1.1 CC (Hypo)

CC(Hypo) stands for Cash Credit (Hypothecation). This is a continuous credit limit allowed for trading as well as manufacturing/ assembling/ other value adding units to procure and maintain the stock in trade for trading units and stock of raw material (RM), work in process (WIP), and finished goods (FG) for manufacturing/ assembling/ other value adding units.

Features/Norms:

• This is a continuous loan.
• Continuous drawing and adjustment is possible.
• Validity of the limit may be one year or less. It may be renewed for further period at the request of the customer but at bank's own discretion.
• It is adjusted through crediting sale proceeds in the account on regular basis. Desired yearly credit turnover in the account is 04 times of the credit limit.
• Stock in trade remains under customer's lock and key.
• Pricing mode: Interest.
• Primary security: Hypothecation of stock in trade or stock of RM, WIP, & FG.   

1.2 SOD (G) or OD

SOD (G) stands for Secured Over Draft (General) and OD stands for Over Draft. This continuous credit limit is allowed for different business purpose to meet up working capital requirement in the business to those concern who does not maintain stock i.e. service oriented business enterprise. Borrower may also allow the facility against other Bank's/ FI's deposit.

Features/Norms:

• This is a continuous loan.
• Continuous drawing and adjustment is possible.
• Validity of the limit may be one year or less. It may be renewed for further period at the request of the customer but at bank's own discretion.
• In case of SOD (Gen) or OD against other bank's/FI's deposit, the genuineness of the deposit instrument as well as lien will be confirmed through their respective Branch as well as Head Office.
• Pricing mode: Interest.
• Primary security: Primary security may not be available. But in case of SOD (Gen)or OD against other bank's deposit, lien on underlying deposit.

1.3 SOD(WO)

SOD (WO) stands for Secured Over Draft (Work Order). This facility is allowed favouring a contractual firm for execution of work/supply order awarded from the Govt., Semi-Govt. and autonomous bodies. It is a non cheque bearing account.

Features/Norms:

• Usually disbursement is made with the progress of execution.
• Usually customer is allowed up to a certain percentage (%) of the construction work order and supply order value.
• Validity of the facility is matched with the validity of work/supply order.
• It is adjusted (gradually) through making proportionate deduction from the assigned bills received from the work/supply order awarding authority.
• Pricing mode: Interest.
• Primary security: Assignment of the bills against the work/supply order. A

1.4 SOD(FO)

SOD (FO) stands for Secured Over Draft (Financial Obligation). This continuous credit limit is allowed favouring business entity against financial obligations (FDR, and different Scheme Deposits of our Bank). The loan may be allowed in the name of SOD (FDR) which is against FDR and SOD (SS), which is against other financial obligation.

Features/Norms:

• This is a continuous loan.
• Continuous drawing and adjustment is possible.
• Validity of the limit may be one year or less.
• Pricing mode: Interest, usually based on the interest rate allowed to the underlying financial obligation.
• Primary security: Lien on underlying FO.

1.5 Loan (FO)

Loan (FO) stands for Loan against Financial Obligation. This short term loan is allowed favouring a business entity against financial obligations (FDR, and different Scheme Deposits of our Bank).

Features/Norms:

• This is a short term loan.
• One time drawing is allowed.
• Validity of the limit may be one year or less. It is non-renewable.
• Loan will be adjusted by depositing lump sum payment on or before the validity.
• Pricing mode: Interest, usually based on the interest rate allowed to the underlying financial obligation.
• Primary security: Lien on underlying FO.

1.6 Time Loan

This is specific purpose oriented loan of specific tenor. This facility is allowed favouring a customer usually for the following reasons:

• To meet emergency/seasonal fund requirement in the business.
• In some forced circumstances such as encashment of bank guarantee, against letter of credit and other commitment of the bank where customer fails to build up fund to honor the same.
• As a post import facility against sight L/C (local)/ deferred L/C(foreign).
• Against cash incentive claim of export oriented company as per prevailing norms of Bangladesh Bank.
• For payment of duty, tax, vat against import business.

Features/Norms

• All specific Time Loan and each Time Loan under a revolving limit are demand loan by nature.
• Time Loan is a single time disbursement loan with specific purpose and validity.
• Generally, the loan is allowed for short period. But maximum validity can be 360 days depending on the purpose of the loan.
• It is adjusted though crediting sales proceeds of the respective goods/ cash incentive received from Bangladesh bank/ from own source of the customer.
• If a customer is allowed Time Loan facility under forced situation, other approved credit limit will be suspended and case to case approval from Head Office to be obtained for allowing any other facility till full adjustment of the forced loan liability. After adjustment of the forced loan liability, the approved limit will be revived after informing Head Office.
• Pricing mode: Interest.
• Primary security: Hypothecation of stock in trade, work in process, finished goods

1.7 LTR

LTR stands for ‘Loan against Trust Receipt'. This facility allowed for retirement of shipping documents (so that the importer can release the goods imported through L/C) by adjustment of PAD liability, is known as LTR. LTR is allowed against import of trading items/ industrial raw materials. In no cases, LTR will be allowed against import of capital machinery & other fixed assets for non-trading purpose. The facility is allowed on trust with the arrangement that sale proceeds (of the goods) will be deposited to liquidate the loan account within the stipulated time

Features/Norms:

• This is a demand loan.
• This is a post-import finance.
• Usually allowed to retire shipping documents of L/C.
• Usually LTR amount is less than or equals the PAD liability.
• Importer controls/possesses the imported goods.
• Usually has the tenure of 30, 60, 90, 120, or 180 days based on the nature/ marketability/ perishability of the goods or as per Bangladesh Bank guidelines/directives.
• Drawing is allowed once only, no further drawing is allowed. Borrower has option to adjust the loan within the period of LTR shortly.
• Pricing mode: Interest.
• Primary security: Hypothecation of imported goods.

1.8 PC

PC stands for (Export) Packing Credit. It is a short term facility allowed to customers against export L/C and/or firm contract for processing/packing/shipping of goods to be exported. It must be adjusted from proceeds of the relevant exports.

Features/Norms:

• This is a mode in export finance.
• All specific PCs and each PC created under a revolving limit are demand loan by nature.
• PC amount should not exceed 10% of net FOB value at any point of time or proportionate of raw materials received considering import entitlement/ BTB opened. Total finance (including ABP) against an export L/C should not exceed 90% of the FOB value.
• Borrower/exporter will be entitled to avail PC upon receipt of accessories under BTB L/C.
• It is adjusted from the relevant export proceeds.
• Usually has the tenure of maximum upto 120 days.
• Pricing mode: Interest at a special rate prescribed by Bangladesh Bank (Presently 7.00% p.a.).
• Primary security: Export L/C/sales contract.
• Usually has the tenure of maximum upto 120 days.
• Pricing mode: Interest at a special rate prescribed by Bangladesh Bank (Presently 7.00% p.a.).
• Primary security: Export L/C/sales contract.

1.9 ECC

ECC stands for Export Cash Credit. ECC is essentially a short term credit and allowed to supplement requirement of finance of an exporter to meet genuine costs and expenses related to the exportable commodity.
It must be adjusted from proceeds of the relevant exports.

Features/Norms:

• This is a mode of export finance.
• All specific ECC and each ECC created under a revolving limit are demand loan by nature.
• ECC amount should be determined on the basis of export L/C value. Total finance against an export L/C should not exceed 90% of the FOB value.
• The advances must be liquidated out of export proceeds within 180 days.
• Pricing mode: Interest.
• Primary security: Export L/C/firm Contract.

1.10 IDBP

IDBP stands for 'Inland Documentary Bill Purchase'. This facility is provided to purchase/negotiate documents/ bills (duly accepted by issuing Bank) submitted by the exporter/supplier on (deemed) export/supply made to local export oriented industries against inland L/C (supported by export L/C or export sales contract) usually denominated in Foreign Currency.

Features/Norms:

• This is a demand loan.
• This is usually a mode of (deemed) export finance.
• The acceptance must be communicated by the accepting Bank through SWIFT massage under valid code upon request of the purchasing Bank.
• A customer may be allowed IDBP maximum up to 90% of accepted value of confirmed acceptance.
• The tenure of loan is as per the maturity date of the confirmed acceptance.
• Liability is adjusted from the proceeds of the Bill. However, usually a General Letter of indemnity is obtained from the beneficiary (exporter/supplier) to the effect that if the proceeds against any bill is not received in due time, the bill/bills will be adjusted from the beneficiary's own source.
• Pricing mode: Interest.
• Primary security: Confirmed acceptance and confirmed inland documentary bills.

1.11 FDBP(F)

FDBP stands for 'Foreign Documentary Bills Purchase'. This facility is provided to negotiate (purchase) Foreign Documentary bills/documents submitted by the exporter on export made against export L/C denominated in Foreign Currency.

Features/Norms:

• This is a demand loan.
• This is a mode of export finance.
• All specific FDBP and each FDBP created under a revolving limit are demand loan by nature.
• The documents/bills have to be in order as per export L/C terms.
• Cash drawing allowed under FDBP after adjustment of BTB L/C, PC, and other liabilities associated to the particular export.
• Usually has no fixed tenure but maximum tenure may be allowed is 21 days for sight L/C and as per stipulated usance period for usance (DP) L/C.
• Pricing mode: In case of Sight L/C, interest not applicable for 21 days and in case of usance (DP) L/C, interest not applicable for the usance/deferral period. Usually bank earns from exchange rate difference. But in case of overdue, interest will be charged in commercial rate.
• Primary security: In order L/C documents/bills.

1.12 FBP

FBP stands for ‘Foreign Bills Purchase'. Payment made to a customer through purchase of Foreign Currency Drafts, subject to obtaining clearance from the corresponding bank

Features/Norms:

• It is demand loan by nature.
• The Cheques/Drafts have to be in order.
• FBP is allowed to meet short term obligations of Bank's existing tested and trusted customers.
• Usual amount of FBP is up to 90% of the Drafts value.
• Tenure depends on the collection period of the Drafts.
• Liability is adjusted from the proceeds of the Cheques/Drafts.
• Pricing mode: Interest.
• Primary security: Foreign Currency Cheques/Drafts. However, a General Letter of indemnity on Tk. 300 non-judicial stamp is obtained from the drawee to the effect that if the proceeds against any Cheques/Drafts is not received in due time, the liability will be adjusted from the drawee's own source and the customer will compensate the bank if any claim raised in future against the bank.

1.13 IBP

IBP stands for ‘Inland Bills Purchase’. Payment made to a customer through purchase of Govt. Cheques/ Payment Orders/ Draft issued by scheduled banks(s) and bills.

Features/Norms:

• It is a demand loan by nature.
• The Cheques/PO/Drafts shall have to be in order in all respects.
• IBP is allowed to meet short term obligations of Bank's existing tested and trusted non-export customers.
• Usual amount of IBP is upto 80% of the Cheques/PO/Drafts value.
• Tenure depends on the collection period Cheques/PO/Drafts.
• Liability is adjusted from the proceeds of the Cheques/PO/Drafts.
• Pricing mode: Interest.
• Primary security: Local Currency Cheques/PO/Drafts. However, a General Letter of indemnity on Tk. 300 non-judicial stamp is obtained from the drawee to the effect that if the proceeds against any Cheques/PO/Drafts is not received in due time, the liability will be adjusted from the drawee’s own source.

1.14 Loan Against EDF

To boost up the export sector, Bangladesh Bank has formed a fund which is known as Export Development Fund (EDF). The eligible customer may allow to get the fund through Commercial Bank as per prevailing norms of Bangladesh Bank. In case of meeting Sight L/C or Sight BTB L/C (for importing/ procuring export input) payment at the premature stage of export, EDF provides the fund in foreign currency.

Features/Norms:

• EDF liability has to be repaid within 06 months. In case of overdue, rate of interest will be charged @ commercial rate of interest.
• This facility is allowed to meet Sight L/C or Sight BTB L/C payment for importing export inputs when export payment will be due later.
• Liability is adjusted from the export proceeds within 06 months. However, in case of failure, the loan has to be adjusted by creating SOD (Export) facility.
• Pricing mode: Interest
• Primary security: Deemed export L/C, Export L/C documents/bills.
• All specific loans against EDF and each loan against EDF created under a revolving limit are demand loan by nature.

1.15 OD(Export):

OD (Export) stands for ‘Over Draft (Export)’. This facility is allowed for making import payments under BTB L/C in foreign currency against export L/C, where the export proceeds do not materialize before the due date of import payments. This facility may be also allowed for making payment of overdue accepted bills liability due to stock lot.

Features/Norms:

• It is a demand loan by nature.
• This is a forced liability.
• OD (Export) is allowed to meet import payments under BTB L/C obligations. Thus the amount equals the import obligations.
• Tenure depends on possible date of export proceeds realization or proceeds received from sales of export lot in local market/ foreign market.
• Liability is adjusted from the export proceeds. However, in case of failure, the exporter pays from their own sources.
• If a customer is allowed OD (export) facility, approved regular limit will be suspended and case to case approval from Head Office to be obtain for any facility till full adjustment of the forced loan liability.
• Pricing mode: Interest.
• Primary security: Export L/C documents/bills.

1.16 Lease Finance (LF)

This is a mode of term financing for acquisition of capital machinery and equipments or other assets such as consumer durables, vehicles, etc. whereby the Bank retains ownership and the customer is given the exclusive right to use the asset for an agreed period of time in return of rental payment. .

Features/Norms:

• It is a term loan in the form of financial lease.
• Lease is a contract between the Lessor (Bank) and the Lessee (Customer). The contract is called ‘Lease Agreement’, which guides the facility throughout the term.
• Lease deposit equivalent to 01 (one) or more rental are taken in advance from the lease.
• Ownership of the asset remains with the Lessor throughout the Lease term. However, the Lessee is responsible for maintenance, insurance and other obligations related to the asset.
• Usually, ownership is transferred to the customer (Lessee) at the end of Lease term (and after repayment of all dues) on payment of agreed amount of disposal value.
• The lease pays some special kind of fees for the Bank, those are: Supervision Cost, Risk Fund, and Transfer Fee.
• Liability is adjusted through deposit of Lease ‘Rentals’ periodically.
• Pricing mode: Interest.
• Primary security: Ownership of the asset.

1.17 Hire Purchase (HP)

This is another mode of term financing for acquisition of capital machinery and equipments (or other assets such as consumer durables and vehicles). This is participatory finance where customer provide equity at the agreed ratio for procurement of the assets. The customer is entitled to use the asset at his own risk & responsibility throughout the loan tenure.

Features/Norms:

• It is a term loan.
• A contract called ‘Hire Purchase Agreement’ guides the facility throughout the term.
• A down payment or margin/ equity from the customer is required.
• The customer is responsible for maintenance, insurance and other obligations related to the asset at his own cost.
• Liability is adjusted through deposit of Hire Purchase ‘Installments’ periodically.
• Pricing mode: Interest.
• Primary security: Hypothecation of the asset.

1.18 Term Loan

This is amode of term financing for acquisition of capital machinery and equipments or other assets such as consumer durables and vehicles or for specified define purpose. The customer is entitled to use the asset at his own risk & responsibility throughout the loan tenure

Features/Norms:

• It is a term loan.
• A down payment or margin from the customer is required.
• Liability is adjusted through deposit of Installments periodically.
• Pricing mode: Interest.
• Primary security: Hypothecation of the asset.

1.19 HBL(Com)

HBL(Com) stands for House Building Loan (Commercial). Term Loans allowed for purchase of commercial space or construction of house for commercial purpose fall under this type

Features/Norms:

• It is a term loan.
• HBL (Com) facility may be allowed for the following purposes:
  • a) Purchase of space for commercial purpose.
  • b) Construction of commercial building.
  • c) Construction of residential building for selling out to the public.
  • d) Purchase or renovation of commercial building.
• Usually disbursement is made at multiple phases.
• It is usually medium/long term financing.
• It is adjusted through deposit of periodical installments.
• Pricing mode: Interest.
• Primary security: Registered Mortgage with RIGPA of the underlying land & building.

1.20 Loan(General) or Loan (G)

This is mainly allowed to accommodate term financing, when the other term financing modes are not applicable. Loan (G) facility may be allowed as Medium & Long term facility. Sometimes customer has been allowed such types of facility for interest free block account, conversion of existing liabilities etc.

Features/Norms:

• It is a term loan.
• Loan (G) facility is available for miscellaneous purpose of the customer and the purpose of taking the loan and the source of repayment should be clearly identified before allowing this facility.
• It is adjusted through deposit of installments (single or multiple and equal or unequal) within the validity period.
• Pricing mode: Interest.
• Primary security: Charge on the underlying asset   

1.21 Syndication Loan & Structured Finance

 Syndication is a joint financing by more than one banks/financial institutions to the same clients against a common security. This is done basically to spread the risk. It also provides a scope for an independent evaluation of risk and focused monitoring by the agent / lead bank. This Loans should be analyzed the risk and return in the same manner as directly sourced loan.

In Syndication financing, banks also enter into an agreement that one of the lenders may act as Lead Bank. In such case, lead bank has to co-ordinate the activities at various stages of handling the proposal i.e. appraisal, sanction, documentation, sharing of security, disbursement, inspection, follow-up, recovery, distribution of installments. / interest etc. Lead Bank status on status on security/collateral arrangement should be properly detailed in the proposal. It may also call meeting on syndication members, whenever necessary to finalize any decision.

Generally, Mercantile Bank Limited may act as Lead Arranger, Participant, Agent, Bookrunner and Security Trustee to finance/ to assist finance under Syndication favouring a single person/counterparty. The Bank participates in Finance under Syndication for the following situations:

• Risk Diversification
• Capital shortfall etc.

Parties to a Syndicated Loan:

The syndication process is initiated by the borrower, who appoints a lender through the grant of a mandate to act as the Arranger (also often called a Mandated Lead Arranger) on the deal. There may be more than one Arranger in Syndication Process.

The Arranger is responsible for advising the borrower as to the type of facilities it requires and then negotiating the broad terms of those facilities. By the very nature of this appointment, it is likely that the Arranger will be a lender with which the borrower already has an established relationship, although it does not have to be. At the same time the Arranger is negotiating the terms of the proposed facility, one of the Arrangers appointed by the Borrower to act as Bookrunner also starts to put together a syndicate of banks to provide that facility.

Syndication is often done in stages, with an initial group of lenders agreeing to provide a share of the facility. This group of lenders is often referred to as Co-Arranger, although other titles may be used. The Co-Arrangers then find more lenders to participate in the facility, who agree to take a share of the Co-Arrangers' commitment.

To facilitate the process of administering the loan on a daily basis, one bank from the syndicate is appointed as Agent. The Agent who is appointed acts as the agent of the lenders not of the borrower and has a number of important functions:
 

• Point of Contact: (maintaining contact with the borrower and representing the views of the syndicate)
• Monitor: (monitoring the compliance of the borrower with certain terms of the facility)
• Postman and Record-keeper: (it is the agent to whom the borrower is usually required to give notices)
• Paying Agent: (the borrower makes all payments of interest and repayments of principal and any other payments required under the Loan Agreement to the Agent. The Agent passes these monies back to the banks to whom they are due. Similarly the banks advance funds to the borrower through the Agent).
   

The terms of a syndicated loan agreement empower the Agent to undertake the roles described above in return for a fee. Any decisions of a material nature (for example, the granting of a waiver) must usually be taken by a majority, if not by the whole syndicate. Whilst the Agent carries the standard duties and responsibilities of any agent under the Law, the facility agreement will contain a number of exculpatory provisions to limit the scope of the Agent's relationship with the syndicate lenders and with the borrower.

If the syndicated loan is to be secured, a lender from the syndicate is usually appointed to act as Security Trustee to hold the security on trust for the benefit of all the lenders. The duties imposed upon the Security Trustee are typically more extensive than those of an agent.

In large syndicates, it is sometimes decided that some decision making power should be delegated to the majority from time to time (often referred to as the 'majority lenders' or 'instructing group'). This group usually consists of members of the syndicate at the relevant time that holds a specified percentage of the total commitments under the facility. By delegating some of the decision-making, the mechanics of the loan are able to work more effectively than if each and every member of the syndicate had to be consulted and subsequently reach unanimous agreement on every request from the borrower

Features/Norms:

• More than one bank/financial institution provide this loan under syndication agreement to a same business entity against common security
• Syndication loan may be non-funded, revolving funded limit and long term loan in nature.
• Primary security: Pari passu security sharing agreement on the fixed and floating assets (present and future) among the lenders.