Thesis Paper

On
Credit Operations of Mercantile Bank
Limited

Supervised By:
Prof. Abu Taleb
Director
Banking and Insurance
University of Dhaka

Submitted By:
Abdul Ahad
ID No: 51612023
MPB 1st Batch
Banking and Insurance
University of Dhaka

Date of Submission: January, 2018

Cell: 01737-515656,01999506070
 Letter of Transmittal

Date: January, 2018

Prof. Abu Taleb

Director
Banking and Insurance
University of Dhaka.

Subject: Submission of Thesis paper on “Credit Operations of Mercantile Bank

Limited”.

Dear Sir,
This is to inform you that I have completed my thesis paper on the topic “Credit
Operations of Mercantile Bank Limited”. The whole report is prepared based on my
academic knowledge from MPB program and also is my working experience in Credit
Operations of Mercantile Bank Limited.

Finally, I would like to thank for your valuable guidance and care in preparing the thesis.
I shall gratefully respond to any clarification when required. I shall be highly obliged if
you are kind enough to give approval to this thesis.

Sincerely Yours,

______________
Abdul Ahad
ID No: 51612023
MPB 1st Batch
Banking and Insurance
University of Dhaka.

ii
 Supervisor’s Certificate

This is to certify that the Thesis paper on “Credit Operations of Mercantile Bank
Limited” Submitted for the award of the degree of MPB from University of Dhaka is a
record of thesis paper carried out by Abdul Ahad, ID No: 51612023, MPB 1st Batch,
Banking and Insurance, University of Dhaka under my supervision. No part of the term
paper has been submitted for any degree, diploma, title or recognition before.

I wish his every success in life.

………………………

Prof. Abu Taleb

Director
Banking and Insurance
University of Dhaka.

iii
 Student’s Declaration

I hereby declare that the Thesis paper namely “Credit Operations of Mercantile Bank
Limited” is prepared by me during my Study period with Mercantile Bank Limited. I do
hereby solemnly declare that the work presented in this thesis paper has been carried out
by me and has not been previously submitted to any other University, College or
Organization before.

I further undertake the liability and indemnify the university against any loss or damage if
arising from breach of the forgoing obligation.

Abdul Ahad
ID No: 51612023
MPB 1st Batch
Banking and Insurance
University of Dhaka.

iv
 Acknowledgement

Thanks to almighty for special blessings in completing the study. Thesis is the part of the
Masters of Business Administration (MBA.) program that provides on the job experience
for the students. The students get chance to work closely with the people of the
organization and learn about the functions, responsibility and the environment of the
organization. The thesis paper enables a student to develop their analytical skills and
scholastic aptitudes and to have a real-life orientation of the academic knowledge.

I express my deep gratefulness to Prof. Abu Taleb, Director, Banking and Insurance,
University of Dhaka for his modern outlook and meticulous supervision to carry out the
job perfectly.

I am very grateful to Mr. Mamun Hossain, Executive Officer, for helping me a lot.
Moreover I am very much thankful to my thesis in-charge in various departments and all
the officers of Mercantile Bank Ltd of Head office Branch for helping me very much
although busyness. Without their help and friendly cooperation it could be very much
difficult for me to complete the report in time. So again I want to express my gratitude to
them.

v
 Executive Summary
With the clear mission to provide efficient banking services and to contribute socio-
economic development of the country, Mercantile Bank Ltd emerged as a new
commercial bank and inaugurated its operation on 2nd June, 1999. The bank stood 47
branches all over the country up to 2009. There are 30 sponsors involved in creating
Mercantile Bank Limited. The sponsors of the bank have a long heritage of trade,
commerce and industry. They are highly regarded for their entrepreneurial competence.
The banking philosophy of Mercantile Bank Limited is not to ‘carry coal to the new
castle'. The main target is to make credits available to the poor people & their activities
are aimed at multifaceted growth where people from all economic strata will enjoy the
benefits of better living standard, dignity of labor and self worth. The Main objectives of
the study were to identify the credit approval, their securities and monitoring process,
identify the lending activities at MBL, Credit management of MBL and to have an overall
idea on how it operates in the competitive marketing to rally with the customer
satisfaction and to retain them. To fulfill these objectives qualitative research methods
were used. Primary data and information collected from the employees of MBL through
informal discussion and the secondary data from the annual reports of MBL. This report
starts with the outline of the organization in focus, presenting the mission and vision of
the organization accompanied by the global perspective and look into future. Though it
has various types of credit schemes but most of the schemes are unknown to customer
due to the lack of promotional activities. Its interest rate is also pretty higher. The
consecutive part of this report shows different type of analysis (e.g. SWOT analysis,
table, and graph) with interpretation and findings. The final part concludes this report
with recommendation regarding the performance of credit management of MBL, Head
office. Bank should aim at reasonable interest rate take promotional activities regarding
loans and advances & it should re-launched the less popular consumer categories to
attract more customer. If MBL improve their lacking they can be capable to continue its
journey in profitable path.
Chapter four is fully made of a comprehensive study of procedure of Credit Operations
and Management. There includes different types of loans and interest rate of loans.
Discuses performance analysis. Here fully discuss about credit. I try to show my
knowledge through preparing this report. I try to find out to difference the theoretical and
practical situation. I try to make this report much valuable, authentic and understandable
which can easily give people idea about the banks’ function. I try with my best effort
avoiding mistake, unforeseen errors.

vi
 Table of Contents
Name of Topic Page No:
Letter of Transmittal ii
Supervisor’s Certificate iii
Student’s Declaration iv
Acknowledgement v
Executive Summary vi
Chapter: 1 Introduction 01-05
1.1 Introduction 02
1.2 Background of the Study 02-03
1.3 Objectives of the Study 03
1.4 Scope of the Study 03
1.5 Significant of the Study 04
1.6 Methodology of the Study 04-05
1.6.1 Sources of Data 05
1.6.2 Primary Sources of Data 05
1.6.3 Secondary Sources of Data 05
1.6.4 Data Analysis 05
1.7 Limitations of the Study 05
Chapter: 2 Theoretical Framework 06-21
2.1 Definition of Credit 07
2.2 Importance of Bank Credit 07
2.3 Types of Credit 08
2.4 Interest Rate of Various Credits Offered by 09
2.5 Definition of Loan/Credit Policy 10
2.6 Factors Influencing Loan/Credit Policy 11
2.7 Sources of Credit Information 11
2.8 Credit Analysis 11
2.9 Major Issues/Questions Analyzed/Examined in Credit Analysis 11-13
2.10 Security for Loans and Advances 13-14
2.11 Credit Risk Grading (CRG) 14
2.12 Credit Risk Grading Definitions of the Different Categories 14-17

vii
2.13 How to Compute Credit Risk Grading? 17-19
2.14 Credit Risk Grading Process 19-20
2.15 Lending Process 20-21
Chapter: 3 Organizational Overview of MBL 22-32
3.1 History of MBL 23
3.2 Vision of MBL 24
3.3 Mission of MBL 24
3.4 Objectives of MBL 24
3.4 Core values 24-25
3.5 Business Ethics 25
3.6 Principal Activities of MBL 25-26
3.6 Corporate Philosophy 26
3.7 Products Scheme 27

3.8 Achievements 28
3.9 MBL Network 29
3.10 Corporate Structure 30
3.11 Management Structure of MBL 31
3.12 Financial Highlights 32
Chapter: 4 Credit Operations of MBL 33-48
4.1 Credit 34-35
4.2 Different Credits Offered by MBL 35
4.3 Process of Loan Sanction 36-40
4.4 Types of Credit Activities 40-43
4.5 General procedure for loans and advances 44-48
Chapter 5 Analysis and Findings 49-75
5.1 Credit Programs of Mercantile Bank Ltd. 50-60
5.2 Deposits Mix 61
5.3 Loans and advances Mix 62
5.4 Loan Products 63-67
5.5 Rate of Interest on Loan 67
5.6 Credit Policy of Mercantile Bank Ltd. (MBL) 68
5.7 Securities against Advances 68

viii
5.8 Credit Quality 69-72
5.8 Disbursement 73-75
5.9 SWOT Analysis 75-76
Chapter: 6 Finding, Recommendations and Conclusion 77-85
6.1 Findings of the Study 78
6.2 Recommendations 79-80
6.3 Conclusion 81
References 82
Questionnaire 83-85

ix
 List of Table
Name of Table Page No:
Table: 2.1 Interest Rate of Various Credits Offered by 09
Table: 2.2 Credit Risk Grading (CRG) 14
Table: 3.1 Achievements 28
Table: 3.2 MBL Network 29
Table: 3.3 Financial Highlights 32
Table: 4.1 Economic appraisal: 39
Table 4.2 : Loan Ceiling 41
Table: 5.1 Amount of Deposits 50
Table: 5.2 Loans and Advances 51
Table 5.3: Provision for Loans and Assets 52
Table: 5.4 Import Business 58
Table: 5.5 Export Business 59
Table: 5.6 Operating Profit 60
Table: 5.7 Deposits Mix 61
Table: 5.8 Loans and advances Mix 62
Table: 5.9 Non-performing Loans (NPLs) 69
Table 5.10: Provision for Unclassified Loan 70
Table 5.11: Provision for Classified Loan 71
Table 5.12 : NPLs to total Loans and Advances 72
Table 5.13 : Loan Recovery 74

x
 List of Figure
Name of Figure Page No:
Figure: 2.1 Types of Credit 08
Figure: 3.1 Management Structure of MBL 31
Figure: 5.1 Amount of Deposits 50
Figure: 5.2 Loans and Advances 51
Figure 5.3: Provision for Loans and Assets 52
Figure: 5.4 Import Business 58
Figure: 5.5 Export Business 59
Figure: 5.6 Operating Profit 60
Figure 5.7 Deposits Mix 61
Figure: 5.8 Loans and advances Mix 62
Figure: 5.9 Non-performing Loans (NPLs) 69
Figure 5.10: Provision for Unclassified Loan 70
Figure 5.11: Provision for Classified Loan 71
Figure 5.12 : NPLs to total Loans and Advances 72
Figure 5.13 : Loan Recovery 74

xi