taken by MBL for further
development of its SME Financing Program.

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1.4 Scope of the Report _______________________________
I was sent to Mercantile Bank Limited, Ashulia Branch, the scope of the study was only
limited to this branch. I worked in the Mercantile Bank Limited, Ashulia Branch; I got the
opportunity to learn different part of banking system. The supervisor divided the whole
banking system in many parts; as a result I got the opportunity to work in different divisions
(General Banking Division, Daily clean cash, Credit Department, SME Department and
Accounts).
My main concern was about SME financing Procedure of under Mercantile Bank Limited. It
also covers over view of the how the bank defines SME, what are the different SME products
offered how and why they are different from other products, what are the constraints to obtain
required finance by the SME, and what is the overall performance of the bank in the SME
sector in terms of loans disbursement and recovery. From this report banker, banking clients
as well as students, teacher, and researchers will be benefited.

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1.5 Limitations _____________________________________
On the way of the study, I have faced the problems that are given below that may be terms as
the limitation or shortcoming of the study-
 Short Time Period
The first obstruct is time itself. Due to the time limit, the scope and dimension of the study
has been curtailed. For an analytical purpose adequate time is required. But I got a short time
period for prepare the report.
 Data Insufficiency
It was very difficult to collect data, because the branch of Mercantile Bank Limited is very
large. All of the employees of this branch are very busy. For the time limitation they could
not able to supply my topic related data.
 Lack of Records
Sufficient books, publications, facts and figures narrowed the scope of accurate analysis. If
this limitation were not been there, the report would have been more useful and attractive.
 Poor Library Facility
Most of the commercial banks have its own modern, rich and wealthy collection of huge and
various types of banking related books, journals, magazine, papers, case studies, term papers,
assignment etc. But the library of Mercantile Bank Limited is not well ornamented and
decorated.
 Lesser Experience
Experience makes a man efficient. I do such kind of research activity for the first time. That‘s
why inexperience creates obstacle to follow the systematic and logical research methodology.

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1.6 Methodology _____________________________________
Analysis has been made on the basis of the objectives mentioned before in the context of
―Function & Process Involved in SME Banking of Mercantile Bank Limited” The paper
will be written on the basis of information collected from primary and secondary sources.
1.6.1 Major Sources of Primary Data:
 Informal interview with the officers of SME department of Mercantile Bank, Ashulia
Branch.
 Direct participatory observation: This technique of data collection is the main
technique for the study. It was done by maintaining daily office hours strictly and
recording daily activities in a diary book.
 Information conversation with the SME clients of Mercantile Bank Limited.
1.6.2 Major Sources of Secondary Data:
 Annual report.
 Mercantile Bank‘s Web site.
 Books, journals & magazines.
 Bangladesh Bank website.
 Brochures and leaflets of the bank
 Head office circulars
 Different reports and journals on related topic
 Books and articles from library study.
Sources of secondary data are showing below by the following table for easy and quick
understanding:
Sources Validity Reliability Practicality
Annual Report Moderate High High
Internet High High High
Text book High High High
Brochures and leaflets High High High

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Chapter: TWO
Organizational Part

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2.1 Mercantile Bank Limited: An Overview_________________
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
services with a view to improving the socio-economic development of the country. The
philosophy of Mercantile Bank Ltd is not to ‗carry coal to the new castle'. The main target is
to make credits available to the poor people and their activities are aimed at comprehensive
growth where people from all economic strata will enjoy the benefits of better living
standard, dignity of labor and self worth.
The Bank determined to build a long-term customer relationship with its corporate & general
clients. As a part of this, Mercantile Bank ltd. is trying to expand their business with the
market leaders of each sector of business. Mercantile Bank ltd. emphasizes not only on
customer satisfaction but also emphasizes general banking and credit management system. So
that customer can get better service from every side of overall banking.
Mercantile Bank Ltd is always ready to maintain the highest quality services by upgrading
Banking technology, well management system and applying high standard of business ethics
through its established commitment and heritage and is representing itself with true concept
as „Banglar Bank‟.

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2.2 Historical Background _____________________________
Mercantile Bank Limited was incorporated in Bangladesh as a public limited company under
the Bank Company Act, 1991, on May 20, 1999. After obtaining license from Bangladesh
Bank to carry on banking business, the bank commenced its operation on June 2, 1999 with
an authorized capital of Tk. 800 million divided into 8 million ordinary shares of Tk. 100
each. On 31 December 2001, its paid up capital was Tk. 596.5 million.
Mercantile Bank Limited went for public issue of shares on October 21, 2003. Mercantile
Bank Limited has been incorporated on May 20th, 1999 in Dhaka, Bangladesh as a public
limited company with the permission of the Bangladesh Bank; MBL commenced commercial
banking operation from the June 02, 1999. The bank stood 60 branches all over the country
up to 2011.
The sponsors happen to be members of different professional groups among whom are also
renowned banking professionals having vast range of banking knowledge. There are also
members who are associated with other financial institutions insurance Companies, leasing
companies etc.
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.
The Bank is manned and managed by qualified and efficient professionals. Mr.Shah and
Md. Nurul Alam is holding charge of Managing Director upon expiry of term of Mr. M.
Taheruddin as Managing Director on 14.04.2004. Mr. Lutfar Rahman Sarker, the former
Governor of the central bank of Bangladesh was the Chief Advisor of the bank. He brings
with him a wealth of experience of managing both public and private sector banks.

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2.3 History- Key Milestones_____________________________
May 20, 1999 Incorporation of the Bank
June 02, 1999 Commencement of Business
October 29, 2000 Opening of 10th Branch
July 03, 2002 Opening of 15th Branch
June 30, 2003 Publication of Prospectus for IPO
October 21-22, 2003 Subscription for Shares
December 24, 2003 Opening of 20th Branch
February 16, 2004 Listed in Dhaka Stock Exchange
February 26, 2004 Listed in Chittagong Stock Exchange
December 29, 2004 Opening of 25th Branch
December 05, 2006 Opening of 30th Branch
December 17, 2007 Opening of 40th Branch
November 24, 2008 Opening of 42nd Branch
June 06, 2009 Mercantile Bank Brokerage House Operation
October 22, 2009 Opening of 45th Branch
December 30, 2009 Opening of 50th Branch
August 02, 2010 Opening of 55th Branch
December 30, 2010 Opening of 65th Branch
September 14, 2011 Separate Operation of Mercantile Bank Securities Ltd. (MBSL)
December 06, 2011 Mercantile Exchange House (UK) Limited
December 29, 2011 Opening of 75th Branch
September 20, 2012 Opening of Mercantile Exchange House (UK) Limited, London
Branch
December 27, 2012 Opening of 86th Branch
December 29, 2013 Opening of 91th Branch
December 29, 2014 Opening of 100th Branch
Table 01: History of MBL

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2.4 Corporate Information at a Glance____________________
Name of the Bank Mercantile Bank Limited
Status Public Limited Company
Date of Incorporation May20, 1999
Date of Commencement June 02, 1999.
Subscription for Shares October 21-22, 2003
Listed in Dhaka Stock Exchange February 16, 2004
Listed in Citation Stock Exchange February 26, 2004
Head Office 61, Dilukhusha Commercial Area, Dhaka- 1000
Phone +880-2-9559333, 01711-535960
E-mail mbl@bol-online.com
Website www.mblbd.com
Chairman Morshed Alam MP
Managing Director A.K.M. Shaheed Reza
Number of Employees 1900
Number of Branches 101
Table 02: General Information of MBL

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2.5 Nature of Business
Mercantile Bank Limited offer services for all banking needs of the customers, which include
deposits, making loans and advances, discounting bills, conducting money transfer and
foreign exchange transactions and performing other related services such as safe keeping,
collections, issuing guarantees, acceptances and letters of credit.
2.6 Paid up Capital
Paid-up Capital of the bank was BDT 739.16 Crore of 7,391,567,010 ordinary shares of BDT
100 each as of December 31, 2014.
Table 03: Paid up Capital of MBL
2.7 Subsidiaries
MBL has 2 (Two) subsidiaries namely ‗Mercantile Bank Securities Ltd. (MBSL)‘ and
Mercantile Exchange House (UK) Limited‘. MBSL formed on 27 June 2010 to deal with
stock dealing and broking. MBSL started its commercial operation on September 14, 2011
through obtaining stock dealer and broker license from concerned authorities. Mercantile
Exchange House (UK) Limited, another subsidiary company of MBL incorporated as private
limited company on December 01, 2010. It commenced its business operation on December
06, 2011. Currently, it is operating with one branch in London with a view to providing
faster, easier and safer remittance services to the Bangladeshi expatriate living and working
in UK.
Year Taka(BDT in Crore)
2014 739.16
2013 659.96
2012 611.08

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2.8 Capital Base
MBL is maintaining strong capital adequacy ratio as per new risk based capital adequacy
framework i.e. Basel II. Capital adequacy ratio of the Bank remained far above compared to
minimum requirement as on December 31, 2014. The Bank has taken numerous initiatives
including issuance of bonus shares, right share, retention of profit, corporate client‘s credit
rating etc. in a bid to attain strong capital adequacy ratio. To further raise the capital fund and
therefore capital adequacy ratio MBL issued subordinated bond worth BDT 3,000.00 million
in the year 2014.
December
2014
Capital Adequacy
Ratio (CAR)
Minimum Capital
Requirement (MCR)
Solo 12.95% 10%
Consolidate 12.96% 10%
Table 04: Capital Base of MBL
2.9 Credit Rating
MBL has strong and stable credit rating over the last couple of years. Credit Rating
Information and Services Limited (CRISL) has reaffirmed the long term rating of MBL to
‗AA-‘ and short term rating to ‗ST-2‘ based on its financial up to December 31, 2013 and
other qualitative and quantitative information up to the date of rating. CRISL also placed the
Bank with “Stable Outlook”.
Basis of
Information
Date of
Rating
Rating Rating
Long CompanyLong Term Short Term
2013 18 June, 2014 AA- ST-2 CRISL
2014 06 May, 2015 AA- ST-2 CRISL
Table 05: Credit Rating of MBL in 2014

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2.10 Mission_____________________________
“Will become most caring, focused for equitable growth based on diversified
deployment of resources and nevertheless would remain healthy and gainfully
profitable bank.”
Mercantile Bank Limited aims to become one of the leading banks in Bangladesh by
prudence, flair and quality of operations in their banking sector. The bank has some mission
to achieve the organizational goals.
2.11 Vision_____________________________
―Would make finest corporate citizen”
MBL dreams to become the bank of choice of the general public that includes both the
consumer and the corporate clients. They want to build such an image that whenever people
will think of a bank, they will think of Mercantile Bank Limited. MBL have created a cadre
of young professionals (YP) in banking profession. This has helped boosting productivity in
the bank.

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2.12 Objectives_____________________________
2.12.1 Strategic Objectives
 To achieve positive Economic Value Added (EVA) each year.
 To be market leader in product innovation.
 To be one of the top three financial institutions in Bangladesh in terms of cost
efficiency.
 To be one of the top five financial institutions in Bangladesh in terms of market share
in all significant market segment they serve.
2.12.2 Financial Objective
 To achieve 20% return on shareholders‘ equity or more, on average.
2.13 Core Values_____________________________
 Customer satisfaction pervades all our activities. MBL appreciates that Customer‘s
satisfaction is critical for success.
 Spurring innovation for reinforcement of our business. Origination and
materialization of change management for attainment of perfection and we believe
change is always constan.t
 We continue to be responsible, ethical, sincere and transparent in our thoughts and
actions.
 We always keep high on the agenda our commitment towards valued depositors as
their trustworthy custodian and to maintain the same spirit for all other stakeholders.
 Constant endeavor to act and respond in a socially responsible manner keeping in
mind society and our country to care for our environment.
 Creation and Maximization of values for our shareholders.

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2.14 Way Forward_____________________________
MBL look forward to consolidate its position focusing on the followings:
 More emphasis on SME financing
 Achievement of agriculture credit target
 All out efforts to improve deposits mix by procuring low cost and no cost deposits
 Innovation of need based deposits and loans products and services
 Incorporate technology based advanced products and solutions
 To hire and retain qualified human resources according to need of the Bank
2.15 Business Ethics_____________________________
MBL believes that business ethics practices provides a foundation for the stability and
sustainable growth of the bank, and supports the bank‘s efforts in achieving its stipulated
goals. The bank therefore encourages all parties to conduct business and perform their duties
in accordance with business ethics practices.
 The bank conducts its business in accordance with the law and regulations set by the
central bank and other regulatory authorities. The bank does not finance in any project,
detrimental to the community or country and thus prohibited by the credit policy of the
bank.
 The bank complies with various standards which are generally acceptable for conducting
the banking business and always refrain from doing aggressive business while extending
credit facilities.
 The bank offers quality services to its customers with the principles of warm friendship
and mutual support. The bank applies only those charges/fees that are disclosed by the
schedule of charges of the bank.
 To continue and increase CSR activities.
 To remain compliant in the spirit of law and industry practice.

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2.16 Mercantile Bank Limited‟s Products and Services________
Commercial banking is the core activities of Mercantile bank Limited. The bank serves all
types of customer ranging from individual to corporate entities, both private and public.
The Standard Service offered by Mercantile Bank Limited Includes-
 One counter service for all banking needs of the customer.
 Customer counseling.
 Personalized services and relationship banking.
 Deposit banking.
 Loan and advances.
 Export and import financing.
 Inland and foreign remittance facilities.
The Bank launched several financial products since its inception. Among them are:
Transactional
Accounts
And
Deposit Products
1. Current Deposit Account
2. Savings Bank Account
3. Special Noticed Deposit Account
4. Fixed Deposit Account
5. Double Benefit Deposit Scheme (DBDS)
6. Family Maintenance Deposit (FMD)
7. Quarterly Benefit Deposit Scheme
8. Times Benefit Deposit Scheme
9. Advance Benefit Deposit Scheme (ABDS)
10. Special Savings Scheme (SSS)
11. School Banking
12. Super Benefit Deposit Scheme (SBDS)

29. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
29
Consumer Finance
1. Auto Loan
2. Consumer Durable Loan
3. Unsecured Personal Loan
4. House Finance
5. Loan for Professional
6. Senior Citizen Support
Corporate Banking
1. Term Loan
2. Overdraft
3. Demand Loan
4. Time Loan
5. Packing Credit
6. Letter of Credit
7. Loan against Trust Receipt
8. Loan Syndication & Structured Finance
9. Trade Finance
10. Working Capital Finance
11. Bill Discounting
12. Letter of Guarantee
Small & Medium
Enterprise
(SME)
1. CHAKA (Term Loan).
2. ANANNYA (Women Entrepreneur‘s Loan).
3. SAMRIDDHI (Continuous Loan).
4. MOUSUMI (Short Term Single Payment Seasonal Loan).
Treasury &
Foreign Exchange
 Money Market
1. Overnight call
2. Repo
3. Swap
4. Term placement
5. Reverse Repo

30. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
30
 FX market
1. Spot transaction
2. Forward transaction
Card
Facilities
1. Dual Card (Two in One)
2. Debit Card
3. Pre-Paid Card
4. Advance against Credit card
5. Visa Local Currency Card
6. Visa Dual Currency Card
7. Visa International Card
8. MBL Visa Hajj Card
9. MBL Visa Prepaid travel Card
10. MBL Visa dual gold Credit Card
11. MBL Green Debit Card
12. MBL Visa Debit Cards
13. MBL Visa Prepaid travel Card
Services
1. ATM Services
2. Remittance Service
3. Locker Service
4. Online Banking
5. Internet Banking
6. SMS Services
7. Mobile Banking
8. SWIFT
9. BACH & EFTN
10. Student File
11. Travelers Cheque
Table 06: Products and Services of MBL

31. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
31
2.17 Division & Department of MBL____________________
The organization includes divisions which mainly deal with the products and services and
departments which support in the operating activities
A. General Banking & Deposit Management:
1. Account opening and KYC procedures.
2. Issuance of DD/TT/PO/FDR.
3. Interbank Transaction, OBC/IBC.
4. Account section.
5. Clearing Section.
6. IT Section.
7. Transaction Profile Issuing.
B. Credit Department:
1. Credit Proposals Processing Procedures.
2. Documentation and Loan Disbursement Procedures.
3. Overview on all returns.
C. Foreign Exchange Department:
I. Cash L/C
1. Opening of L/C.
2. Lodgment of Import Bill.
3. Payment against Import Bill.
4. B/E Matching.
5. IMP Reporting.

32. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
32
II. BTB L/C
1. Export L/C Checking
2. Opening of BTB L/C (Local/ Foreign/ EDF/ EPZ).
3. Lodgment and confirmation of maturity date.
4. Allowing of PC.
5. Payment against realization of Export Proceeds/ Forced Loan.
6. B/E Matching.
7. Reporting.
III. Export
1. Scrutinizing/ Negotiation/ Send on Collection.
2. Follow-up.
3. Realization.
4. Reporting.
IV. Foreign Remittance
 Inward
1. FDD.
2. FTT.
3. Others.
 Outward
1. Endorsement of Traveling.
2. Education/ Treatment/ Others.
3. Cash Rebate.
4. FC Issuing.
5. FDD/ FTT etc.

33. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
33
2.18 Internal Environment Analysis of MBL________
2.18.1 Corporate Structure____________________
Board of Directors
 Morshed Alam, M.P, Chairman
 S. M. Feroz Alam, Vice Chairman
 M. S. Ahsan, Vice Chairman
 Alhaj Akram Hossain (Humayun)
 Dr. Mahmood Osman Imam,
MBA, FCMA, Independent
Director
 Md. Shahabuddin Alam
 Md. Anwarul Haque
 M. Amanullah
 Md. Abdul Hannan
 Mohd. Selim
 A.K.M. Shaheed Reza
 Alhaj Mosharref Hossain
 Dr. Md. Rahmat Ullah,
Independent Director
 M. Ehsanul Haque
Executive Committee
 Alhaj Akram Hossain (Humayun),
Chairman
 S. M. Feroz Alam
 M. S. Ahsan
 M. Amanullah
 Md. Anwarul Haque
 Md. Abdul Hannan
 A.K.M. Shaheed Reza
Audit Committee
 Dr. Mahmood Osman Imam,
MBA, FCMA, Chairman
 Md. Shahabuddin Alam
 Mohd. Selim
Risk Management Committee
 Md. Shahabuddin Alam, Chairman
 S. M. Feroz Alam
 Mohd. Selim
 A.K.M. Shaheed Reza
 Alhaj Mosharref Hossain
Managing Director & CEO
 M. Ehsanul Haque
Chief Financial Officer (CFO)
 Monindra Kumar Nath
Auditors
 Khan Wahab Shafique Rahman &
Co.
 Chartered Accountants Qasem &
Co.
 Chartered Accountants
Tax Advisor
 K. M. Hasan & Co.
 Chartered Accountants

34. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
34
2.18.2 Board of Directors____________________
Chairman Morshed Alam, M.P
Vice Chairman A. S. M. Feroz Alam
M. S. Ahsan
Director
Alhaj Akram Hossain (Humayun)
Dr. Mahmood Osman Imam, MBA, FCMA
Md. Shahabuddin Alam
Md. Anwarul Haque
M. Amanullah
Md. Abdul Hannan
Mohd. Selim
A.K.M. Shaheed Reza
Alhaj Mosharref Hossain
Dr. Md. Rahmat Ullah
Managing Director & CEO M. Ehsanul Haque

35. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
35
2.18.3 Organ gram of Mercantile Bank Limited
Figure 01: Organogram of Mercantile Bank Limited
Source: Human Resource Division of MBL Corporate Structure
Chairman
Chief Adviser Consultant
Board of Directors
Executive
Committee
Policy
Committee
Audit
Committee Managing Director - HRD
Deputy Managing
Director
ID, IT, CREDIT, R&P
Deputy Managing
Director
GSD, CAD, A&I, GB,
D&M
Add.
Managing
Director
Senior Executive Vice President
Executive Vice President Senior Vice President
Vice President
Senior Asst. Vice President
Asst. Vice President
Senior Principle Officer
Principle Officer
Senior Officer
Officer
Junior Officer
Asst. Officer
Senior Vice President
Senior Vice President

36. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
36
2.18.4 Corporate Culture____________________
Employees of MBL share certain common values, which helps to create a MBL Culture
 The client comes first.
 Search for professional excellence.
 Openness to new ideas & new methods to encourage creativity.
 Quick decision-making.
 Flexibility and prompt response.
 A sense of professional ethics.
2.18.5 Corporate Resources____________________
2.18.5.1 Marketing
The bank offers a wide range of conventional financial products and services compared to its
competitors. Under conventional deposit schemes it renders savings account, current account,
fixed deposit, short-term deposit account, etc. Shop Finance and Women Loans Scheme are
the two new products of the bank. MBL also offers a wide range of financial products and
services through its branches. MBL finances in project loan, working capital loan, trade
financing, house building financing, contractors financing, cash credit, overdraft, packing
credit, trust receipt, guarantee, letter of Credit, etc. Recently The Bank has signed a contract
with ETN for providing ATM services.
The Bank has an array of tailor-made financial products and services. Such products are
Monthly Savings Scheme, Monthly Profit Payable Scheme, Double Benefit Deposit Scheme,
Triple Benefit Deposit Scheme Consumer Credit Scheme, Lease Finance, Shop Finance, and
Personal Loan for Women. Mercantile Bank Limited has already introduced “My-Cash”
ATM cards for its customers, giving them 24 hours banking services through Debit/Credit
cards.

37. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
37
2.18.5.2 Finance
Mercantile Bank limited has a conviction of maintaining a strong capital base in carrying on
operating. The operating profit of the Bank stood at BDT 4,410.57 million in 2014 as against
BDT 4,255.70 million in 2013. Net Interest Income of the Bank stood at BDT 5,372.82
million in 2014 as against BDT 4,794.61million in 2013. Total income of the Bank stood at
BDT 19,381.41 million in 2014 from BDT 19,090.71 million in 2013. Interest income
accounted for 86.46%, exchange gains 4.00%, commission 4.02% and other income 5.52% to
total income in 2014 as against 86.90%, 3.53%, 4.11% and 5.46% respectively in 2013.
Interest income of the Bank stood at BDT 16,758.20 million in 2014 from BDT 16,590.37
million in 2013. Interest on loans and advances accounted for 82.60%, interest on Treasury
bill and Bond 16.55% and Other Interest Income 0.85% in 2014. The Board of Directors
recommended 10% cash dividend for the year 2014. The Bank paid out 20% dividend (8%
cash & 12% stock) to the shareholders in 2013.
Particulars
Financial Year
Year-2014 Year -2013 Year -2012 Year -2011 Year -2010
Authorized
Capital
1,910.39 1,370.97 1,207.87 1,070.09 868.43
Paid-Up Capital 868.43 659.96 739.16 611.08 407.22
Capital
Surplus/deficit
435.55 171.02 75.34 60.57 12.00
Total Deposit 13,499.65 12,085.79 11,810.69 9,405.42 7,562.91
Total Loans and
Advances
11,706.00 9,768.85 9,361.09 7,972.80 6,637.77
Income from
Investment
279.60 326.69 166.88 167.13 91.95
Earnings Per
Share (Tk.)
1.61 3.00 2.09 2.84 2.87
Net Income Per
Share (Tk)
1.61 3.00 2.09 2.84 2.87
Table 07: Key Financial performance
Source: Annual Report 2014 of MBL

38. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
38
In 2015, the Bank will be more focused on strengthening/consolidation of position by
expansion of its core business portfolios with specific importance to diversify the credit
portfolio across the borrowers and business emphasizing on qualitative asset growth and
thereby, attaining acceptable level of risk and return trade-off. With respect to liability
management, we shall prioritize to buildup sustainable deposit base with more importance on
retail deposits and gradual reduction of reliance on corporate deposits
2.18.5.3 Research &Development
The Bank has started the process of formulating a long-term strategic plan so as to maintain
the momentum of overall growth and strong performance in its core business. The following
special features can be attributed to the Bank.
 Though Mercantile Bank is engaged in conventional commercial banking it also
considers the inherent desire of the Modern banking and has launched Temenos T24
online system and established latest online software in the year-2015. The Bank is
committed to continuous research and development so as to keep pace with modern
banking.
 The operations of the Bank are computerized to ensure prompt and efficient services
to the customers.
 The Bank has introduced camera surveillance system (CCTV) to strengthen the
security services inside the Bank premises.
 The Bank has introduced customer relations management system to assess the needs
of various customers and resolve any problem on the spot.
 The Bank has also introduced full Online Banking facility to the customer.

39. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
39
2.18.5.4 Human Resource Management
Being a service industry, the success of the banking sector is dependent on techno human
resources. Although the sector is now absorbing substantial number of young post graduate
professionals with comparatively good compensation packages with the objective of training
them appropriately, large number of private banks is dependent on less number of
experienced banking professionals at the top tier. As a result, there is large turnover of
professionals within the sector. In order to keep the professionals in service for long, MBL
follows a structured service rules and compensation package.
 The Bank launched long term benefits for the employees like gratuity, contributory
provident fund, house building loan scheme, car loan scheme etc.
 The employee turnover in MBL is acceptable.
 MBL follows a structured recruitment policy for fresh and experienced officers.
 The bank recruited 40 probationary officers through competitive selection process.
 So far, the bank has a training institute. It has been using the service of training
institutes of Human Resource Department to train its professionals.
2.18.5.5 Information Technology (IT)
The implementation and use of information technology in MBL, as a third generation bank, is
notable as compared to the industry. The bank has been using Temenos T24 Bank Online
Banking Software since its inception. The branches of MBL are connected through VSAT
and fiber optic cable link. At present, the bank uses in-house developed software such as
Personnel Management Information System (PMIS), CIB, Foreign Exchange Returns
software, etc. Existing system generates a number of basic reports for internal and external
consumption. The bank started online banking facilities on. 5th June 2015. However, the
existing software has limitations and need updating to accommodate the requirement of a
modern banking institution. The architecture of the software has inherent limitations to
handle large volume of transactions and interactivity between different branches and head
office. The bank is required to enhance the security standard of the software to face the global
challenge. Moreover the software needs to be tuned to the production of reports to assist the
management in day-to-day management.

40. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
40
2.19 External Environment Analysis of Mercantile Bank Limited
2.19.1 Task Environment
Porters 5 Forces analysis of MBL:
 Threat of new Entrants
 Threat of substitute products or services
 Bargaining power of customers (buyers)
 Bargaining power of suppliers
 Intensity of competitive rivalry
Criteria Range Facilities Situation Information
Bargaining
Power of
Buyer‘s
Low Opportunities favorable
i. Customers have not power to
change the rules.
ii. Regulation Interest rate and
Charges are always set by the
Bank
Bargaining
Power of
Suppliers
Medium Threat ‗Unfavorable
i. Bangladesh Bank imposes the
regulation Branches do not gather
all access power.
ii. Head office controls the
branches.
iii. Clearing house is depending
the payment and clears the bill as
per other party‘s payment Share
Market Fall down.
Threat of
New
Entrants
Medium Opportunities Favorable
i. There are now some new banks
authorized by Bangladesh bank.
ii. The new banks are creating
new demand that is a challenge
for MBL.
Threats of
Substitutes
Moderately
Low
Opportunities Unfavorable i. The bank have the huge demand
for customer to fulfill the demand
Threat of
Rivals
High Threats Unfavorable i. The competitors are strong
enough to catch the new customer
with suitable area.
ii. Branches are not enough.
Table 08: Porter‘s 5 Forces analysis of MBL

41. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
41
2.19.2 SWOT Analysis of MBL____________________
In the competitive area of marketing are SWOT analysis is based on product, price, place and
promotion of a financial institution like private Bank. By doing the SWOT analysis it is
possible to find out the strengths, Weaknesses, opportunities, and threats of MBL. From the
SWOT analysis it can figure out on going scenario of the Bank.
Strengths
 Good asset quality.
 Satisfactory business growth.
 Diversified product line.
 Good profitability.
 Experienced top management.
 Good operating efficiency.
Weaknesses
 Depends on fixed deposit.
 Limited delegation of power.
 MIS at primary stage.
 Weak in shariah compliances.
 Limited branch network.
Opportunities
 SME business.
 Real time online banking.
Threats
 Increased compliance in the
market.
 Market pressure for Dollar crisis.
 Market pressure for increasing the
SLR.
In SWOT analysis two factors act as prime movers:
 Internal factors which are prevailing inside the concern which include Strength and
Weakness.
 On the other hand another factor is external factors which act as opportunity and
threat.

42. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
42
2.19.2.1 Strengths____________________
 MBL offers a wide variety of loans for the SMEs to meet specific needs of the
customers. The products include Overdraft, Term Loan, Work Order Finance, Lease
Finance, Trade Finance, etc. It offers even some non-funded facility that can meet the
whole range of a particular need like Bank Guarantee with Work Order Finance, L/C
facility with Loan against Trust Receipt (LTR).
 The bank is very flexible in terms of security against the facilities it offers to the
client. It comprises various cash flow of the business as security against loan like
assignment of bill in the work order finance, account receivables etc.
 The pricing of the products is comparatively lower than other financial institutions.
This becomes possible because the value of non-performing loan is very low and that
leads a small amount for provisioning.
 The bank provides the loans aiming at different clusters of the country .The bank
fixed different strategy to finance a specific business community in a cluster around
the branches.
 MBL has the reputation of being the provider of good quality services too its potential
customers.
2.19.2.2 Weaknesses____________________
 There is no fixed sales force in the Bank for the marketing of SME finance.
 Many people who are now working in SME financing in the branch level have lack
of in-depth knowledge in this line.
 At Dhaka most of the branches are corporate customer oriented and there is no
sufficient number of SME booths in the city. So marketing and expanding the SME
loan products in the city area has become very difficult.
 MBL is avoiding the marketing campaign for their new services. This is why the
customers do not know about them fully what they are offering.

43. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
43
2.19.2.3 Opportunities____________________
 MBL has many rural and semi urban branches where there are many business
communities which are yet to be penetrated by the formal financial institutions. So
there is a huge scope for expanding the business in these areas.
 It has good relation with various multinational organizations like South-Asia
Enterprise Development Facility (SEDF), USAID, World Bank, etc. that can provide
assistance for developing and expanding this sector.
 Emergence of E-banking will open more scope for MBL to reach the clients not only
in Bangladesh in Bangladesh but also in global banking arena. Introducing any branch
banking through online is great opportunity to them
 Since MBL deals mostly with credit commerce related business, Credit card division
would allow them to make a huge profit in near future.
2.19.2.4 Threats____________________
 Other commercial banks like BRAC Bank Limited, Eastern Bank Limited and
foreign Bank like Standard Chartered Bank are aggressively marketing the SME
financing products and services.
 Nationalized banks very often offer the loans at lower cost in the form of corporate
loan without properly distinguishing the loan type and business aspect.
 Most of the SMEs are proprietorship concerns and in many cases they lack in ready
successors. So in the case of the death of the proprietor the recovery of the loan will
be in jeopardy.
 Sometimes these business firms borrow excessively without properly analyzing the
business scenario and need. For this reason the highly leveraged firms may collapse
at any time.

44. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
44
2.20 Corporate Social Responsibility____________________
As Mercantile Bank Limited is a non-profit subsidiary, Mercantile Bank Limited Foundation has
a unique role to play, providing leadership and making a difference for CSR in the country. For
us, it is all about meeting some of the basic needs of unprivileged class of the society. They have
always focused on providing or making need based services available for our priority target
population. Now they are expanding their field of vision to include the challenging realities of our
country‘s huge unmet needs and their understanding of the relationships among economic,
national and human systems. Getting these basic needs also requires them to think beyond the
usual boundaries of work. During its birth to till date the Foundation undertook different CSR
activities. Since the outset of the Mercantile Bank Limited Foundation it undertook good number
of CSR activities.
The following CSR activities are done by Mercantile Bank Limited Foundation:
 Scholarship for the unprivileged &disabled but meritorious students
 Blood donation by the employees of the Bank
 Free eye camps
 Relief for the disaster affected people
 Distribution of blankets among the cold prone destitute
 Sewing machine training centers for assisting unprivileged women of the society
 Launching anti-drug movement by arranging seminar, rally, publishing stickers and
established an anti-drug care center
 Old Home for the neglected old aged persons
 Arranging Art competition for the children
 Holding seminar on Holy Ramadan & Qirat competition
 Donation of tk. 50.00 lac to the National Liberation Museum
 Medical Team at Biswa Ejtema (Tongi)
 Solar Village at Kishoregonj
 Donation to Bangladesh Olympic Association Tk.50.00 lac Mobile medical Team
 Relief for AILA affected Peoples
 Donation to the prime Minister‘s fund for Nimtali Tragedy Tk. 50.00 lac
 Donation to SK. Jamal Dhanmondi Club Ltd.
 Presenting a new car to the Cricketers.

45. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
45
2.21 Current Performance____________________
2.21.1 Distribution of Market Share
Total 739,156,701 ordinary shares of the Bank were outstanding as on December 31, 2014.
Share holding position as on same date is as under:
Composition
Ownership
Number of
Shares 2014
Number of
Shares 2013
% of total shares
2014
% of total shares
2013
Sponsors/Directors 291,182,043 260,213,640 39.39% 39.00%
Government - - - -
Financial Institution 49,676,957 48,294,500 6.72% 7.00%
Foreign - - - -
General Public 398,297,701 351,453,201 53.89% 54.00%
Total 739,156,701 659,961,341 100.00% 100.00%
Table 09: Market share of MBL
Figure 02: Distribution of Share

46. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
46
2.21.2 Return on Investment (ROI)
The return on Investment (ROI), which is often called the firm‘s return on total Investment,
measures the overall Gain from investment from the Cost. The higher the ratio is better.
ROI = (Gain from Investment – Cost of Investment) / (Cost of investment)
Calculation:
Year G I – C I C I Ratio
2014 1,093.71 57,262.76 1.91%
2013 2,464.53 1.04,429.23 2.36%
2012 4,131.41 3,15,374.81 1.31%
2011 3,009.06 3,23,554.83 0.93%
2010 3,218.40 3,83,105.95 0.84%
Year 2014 2013 2012 2011 2010
Return On Investment 1.91% 2.36% 1.31% 0.93% 0.84%
Graphical Presentation:
Figure 03: Return on Investment
Interpretation:
Return on Investment is an indicator of how profitable a company is on Investment. This ratio
is used annually to compare the business performance to its norms. MBL ROI is moving
from 0.84% to 1.91% in the preceding 5 years. It can be said that MBL‘s earning capacity is
increasing year by year. This is good sign for the Bank.
2014 2013 2012 2011 2010
Ratio 1.91% 2.36% 1.31% 0.93% 0.84%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
ROI

47. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
47
2.21.3 Return on Asset (ROA)
The return on asset (ROA), which is often called the firm‘s return on total assets, measures
the overall effectiveness of management in generating profits with its available assets. The
higher the ratio is better.
Return on Asset (ROA) =Net Profit after tax/Total Asset
Calculation:
Year Net Profit After Tax Total Assets Ratio
2014 118.85 16,847.41 0.76%
2013 197.87 14,484.19 1.33%
2012 138.15 15,323.18 1.03%
2011 175.57 11,665.53 1.70%
2010 142.53 8,471.01 1.86%
Year 2014 2013 2012 2011 2010
Return On Asset 0.76% 1.33% 1.03% 1.70% 1.86%
Graphical Presentation:
Figure 03: Return on Assets
Interpretation:
Return on Assets is an indicator of how profitable a company is. This ratio is used annually to
compare the business performance to its norms. The bank‘s ROA is moving from 1.86% to
.76% in the preceding 5 years. It can be said that MBL‘s earning capacity is decreasing year
by year. This is not enough good sign for the Bank.
2010 2011 2012 2013 2014
Ratio 1.91% 2.36% 1.31% 0.93% 0.84%
0.00%
1.00%
2.00%
3.00%
ROA

48. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
48
2.21.4 Return on Equity (ROE)
The Return on Equity measures the return earned on the owner‘s investment. Generally, the
higher return is the better off the owner‘s.
Return on Equity=Net Profit after Tax/ Shareholders equity
Calculation:
Year Net Profit After Tax Shareholders‟ equity Ratio
2014 118.85 1350.94 9.11%
2013 197.87 1257.98 16.84%
2012 138.15 1029.43 13.42%
2011 175.57 852.69 20.59%
2010 142.53 574.02 24.83%
Year 2014 2013 2012 2011 2010
Return on Equity 9.11% 16.84% 13.42% 20.59% 24.83%
Graphical Presentation:
Figure 04: Return on Equity
Interpretation:
The return on equity ratio was decreasing from 2010 to 2014. That was decreased from
24.83% to 9.11%. This is not desirable. So, the management should work hard to increase the
return associated with equity. Though return on equity has slightly increased in 2013 from
preceding year, still it is significantly deviated from that of in 2013.
2010 2011 2012 2013 2014
Ratio 24.83% 20.59% 13.42% 16.84% 9.11%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
ROE

49. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
49
2.21.5 Earnings per Share (EPS)
The firm‘s Earning per share (EPS) are generally of interest to present stockholders and
management. The EPS represents the number of dollars earned on behalf of each outstanding
share of common stock. The earnings per share are calculated as follows:
Earnings per Share =Earnings available for common stock holder/No of shares of
common stock outstanding
Calculation:
Year Earnings available CSH No of shares CSO Amount
2014 739.16 459.10 1.61 Tk.
2013 659.96 219.98 3.00 Tk.
2012 611.08 292.38 2.09 Tk.
2011 496.81 174.93 2.84 Tk.
2010 407.22 141.89 2.87 Tk.
Year 2014 2013 2012 2011 2010
EPS (BDT) 1.61 3.00 2.09 2.84 2.87
Graphical Presentation:
Figure 05: Earnings per Share
Interpretation:
The graph shows that, EPS is highest in 2013 and there is a downward trend in EPS from
year 2013 to 2014. But MBL has tried to increase its EPS as shown by the upward trend in
EPS.
2010 2011 2012 2013 2014
BDT 2.87 2.84 2.09 3 1.61
0
0.5
1
1.5
2
2.5
3
3.5
EPS

50. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
50
2.21.6 Price Earnings Ratio
The price or earning (P/E) ratio is commonly used to assess the investor appraisal of share
value. The price Earning (P/E) ratio is calculated as follows
Price Earnings Ratio=Market price per share of common stock/Earning per share
Calculation:
Year Market price per share Earnings per share Times
2014 22.76 Tk. 1.61 Tk. 14.14
2013 38.64 Tk. 3.00 Tk. 12.88
2012 25.52 Tk. 2.09 Tk. 12.21
2011 39.28 Tk. 2.84 Tk. 13.83
2010 24.73 Tk. 2.87 Tk. 8.62
Year 2014 2013 2012 2011 2010
EPS (Times) 14.14 12.88 12.21 13.83 8.62
Graphical Presentation:
Figure 06: P/E Ratio
Interpretation:
It measures the level of price that the investors are paying for per taka of earnings offered by
the bank. From the graph I have seen that in year 2014 the investors has paid maximum
amount of price for per unit of earnings in which the bank issued its share in the market. This
indicates the investors are paying more and willing to invest in MBL.
2010 2011 2012 2013 2014
Times 8.62 13.83 12.21 12.88 14.14
0
2
4
6
8
10
12
14
16
P / E Ratio

51. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
51
2.21.7 Debt Ratio
The debt ratio measures the preparation of total assets provided by the firm‘s creditors.
Debt ratio= Total Liabilities/Total Assets
Calculation:
Year Total Liabilities Total Assets Scale
2014 15,553.87 16,847.41 0.92
2013 13,246.99 14,484.19 0.91
2012 14,337.98 15,253.18 0.94
2011 10,965.59 11,665.53 0.94
2010 8,016.88 8,714.01 0.92
Year 2014 2013 2012 2011 2010
Debt Ratio 0.92 0.91 0.94 0.94 0.92
Graphical Presentation:
Figure 07: Debt Ratio
Interpretation:
The graph shows that debt ratio of MBL is fluctuating. The MBL has reduced its debt ratio
and thereby it has reduced financial leverage and financial risk.
2010 2011 2012 2013 2014
Debt Ratio 0.92 0.94 0.94 0.91 0.92
0.895
0.9
0.905
0.91
0.915
0.92
0.925
0.93
0.935
0.94
0.945
Debt Ratio

52. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
52
2.22 Financial Highlights of Mercantile Bank Limited________
Particulars
(Taka in Crore)
Year- 2014 Year- 2013 Year- 2012 Year- 2011 Year- 2010
Paid up Capital 739.16 659.96 611.08 496.81 407.22
Total Capital Fund 1,910.39 1,370.97 1,207.87 1,070.09 868.43
Capital Surplus 435.55 171.02 75.34 60.57 12.00
Total Assets 16,847.41 14,484.19 15,253.18 11,665.53 8,714.01
Total Deposits 13,499.65 12,805.79 11,810.69 9,405.42 7,562.91
Total Loans and
Advances
11,706.00 9,768.85 9,361.09 7,972.80 6,637.77
Total Contingent
Liabilities
6,079.86 5,175.36 5,175.36 4,194.84 3,798.95
Credit Deposit Ratio 86.71% 80.83% 79.26% 81.68% 87.77%
Percentage of Total
Loans and Advances
4.13% 4.77% 4.37% 2.61% 1.77%
Profit after Tax and
Provisions
118.85 197.87 138.15 175.57 142.53
Amount of Classified
Loans during the Year
483.16 465.98 409.09 89.68 (7.25)
Provisions against
Classified Loans
240.52 242.51 93.29 71.82 61.75
Provision Surplus 0.27 5.91 0.99 0.75 0.83
Cost of Fund 7.90% 8.93% 10.02% 9.63% 7.94%
Interest Earning Assets 13,971.20 11,983.34 12,593.67 10,307.69 7,896.45
Non Interest Earning
Assets
2,876.22 2,500.87 2,695.51 1.357.84 925.30
Return on Equity 9.11% 16.84% 13.42% 20.59% 24.83%
Return on Assets 0.76% 1.33% 1.03% 1.70% 1.86%
Income From
Investments
279.60 326.69 166.88 167.13 91.95
Earnings Per Share 1.61 3.00 2.09 2.84 2.87
Net Income per Share 1.61 3.00 2.09 2.84 2.87
Price Earnings Ratio 9 Times 6 Times 9 Times 10 Times 14 Times
Table 10: Financial Highlights of MBL

53. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
53
Chapter: Three
Report Part

54. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
54
3.1 Small & Medium Enterprises (SME) ____________________
SME is defined as, ―A firm managed in a personalized way by its owners or partners, which
has only a small share of its market and is not sufficiently large to have access to the stock
exchange for raising capital‖. SME ordinarily have few accesses to formal channels of
finance and depends primarily upon savings of their owners, their families & friends.
Consequently, most SMEs are sole proprietorships & partnerships. As with all definitions,
this one is not perfect. Depending on context therefore definition of SME will vary.
3.1.1 Small Enterprise:
Small enterprises are those institutions which are not categorized as public limited company
and accomplish the following norms:
Serial No. Sectors The amount of fixed assets excluding
land & building
Number of labor
1. Service 50,000-50,00,000 25
2. Trading 50,000-50,00,000 25
3. Manufacturing 50,000-1,50,00,000 50
Table 11: Small Enterprise
3.1.2 Medium Enterprise:
Medium enterprises are those institutions which are not categorized as public limited
company and accomplish the following norms:
Serial No. Sectors The amount of fixed assets excluding
land & building
Number of labor
1. Service 50,00,000-10,00,00,000 50
2. Trading 50,00,000-10,00,00,000 50
3. Manufacturing 1,50,00,000-20,00,00,000 150
Table 12: Medium Enterprise

55. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3.2 SME Finance in Bangladesh____________________
Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a
satisfactory level by eliminating various prejudices against labor intensive and creating jobs
for the skilled manpower in the SME sector.
The Bangladesh Bank report said, the key reasons behind the SMEs are not entering into
manufacturing are financial constrains, dismal state of utilities, technology and policy
discriminations. On the others hand, Bank and others financial institutions generally prefer
large enterprise clients because of lowerr transition costs, and greater availability of
collateral.
With a view to resolve the problems of business starting SME Foundation launched ―SME
Business Manual‖ to provide proper information and guidelines to manage the business
efficiently.
3.3 General SME Guidelines by Bangladesh Bank____________
Bangladeshi SME sector is guided by general SME Guideline of Bangladesh Bank.
Guidelines are as follows-
 Each bank/financial institution shall follow a separate business strategy in financing
SME loan with least formalities in executing documentation to ensure easy and
speedy loan sanction and disbursement process.
 Priority shall be given to small entrepreneurs.
 For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand)
to Tk. 50, 00,000 (Fifty lacs)
 For more participation of women entrepreneurs in industrial development of the
country and for conducting business activities by women entrepreneurs in large
number, priority shall have to be given to potential women entrepreneurs in respect of
SME credit disbursement.

56. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
56
 Banks & Financial Institutions shall put highest priority in receiving loan application
from small and medium women entrepreneurs and settle the loan disbursement
process within very reasonable time from the date of acceptance of the application.
 Each bank and financial institution shall establish a separate ‗Women Entrepreneurs‘
Dedicated Desk‘ with necessary and suitable manpower, provides them training on
SME financing and suitably appoints a lady officer as chief of dedicated desk. Branch
wise list of ‗Women Entrepreneurs‘ Dedicated Desk ‗should be sent to SME and
Special Programs Department of Bangladesh Bank within two months from the date
of declaration of this policy and program.
 Entrepreneurs against Banks and financial institutions may sanction up to Tk. 25,
00,000 to women personal guarantee. In that case, group security/social security may
be considered.
3.4 SME Financing in Mercantile Bank Limited_______________
SME financing of Mercantile Bank Limited are designed and developed to meet up all types
of justified business requirements of SME customers. However, the features of the products
so far developed may be changed, revised, while new products can also be developed to cope
with the market demand as per guidelines of Bangladesh Bank and the Bank‘s own policy.
Small and Medium Enterprises (SME) is considered as thrust sector of the economy. SME is
the Engine of Growth as this sector churns out 20%-25% of the country's GDP growth. In the
present day banking, focus has greatly shifted to the SMEs for maintaining a sustainable
growth of the banks and the economy of a particular country as well. Properly managed and
healthy SMEs are the source of employment opportunities and income generation among the
lower segment of the economy. They can contribute to social stability and generate tax
revenues if it can be handled properly in the fiscal policy. SMEs can be an important source
of local supply and service providers to the large enterprises. They usually have extensive
local knowledge of resources, supply patterns and purchasing trends. Developing countries
contain a huge, largely untapped market for large enterprises. By working closely with SMEs,
large enterprise can develop a new customer base that may not be accessible to the traditional
distribution networks of these corporations.

57. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
57
SMEs also represent an important source of innovation. They tend to occupy specialized
market ―niches‖ and follow competitive strategies that set them apart from other companies.
This might include re-engineering products or services to meet market demands, exploring
innovative distribution or sales technique or developing new and untapped markets. This
often makes them good partners for large companies.
SMEs are one of the most conducive catalysts for community development. Being local, they
draw upon the community for their workforce and rely on it to do business. For the
communities, they provide goods and services tailored to local needs at costs affordable to
local people.
3.5 Products and Services of SME in MBL____________________
The existing products are:
 CHAKA (Term Loan).
 ANANNYA (Women Entrepreneur‘s Loan).
 SAMRIDDHI (Continuous Loan).
 MOUSUMI (Short Term Single Payment Seasonal Loan).
SL Product
Name
Nature Maximum
Loan Tenor
Interest
Rate
Loan Type
1 Chaka Term loan 3 years 15% Equal Monthly
Installment
2 Ananya Women Entrepreneur
loan
3 years 10% Equal Monthly
Installment
3 Samriddhi Continuous loan 3 years 13% Equal Monthly
Installment
4 Mousumi Short term Seasonal loan Maximum 09
months
15% Single Installment
Table 13: Products and Services of SME in MBL

58. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
58
3.6 SME Products Policy Guideline____________________
3.6.1 TERM LOAN
CHAKA (Trade; Manufacturing; Service)
Small and Medium Entrepreneurs of our country are striving to play significant role in the
steady growth of GDP through profitable expansion of existing business as MBLll as setting
up new venture in the competitive business world. But most of the times they fail to address
the same due to dearth of capital. With a view to overcome this situation and for achievement
of justified level of business growth, Mercantile Bank Ltd is assisting SME customers
offering ‗CHAKA‘ loan facility.
Loan Selling Limit: 2 lac to 50 lac
Purpose: Working capital requirement, fixed asset financing or both
Age of the entrepreneur: Minimum 21, Maximum 60
Experience of the entrepreneur: is skilled in managing his/ her business preferably 2(two)
years.
Loan Tenor: Maximum 36 months,
Security (As applicable):
 All usual/related charge documents
 Two Personal Guarantees of spouse/parents/brother(s)/sister(s)/other family members
and land owners (as applicable).
 Third personal guarantee, other than immediate family members.
 Post dated cheques for each installment and one undated cheque for loan value
including full interest payable thereon.
Key Factors to Consider:
 The entrepreneur must have an acceptable social standing in the community.
 The entrepreneur must have ability to run and demonstrate to his business.

59. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
59
 Background of the entrepreneur with regard to willingness to repay.
 Clear-cut indication of sources of income.
Other Factors:
Loan limit and security depends on the basis of nature and prospects of the business.
Loan Repayment System: Equal monthly installment.
Rate of Interest: 15% (10% for Women entrepreneur)
3.6.2 WOMEN ENTREPRENEUR LOAN
ANANYA (Trade; Manufacturing; Service)
About 50% of our total populations are women but their active role as entrepreneur is not at
all significant. For balanced & sustainable economic growth with inclusiveness of all classes
people of the society, active involvement of women in the business is immediately required
and our bank has given highest priority for financing to the Women Entrepreneurs offering a
loan facility under the name & style ‗ANANNYA‘
Loan Selling Limit: 1 lac to 50 lac
Purpose: Working capital requirement, fixed asset financing or both
Age of the entrepreneur: Minimum 21, Maximum 60
Experience of the entrepreneur: is skilled in managing his/ her business preferably 2(two)
years.
Loan Tenure: Maximum 36 months
Security (As applicable):
 One Personal Guarantee of spouse/parents/brother(s)/sister(s)/other family members
and land owners (as applicable)
 Post dated cheques for each installment and one undated cheque for loan value
including full interest payable thereon.

60. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
60
 Registered mortgage of land property (minimum force sales value 125% of the loan
amount) or registered mortgage of land property plus FDR (Face value of FDR and
force sales value of registered mortgage of land property = 100% of the loan amount)
 All usual/related charge documents
Key Factors to Consider:
1. The entrepreneur must have an acceptable social standing in the community.
2. The entrepreneur must have ability to run and demonstrate to his business.
3. Background of the entrepreneur with regard to willingness to repay.
4. Clear-cut indication of sources of income.
Other Factors: Loan limit and security depends on the basis of nature and prospects of the
business.
Loan Repayment System: Equal monthly installment.
Rate of Interest: 10%
3.6.3 CONTINUOUS LOAN
SAMRIDDHI (Continuous Loan, Manufacturing/Service/Trading)
Small and Medium Entrepreneurs need working capital at anytime to penetrate into
prevailing business opportunity and to run the existing business smoothly. For the purpose of
helping SME customers to operate their business uninterruptedly, Mercantile Bank Limited
has introduced continuous loan facility under the name & style ‗SAMRIDDHI‘
Loan Selling Limit:
0.50 lac to 50.00 lacs for Small Entrepreneur
0.05 lac to 500.00 lacs for Medium Entrepreneur.

61. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
61
Purpose: To meet up any justifiable and acceptable working capital requirements.
Nationality: Bangladeshi
Age of the entrepreneur: Minimum 21, Maximum 60.
Experience of the entrepreneur: is skilled in managing his/her business preferably 2(two)
years.
Security/Collateral:
 Registered mortgage with Irrevocable General Power of Attorney of the
property/ownership of the space/possession right purchased.
 Hypothecation of machinery, equipments, vehicles, inventories, advance payments.
 Lien of cash collateral (FDR, Scheme Deposit) and competent authority approved
other en-cashable financial instruments.
 In case of proprietorship concern, personal guarantee of the proprietor and spouse.
Insurance: Fire & Other insurance coverage as applicable
Interest rate: 13% p.a. However, the interest rate is subject to change based on the market
conditions and policy of the Bank.
Penal interest rate: 2 % higher over the prescribed rate on overdue amount or as per policy
of the Bank.
Other fees & Charges: As per policy and scheduled charges of our Bank.
Interest Applied: Quarterly/Monthly rest basis.
Tenure of the loan: 1(One) Year on revolving basis.
Repayment Method:
 By depositing daily sales proceeds in the loan account.
 Full and final adjustment by depositing sales proceed or from own sources of the
customer on or before the expiry.
 Every drawing to be adjusted by 90 days

62. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
62
3.6.4 SEASONAL LOAN
MOUSUMI (Short Term Single Payment Seasonal Loan)
Seasonal products/crops as well as religious and cultural festivals create short-term additional
business opportunity for Small and Medium Entrepreneurs of our country. As such, they
require special business arrangements in addition to run day-to-day business activities to cope
up with seasonal demand which may increase sales and profit. In order to patronize SME
customers for capturing this seasonal business opportunity, Mercantile Bank Ltd has
introduced single payment loan facility under the name & style ―MOUSUMI‖
Purpose: To meet up legitimate short-term working capital requirements of business entity.
Loan limit: Tk 0.50 lac to Tk 50.00 lacs.
Nationality: Bangladeshi
Age limit: From 21 years to 60 Years (last installment of the loan has to be deposited before
the borrower reaches the age of 60).
Note: Age bar may be relaxed /waved by the Managing Director & CEO of the Bank on
acceptable grounds.
Minimum income: Minimum income must be commensurate with the amount of loan
requested.
Borrower‟s eligibility:
The entrepreneur:
 Must be literate.
 Is skilled in managing his/ her business preferably 2(two) years.
 Has good reputation.
Security/Collateral:
 Registered mortgage with Irrevocable General Power of Attorney of the
property/ownership of the space/possession right purchased.

63. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
63
 Hypothecation of machinery, equipments, vehicles, inventories, advance payments.
 Lien of cash collateral (FDR, Scheme Deposit) and competent authority approved
other en-cashable financial instruments.
 Usual charges documents.
 Others as applicable in compliance with the policy of the Bank.
Insurance: Fire & Other insurance coverage as applicable.
Interest rate: 15% p.a. but in case of Woman Entrepreneur‘s Refinance Scheme, 10% p.a.
However, the interest rate is subject to change based on the market conditions and policy of
the Bank.
Penal interest rate:2.00% higher over the prescribed rate on overdue amount or as per
policy of the Bank.
Other fees & Charges: As per policy and scheduled charges of our Bank.
Interest applied: Monthly rest basis
Tenure of the loan: Maximum 09 (Nine) months.
Repayment method:
 Service interest on monthly basis.
 Entire outstanding loan amount will be repaid on or before the expiry date of the loan.

64. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
64
3.7 SME financing products at a glance____________________
Subject
SME Products
CHAKA
(Term Loan)
ANANNYA
(Women
Entrepreneur‘s
Loan)
SAMRIDDHI
(Continuous
Loan).
MOUSUMI
(Short Term Single
Payment Seasonal
Loan).
Size
Tk 0.50 -70.00 lac
for SE
Tk 0.50 -50.00
lac for SE
Tk 0.50 -50.00
lac for SE
Tk 0.50 -50.00 lac
for SE & ME
Tk 0.50 -100.00
lac for ME
Tk 0.50 -
100.00 lac for
ME
Tk 0.50 -100.00
lac for ME
Tk 0.50 -100.00 lac
for ME
Segment SE & ME SE & ME SE & ME SE & ME
Purpose For justified
business
requirements.
For justified
business
requirements.
For working
capital
requirements.
For justified
business
requirements.
Tenure
1 - 5 years 1 - 5 years for
term loan.
1 year on
revolving basis
for CC (H)
1 year Maximum 9 months
Grace
period
Maximum 6
months for term
loan
Maximum 6
months for
term loan
Nil Nil
Interest
rate
15%-16% p.a
applicable as per
mode of
financing.
10% p.a 15%-16% p.a
applicable as per
mode of
financing.
15%-16% p.a
applicable as per
mode of financing.
For women ent.
10%
Penal
interest
2 % higher on
overdue amount
16 % (usual
rate) on
overdue
amount.
2 % higher on
overdue amount.
2 % higher on
overdue amount.

65. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
65
Financing
Mode
Term Loan (SE),
Term Loan (ME),
LTR-SE, LTR-
ME, Lease
Finance-SE, Lease
Finance-ME, Hire
Purchase-SE, Hire
Purchase-ME,
Others (SE),
Others (ME), LC
Term loan
(SE), CC
(Hypo) SE,
LTR-SE, Lease
Finance-SE,
Hire Purchase-
SE, Others
(SE)
And same for
ME
CC (Hypo) SE,
CC (Hypo) ME,
SOD (General)
SE, SOD
(General) ME.
Term Loan (SE),
Term Loan (ME).
Repayment
EMI or at lump
sum on or before
expiry as
applicable
EMI or at lump
sum on or
before expiry
as applicable
At lump sum on
or before expiry
At lump sum on or
before expiry
Security
PG, Cheques plus
others as
applicable
PG, Cheques
plus others as
applicable
RM, IGPA, PG,
Cheques plus
others as
applicable
RM, IGPA, PG,
Cheques plus others
as applicable
Table 14: Services at a Glance

66. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
66
3.8 Credit Principles that govern SME Loan_________________
SME loan in Mercantile Bank Limited with a view to provide a structure on which lending
decisions must be based. They are the key elements supporting bank‘s credit culture with
regard to SME loan; and will dictate our behavior when dealing with customers and
managing lending portfolio of such loans.
It is the fact that credit policies and procedures can never sufficiently capture all the
complexities of the product. For all Mercantile bank staffs initiating lending decisions the
following credit principles are the ultimate reference points:
1. Assessment of the customer‘s character for integrity and willingness to repay.
2. While lending consider the customers capacity and ability to repay.
3. Preplan for recovery considering the possibility of default.
4. It may recommend only if it can realize that you will be able to understand and
manage the risk.
5. Use common sense and past experience in conjunction with through evaluation and
credit analysis. Do not base decisions solely on customer‘s reputation, accepted
practice, other lender‘s risk assessment or the recommendation of other officers.
6. Behave ethically in all credit activities.
7. Be proactive in identifying, managing and communicating credit risk.
8. Be diligent in ensuring that credit exposures and activities comply with the
requirement set out in this project program.
9. Minimize risk and optimize reward by striking a suitable balance between risk and
reward.
Build and maintain a diversified credit risk portfolio to avoid risk concentrations and to
ensure better liquidity management.

67. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
67
3.9 Loan Processing Procedures for a SME Loan Application
3.9.1 Preliminary Steps for Loan Processing___________
3.9.1.1 Relation building or Customer acceptance policy/KYC & relationship
First of all Bank has to know the customer. If the applicant is new to us then MBL let the
client open bank account and continue transaction for a certain time and upon good reflection
of transaction MBL will precede with the loan proposal. Having an account or opening an
account is must to proceed for any loan request from any customer. Whatever MBL want to
facilitate the customer depends on our knowledge on the client. And an account helps up to
enrich our knowledge on our client. And if the transaction in the customer account reflects
healthy and sound views then MBL proceed with the loan application to the next step as
follows:
3.9.1.2 Identification of Customer Needs
For Working Capital (W/C) Finance:
The loan amount should also be small or within comfortable range of the customer with
sufficient cushion to cover unforeseen troubles in business.
For Fixed Asset (F/A) Finance:
The age & nature of the business & investment in fixed asset is very important in case of
fixed asset finance.

68. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
68
3.9.1.3 Collection of Data & Required Papers:
Applicant‟s Required Papers:
1. Trade License of business (Up to Date).
2. T.I.N Certificate.
3. Voter ID / National ID.
4. Photograph four (4) copies.
5. Original rental deed copy of Shop / Business institute.
6. Bank Statement 12 months.
7. Recent Electricity bill of shop/Business institute.
8. Recent electricity bill of residence. (If applicable)
9. Recent rents recite copy of Shop / Business institute.
10. Photograph of Shop / Business institute (6-8).
11. Name, Relation, Profession, Address & Mobile No. of four (4) close relatives.
12. Pad of Shop/Business institute (10).
13. Sanction Letter & Loan Statement Others Bank. (If applicable)
14. Copy of land valuation report in case of property mortgage.
15. Papers on land and building or any other property.
Required Financial Information:
1. Stock to be purchased from proposed loan amount and their value & quantity.
2. Yearly operating expenses of the client‘s business
3. Current receivable and buyer list.
4. Current payable and supplier list.
5. Fixed assets list

69. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
69
Information regarding Sister concerns/affiliates
1. Following information regarding sister concerns/affiliates will be furnished:
Name of the enterprise(s), Location of the business, type of business, name of other owners,
if any Annual sales, rate of net profit, receivables Payables, inventory, Borrowings
2. The following papers will be submitted:
i. Sanction advice of loan a/c, if any
ii. Loan account statement for the last 1 year
Other Documents
In case the land on which the factory/ sales center/office is situated is owned by the
entrepreneur(s)/ owner(s): title of deed/ up to date rent receipt of the landed property will be
obtained.
In case the possession is purchased or hired: the possession deed or rental deed in non-
judicial stamp of Tk. 150.00 denomination will be obtained.
Guarantor‟s Required Papers
1. Spouse Guarantor
 Voter ID / National ID.
 Photograph two (2) copies.
2. Relative Guarantor
 Voter ID / National ID.
 Photograph two (2) copies.
 Visiting Card. (If applicable).
 Trade License of business Up to Date. (If applicable)

70. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
70
3. Business Guarantor
 Voter ID / National ID.
 Photograph two (2) copies.
 Visiting Card.
 Trade License of business (Up to Date).
 TIN certificate. (If applicable)
 Recent electricity bill of residence. (If applicable)
4. Guarantor- Permanent Residence in Dhaka
 Voter ID / National ID.
 Photograph two (2) copies.
 Visiting Card. (If applicable)
 Trade License of business (Up to Date). (If applicable)
 TIN certificate. (If applicable)
 Recent electricity bill of residence.
3.9.1.4 Onsite Inspection & Data Verification
The Relationship officer of SME department should visit the business at least twice, once in
the morning and once in the afternoon (depending on business sales frequency)
The Relationship officer should spend at least 3 hours each time in the business and take note
of the following:
 Customer dealing
 Sales/day
 Inventory/stock
 Selling price
 Credit Sales
 Payment behavior

71. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
71
The Relationship officer should also assess:
 How many times the customer needs to buy stock/month
 How much money he spends for stock purchase and
 How/from where he pays for the stock
3.9.1.5 Financial Spread Sheet (FSS)
This is an intensive analysis of projected financial figures of the project to assess the financial
strength of the project or proposal. Here MBL prepare the following financial statements:
1. Balance sheet.
2. Profit and Loss Statement.
3. Projected cash flow statement.
Financial Ratio Analysis:
Here also MBL analyze the following rations to assess financial strength:
 Gross profit margin.
 Net profit margin.
 Gross profit ratio (%) (Gross profit / Total sales
 Net profit ratio (%) (Net profit / Total sales)
 ROI (Average EAT or Net profit / Total Investment)
 PBP (Total investment / Net cash benefit or net profit)
 Debt service ratio (Operating cash / Installment paid)
 Gross rate of sales ( Current year sales / Last year sales)
 Leverage ratio (Total Liabilities / Net worth) Debt-equity ratio may be up to
maximum 1:1

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3.9.1.6 Collection of CIB Report
Mercantile Bank Limited collects CIB report from the department of ―Credit Information
Bureau‖ of Bangladesh Bank regarding the proposed loan applicants. Approval will be
accorded subject to receipt of clean CIB report from Bangladesh Bank. In case of existing
liability satisfactory (unclassified loan status) CIB report will serve the purpose.
3.9.1.7 Credit Assessment____________________
A thorough credit and risk assessment is conducted prior to the granting of loans. The result
of this assessment is presented in a Credit Application that originates from the Relationship
Manager (RM) or Account Officer are familiar with the Lending Guidelines and conduct due
diligence on new borrowers, principals or guarantors. Mercantile Bank Limited has
established Know Your Customer (KYC) and Money Laundering Guidelines which has been
adhered to at all times.
The assessment includes the following:
 Amount & types of loan proposed  Historical Financial analysis
 Purpose of loan  Projected Financial performance
 Loan structure  Account conduct
 Security arrangement  Adherence to lending guidelines
 Borrower analysis  Mitigating factors
 Industry analysis  Loan structure
 Supplier/ Buyer analysis  Security

73. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3.9.1.7.1 Credit Assessment Technique:
The selection of good customers is depending on the careful assessment of the following
5C‘s:
1. Character
2. Capacity
3. Conditions
4. Capital
5. Collateral
Among the 5 Cs the most important for an SME loan are:
1. How to Assess CHARACTER: Willingness to Pay?
 Home visit: A picture tells a thousand words.
 Social status
 Honesty
 Repayment behavior (utility bills, house rent, suppliers etc).
 Commitment to his business and Experience.
2. How to Assess CAPACITY: Ability to Pay?
 Cash flow
 Other source of income (if any)
 Inventory/stock
 Account Receivables (A/R)
 Account Payables (A/P)
 Check with suppliers if his orders have increased over time
 Dealings with other banks
 Family burden (unmarried young daughter, sick parent/child)
 Other debts/personal loans etc.

74. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3. What Market CONDITIONS to Assess?
 Industrial/Sector Analysis
 Market trends
 Consumer habits/attitudes (if any change is foreseen)
 Business location
 Prospect of business
 Demand of product
 Competitor‘s Analysis
4. How to Assess CAPITAL?
 What are the customers‘ assets and what are his liabilities.
 Whether his net worth has increased over last couple of years or remained same or
declined (if declined that is a bad sign).
 Is the customer investing his own capital in the business?
 If ―yes‖ then it is a good sign, what is the trend of his investment
(increased/same/decreased?)
5. How to Assess COLLATERAL?
Assess the Guarantors
 Their credibility/Net worth/age
 Their commitment to repay the loan in case of default
 Is s/he is an influential person
Assess the Mortgage
 Liquidity
 Location of land urban/semi-urban/rural
 Type of land
 Ownership documents (fake/original)

75. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3.9.2 Secondary Steps for Loan Processing____________________
3.9.2.1 Drafting of Proposal & Recommendation
Then MBL drafts the proposal for the loan facility to the customer and send this proposal to
the Corporate Office through Zonal Head. And this proposal is send to head office along with
Risk Grade Score Sheet, Copy of Land valuation report, FSS, Copy of audited accounts of the
applicant, copy of feasibility report of the project and other relevant documents.
The Proposal should enclose the following information:
 Background of the applicant  Performance with other Bank
 Present Proposal  Liabilities with us
 Name of the Applicant  Liability with other banks
 Nature of Business  Brief Particulars of the project
 Constitution of applicant‘s business  Financial highlights
 Year of establishment  Credit Risk Grading
 Capital structure  Estimation of working Capital
 Bank checking  Particulars of the Proposed Facility
 Particulars of the Directors  Source of Repayment
 Particulars of the Guarantors, if any  Projected earnings (annually)
 Brief description of management  Branch‘s visit report
 Sister/allied concern  Documentation status
 Account relationship with us  Bank‘s Credit Policy Compliance
 Performance with us  Comments & recommendation
 Account Profitability  Security and Collateral/control

76. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3.9.2.2 Approval Process
To the documentation, It is a very important part of credit activities. Failure of proper
documentation may lead to a loss of bank in case of client‘s failure to repay it. If all the
charge documents are not maintained properly then bank may fail to take any legal action
against the defaulter.
Legal Documents
1) Sanction Letter Accepted by Entrepreneur
2) Demand Promissory Note
3) General Loan & Collateral Agreement
4) Hypothecation of Debts and Assets
5) Letter of Hypothecation
6) Continuing Guarantee/Personal Guarantee
7) Letter of Installment
8) Letter of Disbursement
9) Letter of Disclaimer
10) Memorandum of Deposit of Cheque
11) Hypothecation of Fixed Assets (for the manufacturing and fixed asset financing)
12) Letter of charge/ Lien and set off (for FDR)
13) Legal opinion for Registered Mortgage (if required)
14) Registered Mortgage Deed Vetted by Lower
15) Registered Mortgage Receipt
16) Irrevocable General Power of Attorney (IGPA)
17) Insurance of Covering Risk

77. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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3.9.2.3 Disbursement
Proper documentation and approval are necessary prior to the disbursement of loan facilities.
Security documents are prepared in accordance with approval terms are legally enforceable.
Standard loan facility documentation that has been reviewed by legal counsel is used in all
cases. Disbursements under loan facilities are only made when all security documentation is
in place. CIB report reflects or includes the name of all lenders with facility, limit and
outstanding. All formalities regarding SME loans are guided by Bangladesh Bank circulars
and related section of Banking Companies Act.
After disbursement tasks
End use of funds to be certified by branch/unit recommending the facilities:
1. In case of fixed assets purchase financing, the respective branch/unit/center will
1. Obtain minimum 3 price guarantee/indents/pro-forma invoices and upon
verification of same and
2. Issue a certificate confirming the purchase of the fixed assets as per prescribed
format
The respective branch/unit/center will obtain stock reports as per BA‘s prescribed format of
the borrowers on 1st
time after 2 months and next quarterly basis and upon review of same for
drawing power send to SME Loan administration department at corporate office.
3.9.2.4 Credit Monitoring
To minimize credit losses monitoring procedure and systems are in place that provides an
early indication of the deteriorating financial health of a borrower. At a minimum, systems
are in place to report the following exceptions to relevant executives to relevant in CRM and
RM team.
3.9.2.5 Classification/Credit Risk Grading
The loan administration division/credit division will have full authority to assign Credit Risk
Grading and to classify any loan as default i.e., SUP, GD, ACCPT, MG/WL, SMA, SS, DF,
BL on qualitative judgment criteria. And MBL also prepare report on classified loan each

78. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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month and send it to Bangladesh Bank through Corporate office. The classified listing and
provision are as follows:
Loan Status Overdue
Installments
Provision percentage
Unclassified Less than 6 1%
Specially
Mentioned
Account (SMA)
3 installments 2%
Substandard 6 installments 20%
Doubtful 12 installments 50%
Bad Debt 18 installments 100%
Table 15: SME Loan Classification/Credit Risk Grading
3.9.2.6 Credit Recovery
Days Past Due
(DPD)
Collection Action
1-14  Letter, Follow up &Persuasion over phone
15-29  1st
Reminder letter & Serial. No. 1 follows
30-44  2nd
reminder letter + Single visit
45-59
 3rd
reminder letter
 Group visit by team member
 Follow up over phone
 Warning on legal action by next 15 days

79. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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60-89
 Call up loan
 Final Reminder & serve legal notice
 Legal proceedings begin
 Repossession starts
Table 16: SME Loan Recovery Steps
3.10 Risk Avenues & Preventive Measures of Bank_____
Risk Avenues Preventive Measures
Fund Diversion
 Get in writing from the client the list of goods to be purchased for
working capital & write in credit file
 Take phone no. contract with supplier to confirm
 Call the vendor/supplier and recheck if he is actually planning to
purchase from him
 Inform the client about consequences of fund diversion & default
 Monitor/visit after one week and check inventory, sales records &
invoice. Put this in the credit file
Over financing
 Loan size should be justified
 Reduce this percentage if too many assumptions are made while
calculating profit
 Reduce loan tenor & loan size especially in case of working
capital finance.
 Assess Sales turnover
Wrong selection  Assess & select customer based on the 5Cs
 Regular monitoring
 Check if inventory is decreasing

80. Functions and Process Involved in SME Banking of Mercantile Bank Ltd.
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Absconding
Client
 Ask customer how he will repay
 Watch out for warning signs
 Ask the client why stock is decreasing & tell him to correct the
position
Business stops
operating
 Fire, unfavorable change in govt. policy, natural disaster etc. these
are cases where owner‘s character is most important
 These are situations over we have little control
Poor Character
 House visits tell a lot about customer
 If he has a family them it is comparatively safer
 If single then risk of closing business & absconding is higher
Seasonal Affect
 Assess and double check market conditions
 Whether seasonality is there or not
 Determine the peak sales month & worst sales month
 Monitor closely during dull months and remind customer to
cushion or save prior to dull months
Competition
Increases for the
customer
 This is why shorter the tenor the safer we are
 Because it takes some time before competitive activities can have
an impact
High Receivables
 If the customers receivables are high maybe he is not doing a good
job in handling his clients
 This can be considered as a negative for the customer
Change in
Business
Location
 Make sure the business location is legal
 Check the rental deed.(Call the owner of the land)
 Check for how long he is in that location, if he is here for less than
one year then it‘s risky
Table 17: Risk Avenues & Preventive Measures