General Banking and SME Financing Procedure of Mercantile Bank

Main purpose of this report is to analysis General Banking Services and SME Financing Procedure of Mercantile Bank Limited. Other objectives are explain the meaning and concept of Consumer deposit Scheme and analysis overall banking functions of Mercantile Bank. Finally focus on SME Financing Procedure, how it runs and what function it does, that is, how an account is opened, how to issue pay order, process of various types of loan, how various department of bank performs their functions specially general banking department and credit department.

Objective of the Report

The main objective of practical orientation on bank is to get a clear idea about banks, how it runs and what function it does, that is, how an account is opened, how to issue pay order, process of various types of loan, how various department of bank performs their functions specially general banking department and credit department.

Again, as the environment of a bank is totally new, the trainee gets a chance to familiarize himself with a new situation. Furthermore, the orientations is very useful to detect whether the theoretical knowledge match with real life scenario or not.

Specific objective of the Report

• To explain the meaning and concept of Consumer deposit Scheme.
• To gather comprehensive knowledge on overall banking functions of MBL.
• To acquire in depth knowledge about MBL.
• Study the banks organize and control its lending effect.
• To identify the weaknesses and problems of MBL.

Methodology of the Study

a) Frame work of the study:

For the internship program the department sent me to Mercantile Bank Limited –SRB for guidance. My objective was to get a clear idea about the function of general banking of the branch.

First I worked at front desk section for 5 weeks and learned the procedure of account opening, issuance of pay order, demand draft (DD), telegraphic transfer (TT), cheque, security deposit receipt and method of maintaining books for the above mentioned activities.

Then I was sent to the clearing section, worked there for 3 weeks and learned how inward and outward checks are cleared, how transfer delivery from one branch to another branch is made. After that I worked at the both accounts department and credit department of the branch rest of 4 weeks. I learned the basic accounting functions of a bank i.e. books of accounts maintained by the bank, method of transferring various vouchers, method of storing the vouchers etc.

Actually this period was my area of consecution and activities of this period id mainly focused in my report. In the general banking I mainly observed the procedure of account opening, issuing of pay order, how inward and outward checks are cleared, books of accounts maintained by the bank, method of transferring various vouchers, method of storing the vouchers, and process of consumer deposit scheme etc. I extended my best effort to collect as much information as possible to prepare my report.

b) Data collection:

Primary Data-

1. Notes taken from day to day working
2. Through consulting with officials of the branch
3. Notes taken by conversation with customers of this branch

Secondary data

Data that were published before for some other reason can be collected using internal and external sources.

Internal Secondary data: To furnish the report properly some papers has been collected form the officials of Mercantile Bank Limited. Information from annual reports, journals, newspapers and other published documents have been used. Besides other published information about the organization, depth interview of the branch manager and second branch manager have also taken. The information mainly about general banking and deposit scheme was taken from the authorized officer who deals with this section.

External Secondary Data: For better interpretation some data has been collected from Bangladesh Bank. Internet Browsing is also one source of external Secondary data.

Historical background

Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. The Bank commenced its operation on June 2, 1999.

The Authorized Capital of the Bank is Tk. 1200 million and the Paid -up Capital is Tk. 799.41 million.

The Bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country.

The Bank is manned and managed by qualified and efficient professionals. Mr. Shah 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 Sarkar, 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.

Mission of the bank

The aim of Mercantile Bank Limited is to become a leading private bank of the 3rd generation by providing better service to the clients along with other quality operations in the banking sector. The bank has some mission to achieve the organizational goals. These are –

• MBL intend to provide the better service for the customer.
• MBL intend to provide the good return for their respectable shareholders.
• MBL work as medium of exchange on behalf of their potential clients.
• MBL is much responsive in case of provide the optimum benefit of the customers.
• MBL is always concentrated to enhance the competitive advantages by upgrading banking technologies and information system.
• MBL believes in discipline growth strategy.
• MBL always encourages investors to boost up the share market.
• MBL maintain high standard of corporate and business ethics.
• MBL intends to play more important role in the economic development of Bangladesh and its financial relations with the rest of the world through international trade.

Objective and Goals of Mercantile Bank

MBL is always ready to maintain the highest quality of services by upgrading banking technology prudence in management and by applying high standard of business is established commitment and heritage.

MBL is committed to ensure its contribution to national economy by increasing its profitability through professional and disciplined growth strategy for its customer and by creating corporate culture in international banking arena.

The objective of MBL is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the persons of all level, to the businessman, industrialist – specially whom are engages in establishing large scale industry by consortium and the agro based export oriented medium and small scale industries by self inspiration.

MBL as the largest private bank is committees to continue its endeavor by rapidly increasing the investment of shareholders into assets.

MBL believes in building up strong –based capitalization of the country.

MBL is committed to continue its activities the new horizon of business with a developing service oriented industry and culture of morality and its maintenance in banking.

MBL has been working from its very beginning to ensure the best use of its creativity, well managed and perfect growth.

MBL is playing a vital role in socioeconomic development of Bangladesh by way of linkage with rest of the worldwide network in domestic and international operations.

Financial Products & Services

Monthly Savings Scheme

The prime objective of this scheme is to encourage people to build up a habit of saving. Under this scheme, one can save a fixed amount of money every month and get a lucrative amount of money after five, eight or ten years.

Family Maintenance Deposit

Under this scheme, one can deposit certain amount of money for five years and in return he will receive benefits on monthly basis. Benefits start right from the first month of opening an account under the scheme and continue up to five years.

Double Benefit Deposit Scheme

Under this scheme, depositor’s money will be doubled in a nine-year period.

Special Savings Scheme

Under this scheme, depositor’s money will be tripled in 15-year period.

Pension and Family Support Deposit

Pension and Family Support Deposit has been evolved especially for old age. Under this scheme one can get life long benefit if he deposits specific amount per month for a period of 10 or 15 years. The scheme can also be opened in the name of minors.

Consumers’ Credit Scheme

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

Small Loan Scheme

This scheme has been evolved especially for small shopkeepers who need credit facility for their business and cannot provide tangible securities.

Lease Finance

This scheme has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machineries, medical equipments, computers and other items.

Terms and conditions of this scheme have been made easier in order to help the potential entrepreneurs to acquire equipments of production and services and repay gradually from earnings on the basis of ‘Pay as you earn’.

Doctors’ Credit Scheme

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

Rural Development Scheme

Rural Development Scheme has been evolved for the rural people of the country to make them self-employed through financing various income generating projects. This scheme is operated on group basis.

Women Entrepreneurs Development Scheme

Women Entrepreneurs Development Scheme has been introduced to encourage women in doing business. Under this scheme, the Bank finances the small and cottage industry projects sponsored by women.

SME Financing Scheme

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

Personal Loan Scheme

Personal Loan Scheme has been introduced to extend credit facilities to cater to the credit needs of low and middle-income group for any purpose.

Government and semi-government officials, employees of autonomous bodies, banks and other financial organizations, multinational companies, reputed private organizations and teachers of recognized public and private schools, colleges and universities are eligible for the loan facilities.

Car Loan Scheme

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

General Banking

Account Opening

Opening, Operation and Closing of Bank Accounts

When we use the term “Bank Account” generally we mean a Savings Bank Account or a Current Account though there are various types of banks accounts. Here, we shall discuss about the opening, operation and closing of savings account and current account

i) Opening of Savings/Current Account:

Procedure for opening of current and savings account are almost similar. Following formalities are required to be completed before a current or a savings

Account is opened in the bank:

Application on the prescribed form: The person desiring to open a current or a savings account with the bank has to make application with his full signature in the prescribed form.

There are various types of account opening forms for opening of different types of accounts. Usually there are separate forms for opening a current account and a savings account. The banks free of charge supply the account opening form. The account opening form generally asks for information about:

(a)        The name of the customer

(b)        His/her fathers name (or husband’s name in case of married woman)

(c)        His/her residential address

(d)        His/her permanent address

(e)        His/her occupation or profession (including address of the employer)

(f)         The name and signatures of referee (s).

(g)        The name and address of the nominee (where applicable).

(h)        Either or survivor instruction (in case of joint account)

He/she has also to declare that he/she will comply with the bank rules in force form time to time for the conduct of the account.

Photographs: As per recent rule/practice the applicant is required to submit at least two (recent) photographs -one to be pasted on the account opening application form and the other on the specimen signature card.

Introduction or Reference: The applicant is also required to furnish in the application form the name (s) of the referee(s) from whom the banker may inquires regarding character, integrity and respectability of the applicant. Generally this reference is sought from an already trusted customer of the bank.

The employee of a bank also forms a good reference. In exceptional cases the bank may accept the reference of the well-known person (s). Signing on the application form does the introduction. The person so signing gives his account number (if any) with the bank and his address.

Specimen Signature: The customer is required to furnish his specimen signature on the account application form as well as on the specimen signature card. A customer is required to put more than one signature on the specimen signature card.

Mandate for operation of the account by an agent: In case a customer desires to get his account operated upon by another person, the bank will obtain a mandate in writing to that effect.

Opening of the account: After observance of all the formalities mentioned above the applicant is required to deposit minimum Tk for opening a savings bank account and Tk. for opening a current account. This is called initial deposit. As soon as this money is deposited, the bank opens an account in the name of the applicant. It should be noted that the permission of the competent authority for opening of an account is a must. The banker then supplies the following books to the customer to operate the accounts:

(a)        Pay-in-slip book

(b)        A cheque book

(c)        A pass book (in modern banking it has been replaced with the periodical statement of account)

Operation of Savings/Current Account: Operating a bank account means transacting with the banker i.e. depositing further sums of money into the account and withdrawal of money from the account whenever needed. This is a special feature of banking business that each and every transaction with the bank has to be supported by a document. Every deposit whether in cash or by cheque has to be accompanied by a pay-in-ship. Similarly chequebook facilitates withdrawals or transfer of money from the account. Pass book/statement of account acts as an authenticated record of transactions in the customers account and it enables the customer to verify the entries made therein. In case any discrepancy is noticed, the customer must take it into the notice of the banker to rectify the same.

Closing of Savings/Current Account: The relationship between banker and customer is a contractual relationship. Like any other contract, therefore, it may be terminated as and when the parties so desire. Moreover, the banker is under a statutory obligation to suspend payment from customer’s account under certain legislative provision. However, customer’s account with a banker may be closed in the following circumstances:

(i)        The customer may requests/directs the banker in writing to close the account. In that case, the banker should immediately ask the customer to return the unused cheques (if any) and close the account. Usually the banker charges a sum of money for closing the account.

(ii)     The banker may itself ask the customer to close his account when the account has not been operated for a long time. A notice to that effect can be given to the customer.

(iii)    In case the banker finds that the customer is not desirable e.g. customer is found guilty of having forged cheques or bill of exchange etc. or flouting rules of operating the account, the banker may by notice in writing inform the customer of its intention and may close that account.

In the following cases, the banker should suspend all payments from the customer’s account till the matter is finally settled:

(a)        When the banker receives notice of customer’s death or insanity/lunacy.

(b)        When the customer becomes insolvent or in case of a company, it goes into liquidation. In such cases the money standing to the credit balance of the customer will be transferred to the official receiver or the official liquidator as the case may be.

(c)        When the banker receives a Garnishee Order

(d)        When the banker receives notice from the customer regarding assignment of the balance standing to the credit of his account by him to a third party .The banker in such a case is bound to pay the money to the third party.

Various Types of Deposit Accounts

One of the primary functions of a banker as contained in the Banking Companies Act 1991 is to accept deposit of money from the public. The deposits accepted by banks may be broadly classified into:

(i)        Demand Deposits: Demand deposits are withdrawal on demand and thus no prior notice is needed. Deposits in current Accounts and (a part of) savings Accounts fall in this category.

(ii)        Time Deposits or Term deposits: Time deposits or term deposits are withdrawal on the expiry of a fixed period of time only. Fixed Deposit Accounts, Recurring Deposit Accounts (e.g. Deposit Pension Scheme) and Deposits payable at a specified notice (e.g. short term Deposit Account) fall in this category.

Special Types of Customers-Legal Aspects

Opening of an account binds the banker and customer into a contractual relationship. Every person who is competent to contract can open an account with a bank. The capacity of certain classes of person, to make valid agreement is subject to certain legal restrictions, as is the case with minors, lunatics, drunkards, married women, undercharged insolvents, trustees, executors, administrators etc. Extra care is also needed for the banker while he deals with customers like public authorities, societies, and joint stock companies, partnership firms etc.

Minors

A minor is a person who has not completed 18 years of age. In case a guardian of his person or property is appointed by a court of law before he completes his 18 years, the period of minority is extended to the completion of 21 years. As per section 11 of the contract act a minor is incompetent to contract but section 26 of the Negotiable Instrument Act allows a minor to draw, endorse, deliver and negotiate a negotiable instrument. So, a banker can open an account in a minor’s name and the banker will be safe if the account runs with credit balance. So, it is suggested to open a savings bank account in the minor’s name and not to open a current account as because an overdraft may be created at any time in a 2 current account and money lent to a minor cannot be recovered from him as he is free from personal liability. The minor’s savings bank account may be opened in any of the following ways:

(i)         In the name of minor himself:- This account will be operated by the minor alone. In his personal presence (in the bank) he can withdraw the money from his account.

(ii)        In the joint names of the minor and his/her guardian:- This account will be operated jointly by minor and his/her guardian.

(iii)     In the name of guardian:- This account will be operated by the guardian on behalf of the minor. In case of (i) and (ii) stated above the minor must have at least attained the age of 10 years or above and able to sign his name uniformly. Like savings bank account, a fixed deposit account or a recurring deposit account in the name of a minor (along a with guardian) may also be opened. It should be noted that in the event of death of a minor the money will be payable to his guardian.

In case the guardian dies before the minor attains majority and the account is a joint account or operated by the guardian only, the money should be paid by the banker to the minor on attaining majority or to some one else who has appointed as guardian of the minor by the court. While opening a minor’s account the banker should record the date of birth of the minor as disclosed by his/her guardian. The account in the name of minor can be continued on minor’s attaining the age of majority and at that time the banker will have to obtain a confirmation regarding the balance standing in his account.

Lunatics          

A person of unsound mind can not make a valid contract. So, the bankers should not open an account in the name of a person of unsound mind. But a customer may become lunatic after opening an account with the bank. However, a banker will not be liable if it honors the cheques or bill of an account holder unless it comes to know of his lunacy at the time of honoring cheque/bill. Where a customer becomes insane and the banker comes to know of it, he must stop all the operations on the account immediately.

However, the banker should carefully verify the information about customer’s lunacy. Sometimes, the court may issue a “lunacy order” and the banker must follow this order. Before resuming operations on the account, the banker must obtain a certificate from two medical officers certifying his mental soundness or get an order of the court to that effect.

Illiterate persons

An illiterate person means a person who can’t sign his name. While opening of an account of such a person is unavoidable, the banker should obtain ( 1) Left thumb impression on the account opening form and specimen signature card in the presence of an authorized bank official (2) Details of identification marks should be noted on the account opening form and specimen signature card (3) At least two copies of photograph duly attested by any account holder/authorized bank official.

Except his physical presence (in the bank) any withdrawls from the account of an illiterate person will not be allowed.

Married women

A married woman can enter into contract and bind her personal (separate) estate. A banker may, therefore, open an account in the name of a married woman.  The bank should observe extra precautions regarding sanction of overdraft/loan to a married woman because it will have no remedy against her if she does not have any personal estate. It should be noted that the husband would not be liable for any debt of his wife except the following cases:

• Where the loan is taken with his consent or where she acts as the agent of her husband.
• Where the loan has taken for the purchase of necessities, which the husband has failed to provide.

Trustees

A banker must be cautions in opening/operating a trust account as the trustees are responsible for public money.

(1)       While opening the trust account a banker should thoroughly study the “trust deed” as it contains the name of trustees, their powers, details of the trust properties and other terms.

(2)       If there are several trustees and account is opened for two or more trustees the banker should obtain a mandate signed by all the trustees as to how cheques and bills are to be signed and endorsed. In the absence of such instructions all trustees must sign the instrument(s) on each occasion.

(3)        The bank must not knowingly permit the misuse of trust fund (e.g. fraudulent transfer of trust fund by the trustees to his personal account).

Joint accounts

Joint account means account of two or more persons who are not partners. A banker should keep in view the following provisions while opening and operating joint accounts:

The account should be opened only on receiving application signed by all persons interested in that account.

A mandate signed by all the parties containing clear instructions as to how the account is to be operated should be obtained. The mandate should mention the name(s) of the person (s) authorized to operate the account and clear instructions as to whom the balance in the account shall be payable must be obtained. In absence of such instructions banker will honour only those cheques signed by all the parties.

Instructions regarding the operation of account must be clearly written in the account opening form/specimen signature card.

In absence of “either or survivor” instruction the balance will be payable to all the joint account holders including legal representative/heirs of the deceased but in case of “either or survivor” instruction the balance will be payable to the survivor.

It is wise to stop the operation of a joint account after the death of anyone of the joint account holders and a new account be opened in the name of surviving account holder(s).

Joint Account in the name of Husband and Wife:

In case of joint account of husband and wife their position differs from those of other joint account holders. Where the husband for his convenience the balance opens the account cannot be claimed by the widow but has to be brought to the estate of the deceased. But where the intention of the husband (by opening a joint account) was to make a provision for his wife in case of his untimely death, the widow would receive the money.

Partnership firm:

A firm’s account should always be opened in the name of the firm and not in the name(s) of the individual partner (s) because a partner does not have (implied) authority to open a bank account on behalf of the firm in his own name. Before opening the account, a banker must obtain the “partnership agreement/deed” and thoroughly acquaint it with the clauses. While opening an account of a partnership firm the banker should take a letter signed by all the partners containing the following particulars:

(a)        The name and address of all the partners

(b)        The nature of the firms business

(c)        The name of the partners authorized to operate the account.

It should be noted that any partner may by notice in writing to the banker, revoke the authority given to any other partner regarding operation of the firm’s account. Similarly any partner can stop the payment of a cheque already issued and the banker will be bound to honor such instructions. The banker should not credit a cheque in the firms name to the personal account of a partner without the consent of other partners. It fails to do so, the banker will be liable to other persons for wrongful conversion of funds.

Joint stock companies

A joint stock company is an artificial person and it has a separate legal entity. So, a bank account may be opened on its own name. A joint stock company may either be a Private Limited Company or a Public Limited Company. Following documents are required while opening an account of a joint stock company:

(i)         Certificate of incorporation

(ii)       Certificate of commencement of business (in case of Public Ltd. Co. only).

(iii)       Memorandum of association

(iv)       Articles of Association

(v)        Copies of annual accounts

(vi)       Certified copy of the Board’s resolution regarding appointing the bank concerned as the bank of the company. Which also specifies the persons authorized to operate the account on behalf of the company.

The resolution should be signed by the chairman of the meeting and countersigned by the secretary of the company. As Memorandum of Association is the main document of the company the Banker must go through it very carefully because if a company does anything beyond it’s object is ultra vires and does not bind the company. The banker should also examine the Articles of Association as it contains the procedure and authority to draw and endorse cheques, bills etc. on behalf of the company. It is necessary to obtain printed copies of company’s Memorandum and the Articles with a confirmation from the company that they are up-to-date.

Societies and other non- trading institutions

The society, be it a club, school, hospital or any institution must be registered as a corporate body. Societies, unless registered are not recognized by the law and have no contracting powers. While opening and operating an account of any society the following procedures be followed by a banker:

Copies of Memorandum, Articles of Association of the society must be obtained to acquaint with its broad objectives, its rules & by-laws.

The banker should call for a duly certified copy of resolution passed by the managing committee of the society authorizing the bank for opening the society’s account. The resolution should also state the name (s) of persons authorized to operate the account. In case of death or resignation of the person (s) entitled to operate the account, the banker should stop operations on the account till the nomination/appointment of other person(s).

If the office bearer (i.e. the person authorized to operate the account) of the society has a personal account in the bank the banker should exercise precautionary measure so that the society money does not find its way into the personal account of the office bearer.

Cheque

A cheque is a document of great importance in the business world. It can be passed from one hand to another easily and so it has become a popular mode of payment. A cheque is the most economical and safe method of money transaction because the transfer cost is very low and also the possibility of loss is minimum.

According to section 6 of the N.I. Act, 1881 “a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.”

The Salient Features of a Cheque

1. Instrument in writing: a cheque must necessarily be an instrument in writing.
2. An unconditional order: a cheque is an order to pay and it is not a request. The order must be unconditional. If any condition is attached to the order, the instrument can no longer be called a cheque.
3. On a specified banker: – a cheque is always drawn only on a particular banker. A cheque drawn on a particular branch of a particular bank can’t be enchased at another branch of the same bank unless there is an agreement between the parties.
4. Payee to be certain: a cheque must be payable to the order of a certain specified person or to his agent or bearer thereof. The payee is the person to whom the amount of the cheque is payable. So, the payee must be a certain person. He may be a human being or an artificial person i.e. a company.
5. A certain sum of money: a cheque is usually drawn for a definite sum of money, which is to be written both in words and figure.

If there is any difference between the amount in figures and words the banker can return the cheque, since, the amount is not certain. However, see. 18 of the N.I.A. permit the banker to honor the cheque to the extent of the amount stated in words.

6. Payable on demand: a cheque is payable only on demand. As per section 19 of the N.I.A 1881 unless the drawer specifies a time factor, the cheque is always payable on demand.
7. To be signed by the drawer: a cheque must be signed by the drawer i.e., the account holder or his authorized agent. 

Bank Draft – Features and Operational Aspects

Bank draft.

A bank draft is an unconditional order issued by one branch of a bank on its branch to pay a certain sum of money to the named person or order on demand.

Hence a bank draft is always payable on demand it is also known as demand draft (D.D)

Essential features of a bank draft:

• It is drawn by one office of a bank upon some other office of the same bank
• It is payable on demand
• Its payment is to be made to the person whose name is mentioned therein or according to his order. In other words, it cannot be made payable to the bearer.

Cheque vs. Bank Draft

A bank draft resembles a cheque in some aspects such as a draft can be crossed like a cheque, the statutory protection as extended to cheques has been extended to draft etc.  But a bank draft is different from a cheque in several aspects. The points of difference are as follows:

1. As a rule, a cheque is given only to customers while a draft is given to non-customers also.
2. The drawer and the drawee of a cheque must be two distinct parties, whereas, a bank itself is the drawer and the drawee of a draft.
3. A cheque can be made/drawn payable to order or bearer but the draft cannot be made payable of a bearer.
4. The drawer of a cheque can countermand its payment but a banker (as drawer of the draft) cannot countermand the payment of a draft (unless it’s loss or theft has been reported).
5. It is not obligatory for a banker to honour a cheque unless the drawee has sufficient funds and the cheque is otherwise in order. There is no such question in case of a draft since it is the banker’s unconditional obligation to pay for which he has already received the equivalent amount.
6. A cheque can be used for making local payments on the contrary a draft cannot be used for this purpose.

Issue of bank draft

The person intending to remit the funds through a bank draft has to deposit the money to be remitted together with the commission, which the banker charges for its services. The amount of commission depends on the amount to be remitted. On receipt of the required amounts along with duly filled in prescribed form, the banker issues a draft and hand over it to the purchaser.

Payment of bank draft 

If the draft is not crossed, the payee can draw the amount in cash upon presentation of the same to the drawee branch with satisfactory evidence of his identity or can draw the money by depositing it to his account there or any other banker. The draft being payable to certain particular person or order the banker must satisfy himself as to the title of the person presenting it for receiving the payment. The banker is discharged from liability only by payment in due course.

Dishonor of bank draft  

Normally a banker cannot refuse to make the payment of a draft, as it is his own obligation to pay unless the presented draft is a forged one or there is doubt as to the identity of the person presenting it for payment. He cannot also refuse to make the payment of a draft on the plea of non-receipt of the relative advice from the issuing office

Mail Transfer (MT)

Mail transfer means money transfer from one branch to another branch of the same bank. It may occur between the two different banks. MT issues and receives is a regular task of this branch. In case of MT issue a branch charges commission. This commission depends on amount, which will be transferred. From MT issue this branch earned about Tk. 5,000   per month.

Process of MT

When any body want to transfer money from this branch to another branch of Mercantile Bank Limited or other bank at first the client needs to communicate with responsible officer Ayesha Numy and then she collects a printed MT form. After filling the form he/she needs to deposit cash with commission to the cash counter and takes a receipt. In case of MT four (4) copies of vouchers are prepared. Original and duplicate copy is send to the responding branch. Triplicate copy is send to the Head Office with daily schedule. This branch preserves the quart-duplicate copy.

Telephone Transfer (TT)

Telephone Transfer (TT) means transfer of money from one branch to another branch of the same bank through telephone message. Telephone transfer is quicker process than mail transfer. In case of TT issue this branch charges commission. This commission depends on amount, which will be transferred. From telephone transfer per moth income of the Branch is about Tk. 15,000.

Process of TT

When anybody wants to transfer money through telephone message from this branch to another branch of the same bank he/she needs to communicate with responsible officer. At first the client collects a printed TT form and after filling the form he/she needs to communicate with Second Officer and then deposits cash with commission to the cash counter and finally takes a receipt. In case of TT issues, this bank prepares three (3) copies of vouchers. Original copy is sending to the responding Branch and the duplicate copy is sending to the Head Office with schedule. This branch preserves the triplicate copy.

Demand Draft (DD)

Demand Draft means money transfer from one branch to another branch of the same bank. It may occur between the two different banks. DD issues and receives is a regular task of this branch. In case of DD issue a branch charges commission. This commission depends on amount, which will be transferred. From DD issue this branch earned about Tk. 15000   per month.

Process of DD

When any body want to transfer money from this branch to another branch of Mercantile Bank Limited or other bank at first the client needs to communicate with responsible officer and then he/she collects a printed DD form. After filling this form he/she needs to deposit cash with commission to the cash counter and takes a receipt. In case of DD four (4) copies of vouchers are prepared. Original and duplicate copy is send to the responding branch. Triplicate copy is send to the Head Office with daily schedule. This branch preserves the quart-duplicate copy.

Pay Order

Pay Order is more secure than cheque because amount of P.O is payee account only. For issuing a P.O the customer has to fill up a prescribed P.O form containing date, name and address of the applicant, applicant signature, name of the payee with the branch name to be drawn, P.O number and amount of money to be pay order. The form should be signed by the authorized officer.

Brief Overview on SME Financing policy of MBL

Definition of SME (Small and Medium Enterprise):

An SME (Small & Medium Enterprise) is defined in the economics textbook 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”. SMEs ordinarily have few accesses to Formal channels of finance and depend 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 an SME will vary.

Small Enterprise:

• Manufacturing: organizations having less than 60 employees/workforce and total assets of Tk. 50.00 thousand to Tk. 1.00 crore (excluding land and buildings)
• Trading: organizations having less than 20 employees/workforce and total assets of Tk. 50.00 thousand to Tk. 50.00 lac (excluding land and buildings)
• Service: organizations having less than 30 employees/workforce and total assets of Tk. 50.00 thousand to Tk. 1.00 crore (excluding land and buildings)

Medium Enterprise:

• Manufacturing: organizations having less than 100 employees/workforce and total assets of Tk.1.00 crore to Tk. 5.00 crore (excluding land and buildings)
• Trading: organizations having less than 50 employees/workforce and total assets of Tk. 50.00 lac to Tk. 02.00 crore (excluding land and buildings)
• Service: organizations having less than 50 employees/workforce and total assets of Tk. 30.00 lac to Tk. 1.00 crore (excluding land and buildings)

Target segments for SME Financing:

1. Hospitals and Clinics
2. It related business like Medicine shops
3. Agricultural and Agricultural Development items
4. Fishing and fishing business promotions
5. Telecommunication
6. Transportation and communication
7. Forestry and furniture
8. Construction business and housing development
9. Leather marketing and leather goods
10. Knitwear and readymade garments
11. Plastics and other synthetics
12. Entertainment
13. Photography
14. Hotel and tourism
15. Ware house and container services
16. Printing and packaging
17. Gunning and bailing
18. Pathological laboratories
19. Cold storage
20. Horticulture-flower growing and marketing
21. Food and oil processing plants
22. Higher education and expertise knowledge society

Purposes of SME Financing:

1. Working capital
2. Purchase of capital machinery
3. Delivery van/transport for business purposes
4. Refurnishing office/ business premises
5. Other eligible portfolio of the bank
6. Extension of Business
7. Purchase goods for Business
8. Decoration for shop and office
9. Enhance current capital
10. Introduce new product line
11. Increase the value-added service for product
12. Purchase share for another business
13. Purchase of goodwill

SME Financing in Bangladesh and the Role Played by MBL

The growth of small and medium enterprises (SMEs) in terms of size and number has a multiplier effect on the national economy, specifically on employment, GDP growth, and poverty reduction in Bangladesh. In the past, the government attempted to provide SMEs with access to finance by targeted lending; such as through directives that a certain share (e.g. 5 percent) of a bank’s loan portfolio was to be set aside for small and cottage industry financing. The Bank of Small and Cottage Industries (BASIC) were set up in 1988 with the objective of financing small and cottage industries. Afterwards, several commercial banks have come forward with special packages for SME development. One such initiative is the ‘Gharoa’ project of the Janata Bank Limited. The Bangladesh Bank is also providing refinance facilities by using its own fund as well as channeling funds from IDA and ADB.

SMEs play a very important role in the wider economy and, significantly create a larger than proportionate share of new employment. They are highly dynamic. Some SMEs grow to challenge existing big firms. Many of today’s giants e.g. Honda, Samsung, Tata, Birla etc. started small. Who is not aware of the birth of Microsoft in the Gates family garage! The unique characteristic of an SME as an impressive creator of new jobs, underscores its importance in capital & technology poor but abundantly labor rich economy as that of Bangladesh.

SME (Small & Medium Enterprise) Banking act as a vital Banking roles in today Bangladesh Economy. Significant number of small and Medium Enterprise now today depend on it. Most of the businesses now in Bangladesh are nearly all funded by SME loan. Most of the cases it found that 87% of the business in Bangladesh are Small and Medium Enterprise. In most of the cases economy of Bangladesh depends on it. More than 30 million of people in Bangladesh are now depend on it. Observes all of these small and medium enterprise activities Bangladesh bank offered the privileges to the Small and Medium Enterprise sector.

For Small and Medium Enterprise Bangladesh bank offered the reasonable bank rate through all the commercial banks. Today SME banking is a profitable sector for all commercial banks. MBL (Mercantile Bank Limited) as well as provide this Banking service to its customer also. Mercantile Bank Limited provided SME (Small & Medium Enterprise) since year 2004 which was one of the glorious parts for Mercantile Bank Limited. Mercantile Bank Limited has provided a very satisfactory SME (Small & Medium Enterprise) loan in various sectors since it has started the journey towards SME. Now in present Mercantile Bank Limited has provided nearly 34.25 million taka in SME (Small & Medium Enterprise) loan which is re-financed by Bangladesh Bank. Number of beneficiary institute is nearly 127 and amount re-financed for every institution is 0.27 million taka. The SMEs worldwide are recognized as engines of economic growth. The commonly perceived merits often emphasized for their promotion especially in the developing countries like Bangladesh include their relatively high labor intensity,

 While the SMEs are characteristically highly diverse and heterogeneous, their traditional dominance is in a few industrial sub-sectors such as food, textiles and light engineering and wood, care and bamboo products. According to SEDF sources quoted from ADB (2003), food and textile units including garments account for over 60% of the registered SMEs. However, as identified by various recent studies, the SMEs have undergone significant structural changes in terms of product composition, degree of capitalization and market perpetration in order to adjust to changes in technology, market demand and market access brought by globalization and market liberalization. In terms of number of establishment, the SME sub-sector has exhibited notable dynamism, registering reasonably high growth rates over the decades of 1980s and 1990s. This numerical expansion of the SMEs has contributed towards substantial new business creation in the industrial economy of Bangladesh. Available evidence suggests that the SMEs were responsible for giving birth to 60 percent of the new industrial enterprises during 1980s.

Standard steps in the SME lending process:

Most bank loans to individuals arise from a direct request from a customer who approaches a member of the banks staff and asks to fill out a loan application. Business loan requests, on the other hand, often arise from contacts the banks loan officers and sales representatives make area.

Once a customer decides to request a loan, an interview with a loan officer usually follows right away, giving the customer the opportunity to explain his or her credit needs. That interviews is particular important because it provides an opportunity for the banks loan officer to assess the customers character and sincerity of purpose.

If a business or mortgagee loan is applied for a site visit is usually made by an officer of the bank to assess the customer location and the condition of the property and to ask clarifying questions. The loan officer may contact other creditors who have previously loaned money to this customer to see what their experience has been. Did the customer fully adhere to previous loan agreements and keep satisfactory deposit balances?

If all is favorable to this point, the customer is asked to submit several crucial documents the bank needs in order to fully evaluate the loan request, in cluing complete financial statements and in the case of a corporation, board of directors resolutions authorizing the negotiation of a loan with the bank. Once all documents are on file the credit analysis division of the bank conducts a thorough financial analysis of them aimed at determining whether the customer has sufficient cash flows and backup assets to repay the loan. The credit analysis division they prepare a brief summary and recommendation, which goes to the loan committee for approval. On large loans, members of the credit analysis and the loan committee over strong and weak points of a loan request.

If the loan committee approves the customer’s request, the loan offices or the credit committee will usually cheek on the property other assets to be pledged as collateral in order to ensure that the bank has immediate access to the collateral or can acquire title to the property involved if the loan agreement is defaulted. This is often referred to as perfecting the banks claim to collateral. Once the loan officer and the banks loan committee are satisfied that both the loan and the proposed collateral are sound the note and other documents that make up a loan agreement are prepared and are signed by all parties to the agreement.

Credit Analysis of SME Loan:

The division of bank responsible for analyzing and making recommendations on the facts of most loan applications in the credit department. Experience has shown that this department must satisfactorily answer three major questions regarding each loan application:

• Is the borrower creditworthy? How do you know?
• Can the loan agreement be properly structured and documented so that the bank and its depositors are adequately protected and the customer has a high probability of being able to service the loan without excessive strain?
• Can the bank perfect its claim against the assets or earnings of the customer so that in the event of default, bank funds can be recovered rapidly at low cost with low risk?

Lets look in turn at each of these three issues in the “yes” or “No” decision a bank must make on every loan request.

Creditworthiness of SME Loan:

The question that must be dealt with before any other is whether or not the customer can service the loans-that is pay out the credit when due, with a comfortable margin for error.

 Character: The loan officer must be convinced that the customer has a well defined purpose for requesting bank credit and a serious intention to repay. If the officer is not sure exactly why the customer is requesting a loan, this purpose must be clarified to the banks satisfaction. Once the purpose is known, the loan officer must determine if is consistent with the banks current loan policy. Even with a good purpose, how ever, the loan the officer must determine that the borrower has a responsible attitude to ward using borrowed funds.

Capital: The loan officer must be sure that the customer requesting credit has the authority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is knows as the capacity to borrow money. The loan officer must be sure that the representative from a corporation asking for credit has proper authority from the company board of directors to negotiate a loan and sign a credit agreement binding the corporation. Usually this can be determined by obtaining a copy of the resolution passed by a corporate customer’s board of directors, authorizing the company to borrow money.

Cash: This key feature of any loan application centers on the question: Does the borrower have the ability to generate enough cash, in the form of cash flow, to repay the loan? In general, borrowing customers have only three sources to draw upon to repay their loans:

• Cash flows generated from sales or income.
• The sale or liquidation of assets or
• Funds raised by issuing debt or equity securities.
• Any of these sources may provide sufficient cash to repay a bank loan.

Collateral: In assessing the collateral aspect of a loan request, the loan officer must ask, does the borrower posses adequate net worth or own enough quality assets to provide adequate support for the loan? The loan officer is particularly sensitive to such feature as the age, condition and degree of specialization of the borrower assets.

Condition: The loan officer and credit analyst must be aware of recent trends in the borrower line of work or industry and how changing economic conditions might affect the loan. A loan can look very good or paper only to have its value eroded by declining sales or income is a recession is a recession or by the high interest rates occasioned by inflation.

Control: The last factor in assessing a borrower creditworthy status in control which center on such question as whether changes in law and regulation could adversely affect the borrower and whether the loan request meets the banks and the regulatory authority’s standard for loan quality.

Properly structured and documented proposal On SME:

The loan officer is responsible to both the customer and the banks depositors and stockholders and must seek to satisfy the demands of all. This requires, first the drafting of a loan agreement that meets the borrowers need for funds with a comfortable repayment schedule. The borrower must be able to comfortable handle any required loan payments, because the banks success depends fundamentally on the success of its customers. If a major borrower gets in to trouble because it is unable to service a loan, the bank may find itself in serious trouble ass well. Proper accommodation of a customer may involve lending more or less money than asked for over a longer or shorter period than requested. Thus, the banks loan officer must be a financial counselor to customers as well as a conduit for their loan application. A property structured loan agreement must also protect the bank and those it represent-principally its depositors and stockholders- by imposing certain restrictions on the borrower’s activities when these activities could threaten the recovery of bank funds. The process of recovering the banks funds-when and where the bank can take action to get its funds returned- also must be carefully spelled out in a loan agreement.

Credit Risk Evaluation on SME Loan:

An accurate appraisal of risk any credit exposure is highly subjective matter involving quantitative and quantitative judgments, where Quantitative factors refer to the analysis of financial statement rations. Quantitative factors refer to the assessment of management, industry position, customer/supplier relations, account performance and reputation. Advances accommodate the medium and long term financing for capital machinery and equipment of new industries and of the existing units who are engaged in manufacturing goods and services. Bank usually analyzes both quantitative and qualitative factors in a combined way for assessing borrower’s financial position. In evaluating any credit proposal, the analyst uses the following distinct and logical steps:

• Evaluating the past performance of the borrower
• Assessing the risk of failure by identifying factors in the borrower’s present condition and past performances which indicates likelihood of success to repay the loan.
• Forecasting the probable future condition of the borrower and deciding whether to accept or reject a loan proposal
• Setting terms and condition of credit facilities
• Obtaining the sanction documents and disbursing the loan
• Monitoring performance and ensuring repayment/ recovery

The most pertinent and prime part of the process is assessment of risk of failure to repay deals with the overall lending risk combining

• Business risks
• Financial risks
• Management risk
• Security risks
• Environmental risks

The following basic aspects are taken into consideration while conducting business risks, financial risks management risks security risks and environmental risks.

Collateral Security against SME Loan:

While large corporations and other borrowers with impeccable credit ratings often borrow unsecured. With no specific collateral pledged behind their loans except their reputations and ability to generate earnings. Most borrowers at one time or another will be asked to pledge some of their assets or to personally guarantee the repayment of their loans. Getting a pledge of certain borrower assets as collateral behind loans. Really serves two purposes for a lender. If the borrower can’t pay, the pledge of collateral gives the lender the right to seize and sell those assets designated as loan collateral, using the proceeds of the sale to cover what the borrower did not pay back. Secondly, collateralization of a loan gives the lender a psychological advantage over the borrower. The goal of a bank taking collateral is to precisely define which borrower assets are subject to seizure and sale and to document for all other creditors to see that the bank has a legal claim to those assets in the event of nonperformance on a loan. Collateral security will be required for the loan amounting more than Tk.5.00 lac. However two personal guarantees acceptable to the bank should be taken for all SME loans.

Standard loan review process of SME:

Carrying out review of all types of loans on a periodic basis for example, every 30, 60, or 90 days the largest loan outstanding may be     routinely examined, along with a random sample of smaller loans. Structuring the loan review process carefully to make sure the most important features of each loan cheeked including: The record of borrower payments. To ensure that the customer is not falling behind the planned repayment schedule. The quality and condition of any collateral pledge behind the loan. The completeness of loan documentation to make sure the bank has access to any collateral pledge and possesses the full legal authority to take action against the borrower in the courts if necessary. Mercantile Bank Limited generally gives short-term fund to various sector of the country like industrial loan, agricultural loan, consumer credit and so on. Short-term loan is generally payable on demand or at short notice. . In practice however banks allow midterm and also some long-term loan. Bank’s credit creates deposit in the country .It means that the borrower of the credit spends that money in making payment to his other creditors, Those people deposit that money partly or wholly to their accounts on their respective banks.

Limit for SME Loan:

Maximum limit for Small enterprises is Tk. 20.00 lac (Term loan and Working capital) and Medium Enterprise is Tk. 50.00 lac (Term loan and Working capital)

Eligibility of the client:

Different banks have set up different criteria to get the loan. Among them the commons are:

• Age 21 to 60 years
• Reputed businessman, Service holder in government, semi government organization, autonomous bodies, corporations, multinational corporations, local renowned companies, teachers of educational institution, officers of armed forces, members of professional bodies, and relatives of banker will get privileged. The applicant must have a credible reputation..
• The rules for the businessmen to get credit from are that monthly disposable income should not be less than taka 10,000/- or three times of the monthly installment. Credit not available for minors and classified loan borrower by CIB report.

Valuation:

Valuation of property, provided as security, should be done by a survey firm enlisted with the bank prior to sanction/ disbursement of loans.

Insurance:

Fire insurance and other insurance should be done at the cost of the customer. In Case in SME loan bank will must prefer the assets which is less risky. In case of risky project bank avoid financing the loan. It is well for both borrower and bank it ensure the property.

Repayment of loan:

For term loan maximum 36 installment and for working capital maximum 12 installment. 40% of the loan should be recovered within 1^st 6 months and remaining 60% should be recovered within next 6 months. At maturity the loan will be fully adjusted. After repayment of 75% of the loan the customer may apply for new credit facility.

Application Procedure:

Application procedures include the following steps:

• Prescribed application from dully filled in and signed by the clients.
• Submission of the application along with supporting documents.

Selection of Borrower:

1. Small and Medium enterprise financing, like other credit facilities must be subject to the bank. Management process set up for this particular business. The process may include, identify source of repayment and assign customers ability to repay, expected future cash flows, his/her past dealing with the bank, the net worth and information from CIB. The bank must identify the key diverse of their borrowers business, the key risk to their businesses.
2. At the time of sanctioning facility under various modes of SME financing, a written declaration shall be obtain from the other institution to ensure that the total exposure in relation to the repayment capacity of the customer does not except the reasonable limits as laid down in the approved policies of the ban k as well as to help avoid espousers having multiple facilities.
3. Age limit: the age of the proprietor/ partners/ directors must range between 21 years to 60 years.

Credit Administration:

• SME division at Head office will complete documentation of the loans sanctioned by them.
• After completion of documentation of SME division will sent “Disbursement order” to the branch for disbursement of the loan.
• Securities documents of the SME loans sanctioned from Head Office will be signed by the customers in branch of disbursement and will be retained by them in original a set of photocopy will be required to be sent to Head Office.
• A set of photocopy of loan documents will be retained by SME Team Head Office, the disbursing branch will retained the originals.

Monitoring and Recovery:

• SME customers will deposit regular loan installments in concerned branches.
• Branches will send monthly statements on SME loan to Head Office, within 7^th day of following month.
• SME Division at Head office will monitor and ensure recovery of all delinquent loans sanctioned by Head office

Fees and Charges of SME Financing:

• Interest Rate: 16%
• Risk Fund: 1%
• Service Charge: 1%
• Application Fee: Tk. 200
• Loan Processing Fee: Tk. 500
• Stamp: Tk. 770 ( For three Guarantors)
• : Tk. 24

Charge documents:

Prior to disbursement of the loan, the following documents must be completed and kept in the safe custody of the bank:

• Demand promissory note
• Letter of Continuity
• Letter of agreement
• Letter of Disbursement
• Letter of Revival
• Letter of Hypothecation
• Letter of Trust Receipt (consumer credit)
• Personal Guarantee of the Guarantors
• Money receipt and the delivery chalan for the item purchased
• Letter of Undertaking
• Letter of Lien for advance against Fixed Deposit/ special Deposits received
• Letter of Authority
• Letter of Installment
• Supplementary Agreement for Letter of Hypothecation
• Banking Arrangement Letter

Disbursement Procedure:

• Signing the requisite charge document.
• Receiving 24, 36 or 48 post dated cheque.
• Issuance of payment order to the supplier.
• Ensuring the proper delivery of goods

Repayment arrangement

Consumer will repay the loan 24/36 monthly installment, In case of loan over taka I, 00,000 the 36 installments will be allowed,

1. The borrower will have to submit the post-dated account payee cheques (one for each installment) in favor of the Bank before the disbursement of the loan.
2. The installment will be payable within the first week of every month starting from the following month of disbursement of the loan.
3. Penalty for delay payment will be charged @ taka 50 if the loan installment is not paid within 15 days from the 8th day of each month and @ taka 75 for further delay of each 15 days.

Analysis and comparisons

Strength, Weakness, Opportunities, Threat (SWOT) Analysis

Strength

• Fewer competitors in the Market.
• Customer can send money to other branches from SRB by on-line banking.
• The customer can draw the whole amount of money at a time.
• Terms & Conditions is comparatively easy.
• Huge demand from the customer side.
• As the customers can draw the whole money, they can get cash commission during purchasing of the product.
• Customers do not need to give any collateral to get the money.
• The interest is comparatively low.
• Employees are young and empowered.
• Wide range of financial products.

Weakness

• Installment period & installment time duration is relatively low.
• The clearing house is not operating on online.
• Defalcation rate of Green Road Branch is comparatively high.
• Service Charge is too high.
• FDR interest rate is lower then other private banks.
• Numbers of employees are not sufficient.
• Numbers of branches are not sufficient all over the country.
• The branch is not well equiped.

Opportunities

• Huge demand from the customer.
• Use of debit and credit card is being increased.
• The Bank can earn high profit from this sector.
• Now a day’s people are paying attention to private bank
• As the economic condition of the country is not so good, customers will have need of this deposit scheme.

Threat

• People in Bangladesh have less involvement with the Bank
• There are some competitors in the market.
• Defaulters are arising enormously and the banks may find itself in a more threading environment.
• Political instability is the major threat for the economy and the banking sectors of Bangladesh

Financial position of MBL compare with other banks

At present in Bangladesh there are four (4) nationalized, Five (5) are specialized, Thirty (30) are local private commercial and Ten (10) are foreign commercial banks operate there banking operation. Mercantile Bank Limited (MBL) is one of the prominent third generation banks in banking sector. Now I try to comparison financial health of Mercantile Bank Limited with other three private commercial bank .Those are:

1. Prime Bank Limited (PBL)
2. Dhaka Bank Limited (DBL)
3. Uttara Bank Limited (UBL)

Authorized Capital of MBL Vs. Other Banks (BDT in million)

In the year 2005 and 2006 Prime Banks authorized capital is higher than others bank. In 2005 Mercantile banks authorized capital is lowest, but in 2006Mercantile Banks authorized capital hold second position with Uttara bank.

5.2.2 Paid up capital of MBL Vs. Other Banks

                                                                                                (BDT in million)

In the year 2005 and 2006 the paid up capital of Mercantile Bank Limited is only higher than Uttara Bank Limited. But lower than Prime Bank Limited and Dhaka Bank Limited.

Total capital of MBL Vs. Other Banks (BDT in million)

In the year 2005 total capital of MBL is higher than UBL and in the year 2006 it is higher than DBL and UBL.

Deposits of MBL Vs. Other banks (BDT in million)

In the year 2005 and 2006 MBL deposits are less than PBL, DBL and UBL.

Earning per share of MBL Vs. Other banks (BDT in million)

In the year 2005 and 2006 earning per share of UBL is much higher than other banks, and MBL hold the fourth position.

Total asset of MBL Vs. other banks (BDT in million)

In the year 2005 total asset of UBL is higher than other banks and in 2006 PBL total asset is higher than other banks.

Profit after tax of MBL Vs. Other banks (BDT in million)

In the both of year 2005 and 2006 profit after tax of PBL is much higher than other banks. And in the year 2006 MBL hold third position.

Fixed asset of MBL VS other banks (BDT in million)

In the both of year 2005 and 2006 fixed asset of PBL is higher than other banks. And MBL hold the second position in terms of fixed asset.

 Interest Income of MBL VS other banks (BDT in million)

In the year 2005 and 2006 interest income of PBL is much higher than other banks.

From the comparisons of financial position of four private banks it is clear that most of cases Prime Bank hold the top position. Mercantile Bank perform well in some cases. But it is clear that in all the cases MBL done well from previous year. To see it’s up growing performance, it is my assumption that the MBL will be the leader local bank in the upcoming days.

Findings and Observations

As MBL is running its business with local banking status, so it is not possible to serve the nation right now like the multicultural bank.

Total corporate banking services are not still available in the branch since it is a new branch. The branch is yet to be started in fully foreign exchange facilities to the customer though demand for this is increasing rapidly to them.

Lack of computerized facilities

Fully equipped and computerized banking facilities are very much vital issues especially for these types of business, which are not completely achieving till today at MBL. In some cases they are using manual system which ARE time consuming.

Lack of ATM facilities:

Customer always looks for easy and hassle free banking but the only because of inadequate ATM services MBL’s customers are not enjoying these services.

Lack of on line facilities

Today’s general banking is highly related to online transaction. It reduces time and cost of business transactions. In the general banking, clearing house is crucial part of any banking system. But MBL operate its clearing house without online facilities, which make lots of time for each clearing transaction. For this the customers are opening another account in other banks whose are providing on line clearing house facilities. As a result the bank is loosing his customer.

Lack of competitive salary structure:

Employees remuneration policy of the bank is poor than the other banks as a result employees are feeling neglected by the Management. And, only because of this employee of the bank are not as much as loyal what they have to and it makes them de-motivated to perform their responsibilities perfectly.

Conditions for repayment of loan in other branches:

One of the drawbacks of the loans and advances procedure of the bank is that the client has to repay the money in the particular branch from where he/she has got the loan. So, when a client wants to repay the installment, communication problem sometimes force him/her to become a defaulter.

Extra burden of service charge for loan:

Bank takes 1% Service Charge from the customer while providing the loan to the customers. As bank gets profits out of its interest, the bank should not take other charges as the mentioned Bank is also taking high stamp charge.

Some observations regarding the credit policy in SME loan and guidelines of Mercantile Bank are as follows:

It is a strange thing that despite five year banking operation, Mercantile Bank is yet to develop a well-organized, coordinated and documented credit policy of its own. Most of the policy guidelines disseminated by the Head Office are merely copied from the write-ups of bankers working in other institutions. But what is good for other banks may not be appropriate for Mercantile Bank. And as there are no organized credit policy branch officials has to contact to Head-Office for mere Problems.

According to Bangladesh Bank rules, lending should not cross 84% of total deposit of the Bank. But it is frequently observed that total lending and advances crossed 90% of total deposit. This may create liquidity problem for the bank for SME loan.

Some observations regarding project appraisal methods used by Mercantile Bank Ltd are as follows:

The bank relies heavily on information supplied by the loan applicant without adequate verification of it. This may well lead to inaccurate project appraisal.

In the absence of credit rating agencies in the country, exhaustive investigation is required for assessing the credit standing of the loan applicant. Mercantile Bank does not take proper care of it; rather it is overly reliant on CIB report by Bangladesh Bank. CIB report is published quarterly (Dec, April, Aug, Dec) and if a loan is classified on February one will not be able to properly analyze the credit worthiness of a client.

Another major Problem is that, the Board of Directors takes all decisions and in that stage proper emphasis is not given on project appraisal, as they are not professional Bankers. This may create bad loan in future.

At Mercantile Bank, the average loan processing time is relatively long. This is particularly true for project loan, which usually takes over 1 month to complete the processing. At the branch level, this is due to the shortage of efficient loan officers. Bureaucratic structure and nature of credit committees at the Head Office level of Premier Bank is another contributing factor.

At Mercantile Bank, final approval for any type or amount of project loan must come from the Head Office. Even if a small project loan is applied for at a branch far away from Dhaka, it is the Head Office, which gives the final approval. Such tight control is required for large project loans, but not justifiable for small amount of project loans.

Recommendations

To compete with local and multinational banks MBL should have remarkable improvisations on different aspects of services. Few of them which I found needs to be done immediately are as follows

Increase computerized facilities

Fully equipped and computerized banking facilities are very much vital issues especially for these types of business, which are not completely achieving till today at MBL. So this facility should increase by MBL as soon as possible.

Increase ATM facilities:

As customers are depositing their money in to the bank for easily withdrawing facilities, but lack of availability of adequate ATM facilities, customers are not enjoying these services at MBL. To modernize the bank this service has to be provided by MBL to its customer immediately.

Provide on line facilities

Today’s general banking is highly related to online transaction. It reduces time and cost of business transactions. In the general banking, clearing house is crucial part of any banking system. But MBL operate its clearing house without online facilities, which make lots of time for each clearing transaction. For this the customers are  opening another account in other banks that provide on line clearing house facilities, So the bank should setup online clearing house facilities immediately.

Increases number of employees:

To provide better service to the customers and run the organization smoothly need sufficient number of employees. Without sufficient employees it is not possible to provide better service to the customers. So the authority should pay attention to increase number of employees of the branch.

Increases salary structure:

To motivate employees the authority of the bank should pay immediate attention to the employees’ salary structure and allowances.

Allowing the client to repay in other branches:

Mercantile Bank should give the opportunity to their clients to repay the money (monthly installment) at any branches he/she finds convenient, thus the defalcation rate may become lower. However, it requires a high level of co-ordination between the branches of MBL

Service Charge should be excluded:

Bank takes 1% Service Charge from the customer while providing this Scheme to the customers. As bank gets profits out of its interest, it should not take other charges as the mentioned Bank is also taking high stamp charge. That is too high and unnecessary. This charge can be reduced.

The bank should develop a well-organized, coordinated and documented credit policy for its own. And, the branch office should have the flexibility to grant at least small amount of loan applications.

The bank relies heavily on information supplied by the loan applicant without adequate verification of it. This may well lead to inaccurate project appraisal. So, the bank should have their own intelligent and adequate investigation team to verify the details which are given by the customers.

At Mercantile Bank, the average loan processing time is relatively long. This is particularly true for project loan, which usually takes over 1 month to complete the processing. At the branch level, this is due to the shortage of efficient loan officers. Bureaucratic structure and nature of credit committees at the Head Office level are another factor.

Conclusion

As mentioned at the very outset, the main objective of this report is to analyze the general banking performance of mercantile Bank Ltd. We take attempts to explain the overall activities of the MBL under corporate environment. It may be mentioned here that for maintaining the secrecy of bank all types of data were not open to disclose in this report.

However, I tried my best for the greatest output. Besides this, in every bank there are some common formats for general banking, credit facilities etc., which is rare possible to rearrange the format again and again. So in most of the cases financial institutions and banks have to analyze the crucial factors on the basis of their subjective judgment.

Another important point is to be noted that MBL like other banks usually follow the traditional evaluation process. Most of the theoretical and latest rating approaches described in our text is not followed at all. It is easy to comment on performance of the bank on the basis of efficiency / performance. Because specific i.e. case to case analyze is not easy within the shortest time.

Upon discussion on the above, it is require to mention that in the present competitive environment, banking business is more competitive. A lot of bank and financial institution are developing their services day by day with minimum service charges.

MBL, which is a rising bank with public banking status, has been serving the nation since its inception. To see it’s up growing performance, it is my assumption that the MBL will be the leader local bank in the upcoming days.