Credit Policy & Practices of Mercantile Bank Limited (Mbl) Essay Sample

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Introduction of TOPIC

1.1 Introduction of the Study

In the era of trade liberalization, globalization has presented new challenges as well as greater opportunities for countries all over the world. Economic boundaries of nations are being abolished and the world is gradually becoming one global village. E-commerce is becoming the predominant mode of transactions. Revolutionary changes in the fields of cost control, retail channels, range and delivery of services, accessibility and reach are being witnessed. The incessant fall out of international credit market due to world economic meltdown resulting sluggish growth has put significant pressure on financial performance of banks and financial institutions worldwide. Despite this economic crisis, Mercantile Bank Limited (MBL) has achieved continuous growth in almost all arenas of its business, facing intensified competition of the industry. The bank (MBL) has remained in strong financial position with its continued focus on the vision of becoming the Bank of Choice by transforming the way it does business and developing a truly unique financial institution that delivers superior growth & financial performance and be the most Recognizable Brand in the financial services in Bangladesh.

Mercantile Bank Limited (MBL) aims at excellence and is committed to explore a new horizon of banking and private a wide range of quality products and services comparable with those available with any modern bank in the world. It is a bank for the common people including businessman and professionals. It intends to serve with quality at a price competitive to achieve in the financial market. It would constantly keep on exploring the needs of the clients. Mercantile Bank gives loan for the small and medium enterprises. MBL has introduced new schemes mostly for the business people in Bangladesh. MBL choose their clients very carefully by analyzing the Credit Worthiness of the borrowers. After openhanded the loan MBL always closely monitors the borrowers intends to reback the loan & supervises the Project Appraisals.

1.2 Statement of Research Problem

Credit may be the major important activities of commercial bank and it is also the main sources of revenue. Commercial Banks provides money to the deficit unit of the society who are in need of fund and by this activities bank can help in the economic development of as a whole. Credit or loan management of banking company is a very important activity & special emphasis is given on Credit administration & management in every type of bank. Commercial banks collect funds to provide both individual and corporate credit to the economy. For doing so a policy and guideline must be followed. Every bank has its own guideline regarding credit facilities given to the customers. And the officials and administrators are the follower of this guideline. This report is based on Credit policy and practices of Mercantile Bank Limited where I have tried to find the procedures and the guideline of Credit operations of Mercantile Bank Limited. The report consists of the rules and procedures of Credit facilities given to the customers by MBL, to whom the credit is given and how. Finally I have tried to find some recommendations to improve the credit operations of MBL.

1.3 Origin of the report

Management of any business of any business activity requires so much expertise from the part of its employees. To keep pace with the new trend financial institutions & other organization need executive with modern knowledge. The knowledge should have some practical experience also. To fulfill this required most of the faculty has been introduced a three month internship program as an indispensable part of BBA program. The authority of Daffodil International University authorizes me to do a practical orientation at Mercantile Bank Ltd. I have completed my three months practical orientation course regarding the “Credit Policy & Practices of Mercantile Bank Ltd, a study on Motijheel Branch”.

1.4 Objectives of the study

Any academic course of the study has a great value when it has particular application in the real life. Only a lot of theoretical knowledge will be little important unless it is applicable in the practical life. The main objective of the study is to see whether the process of Credit Practice Operation in Mercantile Bank Ltd. is complying with the guidelines issued by Bangladesh Bank and how Mercantile Bank Ltd. is handling the loans & advances. To do this, this study examines how of Mercantile Bank Ltd appraises project, what information needs from the Borrowers And Entrepreneurs for providing them credit, what aspects of a project need to be scrutinized & evaluated, what strategy of Mercantile Bank Ltd. takes in successful implementation of a project. The main objectives of this study are followed here: • To get an idea about the Credit Operation of MBL.

• To know about the MBL Credit Policy as a private commercial bank.

• To evaluate the particulars of Credit Operations regarding the appraisal

• To review the loan sanctioning procedures & find out discrimination between practice & general procedures

• To indicate the limitations for problems of the Credit operation & implementation procedure of MBL

• To recommend necessary steps to overcome such limitations.

1.5 Scope of the report

Scope means area of operations or field of the study. The scope of the report was extended to the overall credit operation & management procedures of Mercantile Bank Limited.

1.6 Limitations of the Study

When I developed this report, then I had to face some problems, which disrupted the fulfillment of this report. There were several constrains while preparing this report The main limitations of the study are as follows:

• Only twelve weeks are not sufficient to visit all the desks of the division. Some

desks are remained unvisited. • Sufficient records, publications, facts & figures are not available. These constraints narrowed the scope of the real analyst. In the report I could not measure the allocated amount for different types of loan. • For the Organizational part, almost no financial information for the year 2011 are available, in some cases only un-audited information could be collected. • No amount of sector wise allocation of loans and Advances of entire MBL was given. Rather than the figures relating to Motijheel Branch only has been used. Collecting all data of allocated loans of entire MBL was impossible being attached with a branch.

• For the reason of confidentiality, some useful information cannot be expressed in this report. So I could not make an overall summary about loan operation part exactly.

• Sometimes it was very difficult to get sufficient help from the employees of MBL due to their limited executive hours.

• There was a little scope of work at credit division of the branch for the internee students. So I could not realize well all the procedures of credit

1.7 Methodology of Collecting Data

Correct & smooth completion of research work requires adherence to some rules & methodologies. Rules were followed to ease the data collection procedure. Accuracy of study depends on the information & data analysis. This report is prepared on the basis of primary & secondary data. The relevant data information was collected through direct interview of the personnel engaged in various departments of Mercantile Bank Ltd. The secondary source is annual report of Mercantile Bank Ltd, collected from personal visit to the bank. The subject matter related to methodology of this report is the following

❑ Sources of Data

|Primary sources: |Secondary Sources: | |Direct interviews & Conversations |Annual report of MBL | |Official records |Relevant papers & different books & publications | |Observation of various organizational procedures |Manual of different departments Periodical publications about MBL | |Expert opinion |Quarterly report of MBL |

❑ Methods of Data Collection:

There are so many methods of data collection which was relevant & important for the study. The methods used in this report were as follows:- Interview Method: To collect information direct interview was taken of the manager of operation, loan in charge, executives, officials etc. Observation Method: To collect some information relating to the practice of loans and advances in terms of approval, sanctioning and mode of disbursement an observation was conducted ❑ Data Analysis & Interpretation:

After collection of data, the data have been analyzed by Industry Analysis, SWOT analysis, Ratio analysis etc. The details of the analysis is presented both in tabular and graphical form for better understanding of the trend of loan in different form of steps of the bank.

CHAPTER 2
‘Overview of Mercantile Bank Limited’

2.1 Historical Background of Mercantile Bank Limited

Mercantile Bank Limited is a scheduled private commercial Bank established on May 20, 1999 under the Bank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act, 1994. The Bank started commercial Banking operations from June 02, 1999, with authorized capital 80 Crore and paid up capital 24.5 Crore TK. Mr. Abdul Jolil, MP is founder Chairman of Mercantile Bank Limited. He expressed his satisfaction at the achievement of the bank during the year 2002 and advised the executives and officers to come forward with new banking products and innovative ideas. Famous 30 entrepreneurs gave helping hand to set up the bank. From then within a short time MBL has established itself in a strong position in the economy of the country. It has earned significant reputation in the country’s Banking sector as Bank and created a wide image in the eye of the people. The dream of creating MBL, which is ‘A Bank of 21st Century’, has become successful because of the initiative of some persons who are the sponsors of MBL. Those 30 sponsors are highly regarded for their entrepreneurial competences. The bank stood 65 branches including 5 SME/ Krishi Branches all over the country up to 31st December, 2010.

2.2 Financial Product & Services

Mercantile Bank Limited has different types of scheme for a customer. These are as follows as: Financial products

|Deposit Scheme |Credit Scheme | | | | |Monthly Saving Scheme |Personal Loan Scheme | |Double Benefit Deposit Scheme |Consumer Credit Scheme | |Quarterly Benefit Deposit Scheme |Small Loan Scheme | |1.5 Times Benefit Deposit Scheme |Lease Finance Scheme | |Special Saving Scheme |Doctor’s Credit Scheme | |Advance Benefit Deposit Scheme |Car Loan Scheme | |Family Maintenance Deposit Scheme |Home Loan Scheme | |Pension and Family Support Deposit |SME Loan Scheme | | |Agriculture Loan Scheme (NOBANNO) | | |Overseas Employment Loan Scheme (AKANKHA) |

2.3 Deposit Products

2.3.1. Monthly Saving Scheme

The monthly installments are in various sizes and one can adopt the schemes for a period of 05 years, 08 years or 10 years. Investor gets a lump sum (principal plus interest) at the maturity of the scheme. In case of premature encashment, interest will be paid at Savings rate.

2.3.2. Monthly Benefit Deposit Scheme

Under this scheme, depositor will get a certain sum of money in each month proportion to his/her deposit during the entire tenure. Benefit starts right from the first month of opening an account under this scheme and continues up to five years. On maturity, the principal amount is paid back.

2.3.3. Double Benefit Deposit Scheme

Under this scheme, deposited amount will be double in a tenure of Six (6.0) years. Minimum deposited amount should be BDT 10,000 or its multiples. In case of premature encashment interest will be paid on Saving A/C Rate. Loan may be granted up to maximum 80% of the deposited amount.

2.3.4. Quarterly Benefit Deposit Scheme

The Quarterly Benefit Deposit Scheme’ will be maintained for a period of 3 (three) years and the minimum amount of deposit is BDT 50,000.00 (fifty thousand) or its multiples. Interest will be paid on quarterly basis. Benefit starts right from the first quarter of opening the account. On maturity, principal amount will be paid back. Savings account is needed to maintain this scheme.

2.3.5. Advance Benefit Deposit Scheme

Under this Scheme, one can deposit a certain amount of money for two years. The depositor will receive the benefit on yearly basis. The benefit amount of first year will be received in advance at the time of deposit. On maturity, the depositor will get back the principal amount with the benefit amount of second year.

2.3. Mercantile Bank Limited Brokerage House

Mercantile Bank Limited Brokerage House has been developed to ensure development of sound capital market and to provide higher, better and diversified services to a wide range of customers. Mercantile Bank Limited Brokerage House offers full-fledged international standard brokerage service with margin loan facility. MBL is also a full service Depository Participant (DP) of Central Depository Bangladesh Ltd. (CDBL). The brokerage service is designed to provide customers with necessary support in the stock market.

2.4. Corporate Social Responsibility (CSR) of MBL

MBL is emphasizing on social, ethical and environmentally responsible approaches to business activities. MBL examines the environmental effects of projects in loan approval process and no projects are approved which are detrimental to the environment. MBL is well aligned with Bangladesh Bank’s Guidelines on this aspect. The bank continuously plans to be more focused on poverty alleviation through education and health care, for the long run benefit of the nation. With the vision for CSR activities, MBL has established a Foundation immediate year after its incorporation. Each year 1 % of the Operating Profit or BDT 40 Lac, which one is higher, contributed to this foundation.

2.5. Green Banking Concept

“Green Banking” is a term which covers several different areas, but in general refers to how environmentally friendly banks are, and how committed to green and ethical policies they are. Due to strict environmental disciplines imposed by the authorities, the industries would have to follow certain standards to run their business. In case of failure, it would lead to closure of the industry’s leading to a likelihood of default to the bank. So the banks and financial institutions need to engage proactively with the stakeholders on environmental and social policy issues and evaluate the impacts of their client’s investment. Green Banking saves costs, minimizes the risks, enhances the bank reputations and contributes to the common good of environmental sustainability.

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