1.

1 Introduction

Financial Performance Analysis is a method used by interested parties such as investors,

creditors, and management to evaluate the past, current, and projected conditions and
performance of the firm or financial organization. Ratio analysis is the most common form
of financial analysis. It provides relative measures of the firm's conditions and
performance. Horizontal Analysis, also called trend analysis, is also popular forms that is
used for analyzing the financial performance. Horizontal analysis is used to evaluate the
trend in the accounts over the years. Financial Statement discloses the internal structure of
the firm. It indicates the existing relationship between sales and each income statement
account. Regression analysis is also a statistical tool that is considered as another measure
of financial performance analysis. It is used to find out the relationship among variables
relate to financial data.

1.2 Origin of the Report

This report, Financial Performance Analysis of Mercantile Bank Limited, has been
prepared to fulfill the partial requirement of BBA program as a mean of Internship
Program. While preparing this report, I had a great opportunity to have sound knowledge
of all the banking activities of Mercantile Bank Ltd

The prime reason of this study is to become familiar with the realistic business world and
to attain practical knowledge about the banking and corporate world. We all know that
there is no alternative of practical knowledge, which is more beneficial than theoretical
aspects.

1.3 Objectives of the Study

The objectives of the report are to provide a brief overview about Mercantile and to analyze
the financial performance of Mercantile Bank Limited in the last five years (2011-2015).

1
1.4 Methodology of the Study

We can use several tools to evaluate a company, but I will use one of the most valuable
tool that is Financial Ratios. Ratios are an analysts microscope; they allow us get a
better view of the firms financial health than just looking at the raw financial statements.
Ratios are useful both to internal and external analysts of the firm. We also use Correlation
& Regression analysis and Horizontal analysis for getting a better understanding of the
Bank.

1.4.1 Primary Sources of Data

a. Information collected through informal conversation with the banks personnel.

b. Direct observation from the job.

c. Practical work experiences at different desk.

1.4.2 Secondary Sources of Data

a. Annual report of Mercantile Bank Ltd.

b. Prospectus of Mercantile Bank Ltd.

c. Different papers of Mercantile Bank Ltd.

d. Various types of statements.

e. Journals, Reports, Publications, newspapers and articles that carried information of

Mercantile Bank Ltd.

f. Different publications of Bangladesh Bank.

1.5 Scope of the Report

This report draws an outline that shows the details information about Mercantile Bank and
the financial performance of the bank over the years 2011, 2012, 2013, 2014, and 2015.
The information used in this report consists of the observation, annual report of Mercantile

2
bank and the job experience acquired throughout the internship period. I think the report
will helpful to know about the performance through the years of the banks various
departments and as a whole. But the report is only concentrating on the financial performance
of Mercantile Bank. This report has been prepared according to extensive analysis of financial
statements, annual reports of the bank and review of literatures.

1.6 Limitations of the study

Though I have given utmost effort to prepare this paper but there are some limitations of
the study. They are as follows-

1. Only 3 months time is not enough to complete such a study in a lucid manner.
2. As preparing a report involves with research as I am not that experience so there
are some lacking while collecting data.
3. There is also cost constraints, because I am a student; it is very difficult for me to
spend much money.
4. In many cases, up to date information is not published.
5. Due to lack of practical experience, some errors might be occurred during the study.

3
2.1 About Mercantile Bank Limited

Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
services with a view to improving the socio-economic development of the country. The
philosophy of Mercantile Bank Ltd is not to carry coal to the new castle'. The main target
is to make credits available to the poor people and their activities are aimed at
comprehensive growth where people from all economic strata will enjoy the benefits of
better living standard, dignity of labor and self-worth.

2.2 Mercantile Bank at a Glance

Points Description

Incorporated May 20, 1999, As Public Limited Company

Commencement of June 2,1999 (With an authorized capital of TK. 800 million,
operation divided into 8 million ordinary shares each Tk. 100)
Vision Would make finest corporate citizen
Mission Will become most caring, focused for equitable growth based
on diversified deployment of resources, and nevertheless
would remain healthy and gainfully profitable Bank
Head office 61, DilKusha Commercial Area, Dhaka-1000
Subsidiaries 1. Mercantile Bank Securities Ltd. (MBSL)
2. Mercantile Exchange House (UK) Ltd.
Representing itself as Banglar Bank
Products Scheme 1. Deposit Scheme (Monthly Savings Scheme, Family
Maintenance Deposit, Double Benefit Deposit Scheme
Etc.)
2. Credit Scheme (Consumer Credit Scheme, Small
Loan Scheme, Lease Finance, SME Loan Scheme
Etc.)

4
 Special Features Green Banking, Locker Service (13 Branches provide that)
Branches 109 (One Hundred Nine) branches including 5 (Five)
SME/Krishi branches as on December 31, 2015.
Total Assets BDT (in Million) 182,800.17
Number of Employees 2,117
Chairman Al-Haj Akram Hossain (Humayun)
Listed in Dhaka February 16, 2004
Stock Exchange
Listed in Chittagong February 26, 2004
Stock Exchange
Website www.mblbd.com
Swift MBLBBDH

2.3 Mercantile Banks Functional Departments

The Mercantile Bank Limited has the following departments, which includes the whole
operations of the bank. The departments are listed below with their major section in the
following table.
Departments in Mercantile Bank Limited Major Department Name
Sections
Branches General Banking Department
Credit Department
Foreign Exchange Department
Corporate Office Human Resources Department
International Division
Treasury
IT (Information Technology)
Card Division

5
2.4 Operational network organogram

Senior Vice
President Head of
BranchHead of
Vice President
BranPresident Head
Manager Operation
of Branch

Assistant Vice Assistant Vice Assistant Vice

Foreign Exchange Credit Department General Banking

First AVP Principle Officer Principle Officer

Principle Officer Senior Executive Senior Executive

Officer Officer

Senior Executive Officer Executive Officer Executive Officer

Executive Officer Officer Officer

Assistant Officer Trainee Assistant

Officer

This table shows the upward growth of the organization year by year. The strong
management and the interest of directors made the growth of the business smooth. Hence
the bank has positioned itself a comparatively good position among the other local bank of
the country.

6
The main function of the bank is to mobilize fund from the surplus unit to deposit unit and
hence the two-main activity of the bank is to collect deposit and disburse loan and
advances. When we talk about the performance of bank we must observe the performance
on these two activities and the growth and balance of these two activities confirm that how
better the bank is performing. The following graphs shows in a simple way the consistent
performance of MBL.

2.5 Structure of Banking Services

7
2.6 Theoretical Overview

Financial performance analysis:

Financial performance analysis of a company is very important to get an overall view about
an organization. It generally consists of interpretation of balance sheet and interpretation
of income statement. By using these two sources, one can perform the ratio analysis in the
form of trend and comparative analysis, which are the major tools for analyzing the
financial performance of a bank.

Balance sheet:

In financial accounting, a balance sheet or statement of financial position is a summary of

the financial balances of a sole proprietorship, a business partnership or a company. Assets,
liabilities and ownership equity are listed as of a specific date, such as the end of its
financial year. A balance sheet is often described as a "snapshot of a company's financial
condition". Of the four basic financial statements, the balance sheet is the only statement,
which applies to a single point in time of a business' calendar year. A standard company
balance sheet has three parts: assets, liabilities and ownership equity.

Income statement:

Income statement also referred as profit and loss statement, earnings statement, operating
statement or statement of operations is a company's financial statement that indicates how
the revenue is transformed into the net income. It displays the revenues recognized for a
specific period, and the cost and expenses charged against these revenues, including write-
offs (e.g., depreciation and amortization of various assets) and taxes. The purpose of the

8
income statement is to show managers and investors whether the company made or lost
money during the period being reported.

2.6.1 Ratio Analysis

Ratio analysis involves methods of calculating and interpreting financial ratios to assess
the banks performance and status. The basic inputs to ratio analysis are the banks income
statement and balance sheet.

I) ADVANTAGES OF RATIO ANALYSIS:

a. Forecasting

b. Managerial control

c. Facilitates communication

d. Measuring efficiency

e. Facilitating investment decisions

f. Useful in measuring financial solvency

g. Inter firm comparison

ii) LIMITATIONS OF RATIO ANALYSIS:

a. Practical knowledge

b. Ratios are means

c. Inter-relationship

d. Non-availability of standards or norms

e. Accuracy of financial information

9
 f. Consistency in preparation of financial statements

g. Detachment from financial statement

h. Time lag

i. Change in price level

iii) Cautions about Ratio Analysis:

Before discussing specific ratios, we should consider the following cautions:

a. A single ratio does not generally provide sufficient information from which to judge
the overall performance of the firm.

b. Be sure that the dates of the financial statements being compared are the same.

c. It is preferable to use audited financial statements for ratio analysis.

d. Be certain that the data being compared have all been developed in the same way.

Groups of Financial Ratios

Financial ratios can be divided into four basic groups or categories:

a. Liquidity ratios

b. Activity ratios

c. Debt ratios

d. Profitability ratios

Liquidity, activity, and debt ratios primarily measure risk, profitability ratios measure
return. In the near term, the important categories are liquidity, activity, and profitability,
because these provide the information that is critical to the short-run operation of the firm.

10
2.6.1.a. Analyzing Liquidity

The liquidity of a business firm is measured by its ability to satisfy its short-term
obligations as they come due. Liquidity refers to the solvency of the firms overall financial
position.

Current Ratio:

One of the most general and frequently used of these liquidity ratios is the current ratio.
Organizations use current ratio to measure the firms ability to meet short-term obligations.
It shows the banks ability to cover its current liabilities with its current assets.

Current Ratio = Current Asset/Current Liabilities

2.6.1.b. Analyzing Activity:

Activity ratios measure the speed with which accounts are converted into sale or cash. With
regard to current accounts measures of liquidity are generally, inadequate because
differences in the composition of a firms current accounts can significantly affects its true
liquidity.

A number of ratios are available for measuring the activity of the important current
accounts, which includes inventory, accounts receivable, and account payable. The activity
(efficiency of utilization) of total assets can also be assessed.

i) Total Asset Turnover:

The total asset turnover indicates the efficiency with which the firm is able to use all its
assets to generate sales.

11
 Total Asset Turnover = Sales/ Total Asset

ii) Investment to Deposit Ratio:

Investment to Deposit Ratio shows the operating efficiency of a particular Bank in

promoting its investment product by measuring the percentage of the total deposit
disbursed by the Bank as loan and advance or as investment. The ratio is calculated as
follows:

Investment to Deposit Ratio = Total Investments / Total Deposits

A high ratio implies either strong sales or ineffective buying. High inventory levels are
unhealthy because they represent an investment with a rate of return of zero. It also opens
the company up to trouble should prices begin to fall.

2.6.1.c. Analyzing Debt

The debt position indicates the amount of other peoples money being used in attempting
to generate profits. In general, the more debt a firm uses in relation to its total assets, the
greater its financial leverage, a term use to describe the magnification of risk and return
introduced through the use of fixed-cost financing such as debt and preferred stock.

i) Debt Ratio:

The debt ratio measures the proportion of total assets provided by the firms creditors.

Debt Ratio = Total Liabilities / Total Assets

12
2.6.1.d. Analyzing Profitability

These measures evaluate the banks earnings with respect to a given level of sales, a certain
level of assets, the owners investment, or share value. Without profits, a firm could not
attract outside capital. Moreover, present owners and creditors would become concerned
about the companys future and attempt to recover their funds. Owners, creditors, and
management pay close attention to boosting profits due to the great importance placed on
earnings in the marketplace.

i) Net profit Margin:

The net profit margin measures the percentage of each sales dollar remaining after all
expenses, including taxes, have deducted. The higher the net profit margin is better. The
net profit margin is calculated as follows:

Net profit Margin = Net profit after Taxes / Sales

ii) Return on Asset (ROA):

Return on asset (ROA), which is often called the firms return on total assets, measures the
overall effectiveness of management in generating profits with its available assets. The
higher ratio is better.

Return on Asset (ROA) = Net profit after Taxes / Total Assets

iii) Return on Equity (ROE):

The Return on Equity (ROE) measures the return earned on the owners investment.
Generally, the higher this return, the better off the owners.

13
 Return on Equity (ROE) = Net profit after Taxes / Stockholders Equity

iv) Earnings Per Share (EPS):

EPS represents the dollar amount earned behalf of each outstanding share of common
stock.

EPS= Net income/no. of common share outstanding

2.6.2 Horizontal Analysis (Trend Analysis)

The trend signifies a tendency and as such the review and appraisal of tendency in
accounting variables are nothing but the trend analysis. Trend analysis is carried out by
calculating trend ratio. Trend analysis is significant for forecasting and budgeting. Trend
analysis discloses the change in financial and the operating data between specific periods.

2.8.3 Correlation & Regression Analysis

Correlation is a measure used to describe the relationship between two variables. It shows
the impact of changing one variables falls on others. Regression is a statistical measure
used in finance, investing and other disciplines that attempts to determine the strength of
the relationship between one dependent variable (usually denoted by Y) and a series of
other changing variables (known as independent variables).

Below is the formula for a simple linear regression. The "y" is the value we are trying to
forecast, the "b" is the slope of the regression, the "x" is the value of our independent value,
and the "a" represents the y-intercept. The regression equation simply describes the
relationship between the dependent variable (y) and the independent variable (x).

Regression Equation: Y=a+bx

14
Introduction

Financial performance analysis is the process of identifying the financial strengths and
weaknesses of the financial Organization by properly establishing the relationship between
the items of balance sheet and profit and loss account, and evaluating the present
performance compared to recent years. It also helps in short-term and long-term forecasting
and growth can be identified with the help of financial performance analysis.

3.1 Ratio Analysis

3.1.1 Liquidity Ratios

Current Ratio:

The current ratio, one of the most commonly cited financial ratios, measures the
firms ability to meet its short-term obligations. The higher the current ratio, the
better the liquidity position of the firm. It is expressed as:

Current Ratio = Current Asset/Current Liabilities

(BDT in Million)
Particulars 2011 2012 2013 2014 2015

Current 18,125,930,336 13,648,834,658 11,324,227,372 12,678,208,050 7,611,442,956

Asset
Current 30,452,897,558 21,844,985,397 18,853,306,986 19,865,532,250 12,822,034,650
Liabilities
Current 0.60 0.63 0.60 0.64 0.59
Ratio

15
Graphical Presentation:

CURRENT RATIO
0.65
0.64 0.64
0.63 0.63
0.62
0.61
0.6 0.6 0.6
0.59 0.59
0.58
0.57
0.56
2011 2012 2013 2014 2015

Interpretation:

The graph shows an upward and downward trend in MBLs current ratio. This indicates
that MBL has increased its liquidity position in 2012 and 2014 than past years respectively
2011 and 2013 and fall again in year 2015 that increased the chance of being technically
insolvent.

3.1.2 Activity Ratios

A) Total Asset Turnover Ratio

The total asset turnover indicates the efficiency with which the firm is able to use all
its assets to generate revenue.

16
 Total Asset Turnover= Operating Income/Total Asset

(BDT in Million)
Particulars 2011 2012 2013 2014 2015
Operating Income 3,501.68 3,350.78 4,255.70 4,410.57 3,935.75
Total Asset 116,553.01 152,658.47 144,841.87 168,474.13 182,800.17
Total Asset .030 .022 .029 .026 .21
Turnover

Graphical Presentation:

TOTAL ASSET TURNOVER

0.029

0.035
0.03

0.026
0.03
0.022

0.021
0.025

0.02

0.015

0.01

0.005

0
2011 2012 2013 2014 2015

Interpretation:

This ratio measures the efficiency of the bank in using its total assets to generate operating
income. The graph shows both upward trend and downward trend in total asset turn over
years. Its total asset turnover is lowest in 2015, but it is highest in 2011. This indicates that
MBL is becoming less efficient in using its assets to generate operating income.

17
 B) Investment to Deposit Ratio

Investment to Deposit Ratio shows the operating efficiency of a particular Bank in

promoting its investment product by measuring the percentage of the total deposit
disbursed by the Bank as loan and advance or as investment.

Investment to Deposit Ratio=Total investment/Total Deposit

(BDT in Million)
Particulars 2011 2012 2013 2014 2015
Total Investment 24,645.38 41,314.19 30,090.60 32,184.09 33,829.46
Total Deposit 102,262.02 132,093.64 124,566.97 140,475.84 154,869.52
Investment to .24 .31 .24 .23 .22
Deposit Ratio

Graphical Presentation:

INVESTMENT TO DEPOSIT RATIO

0.35 0.31
0.3
0.24 0.24 0.23
0.25 0.22

0.2

0.15

0.1

0.05

0
2011 2012 2013 2014 2015

18
Interpretation:

In 2012, investment to deposit ratio is highest. That is, 31% of total deposits are in the form
of investment. However, this ratio drastically falls from 31% to 22%, which is not good
sign for the company. This indicates that MBL is becoming less efficient in converting
their deposit into investment.

3.1.3 Debt Ratios

Debt Ratio

The debt ratio measures the proportion of total assets financed by the firms
creditors.

Debt Ratio= Total Liabilities/Total Assets

Particul 2011 2012 2013 2014 2015

ars
Total 168,213,309, 155,538,660, 132,469,941, 143,163,700, 106,924,395,
651 063 047 929 401
Liabiliti
es
Total 183,781,200, 169,100,738, 145,102,377, 154,147,704, 116,655,283,
617 129 756 702 665
Asset
Debt 0.92 0.92 0.91 0.93 0.92
Ratio

19
Graphical Presentation:

Debt Ratio
0.93
0.93

0.925
0.92 0.92 0.92
0.92

0.915
0.91
0.91

0.905

0.9
2011 2012 2013 2014 2015

Interpretation:

The graph shows that debt ratio MBL is fluctuating. The MBL has increased its debt ratio
in 2014 to 93% from 91% in 2013 and again it decreased to 92% in the year thereby it has
reduced its financial leverage and financial risk in 2015 than 2014.

3.1.4 Profitability Ratio

A) Net Profit Margin

The net profit margin measures the percentage of each sales dollar remaining after all
expenses, including taxes, have deducted. The higher the firms net profit margin is better.
The net profit margin is a commonly cited measure of the companys success with respect
to earnings on sales.

20
 Net profit Margin = Net profit after Taxes /Operating Income

(BDT in Million)
Particulars 2011 2012 2013 2014 2015
Net Profit after 1,734.18 1,381.45 1,978.70 1,188.51 1,393.28
Tax
Operating Income 3,501.68 3,350.78 4,255.70 4,410.57 3,935.75
Net Profit Margin 49.52% 41.27% 46.5% 26.95% 35.4%

Graphical Presentation:

Net Profit Margin

60.00%
49.52%
50.00% 46.50%
41.27%
40.00% 35.40%

26.95%
30.00%

20.00%

10.00%

0.00%
2011 2012 2013 2014 2015

Interpretation:

There is an upward and downward trend in MBLs net profit margin throughout years 2011
to 2015 but if we compared it in year 2015 with 2011 profit decrease by 14.12% as shown
in graph. This indicates that MBL has not succeeded at all to increase the portion of total
operating income that remains after deducting all the costs and expenditure.

21
 B) Return on Asset (ROA)

The return on asset (ROA), which is often called the firms return on total assets,
measures the overall effectiveness of management in generating profits with its
available assets. The higher the ratio is better.

Return on Asset (ROA) =Net Profit after tax/Total Asset

Particulars 2011 2012 2013 2014 2015

Return on Asset 1.70% 1.03% 1.33% 0.76% 0.79%

Graphical Presentation:

RETURN ON ASSET
1.70%
1.80%
1.60%
1.33%
1.40%
1.20% 1.03%
1.00% 0.79%
0.76%
0.80%
0.60%
0.40%
0.20%
0.00%
2011 2012 2013 2014 2015

Interpretation:

Return on assets is an indicator of how profitable a company is. The banks return on asset
decreasing from 1.70 to 0.79 in the preceding 5 years. It can be said that MBLs earning
capacity is decreasing year by year. This is not good sign for the Bank

22
 C) Return on Equity (ROE)

The return on equity measures the return earned on the owners investment. High
the return on equity is the better for the owner.

Return on Equity=Net Profit after Tax/ Shareholders equity

Particulars 2011 2012 2013 2014 2015

Return on Equity 20.59% 13.42% 16.84% 9.11% 9.60%

Graphical Presentation:

Return On Equity
25.00%

20.00% 20.59%

16.84%
15.00%
13.42%

10.00% 9.60%
9.11%

5.00%

0.00%
2011 2012 2013 2014 2015

Interpretation:

The return on equity ratio was decreasing from 2011 to 2015. This has been decreased from
20.59% to 9.60%, which is not desirable. Therefore, the management should work hard to

23
increase the return associated with equity. Though return on equity has slightly increased
in 2013 from preceding year, still it is significantly deviated from that of in 2011.

D) Earnings Per Share (EPS)

The firms Earning per share (EPS) are generally of interest to present or
prospective stockholders and management. The Earning per share represent the
number of dollars earned on behalf of each outstanding share of common stock.
The earnings per share is calculated as follows

Earnings Per Share =Earnings available for common stock holder/No. of

shares of common stock outstanding

(BDT)
Particulars 2011 2012 2013 2014 2015
Earnings Per Share 3.49 2.26 2.68 1.61 1.88

Graphical Presentation:

Earnings Per Share

4

3.5
3.49
3

2.5 2.68
2 2.26
1.88
1.5
1.61
1

0.5

0
2011 2012 2013 2014 2015

24
Interpretation:

The graph shows that, EPS is highest in 2011 and there is a downward trend in EPS from
year 2011 to 2012. However, MBL has managed to increase its EPS in 2013 as shown by
the upward trend in EPS. Again, they failed to keep the upward trend in the next year. But
in the year 2015 it is slightly improved.

3.2 Horizontal Analysis (Trend Analysis)

(BDT in Million)

Particulars 2011 2012 2013 2014 2015

Deposits 102,262.02 132,093.64 124,566.97 140,475.84 154,869.52

Loans and Advances 79,999.80 93,610.87 97,688.50 117,060.03 126,338.83

Investment 24,645.38 41,314.19 30,090.60 32,184.09 33,829.46

Remittance 7,150.00 15,792.80 12,434.70 18,208.60 19,003.20

Profit after Tax 1,734.18 1,381.45 1,978.70 1,188.51 1,393.28

3.2.1 Graphical Presentation

DEPOSITS
154869.52
140475.84
132093.64 124566.97
160000
140000 102262.02
120000
100000
80000
60000
40000
20000
0
2011 2012 2013 2014 2015

25
As the graph shows upward trends as the year progress that indicates amount of deposits
increases throughout the because of the number of customer increase.

Loan an Advances
140000 126338.83
117060.03
120000
93610.87 97688.5
100000
79999.8
80000
60000
40000
20000
0
2011 2012 2013 2014 2015

The amount of loan and advances increases BDT 20000 million per year, it is the effect of
growing economy of our country. Because of the growing trends in the economy to grab
more profit in the period and make proper use of fund in the collected through the deposit
scheme, thats why the loan and advances increases throughout the years 2011-2015.

INVESTMENT
45000 41314.19
40000
33829.46
35000 32184.09
30090.6
30000 24645.38
25000
20000
15000
10000
5000
0
2011 2012 2013 2014 2015

26
In the year 2012 the investment increased a lot after that it falls in the year 2013, from then
it starts to grow slowly because many buyers change their intension of investing in this
country. They moved to another country.

Remittance
19003.2
20000 18208.6
18000 15792.8
16000
14000 12434.7
12000
10000
7150
8000
6000
4000
2000
0
2010 2011 2012 2013 2014 2015 2016

As the bank strengthen the money flow chain by making alliance with the international
organization who transfer money from one country to another country. This graph also
shows declining trends in the year 2013 than year 2012.

Profit after Tax

2500
1978.7
2000 1734.18

1500 1381.45 1393.28

1188.51

1000

500

0
2011 2012 2013 2014 2015

Profit of the bank shows that it was reducing from the year 2012 compared to 2011, and in
the year 2013 profit after tax is in the best position within the five years time period and
in the year 2015 it is follow the 2012s trend of decreasing., which occurs due to many

27
reasons like investment is not increasing as it should, government charging more taxes and
many foreign investors shift their investment from this country.

3.3 Correlation & Regression Analysis

Years Profit after Tax Loans and Advances Investment Interest Income
2008 615.88 43,419.36 6,264.71 1,558.00
2009 807.52 48,295.55 9,664.72 1,985.00
2010 1,425.34 66,377.70 10,937.20 2,493.00
2011 1,734.18 79,999.80 24,645.38 2,697.00
2012 1,381.45 93,610.87 41,314.19 3,650.00
2013 1,978.70 97,688.50 30,090.60 4,794.61
2014 1,188.51 117,060.03 32,184.09 5,372.82
2015 1,393.28 126,338.83 33,829.46 5,158.56

A) Correlation Analysis:

Net Income Loans & Investment Interest income

after Tax Advances
Net Income after 1 0.5456 0.5737 0.5209
Tax
Loans & 0.5456 1 0.8672 0.9626
Advances
Investment 0.5737 0.8672 1 0.8112
Interest income 0.5209 0.9626 0.8112 1

28
 In this analysis, the correlation coefficient between Net income after tax and investment is
highest which is 0.5737 that represent one percent changes in the investment .5737 percent
will be in the profit. So, the bank should concentrate how they can maximize the investment
that will bring more profit than the factors like loans and advances, interest income.

B) Regression Analysis:

Regression Statistics
Multiple R 0.582144508
R Square 0.338892229
Adjusted R -0.1569386
Square
Standard 481.238922
Error
Observations 8

ANOVA
df SS MS F Significance
F
Regression 3 474865.7311 158288.6 0.68348 0.6070765
Residual 4 926363.6002 231590.9
Total 7 1401229.331

Coefficients Standard t Stat P-value Lower 95% Upper Lower Upper

Error 95% 95.0% 95.0%
Intercept 759.6262157 642.5545626 1.182197 0.3026 -1024.391 2543.6437 - 2543.64369
1024.3913
L&A 0.001729319 0.026464628 0.065345 0.95104 -0.071748 0.0752069 - 0.07520691
0.0717483
Investment 0.014153449 0.028443235 0.497603 0.64488 -0.064818 0.0931245 - 0.09312453
0.0648176
Interest 0.022027671 0.455961581 0.04831 0.96378 -1.243925 1.28798 - 1.28797997
income 1.2439246

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In this analysis, R Square is 0.33889229, means it is the 0.33889229 of the total profit
will be generate due to these three factors like loan and advances, investment and Interest
income.

As the significance level in this model is more than 0.05 so the model is insignificant.

The P-value indicates that the chances of finding error in this hypothesis test. As we know
the if the P-value is more than 5% that the hypothesis test is not true or insignificance.

Coefficient indicates the changes in one variables how much influence have on the net
income. If interest income changes by 1 unit, 0.022027671 will be in the net profit.

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4.1 Major Findings

Considering all financial ratios, I have discussed, the current asset is not higher than current
liability which is not good for the bank and it is fluctuating every year. The trends of
operating income show it is fluctuating, this indicates that MBL is becoming less efficient
in using its assets to generate operating income. Rate of investment considering the deposit
is in a position which good.

Net profit margin of MBL indicates that the bank has not succeeded at all to increase the
portion of total operating income that remains after deducting all the costs and expenditure.
Based on the ROE it can be said that MBLs earning capacity is decreasing year by year.
This is not good sign for the Bank the Earning per Share of the MBL has decreased over
the last five years, so it is inefficient in its performance.

The trend analysis shows, the amount of deposits increases throughout the because of the
number of customer increase, which means people earning more money than before. The
amount of loan and advances increases BDT 20000 million per year, it is the effect of growing
economy of our country. Because of the growing trends in the economy bank form a strategy
to grab more profit in the period and make proper use of fund in the collected through the
deposit scheme. The profit after Tax is not fulfilling the MBLs expectation, which occurs due
to many reasons like investment is decreasing, inefficient management, government
charging more taxes and many foreign investors shift their investment from this country.

The correlation coefficient between Net income after tax and investment is highest. So, the
bank should concentrate how they can maximize the investment that will bring more profit
than the factors like loans and advances, interest income.

As the significance level in this regression model is more than 0.05 so the model is
insignificant.

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4.2 Some Recommendations for MBL Bank Limited:

The findings from the analysis require the following recommendations that may help the
Mercantile Bank Limited to improve its performance and to be a key member in the
banking sector of Bangladesh.

1. Though current ratio of MBL is fluctuating year by year and below satisfactory,
it is not in satisfactory position. To be in standard position, MBL should increase
at huge amount its current assets relative to its current liability. By redesigning
the deposit scheme through offering attractive interest rate and innovative
marketing campaign MBL can increase current asset.

2. MBL is not efficient enough in using its assets to generate operating income.
MBL should use its assets more efficiently by allocating and utilizing properly
to generate more operating income.

3. Debt Ratio of the MBL is fluctuating. MBL should further reduce its debt ratio
to bring its financial risk to a minimum level. Through seasoned offering of
equity MBL can restructure the capital structure and reduce the level of debt.

4. The MBL should increase their investment to deposit ratio to maximize their
operating income and owners equity.

5. MBL should try to increase net profit after tax it by utilizing its assets more
efficiently to stop the decreasing trend in the ROA and outperform the past
performance. MBL can generate more profit by discounting bill and increasing
remittance flow by offering mobile financing.

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4.3 Conclusion:

In developing a countrys economic condition, Bank plays vital role. And commercial
banks are great monetary institutions, important to the general welfare of the economy
more than any other financial institution The Mercantile Bank is one of the leading banks
in our country that also plays a vital role. In developing economic condition, mercantile
bank has the huge contribution. From the practical point of view, I can declare that I have
really enjoyed my internship at this bank from the very first day. Every effort has been
given to prepare the report on Financial Performance Evaluation of MBL. The evaluation
of financial performance shows that there is a fluctuating and mostly decreasing trend in
liquidity position, total asset turnover, net profit and price earnings ratio. Mercantile Bank
Limited always tried its level best to perform financially well. In spite of trying to do well
in some aspects Mercantile Bank Limited faced some financial problems from time to time.
Some of the problems were- excessive bad loans, shortage of loans and advances, scarcity
of cash in hands due to vault limit etc. These problems arouse time to time due to economic
slowdown, interest rate fluctuation, emerging capital market, inflation in the money market
and so on. Fighting with all these problems and competing with other banks every moment
the bank is trying to do better to best. If this thing continues it effort and formulate some
innovative steps, we hope that Mercantile Bank Limited will develop even more in the
future.

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