16225 
Dear Fellow Stakeholders
AS-SALAMU-ALAIKUM
The last two years was a roller coaster ride for Mercantile Bank limited (MBL). The years 2020 and 2021 have been two of the most remarkable years in the history of mankind. 2020 was an extraordinary year by any measure. It was a year of a global pandemic, a global recession, and unprecedented government actions. It was a year in which each of us faced difficult personal challenges, and a staggering number of us lost loved ones. This was a time when companies discovered what they really were and, sometimes, what they might become. Mercantile Bank Limited (MBL) weathered this storm successfully and was able to ensure sustainability.
On the economic front, after the gloomy 2020, came one of the most anticipated years of modern history, 2021. The year 2021 was the year when the world was expected to come back to order thanks to mass vaccination and lifting of restriction in most parts of the world. Although, the world was not quite able to come back to normalcy, it was able to recover quite a bit thanks to relaxation of restrictions throughout the year.
As the year 2021 was winding down, the United Nations General Assembly (UNGA) in November adopted a resolution on the graduation of Bangladesh from the LDC category. With the adoption of the resolution, Bangladesh completed all procedures to graduate from the LDC category. This is a “landmark achievement” in Bangladesh’s development journey, which coincides with the celebration of the 50th anniversary of Bangladesh’s independence.
Despite the challenges that came our way in 2021, our proactive approach towards strengthening the organizational core and technological capabilities, along with focused execution helped us overcome the odds. Significant investments in digital banking, adopting a technology and analytics-driven decisionmaking definitely helped us deliver strong operational performance. Every passing quarter we improved, led by our focus on building granularity across business segments to drive sustainable and profitable growth. At the same time, we continue to remain prudent and conservative in fortifying our balance sheet and enhancing our capital levels in an environment which might not have been as bad as 2020, but also was not quite plain sailing as well.
During the year, we continued to strengthen the core pillars of any franchise – people, products and technology for driving excellence. We also bolstered our leadership team significantly with our existing leaders taking on larger and newer responsibilities, while we brought in new talent who had the breadth and the experience to match our aspirations.
It is remarkable how much we persevered and have accomplished, not only in terms of financial performance but also in our steadfast dedication to help clients, communities and countries throughout the world. 2021 was another strong year for Mercantile Bank Limited (MBL), with the bank generating very healthy revenue, as well as delivering a credible performance in each of our lines of business. We earned BDT 6,112.12 million in gross profit during 2021. We grew more market share across our businesses and continued to make significant investments in products, people and technology, all while maintaining credit discipline and a fortress balance sheet. As on the close of 2021, our total loans and advances stand on BDT. 266,766.60 million That shows a growth of 7.14 percent from last year. For the last few years, we have been growing at a steady pace in terms of loans. This shows the Bank has not shied away from contributing towards the economy even during these uncertain times and has had a contribution in keeping the wheels of the economy running.
Since economic condition of both the country and the world have a role to play in the performance of any business organization, it is important to have a look at the economic environment we operated under during the year 2021.
According to all the orthodox economic and financial indicators, 2021 was a year of strong recovery from the “lockdown recession” of the previous year. The global economy experienced a strong finish in 2021, with economic performance accelerating in the absence of most pandemic restrictions. Trade in goods expanded through the year, and manufacturing and services continued to grow in most surveyed economies. The International Monetary Fund (IMF) projects 5.9% global growth for 2021. The US economy had a very strong fourth quarter, with GDP expanding at a rate of 6.9% and annual GDP growth estimated at 5.7%. China’s economy expanded 8.1% in 2021; Eurozone GDP growth should reach 5.2% (OECD). Estimates of GDP growth for India’s fiscal year, which extends through March of 2022, are around 9.0% (IMF). In Europe, domestic price pressures are lower, and inflation is driven mainly by rising energy costs. In light of the different dynamics, the European Central Bank (ECB) was until very recently expected to leave interest rates near zero for longer. Consumer inflation reached a record 5.1% in the eurozone in January. Depending on how well the measures to control inflation succeed, economic momentum from 2021 could carry over into 2022. Most expect better economic conditions despite heightened risks from the pandemic and inflation.
Given that economies are expected to shift away from stimulus spending and other policy supports, forecasters and economists generally project a slower pace for global growth in 2022.In December in the emerging economies, consumer inflation remained a concern; China is the exception, where inflation dipped to 1.5% in December. Producer prices are high everywhere, but lately these have eased somewhat. Behind much of the inflation story, in Europe and elsewhere, are high energy prices: from natural gas to coal to crude oil, prices were on an upward trend.
Now, coming to the economy of Bangladesh, The pandemic caused the export market to stumble in 2020. In April, May and June of that year especially, exports slowed to a crawl. Though there was a turning point in July, Bangladesh didn’t reach its export targets. This year was a different story. As pandemic restrictions eased in July, exports saw a new dynamism. In the first 11 months of 2020, export earnings were about $30 billion. Over the same period in 2021, exports topped $56 billion. Import spending has, however, risen in line with export orders. According to Bangladesh Bank, the country imported $42.15 billion worth of goods in the first 10 months of 2021, compared to $33 billion a year earlier. Another positive indicator is that Bangladesh’s foreign currency reserves have grown about 9 percent yearon-year, despite the increase in import spending, the appreciation of the dollar and the jump in international prices. The inflation rate in November was 5.98 percent, compared to the rate of 5.52 percent last year. The rising inflation rate from 2021 might be a hindrance continued during 2022 as well.
In line with the country’s Import-Export business growth, Mercantile Bank Limited after a little slowdown during the year 2020 has bounced back quite splendidly. With imports and exports growing many folds compared to last year which has increased the non-interest income significantly. In 2021, we did import business of BDT. 278,533.10 million, which is a growth of around 61% from last year and in terms of export we grew at 22% from last year and at the end of 2021, we did export business worth BDT.164,212.50 million.
Hence, our Non-interest income which was BDT. 3,927.34 million during 2020; during the year 2021 it has grown to BDT. 4,482.98 million. This increase in Noninterest income is a very good sign as it reduces the burden of the Bank. During the year, we witnessed consistent and strong sequential growth in deposits, advances and other businesses. Our focus towards building a quality liability pool saw sustained momentum with growth in 2021. Our No and Low cost deposit increased significantly. In 2020, pool of No and low cost deposit occupied around 38 percent of our deposit portfolio whereas currently in 2021, it occupies around 44 percent of our portfolio. Several campaigns to collect CASA deposits have helped us reach this state. As a result of all out effort from all concerns, our cost of deposit in 2021 stands at 4.76%, whereas in 2020 it was 6.12%. These build up of no and low cost deposit pool has ensured that even though the yield on advance has declined a bit, our spread has increased significantly from 2.17% in 2020 to 2.61% in 2021. Two factors have combined to make this spread favorable for us i.e. favorable deposit mix along with increased volume of deposit. To elaborate on this, due to more presence of no and low cost deposit, our interest expense was relatively lower than last year. If we look at this, interest expense for the year 2021 was BDT. 13,516.41 million While on the other hand, BDT. 16,732.22 million was the interest expense for the year 2020.
We are committed to maintain a strong capital base to support business expansion, provide a cushion against unforeseen risks, safeguard shareholder wealth and foster investor confidence. The policy allows taking advantage of emerging opportunities and invests further in the core business to enhance shareholder returns. The Bank’s capital management framework includes a capital adequacy assessment process to ensure that the Company can mitigate current and future risks and achieve its strategic objectives. We maintained capital to total risk weighted asset (CRAR) consistently over the period above the threshold of minimum capital requirement. MBL’s CRAR was 14.09% as on 31 December 2020 against the required MCR of 12.5% (Including capital conservation buffer).
During the year ended 2021, all the financial indicators of the bank i.e. EPS, portfolio growth, profit growth, NPL etc achieved impressive growth. The EPS and NAV stands at 3.31 and 23.62 respectively. The Bank has been able to hold onto the rating of ‘B2’ from Moody’s. The Bank also holds a local credit rating of ‘AA’ with a Stable Outlook from Credit Rating Information and Services Limited (CRISL).
Digitalization has always been the focus of the bank. MBL Rainbow app was introduced last year to cater to the needs of our customers. This year MBL rainbow has made more updates which has turned this into a more up to date one and in tune with modern customer’s need. Along with this, Our Core Banking Software (CBS) Temenos T24 has been upgraded from R10 to R19. This process of up gradation was a rigorous one and hence I would congratulate all concerns on completing this operation successfully and without any major issues. With this new version, we will be more protected against various cyber threats. This new version will also ensure smoother operation. In this way, MBL would be able to serve its customer better.
In the year 2020, MBL ventured into a new territory. This territory is Islamic Banking window. Although, it started last year; one can safely say Islamic banking operation of MBL gathered momentum this year only. By the end of 2021, Islamic Banking Window has been able to garner a commendable profit figure. Inspired by this as well as analyzing the market, we have decided to open a fully fledged Islamic Banking Branch at Motijheel. We should be able to establish this by 2022. With the kind of Deposit and Investment products that we have at our disposal, we believe that we would be able to cater to a wider array of customers who prefers Islamic banking.
In the credit cards business, where we were not quite a force to be reckon with earlier. However, we are now a strong player and have been growing at a much faster pace than what we were in the previous years. Throughout the year, various card acquisition campaigns were launched and which brought a lot of positive results. We hope to continue this trend in the next years as well.
Maintenance of strong corporate governance culture has been one of MBL’s greatest strengths. Our corporate governance framework and policies and procedures built up over the years assisted the Board and the management to manage the business with prudence having identified the relevant risks and opportunities. This structure and sound governance approach enabled the management to exercise a high level of oversight, in driving the business towards achieving its corporate goals and sustainability agenda. This robust and effective corporate governance has also ensured the working condition at MBL is one of the best in the country. We at MBL believe a work environment that ensures employee satisfaction will bring out the best performance from them. For that, we strive to achieve a working environment that gives the best possible opportunity to perform at their full potential. Also, to strengthen our Workforce, MTOs have been recruited through IBA.
At MBL, we aspire to excel at securing and enhancing the financial well-being of people, business and communities. A community bank at heart, our focus has always been to ensure individuals, families and households can access the financial services they need. As part this sustainability goals, MBL is supporting loans to environment friendly proposals and refraining from projects which are noncompliant. We have established a separate “Sustainable Finance Unit” and various measures have been adopted to increase investment in this sector. Our encouragement on financing ETP or water treatment plants in existing Textiles and Readymade Garments continued and we are investing in Renewable Energy and Energy Efficiency sectors.
MBL believes that, true success does not consist in profit maximization, but in doing something good for the less privileged. The Bank is well positioned for the future and I am confident that we have the ability to continue to deliver superior long term performance for our customers, our shareholders, our people and the communities in which we operate. We all look forward to building a sound, sustainable growing “institution”.
I would like to take this opportunity to thank my colleagues for believing in MBL and the vision of the Bank. I believe that MBL is a great franchise with great culture and great set of people. If we execute well, we have the potential to improve our market share rankings without sacrificing anything whatsoever on our credit and risk management practices.
I am also deeply grateful to all the customers and other stakeholders for standing by us and showing their faith in us all these years. My sincere note of thanks goes to our Board of Directors for their valuable and dynamic policy support and timely decisions to steer the Bank in the right directions.
Lastly, on behalf of my team, I would like to express my sincere gratitude and acknowledgement, to all our regulatory authorities such as Bangladesh Bank, NBR, BSEC, DSE, CSE and RJSC&F for their continuous support and guidelines from time to time.
Best Regards.
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