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Vision, Mission and Objectives I

Core Values and New Technology

Financial Summary

Value Added Statement

Economic Value Added Statement

Market Value Added Statement

MBL Timeline

Message from the Chairman

Report of Managing Director and CEO

Sponsors of the Bank

Board of Directors 1

Corporate Structure 18

Management Team 19

Head Office and Branch Network 20

CEO's Report on Risk Management

Report on Basel ll

Report on Corporate Social Responsibility 27

Report on Corporate Governance 28

Compliance Report on SEC Notification 30

Notice of the 7rh Annual General lvleeting 34

Directors' Report 36

MBL Events 58

Auditors'Report 60

Financial Statements 64

Notes to the Financial Statements tt

 a
would make finest corporate citizen

a
a
<r

will become most caring,

focused for equitable
groMh based on diversified
deployment of resources, and
nevertheless would remain
healthy and gainfully
profitable Bank.

Objectives
t
Strategic objectives
. to achieve positive Economic Value Added
t
(EVA) each year.
. to be market leader in product innovation.
. to be one ofthe top three Financial I
lnstitutions in Bangladesh in terms of
t
cost efficiency.
. to be one of the top five Financial
Institutaons an Bangladesh in terms of
market share in all significant market
segments we serve. i

Financial objectives
. to achieve a return on shareholders' equity
of 20lo or more, on average.

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 Core values
For the customers
providing with caring services by being
innovative in the development of new
banking products and services.

For the shareholders

maximizing wealth of the Bank.

For the employees

respecting worth and dignity of individual
employees devoting their energies for the
progress of the Bank.

For the community

strengthening the corporate values and
takang environment and social risks and
reward into account.

adopting the state-otthe art technology

in banking operations.

New technology

\ \
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3
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 (BDT in m llion)
L 1S99 2000 2001 2002 2003 2004 2005
d
lncome Statement
lnterest lncome 86.18 490.85 964.59 1,281.19 1,588.67 2,120.82 2,720.38
lnterest Expenses 62.47 364.95 700.99 923.11 1,115.82 1,509.00 1,987.16

a Net lnterest lncome

Non-lnteresl lncome
23.71
28.65
125.90
178.40
263.60
304.31
358.08
311.11
472.85
401.05
611.82
596.85
733.22
752.13
G Non-lnteresl Expenses 32.21 112.17 163.75 207.95 298.58 386.91 518.12

a Net Non-lnterest lncome (3.56) 66.23 140.56 103.16 102.47 209.94 2U.01
Profit before Provision and Tax 20.15 192.13 404.16 461.24 575.32 821.76 967.23
(n Profit after Provision before Tax 11.47 161.77 374.96 429.04 427.32 554.26 703.33
Profit after Tax 6.88 97.06 214.96 256.54 215.91 3'12.58 386.83

tr Balance Sheet
Authorized Capital 800.00 800.00 't,200.00 1,200.00 1,200.00 1,200.00 1,200.00
Paid-up Capital 245.00 245.00 276.85 319.77 639.53 799.41 999.27
Total Capital 261.06 389.96 596.44 684.56 1,235.23 1,617.81 2,045.85
Deposits 3,104.63 8,896.20 12,234.70 15,150.42 16,285.19 22,385.19 25,727.43
Loans and Advances 871.46 3,912.97 6,707.42 8,896.19 10,775.95 17,669.29 21,857.05
lnvestments 70.18 450.32 882.47 1,382.29 2,107.26 3,108.51 3,517.68
Fixed Assets 17.97 51.39 67.76 69.55 81.50 103.54 366.80
Total Assets 3,411.45 9,364.50 13,085.86 16,383.17 18,324.73 24,098.09 28,890.48

Foreign Exchange Business

lmporl 2,096.20 9,219.50 12,268.00 15,112.50 20,380.80 28,325.20 33,271.90
Export 1,011.00 6,554.40 10,457.50 1',t,377 .30 15,250.60 17,411.00 24,108.57
Remittance 42.60 368.80 308.40 496.30 474.00 671.30 679.10

BIS Capital Measures

Total Risk Weighled Assets 905.50 3,638.30 6,170.50 8,437.55 11,788.09 15,793.41 19,693.04
Core Capital (Tier l) 348.98 527.19 594.09 1.129.77 1,442.35 1,829.19
Supplementary Capital (Tier ll) 8.84 40.98 69.25 90.46 105.46 175.46 216.66
Tier I Capital Ratio 27.85% 9.s9% 854% 7.04% 9.58% 9.13% 9.29%
Tier ll Capital Ratio 0.98% 1.130k 1.12% 1.07% 0.90% 1.11"/" 1.10%
Total Capital Ratio 28.83"/" 10.72% 9.66% 8.11'/" '10.48% 10.240k 10.39%

NET INTEREST MARGIN RETURN ON ASSETS

3 00% 1 50%

a
2 AA% 1 AAa/.

1 00% 0 50%

0 00% 0 00%
1999 2000 2001 2002 2003 2004, 2005 1999 2000 2001 2002 2003 2004 2005
 (BDT in million)

1999 2000 2001 2002 2003 2004 2005

Credit Quality
Non-Performing Loans (NPLs) 5.16 37.49 444.02 726.17 905.74
Provision for [Jnclassified Loans 8.68 39.04 66.94 88.14 103.14 173.14 214.U
Provision for Classifled Loans 1.30 12.30 145.30 u2.80 523.00

% of NPLS to Total Loans and Advances 0.08% 0.42"/" 4.120/0 4.110/0 4.14%

Share lnformation
Share Price (BDT) - 540.00 390.75
No. of Shares Outstanding ('000) 2,450 2,450 2,768.50 3,'t97.65 6,395.30 7,994.125 9,992.656
Earning Per Share (BDT)
Basic 2.81 35.05 70.59 u.24 57.88 31.28 38.71

Diluted 2.81 35.05 70.59 84.24 57.88 31.28 38.71

Dividend Per Share (BDT) 28.00 40.00 40.00 25.00 25.00 25.00
Cash {BDT) 15.00 30.00 35.00 5.00
13:100 :10 1t20 1:4 114 '1:5
Stock 1

Dividend Yield (%) 4.63% 6.40%

Dividend Payout Ratio 75.890/. 56.67% 47!8% 43.19% 63.94% 64.58%
Market Capitalization 4,316.83 3,904.63
Book Value Per Share (BDT) 106.56 159.17 215.44 214.08 193.16 202.38 204.74
l\,,larket Value Book Value l\4ultiple 2.67x 1.91x

Price Earning Multiple 17 .26x 10.09x

Operating Performance Ratio

Net lnlerestMargin 2.54"/" 2.M"/" 3.13% 3.160k 3.36% 3.240k 3.05%

I
Net Non-interest l\,4argin (0.38%) 1.390k 1.670/o 0.91% 0.73"/o 0.7 40k 0.97%
Earning Base in Assets 97.55% 94.20% 96.35% 93.260k 91.59% 93.88% 90.40%
Operating Efficiency Ratio 82.45% 71.29% 68.15% 71.060k 71.09"/o 69.76% 72.15%
Credit Deposil Ratio 115.49% s6.25% 9255% 89.200k 74.38% 89.30% 91.68%
Cost of Funds 7.60ok 7.99% 8.42% 8.32"/o 8.24% 8.10% 8.420k
, Return on Assets 0.40"/0 1.910k 1.740k \.240k 1.47% 1.46%
Return on Equity 5.27ok 29.820/0 4358% 40.05% 22.49"/" 21.91"/o 21j2%
Equity Multiple 13.07x 24.01x 21.94x 23.93x 14.84x 14.90x 14.12x

Other lnformation
4 10 14 '15 20 25 28
No. of Branches

I No. of Employees 168 219 305 363 492 544 663

No. of Foreign Correspondents 70 102 145 215 240 266

RETURN ON EQUI'Y BIS RATIO

50.00% 3000%

37 50%

2500% 15 00%

,
7 50."

0.00% 0.00%
1999 2000 2001 2002 2003 2004 2005 1999 2A00 20A1 2002 2003 2004 2005

5
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The value added statement for the Bank shows how the value is created
and distributed among different stakeholders of the Bank. Value added to
the Bank stood at BDT 1,067.74 milllon as of December 31, 2005 as
against BDT 860.87 million in 2004, regislering a growth of 24.03% over
the previous year. The highest percentage of value added went to the
shareholders of the Bank. The portion of shareholders in value added
stood at 40.09% in 2005 as against 44.44% in 2004. The share of
employees increased to 27.43% in 2005 from 25.17ak in 2004. The shate
of Government increased 1o 29.64% in 2005 ltom 28.07ok in 2004.

BDT in nillion
VALUE ADDEO ANALYSIS (Previous years figures in brackeis)

3.472.5112717.671
TotatRevenue

CosiofFinancing #
Provision for Loans and Fixed Assets 222 70 (97 50)

OiherExpenses 194.91(15030) I
I
Value Pdded 1.067 74 87)
o% 100v,

4009(4444)

27.13 125.17)

2 U t2321

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Economic Yalue Added Statement

Economic Value Added (EVA) indicates the true economic profit of a company.
EVA is an estimate of the amount by which earnings exceed or fall short of required
minimum return for shareholders at comparable risks. EVA of the Bank stood at
BDT 223.44 million as of December 31, 2005 as against BDT 220.80 million in 2004.

BDT in m llon
ECONOMIG VALUE ADOED (Prevous yeads igures in brackets)

3.472.51 12,717 .67)

2,727 .98 \2,093.41)

I
I 316 50 (241.68)

204 59 (161.78)
Capita Charges

CapitalCharyes = Requircd Rate af Retun X Total Captal

Reguired Rate ol Rerum = Return on 3644ays heasury Bills (7.00%) + Risk Prcnun (3%)
latal Capnal: BDf 2,A45 85 nillion in 2AA5 and BDI 1 ,617.81 milbn in 2444.

7
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Market Value Added (IVVA) is the dilference between the equity market value of a
company and the book value of equity invested in the company. A high l\,4VA indicates
that the company has created substantial wealth for the shareholders. l\.4VA is
equivalent to the present value of all future expected Economic Value Added (EVA).
The equily market value of the Bank stood at BDT 3,904.63 million whereas the book
value of the equity stood at BDT 2,045.85 million, resulting a l,4arket Value Added
of BDT 1,858.78 million as of December 31, 2005 as against BDT 2,699.02 million
in 2004.

BDTnm on
Market Value Added (Previous yealsfgrres n brackets)

3,904 63 (4,316 83)

Markel Value of Total Equity

2,045 8511,617 81)

Less:Book Va !e oi Tola Equiy

1 858.78 (2 699 02)

TotalNumberoiSharesOulstanding:9,99265617,994125)
I',larket Value Per Share:BDT 39! 75 (54000)

B
 MBL Timeline

Dec 28, 2005 opening of 28' Eranch

Oec 29, 2004 opening of 25' Branch

Feb 26, 2004 Listed in Chittaqonq Stock Exchange

Feb 16.200/t Listed in Dhaka Stock Exchange

Dec 24, 2003 Opening of 20, Branch

Oct 21-22,2003 Subscription for Shares

Jun 30, 2003 Publication of Prospectus for IPO

Jul 3, 2002 opening of 15'' Branch

oct 29, 2000 Openinq of 10'Branch

Jun 2, 1999 Commencement of Business

May 20, 1999 lncorporation of the Bank

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We are very fortunate to have a strong senior

\E
management team. They are committed to continued
implementation of our sound strategic programs. We
b

r
- time lwould like to add that the decision-making
I would like to express my sincere appreciation to you
the sponsors, customers, business partngrs and
employees of Mercantile Bank Limited for the enormous
support, patronage and dedicated services. As
Chairman of the Bank, I teel honored and delighted at
this opportunity to present thc Bank's performance
during the year 2005 and its tuture prospects.
I am delighted to intorm that the total deposits of the
Bank stood at BDT 25,727.43 million in 2005 registering
a groMh of 1,1.93% over the previous year. The total
loans and advanc* stood at BDT 21,857.05 million as
against BOT 17,669.29 million in 2004. The FEX business
of the Bank experienced a strong groMh in 2005. The
imports and exports stood at BDT 33,27'1.90 million and
BDT 24,108.57 million respectively in 2005 as against
BDT 28,325.20 million and BDT 17,411.00 mtttion
respectively in 200,1.
We believe that building strong relationship with all our
stakeholdeE, particularly our cuslomers, is crucial for
our groMh and prosperity. Technology and competition
have made it vital for us to forge stronger bonds with
our customers to meet thsir need at their convenience.
We put emphasis on meeting this conlinuous challenge
of managing relationship. Our significant achievements
over the past years both financial and strategic are solid
indications of our strength and potential.
focus on creallng a culture that places importance on
personalized services, customels' sallsfaction and
excellence in banking. We believe in d€veloping strong
inierpeBonal relationship with each olher. At the same
authoritles brought closer to the cu3tomers to give them
the bost ssrvlces available. Banking is a seruice-
oriented business and we have drawn excellent people
for the purpGe.
We will continue to reinforce our efforts to meet the
needs and expectations of our customera. We are now
setting goals and challenges for our employees to
respond better to customer needs. We wanl lo
differentiate ourselves from our competitors through
flexible and personalized services.
I am afirm believer in leamwort and feel that a loyal and
motivated team can produce extra ordinary results. To
achieve thb obiective, we need excellence of efforts,
both of oursolvas and of our offtcers, in a concerted and
harmonious manner. We are also committed to the
pertormance cuhure wheIe recognltlon, promolion and
rewards are based on individual merft and d€monstrated
perfomanco.
At Mercantile Bank, we define 'success' ln broad lerms,
incorporating and balancing the interesk of all ot our
major stakeholdors. This means excelling in customer
satisfaction, providing rewarding careers for our
employees, contributing to the overall well-beiry of the
community yre serve and, of courBe, creating strong
long-term valug for our shareholders, We aspire to be
the leading Bank in Eangladesh - a goal we aim to reach
through our relontless focus on exceeding our
stakeholders' expoctatiors.

10

As a corporate citizen we consider it important to act in a
responsible manner towards the environment and society.
To be successful on a long{erm basis, we need to trust our
stakeholders and behaving reasonably towards society and
the environment strengthens this trust. Our commitment has
always been to behave ethically and to contribute towards
the improvement of quality of life of our people, the
community and greatly the society. Taking into account of
Corporate Social Responsibility we have established
L4ercantile Bank Foundation in which the Bank contributes
1 percent of operating proflt or BOT 4.00 million each year.
We have been awarding 8 (eight) eminent personalities of
the country each year since 2002 for the outstanding
conlribution in their respective fields. We also assist the
handicapped artist, litterateur and distressed people in their
medical treatment.
Effective Corporate Governance procedures are essential
to achieving and maintaining public trust and confidence in
the banking sector, which are critical to the proper
functioning of the banking sector and economy as a whole.
At Mercantile Bank we are committed to follow best
corporate governance practices.
We express our heartiest thanks to Lutfar Rahman Sarkar,
former Governor of Bangladesh Bank and former Chief
Adviser of the Bank and M. Taheruddin former l\4anaging
Director and former Consultant of the Bank for their dynamic
role in leading the Bank. We wish them success and
good health.
Looking forward to the coming years, we at Mercantile Bank
are certain that we can meet the challenges by leveraging
our strength and banking expertise as well as our product
breadth, technological capabilities and strong customer
base. We intend to enhance our position as the financial
bridge for our customers.
The Bank earned operating revenue of BDT 967.23 million
before Tax and Provisions in 2005, registering a groMh of
17.70% over the previous year. The operating revenue after
tax and provision stood at BDT 386.83 million in 2005,
registering a growth of 23.75% over the previous year.
Keeping in mind the profitability of the Bank, the Board
recommended to approve the dividend @ 20% stock and
5% cash for the year 2005.
For 2006 and beyond we have the following priorities;
Expanding Networks, lnvesting in People and Technology,
Allocating Funds to maximize returns, Shouldering
Corporate Social Responsibility, lnstituting best Corporate
Governance practices, and above all, implementing Basel ll
in due course.
At this end, I would like to thank once again all our
customers, shareholders, business partners and employees
for their contribution to a very successful year 2005 for
l\.4ercantile Bank and look forward to even a better future.
tuf*
Md. Abdul Jalil
11
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It is with great pride that I report to you as CEO and
anaglng Director of the Bank. The year 2005 proyed to
G
Er * bc successful ons achieving operating protit close to
BDT 1.00 billion. ln the period undet review a
i
sq substantial growth has been achieved in the areas of
busin$3 and rcyonue. Gross revenue grsw by 27.78%
I II w .i
to reach at BOT 3,472.5i million in 2005. lnterest lncome
increased by 28.27o/o lo reach at BDT 2,720.38 million
during the period under review. lnterest expenses grew
by 31.69% to reach at BDT I,987.16 in the same year. As
a resull, Net lnterest lncome stood at BDT 733.22
million ln 2005, registerirg a grourth ot 19.84% over the
previous year. Feo lncome grew by 26.02% ln 2005 over
the prsyious trear resulting net addition of BDT 234.01
- million in 2005 in the operating revenue of the Bank.
Oue to sxcellent growth in Net lnterest Incone and Fee
lncome, ths Bank posted profit before tax and provlsion
of BDT 967.23 million in 2005 registering a groMh of
,7.70% over the previous year.

The Bank mobilized total resources ot BDf 25,727.43

million in 2005 as against BDT 22,385.19 million in 2004.
The total loans and adyance3 (LDOS) stood at BDT
21,E57.05 million rogistcring. growth ot 23.70% over
the previous ysar. The FEX b$lnesr of tho Bank has
achievod tremendous groMh in 2005. lmport3 3tood at
BDT 33,271.90 million ln 2ql5 as against BDT 28,325.20
million h 2004. &ports stood at BDT 2/|,108.57 mlllion
in 2005 a3 agaimt BDT 17,411.00 million in 2004.

llet lntEresl ilaryln {Nl } stood at 3.0570 ln 2005 ag

against 3.2+% in 2004. ot lntorest lrargln ( Ut)
decrealad as the lower sprcad k being rolullBd from
the hlghor depoBll rato and lowor ybld on risk assots,

12
Return on Assets (ROA) stood a|1.46% in 2005 as against
1.47% in 2004. Return on Equity (ROE) stood at 2'1.12% in
2005 as against 21.91% in 2004. The Earning Per Share
(EPS) stood at around BDT 38.71 in 2005 as against BDT
31.28 in 2004. The Capital Adequacy Ratio (CAR) stood at
around 10.39% in 2005, reflecting a strong capital base of
the Bank.
At l\4ercantile Bank, we have always sought to manage our
Bank in a careful and balanced way. Throughout this annual
report we talked about our goals and objectives across the
broad areas: meeting our customers' needs; achieving our
financial goals; and creating a rewarding environment for
our people, which also involves supporting the communities
we serye.
Although we achieved good success this year, there are
number of challenges as we move forward. There is the
challenge of achieving continued growth, particularly in
mobilizing deposits, as the deposit market in Bangladesh is
flercely competitive. As a result we apprehend increase in
cost of funds of the Bank leading to lower Net lnterest
i.4argin in 2006. Notwithstanding these challenges, we will
achieve our goal. We fully expect continued growth in
earnings and returns to shareholders.
We are closely working for acquisition of 'lntegrated
Banking Software'to ensure efflcient delivery of banking
seNices, with the belief that technology will help the Bank to
improve productivity and to become market leader through
innovation of products and services. We have already
introduced Visa CredivDebit Card.
We are proud that we are one ofthe largest taxpayers in the
country and, therefore, an important source of revenue for
the GOB. During the year we have made provision of BDT
316.50 million for Corporate Tax.
Banking is a business encompassing our employees and
the broader communities, as well as our shareholders and
customers. We belaeve that shareholder value is driven by
the satisfied and loyal customers. Of course, this focus on
people and teamwork is ongoing and expands to the
broader community. We are committed to be a corporate
citizen-which encompasses the \,yay we interact with our
stakeholders to meel our social, emnomic, environmental
and ethical responsibilities.
Looking foMard, we remain mnfident that we have the right
people and right strategies in place to maintain our growth
and that our Bank will continue to successfully deliver
excellent results, meeting our financial and operational
objectives-as well as the needs of our customers and
our people.
on behalf of the Bank. I would like to thank the Governor
and other officials of Bangladesh Bank for theil guidance
and continuing reform initiatives with a view to enhancing
discipline and dynamism in the industry. lwould also like to
thank the Chairman and all the members of the Board of
Directors for their valuable guidance and advice.
I am proud of the accomplishments and proud of where our
institution is heading. I can only anticipate continued pride in
our improvement and growth as we move into the future.
v
Shah Md. Nurul Alam
13
 G
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Vt:):

Md. AbdulJalil Md. Anwarul Haque Dr. Toufique Rahman Golam Faruk Ahmed
Chowdhury

[, S Ahsan Jamshsd R Khan Bilkis Begum Alha, Akram Hussain

(Humayun)

$r

Feroza Begum S M Shallqul lslam A.K.M, Shaheed Reza Nargis Anwar

(ltlamun)

14
 whose
dreams,
asptratrcn
and,
ffirts
came
into
reality.

Alhal S M Shaki Akhtar Engt l\,4ohd. lvlonsuruzzaman l\,4d. l\,4izanur Rahman A haj Tara N,4eah Khan Subrolo Narayan Roy
Chowdhury

l\.4d. Tabibul Haque AS M FerozAam l\,4d. Aman U lah l\.4d. Abdul Hannan [/d. Selm

l\,4d. Nasiruddin Choudhury

t
Jalaluddin Ahmed Yeamin l\rorshed Alam l\,4ozina Khan l\,4onzu Md. Shahabuddin Alam

15
 IA
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Md. Abdul Jalil

Chairman

m E

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Golam Faruk Ahmed md. Nasiruddln Choudhury ilorshed Alam
Direclor Dhector Direclor
 x

l\y'd. Shahabuddin Alam S. l\,4. Abdul l\4annan Nargis Anwar Tazneen Aman -lsrat Jahan
Director Dtector Director Director Director

Farida Begum Nazifa Khanam Chowdhury AKI\4 Shaheed Reza Saber Hossain Chowdhury Shah Md. NurulAlam
Diector Director Director Diector Managing Diector and CEO

17
 o Board of Directors
! l\y'd. Abdul Jalil, Chairman
Golam Faruk Ahmed

a Md. Nasiruddin Choudhury

[,4orshed Alam
Shahabuddin Alam
:r I\.4d.

a Abdul Mannan
S.l\i1.
Nargis Anwar

o Tazneen Aman
lsrat Jahan
(n Farida Begum
:r Nazifa Khanam Chowdhury
o AKI\.4 Shaheed Reza
Saber Hossain Chowdhury
:r Shah Md. Nurul Alam, Manaqinq Director and CEo
o
U Executive Committee
Golam FarukAhmed, chairman
Morshed Alam
S lvl Abdul l\rannan E
Nargis Anwar
3
Tazneen Aman
lsrat Jahan
Farida Begum
Nazifa Khanam Chowdhury
Shah Md. Nurul Alam, Managing Director and CEO

Audit Committee
Saber Hossain Chowdhury, chairman
Md. Nasiruddin Choudhury
lvd. Shahabuddin Alam

Managing Director and CEO

Shah l\4d. NurulAlam

Consultant ,
l\.4d. Rabiul Hossain

Company Secretary (Acting)

Mir Md. HassanulZahed

Auditors
A. Qasem & Co.
Chartered Accountanls

Khan Wahab Shafique Rahman & Co.

Chartered Accounlants

Tax Advisor
K l\,4 Hasan & Co.
Chartered Accountants

18
Management Team
Managing Director and CEO
Shah Md. NurulAlam
Additional Managing Director
M. Nurul lslam
Deputy Managing Director
A.K.i.4. Shahidul Haque
z
Senior Executive Vice President
Md. Abul Shahjahan
Executive Vice Presidents
Md. Abdul Jalil Chowdhury
Monindra Kumar Nath
Prajna Jyoti Barua
lu AYousuf Khan
Md. Quamrul lslam Cho\ddhury
Senior Vice Presidents
Choudhury Moshtaq Ahmed
l/ohammad lsmail
Zulfiquer Shams Chowdhury
i.4d. Nazrul Hossain
S. O. Bazlur Rashid
Samarendra Nath Nandi
A S M Bulbul
[.4d. Sayeed Hossain
Khandakar Fahim Uddin Ahmed
Azad Shamsi
Vice Presidents
Md. Rabiul lslam
L4d. Ataur Rahman
i,4d. Habibur Rahman
Md. Rallquzzaman
Ahmedul Haque
Md. Shoaib Ahmed
Syed Ahmadul Karim
L4d. Sadruzzaman
Md. Abdus Salam (on study leave)
Md. Rafiqul Hoque Bhuiyan
Shah Syed Abdul Bari
Qazi irustaque Ahmed
First Vice Presidents
Md [4ahmood Alam Chowdhury
Md. Nurul lslam
Shamim Ahmed
AKMAtiqurRahman
L4d. Zakir Hossain
Abdus Salam Shaikh
Md. Sayeduzzaman Chowdhury
Abdullah 1,4d. Zaki Hasan
A i,il l,il Ariful Haque
FaisalAhsan Chowdhury
L4d. Shafiet Wahed
Ahsanul Haq Chowdhury
Shah l\y'd. Sohel Khurshid
Md Mahibbul Karim
l\.4d Rashad Kamal
l\,4d. Nurul Haque Gazi
Assistant Vice Presidents
Shah Nawaz Siddique
Mohammad Ali
Md. Faiz Ahsan
Md. Shawkat Jahan Khan
Md. Abul Hossain
Muhammad Hajjaj-Bin-Mahfooz
AB M Eradul lslam
Kawser Uddin Ahmed
A. K. M. Minhajul lslam
Md. Faruque Ahmed
Md. Abul Bashar
Mrinal Paul
Md. Khalid Hussain
Arif Md. Shahedul Haque
Mir Md. HassanulZahed
Md. Jamal Uddin
K.l\.4. Abdur Razzaque
Lutful Haidar Chowdhury
Farook lqbal
Md. Shafiqul lslam
Moynul lslam
Farhad Malik
Md. Abul Bashar Khan
Md. Kamruzzaman
Md. Moniar Rahman
Md. ZainulAbedin
SailulAlam
Md. Enayet Ullah
Md. Jamal Hossain
Syed Ezazur Rahman
Purbani Roy
Md. Rezwanul Karim
Zahedul lslam
Syed Mahbubul Haq
Jahangir Javed
Md. Ata Rabbani Chowdhury
Abu Asghar Gholam Haruni
19
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HEAO OFFICE
61. Dilkusha Commercial Area
Dhaka-1000, Bangladesh
Tel: +880-2-9559333. 01 71 1 -535960
Fax: +880-2-9561213
Telex: 642509 MBLID BJ

\\s
E-mail: mbl@bol-online.com
Websile: www.mblbd.com

Main Branch
61, Dilkusha Commercial Area
Dhaka-1000, Bangladesh
Tel: +880-2-9559333, 01 71 1-535960
Fax: +880-2-9554410
Telex: 642480 MBLN.4B BJ
Dhanmondi Branch
Cosmos Tower
House 2/1, Road 28 (Old), 15 (New)
Dhanmondi ResidentialArea, Dhaka-1205
Tel: +880-2-9130500, 9142691 , 01711-535952
Fax: +880-2-8126768
Telex: 642529 MBLDN BJ
Kawran Bazar Branch
99, Kazi Nazrul lslam Avenue
Kawran Bazar Commercial Area, Dhaka-1215
Tel: +880-2-811 2440, 01 711 -535953
Fax: +880-2-8126882
Telex: 642438 [.4BLKB BJ
Agrabad Branch
Hotel Hawai Building
39, Agrabad Commercial Area, Chittagong
Tel: +880-3'1-716421 , 723181, 01711-722925
Fax: +880-31-716459
Telex: 633134 N.4BLAG BJ
!
\\ //l
\ I
Joypara Branch
Samabay Super Market I
Joypara Bazar, Dohar, Dhaka
Tel: +880-6223-87049, 01 7'l 1-535949
Banani Branch
Awal Centre
34, Kemal Ataturk Avenue
Banani Commercial Area, Dhaka-1 21 3
Tel: +880-2-881 M734, 01 71 1 -535954
Fax: +880-2-8827 807
Telex: 632123 MBLBN BJ
Rajshahi Branch
Shaheb Bazar, Rajshahi
fet +880-721-77 1214, 01711-419079
Fax. +880-721-771215
Naogaon Branch
Chakdev, Naogaon
Tel: +880-741 -53331, 0 17 11 419057
Fax: +880-741-53330

20

Sylhet Branch
Laldighirpar, Sylhet
Tel: +E66^321.72365q.1, 01711422810
Fax: +8E0.{,21-723722
Board Bazar Branch
6511652, Board Bazar, Joydebpur, Gazipur
Tel: +880-24291604, 9291660, 0l7lr-535950
Fax: +880-2€810152
Nayabazar Branch
2rl, Zindabahar 1st Lane, Nayabazar, Dhaka.l'loo
Tel: +880-2-7390E69, 7393827, 01711.535056
Fax: +8E0.2.7390869
I Khatunganj Branch
ilohajan Lane
599, Ramioy
K Xhatunganj, Chittagong
Tol: +88041622751, 63551/t, 0l7ll-723051
/"! n Fax: +880-31.635514
\ Mohakhali Branch
t
--t Red Crescent Concord Tower
17, ilohakhali Commercial Area, Dhaka-i212
Tel: +880-2-9888346, 989t520, 0l7ll-535957
IS Fax: +860'2'9E95797
Mirpur Branch
Razia Plaza (lst Floor), 184, Senpara Partata
3
B€gum Rokeya Sarani, ilirpur-10, Dhaka-i216
I Tel: +880-2.9008852, 9015661, 01711.535955
Fax: +880-2-901/t582
I Ashulia Branch
Bhuiya Comphx
Jamgora Bazar, Ashulia, SaYar, Dhaka
If, obile: +880{1711-535918
Uttara Branch
Hou3e 10A, Road 7D, Section
lntara odel Town, lntara, Dhaka-'1230
Tol: +880-2{955E81, 8955879, 01713415295
Fax: +8E0-2{955881
Jubilee Road Branch
I
I Kamal Chamber (2nd Floor)
6'1, Jubilee Road, Kotwali, Chittagong
I Tel: +880-31 626072, 017 1'l -7247 1
I Elephant Road Branch
75, Elephant Road, Dhanmondi, Dhaka-l205
Tel: +880-2{618732, 9677364, 01713.1144832
Fax: +880-24669458
MotUheel Branch
,{al€k ansion (Grcund Flood
128, Xlotiiheel Commercial Arca, Dhaka-i000
Tel: +880-2-7161923.{, 0l7ll-535958
Far: +880.2-716'1925
Madam Bibir Hat Branch
Bhatiary Sitakund, Chittagong
ilobile: +880{1713-103107
Khulna Branch
RuFha Plaza, 73, KDAAvenue CommercialAraa
Sonadanga, l(hulna
Tel: +88{,.01{13561, 813562, 01713.(X,641
Fax: +880.{1{13563
Rangpur Branch
Pres3 Club Complex
Statlon Road, Kotwali, Rangpur
Tel: +EE0.521-51299, 51323, 01713-201636
Fax: +880{21€1110
Satmasjid Road Branch
House 735 (Old), 824 (New), Satmasjid Road
Dhanmondi Residential Area, Dhaka.l209
Tel: +EE0.2{11 2463, 0l71 3{,39792
Jhilongja Branch
Hotol Soa Palace, (alatoli Road, Cor's Bazar
Tsl: +880.3,11.62291, 01713-103662
O R Nizam Road Branch
Commorcial View Complex
l9l, CDAAvenue, East Nasirabad
Medlcal Colleg€, Panchlaish, Chittagong
Tel: +880i1{57512, 01713-103663
Bogra Branch
Borogola, Bogra
Iel: +880-516919020, 01713.{M4835
I Chowmuhani Branch
Samobay Bhabon, Karlmpur Road
Chowmuhani, oakhali
Tel: +880-321-52966, 52960, 01713436991
Konabari Branch
Konabari Bazar
P. O. National University, Gazipur
Tel: +880-2-9298,18&5, 01713.{}!1846
Gulshan Branch*
CES (A), t{A Gulshan Avenue, Dhaka-1212
Tol: +880-2{835276-7, 8835614
Far: +880-2{835615
' open on March 27,2006
21
 lrr Oor
Q.,. 0O
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aj
Bangladesh Bank has issued guidelines on Core Risk
Management through BRPD Circular # 17 dated October
ElI a
r\ 7, 2003 for implementing Risk Management practices in
5 (five) core areas of banking operation. During the year
'! under review, the Bank has taken a number of initiatives
to implement the best practices of Risk Management,
..d with special focus on 5 (five) core areas of banking,
that is, Credit Risk l\4anagement, Asset Liability
Management, Foreign Exchange Risk Management,
lnternal Control and Compliance and Prevention of
l\4oney Laundering Activities.

Objective
Our objective is to earn competitive relurn from our various business activities at
acceptable risk levels. Risk management involves overseeing the risks associated
with all our business activities in the environment in which we operate, and
ensuring that risk-taking is within prudent boundaries and that the prices charged
for products and services properly reflect the risk we take. Risk is calculated in
terms of impact on income and asset value. We assess the potential effect on our
business consequential to changes in political, economic, market and operating
conditions, and the creditworthiness of our clients using four primary risk
categories: credit, market, liquidity and operational risk. ln the management of
these risks we rely on:
. the competence and experience of our dedicated professional stafF operating
with due segregation of duties;
. sophisticated, quantitatively based analytical tools;
. ongoing investment in technology.
This combination of prudence, analytical skills and technology, together with
adherence to our operating procedures, is reflected in the strength and quality of
our earning over time.
F.l
Strategy
ldentify, price and manage risk in order to maintain an appropriate risk-return
relationship;
Use comprehensive and integrated risk measurement and reporting process to
ensure that risk is managed consistently and effectively on an enterprise-wide
basisi and
Employ proven analytical techniques supported by business experience and
sound judgment to understand all dimensions of the risks taken.

Approach
' Promote a strong, proactive culture, which gives high value lo discipline and
effective risk management;
. Communicate clear and concise risk management standards through policies,
directives, operating procedures and training, with adherence to the policies
and procedures control framework verified by an internal audit process;
. Employ dedicated professional personnel with a high degree of risk
management expertise and experience.

22
CREDIT RISK
Credit risk is the potential that the borrower may not repay or fails to repay his/her debt obligation.
We are exposed to credit risk through traditional lending activities and transactions involving settlements between our
counterparts. These include direct loans, commitments to extend credit and settlement exposures. Our goal is to limit
the percentage ol impaired loans in total loans and advances at lower level.

Objective
l\,4aintain a well-diversified asset portfo io within approved
risk tolerance levels and earn a return approprate to the
risk profile of the portfolio.

Approach Portfolio Diversification

Credit risk management of our diverse client base requires We have well-d versified portfolio mainly focused on trade
a high degree of professional accountability, clear finance, garments, food and beverage. The portfolio
delegation of decision-making authority, disciplined continues to be free from undue concentrations in terms of
portfolio management and dynamic loan loss exposure to any specific industry. We do not have
management. exposure in any industry to the extent of one{hird of total
Skilled appraisal officers first evaluate credit transactions credit portfolio of the Bank.
for commercial and corporate loans. Credit Management
Committee provides an independent assessment of all Risk Assets Portfolio
significant transactions, and a concurrence from this (BDT in milion)
function is making a lending
usually required to 2005
commitment to a customer. Our Audit and lnspection
Division also reviews management processes in order to
Sectors/Segments Volume %
Exports (RN.4G) 5,793.43 26.51
ensure that established credit policies are followed. ln
addition, Credit Management Committee performs periodic
Trade Finance 4,078.53 '18.66

reviews of significant and higher risk transactions. Food, Beverage, Edible Oil etc. 2,973.64 13.60
N BFIS 1,721.60 7.88
Diversification of risk within all loan and investment
Construction and Housing 1 ,693.31 7.75
portfolios is a key requirement in effective risk
management, particularly in the corporate portfo ios, where Engineering (lron and steel/electrical) 757.89 3.47
concentration of risk can be a significant issue. Credit Textile (Linkage lndustry) 576.08 2.64
l\y'anagement Committee of the Bank strictly monitors Hospital and Medical Services 315.45 1.44
exposure to specific industries. Paper and Publication 272.99 1.25
Plastic and Plastic Materials 266.27 1.22
Performance Review Telecommunication 252.75 1.16
Gross impaired loans grew to BDT 905.74 million in 2005
Glass and glass products 245.62 .12 1

Irom BDf 726.17 million from the previous year. However, Transportation 177.27 0.81
the level of impaired loans remains within acceptable Pharmaceuticals 152.04 0.70
parameters and provisions for impaired loans have been lnformation Technology 48.33 0.22
adequately maintained. The total provision for impaired Others 2,531.85 11.58
loans for 2005 stood at BDT 523.00 million as against BDT Total 21,857.05 '100.00
342.80 million in 2004.

MARKET RISK
l\4arket risk is the potential for loss from changes in the value of financial instruments. The value of a financial
instrument can be affected by changes in interest rates, foreign exchange rates and equity and commodity prices.
We are exposed to market risk when we enter into the following transactions:
. Loans and Advances (LDOs)
. Deposit with other Banks
- lnvestment
- Treasury Bills
- Bond
- Shares
. Foreign Exchange Positioning.

23
 Objective
ldentify, measure, monitor and report all market risk-taking
activities, ensuring that exposures remain within approved
risk tolerance levels and that the return from market risk
activities is acceptable.

Approach
We have established Asset Liability Committee (ALCO) to
monitor our market risk activities. The primary risk
measurement methodology is Repricing Gap and its
sensitivity to interest rate changes. Repricing Gap:2005
(BDT in mlllion)
Repricing Gap over 12-month period stood at positive BDT
4,251.76 million as at December 31, 2005. Repricing Gap Particulars Volume
Rate Sensitive Assets (RSA) '17,656.56
as percentage of total assets stood at '14.72%, which is
Rate Sensitive Liabilities (RSL) 13,404.80
within the international standard of 20ok. ln the position,
Repricing Gap (RSA-RSL) 4,251.76
the Net lnterest lncome (Nll) of the Bank may increase by
BDf 42.52 million in case of '100 basis point increase in Repricing Gap as % of Total Assets 14.72%

interest rate. However, in case of 100 basis point decrease lmpact on Net lnterest lncome
in interest rale, the Nll of the Bank will go down by BDT For 100 basis point increase in interest rate 42.52
42.52 milion. For 100 basis point decrease in interest rate (42.52\

LIQUIDITY RISK
Liquidity risk is the risk that the Bank may fail to meet its obligation due to short of cash and/or cash
equivalent assets. This situation may arise in the case of withdrawal of deposits, debt maturities and commitment
to provide credit.

Objective
[,,1aintain sufficient liquid assets and funding capacity to Our secondary measure of liquidity is core deposits as a
meet our financial commitments, under all circumstances, percentage of total deposits (core deposits are defined as
without having to raise funds at unreasonable prices or sell total deposits less bank deposits). Core deposits as a
assets on a forced basis. percentage of total deposits stood at 91.68% in 2005 as
against 89.30% in 2004.
Approach (BDT in millon)
Our approach to liquidity management is to project liquidity Type Volume Y,
requirements based on expected and stressed economic, Deposits Under Scheme 10,278.58 39.95
market, political and enterprise-specific events. This FDR 8,787.53 34.'16
enables us to ensure that we have sufficient fund available Deposits
Call 640.00 2.49
to meet our financial commitments even in times of crisis. Savings 1,473.58 5.73
Funds encompass both liquid assets on hand and the Current 840.35 3.27
capability to raise additional funds. srD 744.76 2.89
We continuously monitor liquidity risk and actively manage Others 2,962.63 11.52
our balance sheet to minimize this risk. l\y'anagement Total 25,727.43 '100.00
establishes minimum liquid asset holding requirements,
together with limits and guidelines for lability diversification Deposit Mix (%): 2005
and credit commitments.
100%
Our large base of scheme deposits from individuals and 01,

strong capital position provide a long-term stable source of Deposits Under Scheme
39.95

funding. The primary risk measurement methodology is to u.16

FDR
monitor liquid asset ratios, deposit mix, core deposits as 2 49
percentage of total deposits and net liquidity gap. Call Deposils I
Savings -I 5_73

Performance Review Curent - 3

T
27

2_89
Our ratio of liquid assets. to total assets stood at 21.25% STD I
at December 31, 2005 as againsl24.760/0 at December Others
11_52

31,2004. -

'rlqudAssers = Cash + Ba/arce with Bangtadesh Bank + Depost

with athet Banks + A|oney at Call and Shon Nafice + lnvestnents
24
 CEO's Rcport on Risk Manag ent

Net liquidity gap in 1-month bucket stood at negative BDT Liquidity Gap BDT in mirion
2,916.32 million. But in 12-month bucket the cumulative -7,500 -5 000 -2,500 0 3,000 6,000 9,000 12,000
net liquidity gap of the Bank stood at positive BDT
4,692.59 million, which was only 16.24% of total assets of 1tV

the Bank as of December 3'1,2005. ln the position the 1,3 tt4

Bank is not vulnerable to liquidity risk.

3-12 M

1-5Y

5+Y

OPERATIONAL RISK =::;:ilitty.;:1,"*

Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from
external events.

Obiective
Operational risk is inherent in all business activities, and
the management of these risks is important to the
achievement of organizational goals. While operational
risks can never be eliminated, these can be managed,
mitigated and in some cases insured against to preserve
and create value.
Approach
Operational risk is managed through the establishment of
effective infrastructure and controls. To this end. we have
established a well-formulated framework that uses the
strengths and specialized knowledge of our lines of
business. Our strategy is to maximize our ability to manage
and measure operational risk through implementation of a
framework that takes advantages of the best p€ctices in
the industry.
lnfrastructure
Key elements of the infrastructure include qualified
and well-trained personnel, eslabllshment of conlrols
through documented policies and procedures and clear
and consistent guidelines. Management regularly reviews
and updates policies to ensure that risk principles
are appropriately disseminated throughout the Bank,
and appropriate accountabilities are established
and maintained.
Know Your Customer (KYC)
Know Your Customer (KYC) procedures are critical
elements in the eflective management of banking risks.
Sound KYC procedures have particular relevance to the
safety and soundness of financial institutions, in that:
' they help to protect financial institution's reputation
and the integrity of banking systems by reducing the
likelihood of banks becoming a vehicle for or a victim
of financial crime and suffering consequential
reputationaldamage;
. they constitute an essential part of sound risk
management (e.9. by providing the basis for identifying,
limiting and controlling risk exposures in assets and
liabilities, including assets under management).
The inadequacy or absence of KYC standards can
subject banks to serious customer and counter-party
risks, especially reputational, operational, legal and
concentration risks. lt is worth noting that all these risks are
interrelated. ln this regard the Bank has instituted KYC
procedure to combat money-laundering activities as well
as to minimize the operational risks ofthe Bank.
Governance
lnternal Control and Compliance Division has been
established to look into operational risk issues of the Bank.
We continuously monitor the effectiveness of our
management of operational risks. The lnternal Control and
Compliance Division reports significant operational events
(if any) that occur throughout the Bank to executive
management and the Board of Directors. lnternalAudit and
lnspection, in addition to advising senior management of
the Bank, also provides regular reports to the Audit
Committee of the Board of Directors on the effectiveness
of internal controls.
The two components of operational risk are outlined as
follows:
Operalions Risks
Operations risks are controlled through regular daily
functions, and managed through internal procedures and
monitoring mechanisms.
Operations risks include risks to physical and logical
security, transaction processing, operations control,
technology and systems, as well as unique risks that arise
due to outsourcing.
Business/Event Risks
Business/event risks include underlying structural and
external risks. Business/event risks can also arise due to
unexpected events (e.9. natural disasters) and can have a
material impact if they are not planned for in advance.
Business/event risks include strategic errors or disasters,
damage to Bank's image or reputation, or risks due to
taxation, accounting and financial management, legal and
regulatory requirements, human resources, and complex
models used by the Bank.
Performance Review
Significant material losses did not occur in the Bank since
inception of the Bank in 1999; however, there is no
assurance that the Bank will not suffer from such losses in
the future due to the nature of risks.
 Basel Committee on Banking Supervision finalized the new capital
adequacy framework, commonly known as Basel ll on June 26,
2004. lt provides a framework for capilal allocation that is more risk
CJ sensitive as compared to Basel l. This new regulatory capital
o adequacy regime offers a series of approaches ranging from simple
G

r
to more complex methodologies for capital allocation against credit
risk and operational risk. Besides, it requires banks to establish a
strong and comprehensive risk management framework, which
concentrates with the complexity and diversification of their
business. ln this regard, Basel ll prescribes a strong and vigilant
role of the supervisory agency. Further, the accord envisages a
L detailed disclosure requirement depending upon the specific
approach adopted by the institutions for capital allocation to
enhance transparency and market discipline.
o The new framework consists of mutually three reinforcing pillars;
the flrst pillar relates to 'l\4inimum Capital Requirement', second
pillar describes 'Supervisory Review Process' under the new
framework and the third pillar describes the '[.4arket Discipline.
Under the pillar one, the framework offers three distinct options for
assessment of capital requirements for credit risk and three options
for operational risk. The approaches available for assessment of
capital for credit risk are 'Standardized Approach', 'Foundation
lnternal Rating Based Approach' and 'Advanced lnternal Rating
Based Approach'. The approaches available for computing capital
charge for operatjonal risk are 'Basic lndicator Approach',
'Standardized Approach' and'Advanced MeasurementApproach'.

Rationale for a new accord:

The need for more flexibility and risk sensitivity

Existing Accord (Basel l) Proposed New Accord (Basel ll)

Focus on a single risk measure More emphasis on banks'own internal
methodologies, supervisory review and
market discipline.

One size fits all. Only one option is available to banks Flexibility, menu of approaches.
lncentives: Banks have several options
Broad brush structure l\.4ore credit risk sensitivity for better
risk management.

Banks in lndia are set to be Basel ll compliant by adopting at a

minimum, the 'Standardized Approach' for credit risk and 'Basic
lndicator Approach' for operational risk under Pillar l, with effect
from March 31, 2007. Banks in Pakistan are going to adopt
'Standardized Approach' for credit risk and 'Basic lndicator
Approach'/'Standardized Approach' for operational risk from
January 01, 2008.
Bangladesh Bank has formed a Basel ll lmplementation
Committee. l\.4eanwhile, our Bank has taken steps forward to
following up Basel ll and implementing as required. The Bank has
formed 'Basel ll Follow-up Committee'for taking strides toward the
new capital accord.

26
 Report on
Corporate Social Responsibility
\ Despite the stifi competition in the banking industry we consider it essential for a
company to behave in a responsible manner towards both the environment and
society. This belief exists on two pillars. First, to be successful on a long{erm
basis, we need to trust our stakeholders-customers, shareholders, employees,
patrons and well-wishers and society. Behaving responsibly towards society and
the environment strengthens this trust. Second, by taking ecological and social
risks and re\,vard into account, we strengthen our corporate values. Our
commitment has always been to behave ethically and to contribute towards the
quality of life of our people, the local community and generally the society. Our
Corporate Social Responsibility focuses on;

Environment
As a Bank we flnance mainly in those prqects, which are environment friendly.
Early recognition of ecological risks is an integral part of credit evaluation system
of Mercantile Bank Limited. Ecological damage will eventually harm not only the
community but also, Mercantile Bank Limited, in the form of loan losses or
I image problems. ln this regard, we have sent two officials to The Hague,
Netherlands for training on 'Environmenl and Social Management Course for
Financial lnstitution' Conducted by FMO Netherlands.

Sustainable Banking Products

We have introduced a number of banking products for people who have traditionally been excluded from the banking services. We
have introduced 'Women Entrepreneurs Development Scheme for the women \ /ho have experience but do not have seed capital
to start business. We have agreement with Women Entrepreneurs'Association, Bangladesh (WEA) to encourage women
entrepreneurs to come forward in the business. We have Sl\4E banking products for marginal people. Small and marginal savers
are encouraged to use banking services and attractive rates of interest are offered for small savers as well.

q{IqfS
Supporting Education
arfstta <rqiF Fskr tooc
Our Bank offers financial awards to MBM (Masters in Bank Management)

r
I
students at Bangladesh lnstitute of Bank Management (BIBM)who excel in
their studies. We also contribute to academic research. We have -
contributed BDT 1.00 million to Bangla Academy for research in Bengata
Literature.
E
Supporting Sports and Culture
Mercantile Bank Limited has promoted a number of non-profit initiatives.
T t
We sponsored National Chess Championship and Tennis Competition in

6,
2005. We have sponsored a number of cultural programs to support the
communities.

Mercantile Bank Foundation

The Bank has set up Mercantile Bank Foundation for extending charitable
and beneficial social services to the society. The Bank contributes 1% of operating revenue or BDT 4.OO million to [4ercantile Bank
Foundation every year. The Foundation has been established with the fo owing objectives:

' Mercantile Bank awards 8 (eight) eminent personalities of the country every year for the outstanding contribution in the field of
Economics and Economic Research, Bengali Language and Literature, Science and Technology, Education and Culture,
Journalism, Sports, Research on Liberation War, lndustry and Commerce.
. lnterest free education loan for lhe meritorious poor students.
. Conducting research on Bengali language and literature.
. Book Purchase and Distribution to encourage writers and publishers of the country.
. lnterest free Loan to the unemployed educated people.
. Donation for handicapped a(ists, litterateur and distressed people.
. Undertake Project for the development of under-privileged children.
We will remain committed to fulfill the role of good corporate citizenship in 2006 and beyond.

27
 r!t
EE
6E
EB()
o
G
t
a. Board Structure
Given the important flnancial intermediation role of banks
in an economy, their high degree of sensitivity to potential
difficulties arising from ineffective corporate governance
and the need to safeguard depositors' funds, corporale
governance for banking organizations is of great
importance to the international financial system.
Corporate governance arrangements, as well as legal and
regulatory systems, vary widely among countries.
Nevertheless, sound governance can be achieved
regardless of the lorm used by a banking organization
so long as several essential functions are in place.
Mercantile Bank Limited has implemented Corporate
Governance System as instructed by Bangladesh Bank
in BRPD Circular # 16 dated July 24, 2003, BRPD Circular
# 12 daled April 26, 2003, BRPD Circular # 12 dated
December 23, 2002. fhe prevailing practices, in most
cases, conform the requirement and guidelines issued by
Securities and Exchange Commission vide SEC
Notification: SEC/CMRRCD/2006-158/Admin/02-08 dated
February 20, 2006.
The Bank has taken the following steps to implement
the Corporate Governance System as instructed by
Bangladesh Bank and Securities and Exchange
Commission;
28
Board Size: The number of directors in the Board of
the Bank is 13 (thirteen) which is within the maximum
limit as imposed by BRPD Circular # 12 dated April 26,
2003 of Bangladesh Bank and Notification-
SEC/CMRRCD/2006-158/Admin/02-08 dated February
20,2006 of Securities and Exchange Commission.
Board Supporting Committee: The Board of the
Bank has two supporting committees, which are as
follows:
Executiye Committee: The members of the
Executive Committee are chosen from the
directors of the Board. The Executive Committee
decides upon all routine and day-to-day
operational matters beyond delegated power of
the Management, subject to ratification of the
Board of Directors.
Audit Commitlee: The Audit Committee is formed
with 3 (three) members of the Board of Directors.
The Audit Committee assists the Board of
Dtectors in ensuring that the Financial Statements
reflect true and fair view of the state of affairs of
the Company and in ensuring a good working
system in the Bank as per framework as imposed
by BRPD circular # 12 dated December 23, 2002
of Bangladesh Bank and Securities and Exchange
Commission's Notification. The Audit Committee
is responsible to the Board of Directors. During the
year 2005, the Audit Committee of the Board
conducted I (nine) meetings.

b. Basic Ownership Structure
l\rercantile Bank Limited is a 100% locally sponsored
private bank as per Bank Companies Act, 1991.
c. Appointment of CEO
Shah [.4d. Nurul Alam has been appointed as Managing
Director and CEO of the Bank by the Board of Directors
with the approval of Bangladesh Bank.
d. Financial Management
The Annual Budget and the statutory financial statements
are prepared with the approval of the Board. The Board
monitors/reviews the position at monthly rest in respect of
Bank's income, expenditures, liquidity, non-performing
assets, caprtal base and adequacy, maintenance of loan
loss provisions and steps taken for recovery of defaulted
loans including legal means.
e. Organizational Structure
The l\y'anagement is headed by l\y'anaging Director and
CEO. The workflows are carried by the relevant
divisions/departments/branches of the Bank. ln addition
to the divisions/departments/branches, the following
committees, among others, are in place for smooth
functioning of the Bank:
Management Committee (MANCO): The I/ANCO
comprising of senior members of the management
meets weekly to discuss relevant agenda and to take
appropriate actions for running the Bank smoothly.
Asset Liability Management Committee (ALCO):
Asset Liability l\.4anagement Committee headed by
l\.4anaging Director and CEO. ALCO is responsible for
balance sheet risk management. The results of balance
sheet analysis along with recommendations are placed
in ALCO meeting by the Head of Treasury where
important decisions are made to minimize risk and to
maximize returns.
Credit Commiftee: The Deputy Managing Director of
the Bank heads the Credit Committee. The Committee
evaluates the credit proposals and either recommends
for approval or declines it.
f. lncentive Structure
The employees of the Bank have been paid competitively
in the line with the banking industry in Bangladesh. ln
addition to the regular salary and allowances, incentive
bonuses based on performance have also been provided
regularly. The employees ol the Bank are not entitled to
stock options, warrants, convertibles etc.
g. Code of Ethics/Policy of
Business Conduct
The Bank instituted 'Service Rule'since the inception of
the Bank in 1999. The Board has approved different
policies for conducting business. The policies include
Credit Policy, Purchase Policy and Rules, Finance and
Accounting Policy, Foreign Exchange Risk i,'lanagement
Policy, lnternal Control and Compliance Policy, Anti-money
Laundering Policy etc.
h. Conflicts of interest
Conflicts of interest may arise as a result of the various
activities and roles of the bank (e.9. where the bank
extends loans to a firm while its proprietary trading function
buys and sells securities issued by that firm), or between
the interests of the bank or its customers and those of the
bank's directors or senior managers (e.9. where the bank
enters into a business relationship with an entity owned by
one of the bank's directors).
The Board of directors of the Bank ensures that senior
management develops and implements policies to identify
potential conflicts of interest. To be transparent in
disclosing conflicts of interest, the related party
transactions of the Bank are enclosed in the Notes to the
Financial Stalements.
i. Lending to employees, directors or
controlling shareholders
No lending has been made to the directors/controlling
shareholders of the Bank. However, the employees of the
Bank are entitled to House Building Loan, Car Loan and
Personal Loan at arm's length basis.
j. Transparency and Disclosure
Transparency is essential for sound and etfective
corporate governance. As set out in existing Basel
Commlttee guidance on bank transparency, it is difficult for
shareholders, other stakeholders and market participants
to effectively monitor and properly hold accountable the
board of directors and senior management when there is a
lack of transparency.
The shareholders, other stakeholders and market
participants receive sufficient information on the ownership
structure and objectives of the Bank to judge the
effectiveness of the Board and senior management in
governing the Bank. The Bank publishes the Financial
Statements with supporting notes and schedules regularly
through two daily newspapers, Bank's website, displays in
the Bank premises with a view to ensuring transparency
and disclosures in banking operations. Besides, periodic
financial statements are published and circulated to
shareholders. Press releases are regularly issued on major
corporate events of the Bank.
29
 OU
(.1 '-
&E
orz The Securities and Exchange Commission has issued a notification for all listed companies in order to
c(!t!!,/ improve Corporate Governance in the interest of the investors and capital market on 'Comply or
Explain' basis. Status report on compliance with the conditions imposed by SEC is given below in
.'',t a prescribed format:

Condition Ti e Compliance Stalus Explanation for

No. Complied Non- non-compliance
complied with the condition
1.1 Board Size
1.2(0 lndependent Directors The condition is under review.
1.2(iD lndependent Directors - Appointrnent The condition is under review.
1.3 Chairman of the Board and
Chief Executive Officer

1.4 The Directors' Report to Shareholders

1.4(a) Fairness of state oflhe af{airs
1.4(b) Keeping proper books of accounts
1.4(c) Consistent application of Acmunting
Policies in preparation of Financial Statements
1.4(d) Observance of Bangladesh Accounting Standard (BAS)
1.4(e) Soundness and efriciency of lntemal Control
1.4(0 Ability of Mercanlile Bank Limited to continue as gorng concem
1.4(e) Significance deviations ftom last year in operating result
1.4(h) Presentation of key op€rating and
financial data for last three years
1.4(D Declaration of dividend
1.4(i) Number of Board meeting held during
the year and attendance by each Director
1.4(k) Shareholding pattern

2.1 Appointment of
- Chief Financial Officer (CFO) The condition is under review
- Head of lnternalAudit
- Company Secretary
2.2 Requirements to Attend Board Meetings

- Chief Financial Ofiicer (CFO) The mndition is under review.

- Company Secretary

30
 a

Condition Title Compliance Status Explanation for

No. Complied Non- non.compliance
complied with the condition
3.0 Audit Committee
3.1(i) Number of members ofAudit Committee
3.1(ii) lnclusion of lndependenl Director in the Audit Committee The condition is under review.
3.1(iii) Fill the casual vacancy in Audit Committee
3.2(i) Selection of the Chairman of Audit Committee
3.2(ii) Qualificalion of Chairman of Audil Committee

3.3 Reporting of lhe Audit Commine€

3.3.1(i) Reporting its activities to the Board of Directors
3.3.1(ii) Report to the Board by the Audit Committee on
3.3.1(ii)(a) Conflicts of inlerest
3.3.1(iiXb) Suspected or presumed fraud or irregularity
or material defect in the internal control system
3.3.1(iiXc) Suspected infringement of laws, including
secunties relaled laws, rules and regulattons
3.3.1(iD(d) Any olher matter
3.3.2 Reporting lo the Authorities
3.4 Reporting lo the shareholders and general investors

4.0 External/Statutory Auditors

4.0(i) Appraisal or valualron servrces or lairness opinrons Extemal Auditors conduct
4.0(i0 Financial information syslems design and implementation inspection as per the guidelines
4.0(iii) Book keeping or other services related to Financial Statemenis issued by Bangladesh Bank
4.0(iv) Brokerdealer services for disbursement of cash
4.0(v) Actuarial services incentive to Readymade
4.o(vi) lnternal audit services: and Garments Factories financed
4.0(vii) Any olher services thal the Audit Committee determines by the Bank.

31
 Compliance of Section 1.4 fi)
Board Meeting held during 2005 and attendance by each director:
Composition of the Board Number of Meeting: 2005
Held Attended
Lld. Abdul Jalil, Chairman 16 16
Golam Faruk Ahmed 16 16
Md. Nasiruddin Choudhury 16 14
MorshedAlam 16 12
Md. Shahabuddin Alam 16 12
S.M. AMul Mannan 16 14
NargisAnwar' 86
Tazneen Aman' 87
lsrat Jahan* 84
Farida Begum* 88
Nazifa Khanam Chowdhury' B3
AKM Shaheed Reza
(lnducted as Direclor on January8,2006)
Saber Hossain Chowdhury 16 12
Shah Md. NurulAlam
(Managing oireclor and CEO) 16 16

' Elected as Direclorason May 18. 2005

Directors $,ho could not attend meetings \,vere granted leave of

absence by the Board.

The Pattern of Shareholding

. Parenusubsidiary/Associated companies and other related parties: Nil
. Directors, Chief Executive Officer, Company Secretary chief Financial Officer, Head of lnternal Audit.

SL Name Shares hEld Shares held

01 Directors Name of the Spouses
Md. AbdulJalil. Chairman 75.001 Rena Jalil 19,687
Golam FarukAhmed 172.681 KhurshidaAhmed 31,250
l\4d. Nasiruddin Choudhury 126.185 Khaleda Shahzadi 25,000
l\rorshed Alam 229.913 Bilkis Nahar 25,000
[,4d. Shahabuddin Alam 191.804 Yeasmin Alam 25,000
S M. Abdul l,4annan 98.380 Farida I\,4annan 24,595
Narqis Anwar 50,982 l\4d. Anwarul Haque 158,116
Tazneen Aman 31.250 l\,,1. Amanullah 682,086
lsrat Jahan 26.656 l\4d. Abdul Hannan 424,538
Farida Begum 25,000 Md. Selim 265,S94
Nazifa Khanam Chowdhury 25,000 0r Toufique Rahman Chowdhury 65.258
AKM Shaheed Reza 70.301 Zobeda Begum Ruma Nit
Saber Hossain Chowdhury 37,500 Rehana Chowdhury Nit
02. Chief Executive Ofiicer - Shah Md Nurul Alam Nit
03. Company Secretary (Acting)- Mir Md. HassanulZahed 512
04. Chief Financiai Ofllcer
05. Head of lnternalAudit - [4d Sayeduzzaman Chowdhury Nit

' Executives (Top five salaried employees of the company, other than the Directors, Chief Executive Ofiicer, Company Secretary,
Chief Financial Officer and Head of lnternalAudit).

SL Designation Name Shares held

01. Additional Managing Dhector l\,4.Nurul lslam 200
02. Depuq Managing Director AKM Shahadul Haque Nit
03. Senior Executive Vice President Md. Abul Shahiahan Nit
U. Executive Mce President Md. Abdul Jalil Chowdhury 156
05. Executive Vice President Prajna Jyoti Barua 't
56
. Shareholders holding ten percent or more voting interest in the company: Nil

32
 Audit Committee Report

Audit Committee Number of Meeting: 2005

Held Attended

Saber Hossain Chowdhury, Chairman 8

Md. Nasiruddin Choudhury I 7

Md. Shahabuddin Alam

(lnducted as member on May 18, 2005) 5 4

During the year 2005 the Committee discussed the following issues and provided
guideiines and necessary insiructions:
. Comprehensive inspection report of Banqladesh Bank received from time to time and
status of compliance thereof.
.lnternal inspection report of different branches conducted by Bank's Audit and
lnspection Team from time to time.
. AnnualAudit and lnspection program of the Bank.
. Financial Statements for the year 2004, Half Yearly Financial Statements as on June
2005 and appointment ofAuditors.
. Review of Policy Guidelines of lnformation Technology and System Audit, Anti-money
Laundering Guidelines, lnternal Control, Card Marketing and Card System Setup,
Employee Performance Appraisal Procedures and Formation of Board Audit Cell.
. Alleqed lrregular and Fraudulent transactions in Branch offlces.
. Follow-up the recovery of Loans and Advances.

/"L, (l "" J L'l

Saber Hossain Chowdhury
Chairman
Notice of the 7th Annual General Meeting
 Notice is hereby given to all members of Mercantile Bank Limited (the "Company") that
the T" Annual General l\.4eeting of the members of the Company will be held on Sunday,
l,4ay 28, 2006, at 11:30 a.m. in Winter Garden of Dhaka Sheraton Hotel to transact the
following business and adopt necessary resolutions:

Agenda
01 To receive, consider and adopt the Profit and Loss Account of the Company for
the year ended December 31, 2005 and the Balance Sheet as at that date
together with Reports of the Auditors and Directors thereon;
02 To declare Dividend out ofthe profits for the year ended December 31, 2005;
03 To elect Directors in place of those who shall retire in accordance with the
provision of law and the Articles ofAssociation ofthe Company;

04 To appoint Auditors of the Company for the term until conclusion of the next
Annual General l\.4eeting and to fix their remuneration;

05 To transact any other business with the permission of Chair;

By order of the Board

l\y'ir Md. Hassanul hed

Company Secretary (Acting)
Dated:April 30, 2006
Dhaka, Bangladesh

Notes:
a) The Record Dateshall beon Sunday, [,4ay 07,2006. The Shareholders' names appearing inthe Register of Members of the
Company or in the Depository on the Record Date will be eligible to attend the AG|\y' and receive the dividend.

b) Any member of the Company eligible to attend and vote at the general meeting may appoint a proxy to attend and vote on
his/her behalf. The proxy form duly filled in and signed by the Member and stamped must be submjtted at the Registered Office
of the Company at least 72 hours before the meeting.

c) Elections of Directors will be held in the vacant Offices of Directors. Election Schedule will be displayed in the notice board at
the Registered Office in due course. Election rules will be available at the Registered Office of the Company.

d) One of the two existing Auditors will be completing 3(three) consecutive years and is not eligible for re-appointment.
Nomination ofAuditors shall be placed before the honorable shareholders in the AGM for appointment;

e) l\y'embers are requested to not fy the changes of address, if any, well in time. For BO AJC holderc, the same to be rectified
through their respective Depository Participants.

35
 *if
.-
fa I

.L- L*.- .l L
t-_ L
q 4--

L
,f df

On behalf
to present
with audited Profit and Loss Account,
Cash Flow Statement, of Changes in Equity
and Assets Liabilities Analysis as of December
31, 2005. I am placing a brief review of operations during
2005, as well as of the present economic scenario of our
country in the backdrop of globalsituation.
World Economy
The momentum and resilience of the global economy in
2005 continued to exceed expectations. Despite higher oil
prices and natural disasters, activity in the second half of
2005 was stronger than expected, particularly among
emerging market countries. Due to the statistical revisions in
China and emerging market economies, global GDP growth
is estimated at 4.8 percent, 0.5 percentage point higher than
projected at September 2005. At the same time, incoming
data have been generally positive. Global industrial
production has picked up significantly from mid-2005; the
services sector remains resilient; global trade groMh is
close to double-digit levels; consumer confidence and labor
market conditions are strengtheningi and forward-looking
indicators, notably business confidence, have risen. From a
regional perspective, the expansion is becoming more
broadly based. Among industrial countries, the United
States remains the main engine of growth, but the Japanese
expansion is well established, and there are signs of a more
sustained recovery in the Euro area, although domestic
demand groMh remains subdued. Growth in most emerging
and developing countries remains solid, with the buoyancy
of activity in China, lndia, and Russia - which together
accounted for two-thirds of the upward revision to global
growlh in 2005 relative to that expected at September 2005.
Consistent with the strength of corporate profits and
improved balance sheets, inveslment in major industrial
countries appears to be picking up. Oil prices remain high
and volatile. The average petroleum spot price (APSP) rose
by another 41 percent in 2005. Prices spiked sharply in
early September 2005, peaking al USD 66 per barrel in the
wake of 'Hurricane Katrina'. Coordinated aclion by the
lnternational Energy Agency (lEA) and the U.S. government
to provide additional supplies from strategic reserves, as
well as OPEC's accommodative supply stance, temporarily
calmed the market, and by November crude oil prices
dropped back to pre-Katrina levels. With crude oil
consumption somewhat lower than expected in 2005, prices
are being increasingly driven by concerns about future
supply. Non-fuel commodity prices - particularly metals -
rose strongly in 2005, reflecting both cyclical and supply-
side factors, but is projected to be moderate in 200G47 as
supply responds to higher prices. Global financial market
conditions remain very favorable, characterized by
unusually low risk premiums and volatility. Global short-term
interest rates have continued to rise, led by the United
States. With tightening cycles in the Euro area and Japan,
short-term interest rate differentials have widened
considerably. Despite some recent increase, long run
interest rates remain below average, and the yield curve
has flattened, the more so in the most cyclically advanced
countries. lnterest rate spreads - in both industrial countries
and emergang markets - remain close to historic lows,
reflecting both improved fundamentals but also a search for
yield in an environment of easy liquidity, accompanied by
buoyant inflows to emerging markets. Within this favorable
environment, beyond the continuing strength of oal prices,
three features are particularly important:
. The U.S. current account deficit has continued to rise,
matched by large surpluses in oil exporters, China and
Japan, a number of small industrial countries, and other
pa(s of emerging Asia.
. lnflationary pressures remain surprisingly modest.
, Emerging markets and corporations remain - highly
unusually - large net savers, contributing to low long-
term interest rates.
37
 Bangladesh Economy
ln the fiscal year 2005 Bangladesh economy was
confronted with serious challenges, among others, the
impact of devastating floods, the excessive price hike of oil
and some other importable in the international market, in
addition to the termination of the Multi-Fiber Arrangement
(MFA). To cope with these challenges, the covernment and
the Bangladesh Bank adopted a series of policies to
enhance the resilience of the economy, while maintaining
macroeconomic stability. These policies significantly
contributed toward maintaining real GDP growth at a
satisfactory level of 5.4 percent in fiscal year 2005 as
against 6.3 percent in 2004. The reduction in growth of
agriculture sector from 4.1 percent in fiscal year 2004 to 0.3
percent in fiscal year 2005 caused to reduction in cDP
groMh despite increase in groMh of industry and service
sector of the economy. Economic growth was aided by
continuing rebound in exports, imports and remittances.
ln U.S. dollar terms exports earning recorded a growth of
'14.7 percent while imports payments surged by 2'1.4
percent. At the same time, remittances from non-resident
Bangladeshi nationals increased by '1'1.8 percent in fiscal
year 2005. Although the country's external current account
balance swung from surplus to deficlt, the overall balance
of payments continued to maintain a surplus that led to
further accretion to foreign exchange reserves. Foreign
exchange reserves stood at USD 2.93 billion at the end of
fiscai year 2005.
ln view of good post flood recovery of agricultural output,
stable manufacturing growth supported by continuing strong
export demand of knit garments, robust service sector
growth, and steady growth of remittances offsetting
the deficit in trade balance, fiscal year 2006 real GDP
growth is expected to come in the range of 6.3 to 6.8
percent. Overall growth for the agricultural sector is likely to
be in the range of 3.8 to 4.3 percent in fiscal year 2006 and
the principal contribution will come from the crop sub-sector.
lndustrial output groMh for fiscal year 2006 is expected to
lie in a range of 8.0 to 8.5 percent, which is a shade lower
than the 8.6 percent groMh of fiscal year 2005, but well in
excess of the average recorded over the past five years.
The service sector in fiscal year 2006 is expected to build
on the previous year's performance to attain growth in the
range of 6.5 to 7.0 percent.
The impact of floods on domestic food production, upward
movement of prices of oil and some other commodities in
world market, the depreciation of Taka and demand
pressure arising from higher private sector credit groMh
caused a rise in inflation during fiscal year 2005. Overall 12-
month consumer price inflation on point-to-point basis,
increased to 7.4 percent in June 2005 from 5.6 percent in
June 2004, while annual average inflation rncreased over
the same period to 6.5 percent.
Over and above the high international prices of crude oil
3B
and continuing upward trend in prices of many other
commodities, interest rates are on a rising trend in the
global economy with associated increase in the inflationary
expectations in the source countries of most imports. n the
domestic scene, there is likelihood of another round of
upward revision in the administered energy tariffs. On the
positive side, in view of the bumper aman harvest, the food
componenl of CPI is unlikely to register much further
increase in the coming months. On balance, with the
tightened monetary policy stance now adopted, the 12-
month average inflation stood at 7.04 percent as of
December 2005.
Broad money (M2)grew by 16.8 percent in fiscal year 2005
as against 13.8 percent in 2004. Total domestic credit grew
by '17.5 percent, while credit to private sector increased by
17.0 percent in fiscal year 2005 reflecting in part lending to
agricultural sector for flood rehabilitation and the higher
demand for credit induced by decline in real lending rates.
OPERATIONS OF THE BANK
Deposits
The Bank mobilized total deposits of BDT 25,727.43 rr|illion
as of December 31, 2005 as compared to BDT 22,385.19
million in 2004. Competitive interest rates, attractive deposit
products, deposit mobilization efforts of the Bank and
confidence reposed by the customers in the Bank
contributed to the notable growth in deposits. The Bank
evolved a number of aftractive deposit schemes to cater to
the requiremenl of small and medium savers. This improved
not only the quantum ol depositsi it also brought about
qualitative changes in the deposits structure.
Advances
The Bank has formulated its policy to give priority to small
and medium businessmen while financing large-scale
enterprises through consortium of Banks. Total loans and
advances of the Bank stood at BDT 21.857.05 million as of
December 3'l , 2005 as compared to BDT 17,669.29 mitlion
in 2004. Trade and commerce, garments industry, large and
medium scale industries and construction are major sectors
in which the Bank extended credit.
Syndications and Structured Finance
The Bank sanctioned BDT 2,962.60 million as funded and
non-funded facilities in Syndications and Structured
Finance. The Bank worked as lead arranger in syndication
financing as well as the participating financial institution.
The projects in which the Bank participated in Syndications
and Structured Finance included Grameen Phone
Bangladesh Limited, T[/
lnternational Limited, Pacific
Bangladesh Telecom Limited, Nasir Glass lndustries
Limited, Partex Sugar [,4ills Limited, United Sugar Mills
Limited, PHP Float Glass lndustries Limited, AM Enerqy
 Dircctors' Report

Limited, Dhaka Telephone Limited, Rising Spinning Mills for 78.34%, commission 8.66%, exchange gains 7.46%, and
Limited, Karim Spinning l\.4ills Limited, BRAC, Rural Power other income 5.54% to total income in 2005 as against
Company Ljmited and KYCR Coil lndustries Limited. 78.04%,7.99%,9.87y" and 4.10% respectively in 2004.
lmport Business TOTAL INCOME (BDT n rn ilion)

From the very beginning, the Bank has embarked on Components Amount % of Total
extensive foreign exchange business with a view to lnterest income 2,720.38 78.U
facilitating international trade transactions of the country. Commission 300.61 8.66
The Bank has established 14,852 Letters of Credit Exchange gains 259.20 7.46
amounting to BDT 33,271.90 million as of December 3'1, Other income 192.32 5.54
2005 as against '13,285 Letters of Credit amounting to BDT Total 3,472.51 100.00
28,325.20 million in 2004. ltems of imports financed by
the Bank included capital machinery, Hol Roll Steel, lnterest lncome
electric equipments, rice, wheat, seeds, CDSO, palmolein,
lnterest income increased from BDT 2,120.82 million in
cement clinkers, dyes, chemicals, raw cotton, garments
2004 lo BDT 2,720.38 million in 2005. lnterest on loans and
accessories etc.
advances accounted tot 84.53ok, lnterest on Treasury Bills
Export Business 6.97%, interest on deposits with other Banks 3.88%,
lnterest on Treasury and T & T Bond 2.'17%, lnterest on
The total export business handled by the Bank amounted to
Treasury Line 2.04ok and other interest income 0.41% of
BDT 24,'108.57 million as of December 31. 2005 as
total interest income in 2005 as against 82.79ok, 8.65yo,
compared to BDT 17,411.00 million in 2004. The Bank has
7.65%,0.82%,0.00% and 0.09% respectively in 2004.
made significant contribution to Readymade Garments
sector, which was 74.15% of total exports of the country in INTEREST INCOME (8DT in mittion)

2004-2005. Readymade carments has not only generated Components Amount % of Total
employment of men and women, it has also led to lnterest on loans and advances 2,299.55 84.53
emergence of forward looking entrepreneurs in the country lnterest on Treasury Bills 189.60 6.97
thus removing a
constraint to development efforts. lnterest on deposits with Banks 105.49 3.88
Apart from Readymade Garments export items handled by
lnterest on Treasury and T&T Bond 59.09 2.17
the Bank included jute goods, leather, plastic scrap,
lnterest on Treasury Line 55.41 2.04
handicrafts etc.
Other interest income 11.24 0.41

Foreign Remiftances Torat 2,720.38 100.00

Foreign remittances handled by the Bank stood at BDT
679.'10 million as of December 31,2005 as against BDT
671.30 million in 2004. The Bank has already made foreign
remittance arrangement with Unicredito ltaliano, ltaly and
lClCl Bank Canada to expedite inward foreign remittances.
The Bank has established Drawing Arrangement with United
Commercial Bank Limited and Arab Bangladesh Bank
Limited for the prompt delivery services of remittances to
the beneficiaries located any corner of Bangladesh.
Operating Revenue
The operating revenue of the Bank stood at BDT 967.23
lnterest Expenses
lnterest expenses moved up from BDT 1,509.00 million in
2004 to BDT 1,987.16 million in 2005. lnterest on deposits
under schemes was the largest component of interest
expenses and accounted for 52.86ok ol total interest
expenses in 2005 as compared to 55.85% in 2004. lnterest
on FDR accounted for 36.69%, interest on savings deposits
3.87%, interest on call deposits 3.25%, interest on short-
term deposits 1.91% and other interest expenses 1.42% of
total interest expenses in 2005 as against 36.23%,3.610/0,
2.55ok, 1 .52ok and 0.24 % respective ly in 2004.

million in 2005 as against BDT 821.76 million in 2004. After INTEREST EXPENSES (BDr n mi ion)
necessary provision net profit after tax stood at BDT 386.83 Components Amount % of Total
million as of December 31,2005 as against BDT 312.58
lnterest on deposit schemes 1,050.38 52.86
million in 2004. An amount of BDT 3'16.50 million has been
lnterest on fixed deposits 729.15 36.69
set aside for income tax contribution to National Exchequer
lnterest on savings deposits 76.80 3.87
as compared to BDT 241.68 million in 2004.
lnterest on call deposits 64.66 3.25
Total lncome lnterest on short term deposits 38.02 1.91
Other inlerest expenses 28.15 1.42
Total income increased from BDf 2,717.67 million in 2004
to BDT 3,472.51 million in 2005. lnterest income accounted Total 1,987.16 100.00

39
 Net lnterest lncome
Net interest income increased from BDT 611.82 million in 2004 to BDT
733.22 milion in 2005. Gross interest income of the Bank amounted to
BOT 2,720.38 million and interest expenses amounted to BDT 1,987.16
million in 2005.

Net lnterest Margin

Bank's net interest margin, which is derived by net interest income divided
by average earning assets, was 3.05% in 2005 as compared to 3.24% in
2004. Net lnterest Margin (Nl[r) decreased as the lower spread is being
resulted from the higher deposit rate and lower yleld on risk assets.
This indicates a reasonable spread between interest income and
interest expenses.

NonJnterest lncome
Non-interest income increased from BDT 596.85 million in 2004 to BDT
752.13 million in 2005. Non-interest income was 21.66% of the total
income in 2005 as compared to 21.96% in 2004. Commission accounted
for 39.97%, exchange gains 34.46"k and other non-interest income
25.57% of non-interest income in 2005 as against 36.38%,44.94% and
18.68% respectively in 2004.

NON-INTEREST INCOME (BDr in miL on)

Components Amount % of Total

Commission 300.61 39.97
Exchange gains 259.20 34.46
Other non-interest income 192.32 25.57
Total 752.13 100.00

Total Expenses
The total expenses of the Bank stood al BDT 2,505.28 million during 2005
as compared to BDT 1,895.91 million in 2004. lnterest expenses
accounted for 79.32%, salaries and allowances 11.29%, rcnl, rates, taxes
etc. 2.78ok, stationery, printing and advertisements 1.33%, depreciation
and repairs 1.2'1%, postage, stamp and telecommunication 0.65% and
other expenses 3.42o/o ol lolal expenses in 2005 as against 79.59%,
11.43%,2.91%,1.36%, '1.05%, 0.69% and 2.97% respectively in 2004.

TOTAL EXPENSES (BDT in m lion)

Components Amount % of Total

lnterest Expenses 1,987.16 79.32
Salaries and Allowances 282.88 11.29
Rent, Rates, Taxes etc. 69.65 2.78
DEPOSIT BDT n mllrcn Stationery, Printing &Advertisements 33.37 1.33
30,000
Depreciation and Repairs 30.33 1.21
25.000 a Postage, Stamp and Telecommunication 16.22 0.65
a Other Expenses 85.67 3.42
20,000
Total 2,505.28 100.00
15,000 a a
Noninterest Expenses
a
10,0d)
a Non-interest expenses moved up from BDT 386.91 million in 2004 to BDT
5,000
518.12 million in 2005. Non-interest expenses was 20.68% of the totat
o expenses in 2005 as compared lo 20.41ok in 2004. Salaries and
0 allowances accounted for 9.60%, rent, rates, taxes etc. 13.44%,
1999 2000 2001 2002 2003 2ao4 2005

4A
 Dircctors'Rcporl

stationery, printing and advertisements 6.44%, depreciation and repairs

5.85%, postage, stamp and telecommunication 3.13% and other expenses
16.54% of total non-interest expenses in 2005 as against 55.99%,14.27%,
6.66%,5.16%,3.36% and 14.56% respectively in 2004.

NON.INTEREST EXPENSES (BDr n mirion)

Components Amount % of Total
Salaries and Allowances 282.88 54.60
Rent, Rates, Taxes etc. 69.65 13.44
Stationery, Printing and Advertisements 33.37 6.44
Depreciation and Repairs 30.33 5.85
Postage, Stamp and Telecommunication 16.22 3.13
Other Expenses 85.67 16.54
Total 518.12 100.00
Operating Efficiency Ratio
Operating efficiency ratio stood al 72.15% in 2005 as against 69.76% in
2004. This measures how much operating expenses are incurred to
generate operating revenues.

Earning Base in Assets

Earning Base in Assets of the Bank was 90.40% in 2005 as compared to
93.88% in 2004. The ratio indicates efficient utilization of resources to
earn revenues.

i
I Profit After Tax
I
The Bank earned proflt after tax of BDT 386.83 million in 2005 as against
BDT 312.58 million in 2004.

PROFIT AFTER TAX (BDT in million)

lnterest lncome 2,720.38

lnterest Expenses (1,987.16)
Net lnterest lncome 733.22
Provision against Unclassified Loans (41.20)
Provision for Classified Loans (180.20)
Provision for Fixed Assets (42.s0)
Non-lnterest lncome 752.13
Non-lnterest Expenses (518.12)
Net Non-lnterest lncome 234.01
Profit before Tax 703.33
Provision for Tax {316.50)
Profit after Tax 386.83

The Board of Directors recommended 20% stock and 5% cash dividend for
the year 2005. The Bank paid out 25% stock dividend to the shareholders ADVANCES BDT n nr lion
25 000
for the year 2004.
I a
20 000
I Asset Portfolio
.t a
1 The Bank's total assets outstanding as of December 3'1, 2005 amounted to t5 000
BDT 28,890.48 million as compared to BDT 24,098.09 million in 2004.
Of the total assets outstandinq in 2005, loans and advances constituted o 10.000

75.65%, investments 12.18%, cash 6.50%, money at call and short notice
a
o
2.16%, balances with other banks 0.41%. and other assets 3.'10% 5.000
a
as against 73.32%, 12.90%, 4.20%,5.53%, 2.13% and 1.92% respectively
in 2004
a 0
1999 2000 2001 2002 2@3 20n4 2005

41
 ASSET PORTFOLIO (B0T in millDn)

Components Amount % of Total

Loans and Advances 21,857.05 75.65
lnvestments 3,517.68 12.18
Cash 1,878.41 6.50
Money at Call and Short Notice 625.00 2.16
Balances with other Banks '118.19 0.41
OtherAssets 894.15 3.10
Total 28,890.48 100.00

Funding Structure
The Bank's principal source of fund was deposits, which constituted
89.05% of total funds in 2005 as compared to 92.89% in 2004. The Bank's
paid-up capital accounted for 3.46%, reserves 3.62% and other sources
3.87% of total funds in 2005 as against 3.32%, 3.40% and 0.39%
respectively in 2004.

FUNOING STRUCTURE 18DT in mllion)

Components Amount % of Total

Deposits 25,727.43 89.05
Paid-up Capital 999.27 3.46
Reserves 1,046.58 3.62
Others 1,117.20 3.87
Total 28,890.48 100.00

Business and Geographical Segments

The Bank's operations were divided under the following bus ness
segments:
. Retail and Corporate Banking operations constituted Commercial
Banking
. Treasury operations constituted lnvestment Banking.

lncome, expenses, assets and liabilities were especially identifled with

individual segments. Based on such allocation, segmental information as
on December 3'1, 2005 and information related to Proflt and Loss Account
for the year 2005 has been prepared.

SEGMENT ANALYSIS tBDr n milion)

Particulars Commercial lnvestment Total

Banking Banking
Proflt before Tax and Provision 862.55 104.68 967.23
Provision against Loans & FixedAssets 263.90
Proflt before Tax 703.33
Provision for Tax 316.50
IMPORT tsDT n mrr,on Provision
Profit after Tax and 386.83
35000-
a SegmentalAssets 23,009.48 5,881.00 28,890.48
30.000
a Segmental Liabilities 23,009.48 5,881.00 28,890.48
25 000
The overall operations of the Bank were in Bangladesh during the
20.000 a year 2005.

15,tloo a Contribution to National Exchequer and Economy

a
r0 000 a The Bank has made provision of BDT 316.50 million for corporate tax in
5 000 2005 against BDT 241.68 million in 2004. The Bank has also contributed to
a the economy by generating employment of 663 full time offlcials. ln the
0- intermediation process the Bank mobilized resources of BOf 25J27A3
1999 2000 2001 2AA2 2003 20A4 2005
millaon from the surplus economic unit and deployed BDT 21,857.05 mi ion

42
 Directors' Report

in 2005. The Bank has made significant contribution to Readymade

Garments sectors by handling export Letters of Credit.

Gapital
The Authorized Capital of the Bank was BDT 1,200.00 million of
12,000,000 ordinary shares of BDT 100 each as of December 3'1, 2005.

Paid-up Capital of the Bank was BDT 999.2656 million of 9,992,656

ordinary shares of BDT '100 each as of December 31, 2005. The shares of
the Bank have been listed both in Dhaka Stock Exchange and Chittagong
Stock Exchange and are being traded at prices higher than the book value.

Capital Adequacy
As per the guidelines of Bangladesh Bank, the Bank adopted BIS (Bank for
lnternational Settlements) risk adjusted capital standards to measure
capital adequacy. The Bank's Capital Adequacy Ratio stood at 10.39% in
2005 as against 10.24% in 2004.

CAPITAL ADEQUACY (BDr in million)

Core Capital (Tierl) 1,829.19

Paid-up Capital 999.27
Statutory Reserve 532.55
Dividend Equalization Account 45.68
Retained Earnings 251.69
Supplementary Capital (Tier-ll) 216.66
Provision against Unclassified Loans 214.34
Exchange Equalization Account 2.32
Totalcapital 2,045.85
Total Risk.Weighted Assets '19,693.04

BIS Ratio Minimum Actual

Requirements
Tier-l 4.500/. 9.290/a
Tierll 1.10%
Total Capital 9.00% 10.39%

Acquisition of IDLC Share

The Bank has acquired 150,000 shares of lnternational Development and
Leasing Company of Bangladesh Limited (IDLC)from lnternational Finance
Corporation (lFC), sponsor of IDLC. This shareholding represents'10% of
IDLC's share capital. The Bank acquired each share at BDT 863.00 against
the face value of BDT '100.00. [.4arket price per share of IDLC stood at B0T
1,007.25 as of December 31, 2005.

Purchase of Land EXPORT bulln rilliol

25,000
The Bank purchased a land measuring 1 bigha 2 chattaks located at a
Gulshan, Plot 3, Block CWN (C), Gulshan Avenue, Gulshan, Dhaka 1212,
20,000
Municipality Holding 105, Gulshan Avenue, Gulshan during the year 2005
for Bank's own use. The land is under litigation and possession of the land
o
a 15,000
is yet to be taken. ln this connection a provision has been made as per
Bangladesh Bank's inslruction.
a a 10,000

Branch Network a 5 000

The Bank commenced its business on June 2, 1999. The first branch was
opened at Dilkusha CommercialArea in Dhaka on the inauguration day of a 0
the Bank. The number of branches of the Bank stood at 28 (Twenty eight) 1999 2000 2001 2AA2 2003 20M 2005

43
-
 at the end of 2005 of which 22 (Twenty two) branches are located at major
trade centers of the country while remaining 6 (Six) branches are at the
rural areas of the country.

Board of Directors
ln the 6'" Annual General l\4eeting in May 2005, after being in the office of
directors for consecutive 6 (six) years, five sponsor-directors of the Bank -
l\,4d. Anwarul Haque, Dr. Toufique Rahman Chowdhury, NId. Aman Ullah,
l\.4d. Abdul Hannan. and Md. Selim - retired from the Board and l\.4d. Abdul
Jalil and Golam Faruk Ahmed, Sponsors continued for further term
pursuant to the relevant provisions of Bank Companies Act, 1991.

Five sponsors of the Bank - Nargis Anwar, Tazneen Aman, lsrat Jahan,
Farida Begum, and Nazifa Khanam Chowdhury - were elected in the
6' AGt\,,t

Saber Hossain Chowdhury representing public shareholders of the Bank

was re-elected for the 2"term uncontested.

A.K.i.4. Shaheed Reza, Sponsor and Ex-Director of the Bank was inducted
in the Board as Director from January 08, 2006 raising the total number of
Directors to 13 (Thirteen).

Board and Committee Meetings

16 (Sixteen) meetings of the Board of Directors, 34 (Thirty four) meetings
of the Executive Committee and g (Nine) meetings of the Audit Committee
of the Board were held during the year 2005.
Number of Meeting
2005 2004

Board of Directors 16 12
Executive Committee 34 42
Audit Committee I 14

Corporate and Financial Reporting

The Board of Directors confirms compliance with the financial reporting
framework for the followingsl

- the financial statements prepared by the l\.4anagement of the Bank

present fairly its state of affairs, the results of its operations, cash flows
and changes in equity;

- proper books and accounts of the Bank have been maintained;

- appropriate accounting policies have been consistently applied in the

preparation of financial statements and accounting estimates are based
on reasonable and prudent judgement;

INCOME (%): 2005 - lnternational Accounting Standards, as applicable in Bangladesh, have

been followed in preparation of financial statements and any departure,
r 00tli therefore, has been adequately disclosed;

78.34
- the system of lnternal Control is sound in design and has been
lnterest income effectively implemented and monitored;
866 there are no significant doubts upon the Bank to continue as a
Commisson
I going concern.
Exchange ga ns
746
I External Auditors
54
T A. Qasem & Co., Chartered Accountants and Khan Wahab Shafique
Rahman & Co., Chartered Accountants are presently appointed as

44
 Directors'Rcport

Auditors of the Bank. The Audit Firm: A Qasem & Co.. Chartered
Accountants will be completang 3 (Three) consecutive years as Auditors
and in terms of guidelines of Bangladesh Bank and Securities and
Exchange Commission, the Firm is not eligible for re-appointment.
However, Khan Wahab Shafique Rahman & Co., Chartered Accountants,
being completed only '1 (One) year satisfactorily, is eligible for re-
appointment for further term. i.,1eanwhile, they have expressed their
willingness to continue as one of the Auditors. The distinguished
Shareholders are to decide for appointment / re-appointment of 2 (Two)
Audit Firms as Auditors of the Bank.

Correspondent Relationship
The Bank has established correspondent relationship across the world with
a number of foreign banks namely Citibank, N.A., Wachovia Bank, N.A.,
The Bank cf Tokyo N,litsubishi Ltd.. HSBC, UBS, Sumitomo Mitsui Banking
Corporation, Commerzbank, Standard Chartered Bank, Scotia Bank,
Hypovereinsbank, Commonwealth Bank of Australia, Toronto Dominion
Bank, UniCredito ltaliano, American Express Bank, MashreqBank, Hutton
National Bank, Bank Austria, Mizuho Corporate Bank Ltd., Dresdner Bank
AG, UBAF, Danske Bank l'ls, ING Bank, United Bank of lndia, lclcl Bank
etc. The number of foreign correspondents stood at 266 as of December
31, 2005 as against 255 in 2004. Efforts are being continued to further
expand the correspondent relationship to facilitate Bank's growing foreign
trade transactions.

Human Resources Development

ln today's competitive business environment, the quality of human
resources makes the difierence. The Bank's commitment to attract high
quality persons to work for it is reflected in the efforts of the Bank. ln the
face of today's globalization, the Bank envisages to develop highly
motivated workforce and equip them with latest skills and technologies. The
Bank evolves human resources development strategy with a view to
ensuring good working environment, a high level of loyalty and
commitment, devotion and dedication on the part of the employees.

The Bank has set up Training lnstitute for providing training facilities to its
executives/officers. The Training lnstitute has already conducted a number
of foundation and specialized training courses. A number of officers were
sent to Bangladesh lnstitute of Bank Management (BIBM) and other
training institutes at home and abroad for specialized training on various
aspects of banking. The Bank believes in professional excellence and
considers its working force as its most valuable asset and the basis of its
efiiciency and strength.
EXPENSES (%):2005
Management
100%
The Board of Directors consists of eminent personalities from commerce
and industry of the country. lVd. Abdul Jalil, Member of Parliament, Founder T9.32
lnteresl Expenses
Chairman of the Board of Directors, is a businessman besides being an
11 29
eminent personality of the country. Sahnes and Allowances I
2.78
The Bank is manned and managed by highly qualified and efficient Renl, Rates, Taxes elc I
professionals. The Chief Executive Officer of the Bank is Shah Md. Nurul 6.61
Alam who has rich experience of managing 2 (two) private sector banks as Olher Expenses I
the Managing Director and CEO successfully.

45
 R&D: lnvesting into the Future
Excellence in banking operation depends largely on a well
equipped and efficient Research and Development Division.
Such activities require the investment of substantial
resources and a set of qualfied personnel with
multidisciplinary background. Although it is not possible
at this stage to undertake R&D activities similar to those of
the banks in the developed counkies, Mercantile Bank
has established a core Research and Planning Division
comprising skilled persons from the very inception of
the Bank.
lnformation Technology
Banking operations of the branches have been computerized
to minimize costs and risks and to optimize benefits and
increase overall efflciency for improved services. The Bank
generates the relevant financial statements at the end of the
day. The Bank has installed Reuters Screen for smooth
operation of foreign currency dealings. The Bank has also
hosted a web page of its own to take a place in the World
Wide Web. On-line Banking has been introduced by the
Bank to provide better services to the customer The Bank
has introduced ATI\y' 'Q-cash The Bank has installed SWIFT
. Lease Finance
to facilitate quick international trade and payments
arrangements. The Bank has akeady introduced VISA debit
and credit cards.
Financial Products and Services
The Bank has launched a number of financial products and
services since its inception. Among them l\ronthly Saving
Scheme, Family Maintenance Deposit, Double Benefit
Deposit Scheme, Special Saving Scheme, Pension and
Family Support Deposit, Consumer Credit Scheme, Small
Loan Scheme and Lease Finance Scheme have attained
wide acceptance among the people.
Monthly Savings Scheme
The prime objective of this scheme is to encourage people to
build up habit of saving. Under this scheme, one can save a
flxed 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 upto
five years.
Double Benefit Deposit Scheme
Under this scheme, depositoas money will be doubled in a
seven-year period.
46
Special Savings Scheme
lJnder this scheme, depositols money will be tripled in 15-
year period.
Pension and Family Support Deposit
Pension and Family Support Deposit has been evolved
especially for senior citizens. Under this scheme one can get
life long benefit if he deposits speciflc 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 one of the popular 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.
This scheme has been designed to assist and encourage the
genuine and capable entrepreneurs and professionals for
acquiring capital machineries, medical equipments,
compulers and other items. Flexibility and easier terms and
conditions of this scheme have attracted 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 lo make them self-employed through
financing various income{enerating projects. This scheme
is operated on group basis.
Women Entrepreneurs Development Scheme
Women Entrepreneurs Development Scheme has been
introduced 10 encourage women in doing business. Under
this scheme, the Bank finances the small and cottage
industry prolects sponsored by women.
SME Financing Scheme
Small and Medium Enterprise (S[.4E) Financing Scheme has
been introduced to assist new or experienced entrepreneurs
to invest in small and medium scale industries.
 qr: r3

4a
L---
Personal Loan Scheme
Personal Loan Scheme has been introduced to extend credit facilities to cater to the
needs of low and middle-income group for any purpose. Government and semr' E
government officials, employees of autonomous bodies, banks and other financial
organizations, multinational companies, reputed private organizations and teachers of
recognized public and prjvate schools, colleges and universilies are eligible for the
loan facilities.

df
Car Loan Scheme
Car Loan Scheme has been introduced to enable middle-income people to purchase 6
I
1a
and semigovernment offlcials, employees of
Carsi SUVsiJeeps. Government El
autonomous bodies, banks and other financial organizations, multinational
companies, reputed private organizations, teachers of recognized public and pravate
universities and businessmen are eligible for the loan facilities.

Outlook 2006
The Bank will continue to strengthen its position by expanding its core business
activities, particularly in trade flnance, commercial lending to SN.4E and Structured
Finance. On liability management, the Bank will remain focused on growing its core /
customer deposits and also improve its deposit mix to have competitive funding cost.
The Bank will continue to enhance its delivery standards, promote fee-based
activities and pursue greater cost efjiciency and staff productivity by building on its
successful business process. ln its pursuit of business groMh, the Bank will invariably

k
adhere to good corporate governance practices, sound risk management policies,
prudent credit policies and practices in order to support sustainable long{erm growlh
and profitability of the Bank for the benefit of all stakeholders. Given its strong
performance in 2005 the Bank confidently looks forward to continue sharing its
success in delivering superior shareholders' value.
\
Acknowledgments
L4ercantile Bank Limited has gained firm confidence in the minds of its clients within a
short period of its operation. The success is primarily attributed to prompt and bold
decision-making, efficient and cordial services, economic use of resources and
introduction of new financial products and technologies. The continued endeavors of
the l\4anagement and Staff of the Bank under prudent guidance and timely support of
the Board of Directors have substantially contributed to success of the Bank. The
Board of Directors takes this opportunity of expressing its heart-felt appreciation and
gratitude to the Government of the People's Republic of Bangladesh, Bangladesh
Bank, Securities Exchange Commission (SEC), Dhaka Sock Exchange (DSE),
Chittagong Stock Exchange (CSE) and Registrar of Joint Stock Companies and Firms
for their help and assistance, valuable guidance and advice extended to the Bank
from time to time.

The Board of Directors also expresses deep appreciation to the management and all
members of staff for their meritorious and sincere services and also to the clients, the
sponsors, the shareholders/stakeholders, patrons and well-wishers, whose continued
support and patronage have made the results possible.

On behalf of the Board of DirectoG

ry
Md. Abdul Jalil
Chatman
 -
I

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49
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Auditors'Report

61
 Auditors'Report
to the Shareholders of Mercantile Bank Limited

We have audited the accompanying Balance Sheet of the Mercantile

Bank Limited as of December 31. 2005 and the related Profit and Loss
Account and the Statement of Cash Flows for the year then ended. The
preparation of those Financial Statements is the responsibility of the
Bank's l\4anagement. Our responsibility is to express an opinion on these
Financial Statements based on our audit.

Scope
We conducted our audit in accordance with Bangladesh Standards on
Auditing (BSA). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the Financial
Statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the Financial Statements. An audit also includes
assessing the accounting principles used and significant estimates made
by Management, as well as evaluating the overall Financial Statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.

Opinion
ln our opinion, the Financial Statements prepared in accordance with
Bangladesh Accounting Standards (BAS), give a true and fair view ofthe
state ofthe Bank's affairs as of December 3'1, 2005 and of the results of
its operations and its cash flows for the year then ended and comply with
the Bank Companies Act '1991, the rules and regulations issued by the
Bangladesh Bank, the Companies Act 1994, the Securilies and
Exchange Rules 1987 and other applicable laws and regulations.

62
We also report that

(i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the
purposes of our audit and made due verification thereof;

(ii) in our opinion, proper books of account as required by law have been kept by the Bank so far as it appeared from our
examination of those books and proper returns adequate for the purposes of our audit have been received from branches not
visited by us;

(iii) the Bank's Balance Sheet and Profit and Loss Account together with the annexed notes 1 to 35 dealt with by the report are
in agreement with the books of account and returns;

(iv) the expenditure incurred was for the purposes of the Bank's business;

(v) read in conjunction with the notes to the Financial Statements, the financial position of the Bank as on 31 December 2005
and the proflt for the year then ended have been properly reflected in the Financial Statementst the Financial Statements have
been prepared in accordance wlth the Generally Accepted Accounting Principles (GAAP)i

(vi) the Financial Statements have been drawn up in conformity with the Bank Companies Act 1991 and in accordance with the
accounting rules and regulations issued by the Bangladesh Bank;

(vii) the Financial Statements conform to the prescribed standards set in the accounting regulations issued by the Bangladesh
Bank after consultation with the professional accounting bodies of Bangladesh;

(viii) the records and statements submitted by the branches have been properly maintained and consolidated in the Financial
Statements:

(ix) adequate provisions have been made for advances which are, in our opinion, doubtful of recovery;

(x) the information and explanations required by us have been received and found satisfactory; and

(xi) ofthe Risk-Weighted Assets of the Bank as at December 3'1, 2005 have been audited by a team consisting of 6 members
80o/o

covering different branches of different regions and we have spent about 2,100 person hours for audit of books of accounts
of Mercantile Bank Limited.

^^-- ,,A*t o,4,* <!.--

Khan Wahab Shd(que Rahman & Co.
Al&-&""1\-
A. hasem & Co.
Chaftered Accountants Chaftercd Accountants

Dhaka, l\y'arch 29,2006

63
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64
BALANCE SHEET
as at December 31, 2005

NOTES 2005 (Bpr) 2004 (BpT)

PROPERTY AND ASSETS
Cash 3 't,878,414,994 1,013,170,468
Cash in hand (lncludjng Foreign Currencies) 208,905,722 179,769,611
Balance with Bangladesh Bank and Sonali Bank 1,669,509,272 833,400,857
(lncluding Foreign Currencies)
Balance with other Banks and Financial lnstitutions 4 118,193,803 513,57'1,708
In Bangladesh 48,427,752 478,580,0'16
Outside Bangladesh 69,766,051 34,991,692
Money at Call and Short Notice 5 625,000,000 1.332,000,000
lnvestments 6 3,5'17,678,890 3,108,512,490
Government 2,549,'191,890 2,973,512,490
Others 968,487,000 135,000,000
Loans and Advances 7 21,857,054,328 17,669,292,271
Loans, Cash Credit, Overdraft etc. 20,065,170,273 16,766,308,540
Bills Purchased and Discounted 7.8 1,791,884,055 902,983,73'1
Fixed AsseG lncluding Premises, Furniture and Fixtures 8 366,799,715 '103,542,046
Other Assets o 527,342,014 358,004,300
Non Banking Assets
Total AsseG 28,890,483,7/t4 24,098,093,283

LIABILITIES AND CAPITAL

Liabilities
Borrowings from other Banks, Financial lnstitutions and Agents 10 640,000,000 1,700,000,000
Deposits and Other Accounts 11 24,661 ,152,1 42 19 ,7 54,17 4,237
Current Accounts and Other Accounts 11.1 3,684,669,671 2,539,936,957
Bills Payable 11.2 415,449,115 359,406,512
Savings Bank Deposits 11.3 1,473,576,664 1,199,958,915
Fixed Deposits 11.4 8,787,533,771 6,971,499,286
Bearer Certificates of Deposits 11.5 21,U3,516 25,239,025
Deposits Under Schemes 11.6 10,278,579,405 8,658,'133,542
Other Liabilities 12 '1,760,146,200 1,20'1,567,289
Total Liabilities 27,061,298,342 22,655,7 41 ,526
CapitaUShareholders' Equity
Paid-up Capital 13.1 999,265,600 799,412,500
Statutory Reserve 14 532,549,402 391,882,622
Other Reserve 15 45,680,250 45,680,250
Surplus in Profit and Loss Account '16 251,690,150 205,376,385
Total Shareholders' Equity '1,829,185,402 1,442,35't,757
Total Liabilities and Shareholders' Equity 28,890,483,744 24,098,093,283

These Financial Statements should be read in conjunction with the annexed notes.

A.K.M. Shah Reza slf. mort tlt"nn"n

L
Md. Shahabudd inlAt".
Director Diector Diector

Shah Md. Nurul Alam Md. AbdulJalil

Managing Director Chairman
Auditors' Report to the Shareholders see annexed report on even date

AAo^* t 6u e\c/, <a4-- A/4,(-{^.11"

Khan Wahab Sh#ique Rahman & Co. A. (lasem & Co.
Charlered Accountants Chatlered Accountants

Dhaka, March 29,2006

65
 OFF.BALANCE SHEET ITEMS
as at Decembet 3l, 2005

NOTES 2005 (BpT) 2004 (BDT)

Contingent Liabilities
Acceptances and Endorsements 17 5,9'1 8, 1 08,640 3,662,893,640
Letters of Guarantee 17.1 2.702,1U,347 1,180,312,925
lrrevocable Letters of Credit 17.2 6,021,240,691 6,4'11,295,819
Bills for Collection 17.3 32,733,864 43,604,'165
Other Contingent Liabilities
Total 14,674,247,542 106,549

Other Commitments B
Documentary credits and short term trade relaled transactions
Forward assets purchased and fonvard deposits placed
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credil lines and other commitments
Total
Total Off-Balance Sheet items including contingent liabilities (A+B)

These Financial Statements should be read in conjunction with the annexed notes.

l\

A.K,M. Reza S.M, Abdul Mannan

-+-A "6
Md. ShahabuddinlAlam
Dircctar Direclot Director

4d.Y*l2,
u
Shah Md. NurulAlam Md. Abdul Jalil
A,4anaging Duector Chatnan
Auditors' Report to the Shareholders see annexed report on even date

k6al d./, <a4-- A/44-{"4

^Ad-wahab Sh#que Rahman & Co.
Khan A. Qasem & Co.
Chaiered Accountants Chartered Accountants
Dhaka, Ivlarch 29, 2006

66
Profit and Loss Account
fot the yeat ended December 31, 2005

NOTES 2005 (BDTI 2004 (BpT)

lnterest lncome 18.1

Less: lnterest Paid on Deposits, Borrowings etc. lo
Net lnterest lncome 418,283,319 409,210,651
lnvestment lncome 18.4
Commission, Exchange and Brokerage 20
Other Operating lncome 21
1,067 ,071,797 799,4s6,898
Total Operating lncome 1,485,355,116'1,208,667,549
Salaries and Allowances
Rent, Taxes, lnsurance, Electricity, etc. 24
Legal Expenses 25
Postage, Stamp, Telecommunication, etc.
Stalionery, Printing, Advertisements, etc. 26
Chief Executive's Salary and Fees 23.1
Directors'Fees 22
Auditors'Fees
Depreciation and Repair of Fixed Assets 27
Other Expenses 28
Total Operating Expenses 518,',t2',t,216 386,906,123
Profit before Provision 967,233,900 821,16',t,426
Provision lor Classafied Loans and Advances 12.2
Provision for Unclassified Loans and Advances 12.2
Provision for Fixed Assets 12.1
Total Provision 263,900,000 267,500,000
Total Profit before Taxes 703,333,900 554,261,426
Provision for Taxation 12.1.1 316,500,255 241,680,000
Net Profit after TaEtion 386,833,645 312,581,426
Retained Surplus brought forward from prevpus year

Appropriations
Statutory Reserve 140,666,780 110,850,000
Retained Surplus 251,690,150 205,376,385
3't6,226,385
Earning Per Share (EPS) 29 38.71 31.28

These Financial Statements should be read in conjunction with the annexed noles.

)+
A.K.ii. shahe{ Reza fli. Abdrr M.nn"n
-4D+
Md. ShahabuddinlAhm
Director j Dircclor Director

Shah Md. NurulAlam Md. AbdulJalil

Managing Director Chairman
Auditors' Report to the Shareholders see annexed report on even date

*2,^- zS<.2 erfL ,(y1-2.- a/^{l,,.j*

Khan Wahab Sh#que Rahman & Co. A.6asem & Co.
Chaiered Accounlanls Chaiered Accountants
Dhaka, [Iarch 29, 2006

67
 Gash Flow Statement
for the year ended Decembet 31, 2005
2005lBDTr 2004 (BpT)
A. Cash Flows lrom Operating Activities
lnterest Received 2.720 378 620 2 137 076 083
lnlerest Paid (1 987.160.265) (1,508.998.033)
Fees and Commission Recerved 300.611 339 217 146134
Payment to the Employees (278.131.091) \214,607,313)
Payment to Suppliers (33.365.394) \25 777 355)
lncome Tax Paid (291 739 729) (198 584 398)
Received rrom other operating activities 451,132,'t04 362,320,670
Exchange Gain 259.202.408 268,210,909
Other Operating lncome 191.929,696 94,109,76'1
Payment for other Operating Activities (190 963 408) (130 BBB 329)
Rent, Taxes, lnsurance and Electricity {69.653,967) (55.206 395)
Legal Expenses (2,485,159) (527.270)
Postage, Stamps and Telecommunication (16,215.951) (12,990.096)
Auditors'Fees (250,000) (100,000)
Repair and Maintenance (6.923,729) (4,328.413)
Chief Executive's Salary and Fees (4,750,000) (2,027.775)
Directoas' Fees (1,349,700) (1.504.22sj
Other Expenses (89,334,902) (54,204155)
Operating profit before changes in Operating Assets and Liabilities 690,762,176 637,687,455
lncrease / Decrease in Operating Assets and Liabilities
Loans and Advances to other Banks
Loans and Advances lo Customers 14 187 762 A57) (6 893 346 740)
Other Assets (ltem-wise) (169 337 714) (162 910 638)
Advance Deposits (140 275) (86,188)
Stock of Statjonery \1 026.773) (1,806,980)
Suspense Account (8.239,841) (326,810)
Stamp in Hand (135.817) 1.131,352
Advance Rent 11.581,124 {11,445.381)
Excise Duty (8,050)
Clearing Adjustment 5.136,601
DD Paid without Advice (377.116) (150,000)
Mercantile Bank General Account (68 331 080) (5 136,601)
Adjusting Account Debit (107,796.487) (145,090,030)
Deposit from other Banks (1.060 000 000) 900,000,000
Deposit from Customers 4 906,977,905 4,955.577.729
Other Liabilities on Account ol Cuslomers
Other Liabilities (495.194.110) (279.413.518\
Net Cash Received from Operating Activities (314.553.8001 1U2.405.?121
B. Cash Flows from lnvesling Activities
Sale proceeds of Fixed Assets 166,357,986 180,000
Dividend Received - 942.700
Purchase/ Sale of Property. Plant and Equipment (286.722.975) (37.672.735)
Purchase/ Sale of Shares (226.535.190) (98.105.000)
Net Cash Irom lnvesting Activities (346,900,179) {134.655.035)
C, Cash Flows from Financing Activities
Receipts from lssue of Loan Capital and Debt Securities
Paid for Repayment of Loan and Debt Secu ties
Received by lssue of Share
Dlvidend Paid
Net Cash trom Financirg Activities
D. Net lncrease(Decrease) ol Cash & Cash Equivalent {A+B+C) (661,453,979) (977,060,747)
Effects of Exchange Rate Changes on Cash and Cash Equivalenl
E. Opening Cash and Cash Equivalent 5,832,254,666 6,809,315,413
F. Closing Cash and Cash Equivalent (D+E) 5,170,800,687 5,832,254,666
Note-A
Cash in hand (lncluding Foreign Currencies) 20 8.9 05.722 179,769,611
Balance with Bangladesh Bank and Sonali Bank 66 9.5 49.272 833,400.857
(lncluding Foreign Currencies)
Balance with other Banks and Financial institutions 803
118 193 513.571.708
Money at Call and Short Notice 000
625.000 1.332.000.000
lnvestments-Government (Note-6) 2.549.191.890 2.973.512.154
s,170,800,687 5,832,254,666
These Financial Statements should be read in conjunclion with the annexed noles

)n-
l.x.u. straled Reza S.M. Abdul Mannan
-4;D ,#.
Md. Shahabudd
Drectot I Dtector Director

Shah d. NurulAlam
4+'>
Md. AbdulJalil
Managing Dircctor Chahman
Auditors'Report to the Shareholders see annexed reporl on even date

*t.-- 2,6-<^z a,rg.- 4!+-z- ai&,"A

Khan Wahab Shrfique Rahman & Co. Qasem
A. & Co.
Chaiered Accountants Chaiered Accountants
Dhaka, March 29, 2006
68
Statement of Ghanges in Equity
for the year ended Decembet 31, 2005

Paid-up Statutory Other Surplus

Capital ReserYe Reserve ProfiU(Loss) Total
BDT BDT BDT BDT BDT

Balance as at 01 January 2005 799,412,500 391,882,622 45,680,250 205,376,385 1,442,351,757

Changes in Accounting Policy
Restated Balance
Surplus/Deficit on account of
revaluation of properties
Surplus/Deficit on account of
revaluation of investments
Currency transaction difference
Net gains and losses not recognised
in the lncome Statement
Net profit for the year after taxation 386,833,645 386,833,64s
Transfer 1 40,666, 780 (140,666,780)
lssuance of Bonus Share 199,853,100 (199,853,100)
Bonus Share Premium
Proposed Cash Dividend
Dividend Equalization Fund
lssue of Share Capital
Balance as at 3l December 2005 999,265,600 251,690,150 1,829,185,402

These Financial Statements should be read in conjunction with the annexed notes.

t_
---J/ r
A.K.lr. Shahe# Reza i.ii. Abdrr M.nnrn
__4.n,+ l)

Md. ShahabuddinlAlam
Dtector j Direclot Direclor

Shah Md. NurulAlam

q*
Md. Abdul Jalil
Managing Diector Chairnan
Auditors'Report to the Shareholders see annexed report on even date

*za* 2,6,<^z ac7$* <aA-- ain*"^A

Khan Wahab Shalique Rahman & Co. A.Qasem & Co.
Chaftered Accountants Chaftered Accountants

Dhaka, March 29,2006

69
 Liquidity Statement: Assets and Liabilities Maturity Analysis
as at December 31, 2005

Upto 01 01-03 03-12 0 t-05 More than Total

Assets Month Months Month Years 05 years
BDI BDT BDT BDT BDT BOT
Cash in hand 1.878,414.S94 1.878.4'14 994
Balance wilh Other Banks and
Financial lnstitutions 28.503.671 89,690.132 118,193,803
Money al Call and Short Notice 300.000.000 325,000,000 625,000,000
lnvestments 250.104,500 - 2,867,574,390 400,000,000 3,517,678,890
Loans and Advances 374,890.942 1,974,099,000 11,446,710,386 5,590,142,000 2,471 ,212,000 21,857,054,328
Fixed Assets including premises,
fumiture and fixlures 158,476,335 208.323,380 366,799,715
OtherAssets 82,894,307 410.203,405 34 244.302 527,342.014
Non-banking Assets
Total Assets 2,9r4,808,414 2,798,992,537 14,348,529,078 5,748,6'18,335 3,079,535,380 28,890,483,7i14
Liabilities
Bonowing from Bangladesh Bank,
Other Banks,
Financial lnslilutions and agents 640,000,000 640 000,000
Deposits 4,491.673,243 5,278,561,555 2,994,571,730 2,144,661,793 9,336,234,706 24 245 703.027
Other accounts 415,449,115 415,449,115
Provision and Other Liabilities 284,010,192 144,589,457 1,120,885,866 210,660,685 1,760,146,200
Total Liabilities 5,83r,132,550 s,423,151 ,012 4,r15y'57,596 2,355,322,478 9,336,234,706 27 ,06't ,298,U2
Net Liquidity Gap {2,9,16,324,136) (2,624,'158,475) 10,233,071,42 3,393,295,857 (5,256,699,326) 1,829,185,402

The following assumptions have been applied in prepa ng the maturity analysis:
i) Balance with oiher banks and financial institutions, [,4oney at Call and Short Notice are on the basis of their maturity.

ii) lnvestmenls are on the basis of their maturity.

iii) Loans and Advances are on the basis of their matuity.

iv) Fixed assels including premises, furnilure and lixtures are on the basis of their uselul life.

v) Other assets are on the basis of their adjustment.

vi) Bonowing from Bangladesh Bank, other banks, financial institutions and agents are on the basis of their payment.

vii) Deposils and other accounls are on the basis oftheir maturity and payrcnt.

viii) Provision and other liabilities are on the basis of their adjustment.

A.K.M. Sha Reza S.M. Abdul Mannan f,ld. Shahab m

Director Direclot Direclot

Shah Md. NurulAlam

Managing Director
tr
Md. Abdul
Chaiman
Jalil

Auditors' Reporl to the Shareholders see annexed report on even date

*^o* ,,,ar.z o,r1* 4y+-e- A/&l,^.l"

Khan Wahab Shafrque Rahman & Co A.Qasem & Co.
Chatlered Accountants Chaiered Accountants

Dhaka, March 29, 2006

70
 Notes to the Financial Statements

%,,3
t
ft. /
L bd *
I
I
l

71
 Notes to the Financial Statements
for the yeat ended December 31,2005
,I. LEGAL STATUS AND NATURE OF THE COMPANY

Mercantile Bank Limited was incorporated in Bangladesh as a Public Limited Company with limited liability under the Bank
Companies Act, 1991 on 20 May 1999 and commenced commercial operation on 02 June 1999. The Bank went for public
issue of shares on in 2003 and its shares are listed with Dhaka Stock Exchange and Chittagong Stock Exchange.

The commercial banking activities of the Bank encompass a wide range of services including accepting deposits, making
loans, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services
such as safe keeping, collections, issuing guarantees, acceplances and letters of credit.

2. SIGNIFICANTACCOUNTINGPOLIGIES

2.1 Basis of Preparation of Financial Slalements

The Financial Statements of the Bank are prepared on a going concern basis under historical cost convention and in
accordance with firsl schedule of Bank Companies Act 1991 as amended on June 25, 2003, section 38 (4), Bangladesh
Bank circulars, Bangladesh Accounting Standards, the Companies Acl 1994, the Securities and Exchange Rules 1987
and other laws and rules applicable in Bangladesh.

2.2 Consolidation of Branches

The Financial Statements of the Bank represent consolidated statement of affairs and statement of Profit and Loss of
ali branches. All inter branches transactions are eliminated on consolidation.

2.3 RevenueRecognition

The revenues during the year are recognized as follows which comply with all conditions of revenue recognition as
provided in BAS 18 "Revenue Recognition'.

i) lnterest is calculated on daily product basis on unclassified loans and advances but charged on accrual basis.

ii) lnterest is charged on classified loans and advances as per Bangladesh Bank lnslructions and such interest is
not included into income and credited to interest suspense account.

iii) Commission and discount on bills purchased and discounted are recognized at lhe time of realization.

iv) lnterest on investments is accounted for on accrual basis of accounting.

v) ln terms of Bangladesh Accounting Standard -1 (Presentation oI Financial Statements), interest paid on deposits
and other expenses are recognized on accrual basis.

vi) Dividend income from lnvestment in share is recognized during the period in which they are declared and actually
received.

vii) Foreign currency transactions are converted into BDT at rates prevailing on the dates of such transactions and
exchange gains or losses arising out of such transactions are recognized as income or expense lor the year and
dealt with exchange account.

2.4 Valuation of Assets

i) Fixed Assets

Fixed Assets are stated at cost less accumulated depreciation and depreciation thereon is charged to operating
expenses.

ii) lnvestnents
. Government Securities (Treasury Bills/Bonds, T&T Bonds)are stated at cost.

. lnvestment in shares has been shown at cost.

72
2.5 Depreciation

Depreciation is charged on freehold properlies al the following rates on reducing balance method from the date of
acquisition, other than the Vehrcles on which slraighlline method is applied.

Name ofAssets Rale

Land Nill

Furniture and Fixtures 10% p.a.

Omce Equipment 20% p.a.

Vehicles 20% p.a.
Books 20" p.a.

2.6 Leasing

Leases are classified as Finance Lease whenever the terms ofthe lease transfer substantiality allthe risks and rewards
of ownership to the lessee. All other leases are classified as Operating Leases.

The Bank as Lessor;

Amount due from leases under Finance Leases are recorded as receivables at the amount ofthe Bank's net investment
in the leases (Note No. 7.2.1). Finance Leases income is allotted to accounting periods so as to reflect a constant
periodic rate of return on the Bank's net investment outstanding in respect of the leases.

The Bank as Lessee:

Assets held under Finance Leases are recognized as assels of the Bank at their fair value at the date of acquisition or
if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the
Balance Sheet as a Finance Lessee Obligation (Note No. 12.6). Lease payments are apportioned between finance
charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are charged directly against income.

Assets held under Finance Leases are depreciated over their expected useful lives on the same basis as owned assets.

Leased Assets:

From September 2005 the Bank entered into a Sale and Lease Back Agreement with Phoenix Leasing Company Ltd.
by selling out all of the Fixed Assets as their book value. As per BAS-17 'Leases'all Fixed Assets taken on lease has
been accounted for as Finance Lease. Details of leased assets have been shown in the schedule of Fixed Assets under
the title of Lease Hold Properties.

2.7 Taxation

As per lncome Tax Ordinance 1984, provision for lncome Tax has been made @ 45%. No provision for deferred taxation
has been made with in the Financial Statements of the Bank.

2.8 Foreign Currency Transactions

Transactions in foreign currencies are converted into equivalent BDT applying the ruling rate at the date of such
transactions. Assets and Liabilities outstanding at 31 December 2005 denominated in foreign currencies have been
shown in BDT at the rate in terms of foreign currencies ruling on the Balance Sheet date.

2.9 Loans and Advances

Specillc provisions were made to adjust all impaired loans and advances with their expected realizable value as per
instructions contained in Bangladesh Bank BCD Circular no. 34 of 16 November 1989, BCD Circular no. 20 of 27
December '1994, BCD Circular no. 12 of 4 September 1995, BRPD circular no. 16 of 06 December '1998, BRPD circular
no. 09 of 14 May 2001, BRPD circular no. 02 of February 2005, BRPD circular no. 09 of 20 August 2005, BRPD Circular
no. '17 of 06 December 2005 respectively at the following rates;

73
 A. For Unclassified Loans and Advances Rale

General Provision on Standard Loans and Advances

General Provision on Standard Loans to Small Enterprises 2%

General Provision on Standard Consumer Financing

General Provision on Special Mention Account 5%

B. For Classified Loans and Advances

Specific Provision on Substandard Loans and Advances 20y.

Specific Provision on Doubtful Loans and Advances
Speciflc Provision on Bad/Loss Loans and Advances 1000/a

2.10 Earnings Per Share (EPS)

Earnings Per Share (EPS), shown on the face of Prollt and Loss Account, has been calculated in accordance with BAS-
33 "Earnings Per Share" by dividing the basic earnings by the number of ordinary shares outstanding during the year.
Previous years figures have been adjusted as per guidelines of BAS 33.

2.11 Cash Flow Statement

Cash Flow Statement is prepared in accordance with BAS - 7 "Cash Flow Statement" and the cash flow from the
operating activities has been presented under direct method as prescribed by the Bangladesh Bank. Closing cash and
cash equivalents consist of cash with Bangladesh Bank, with its agent bank(s), government securities and deposits with
other banks.

2.12 Employees Provident Fund;

Provident Fund (PF) benefits are given to the officer and staff of the Bank in accordance with locally applicable
Provident Fund Rules. lncome Tax Authority has approved the Fund and thus it has become as a recognized Provident
Fund within the meaning of section 2(52) read with the provisions of part-B of the First Schedule of lncome Tax
Ordinance 1984. The Fund is managed by a Board of Trustees consisting of 6 (six) trustees, 3 (three) from the
Management and other 3 (three) from the Board of Directors of the Bank. All confirmed employees oI the Bank are
contributing 10% of their basic pay as subscription, on the other hand the Bank also contributes equal amount of the
employees' contribution to the Fund. Revenue earned from the investment of the Fund is credited to the members'
account on yearly basis.

2.13 Gratuity

The Bank has started making provision against employees gratuity from the year 2005. A pa(ial provision to the extent
of BDT 10.00 million has been made during the year with an aim to make 100% provision in next 3 years time.
Previously no provision had been made by the Bank for employees gratuity.

2.'14 Welfare Fund

Mercantile Bank Limited Employees' Welfare Fund is subscribed by monthly contribution of the employees. The Bank
also contributes to the fund from time to time. The fund is established to cover the accidental coverage in the evenl of
death or permanent disabilities, retirement benefit and stipend to the employees' children.

2.15 Risk Management

The Risk of [,lercantile Bank Limited is defined as the possibility of losses, flnancial or otherwise. The Risk lvlanagement
of the Bank covers 5 (Five) Core Risk Areas of banking i.e. Credit Risk Management, Foreign Exchange Risk
Management, Asset Liability Management, Prevention of Money Laundering and eslablishment of lnternal Control and
Compliance. The prime objective of the Risk l,4anagement is that the Bank takes well-calculated business risks white
safeguarding the Bank's Capatal, its financial resources and profitability from various risks.

74
 215.1 Credit Risk Management

Credit Risk is one of the major risks faced by the Bank. This can be described as potential loss arising from the
failure of a counter party to perform as per contractual agreement with the Bank. The failure may result from
unwillangness of the counter party or decline in hisiher financial mndition. Therefore, Bank's Credit Risk
Management activities have been designed to address all these issues.

2152 Foreign Exchange Risk Management

Foreign Exchange Risk is defined as the possibility of losses due to change in exchange rates according to
market forces. The Foreign Exchange Risk of the Bank is minimal as all the transactions are carried out on behalf
of the customers against underlying foreign exchange transactions.

Treasury Division independently conducts the transactions and the Back Office of Treasury is responsible for
verification of the deals and passing of their entries in the books of accounts. All foreign exchange transactions
are revalued at (Mark-to-Market) rate as delermined by Bangladesh Bank at the month€nd. All Nostro Accounts
are reconciled on monthiy basis and outstanding entries beyond 30 days are reviewed by the Management for
their settlement.

2.15.3 Asset Liability Management

Asset Liability Committee (ALCO) of the Bank monitors Balance Sheet Risk and Liquidity Risks of the Bank. The
Balance Sheet Risk is determined as potential change in earnings due to change in rate of interest, foreign
exchange rates which are not of trading nature. Asset Liability Committee (ALCO) reviews liquidity requirement
of the Bank, the maturity of assets and liabilities, deposits and lending pricing strategy and the liquidity
contingency plan. The primary objective oftheAsset Liability Committee (ALCO) is to monitor and avert significant
volatility in Net lnterest lncome (Nll), investment value and exchange earnings.

2i5.4 Prevention of Money Laundering

Money Laundering Risk is defined as the loss of reputation and expenses incurred as penalty for being negligent
in prevention of money laundering. For mitigating the risk the Bank has designed Chief Compliance Oflicer at
Head Offlce and Compliance Officer at Branches, who independently review the transactions of the accounts to
verify suspicious transactions. Manuals for Prevention of Money Laundering have been established and
Transaction Profile has been introduced. Training has been continuously given to all the category of Executives
and Ofiicers for developing awareness and skill for identifying suspicious transactions.

2.15.5 lntemal Control and Compliance

Operational loss may arise from errors and fraud due to lack ol lnternal Control and Compliance. Management
through lntemalControl and Compliance Division controls operational procedure orthe Bank. lnternal Controland
Compliance Division undertakes periodical and specialaudit ofthe Branches and Departments at Head Ofiice for
review of the operation and compliance of the statutory requirement. The Audit Committee of the Board
subsequently reviews the report of the lnternal Control and Compliance Division.

2.16 Contingent Liabilities, Commitments and other Off.Balance Sheet Settlement

Like other banking companies, the Bank conducts business involving acceptances, guarantees, performance bonds
and indemnities. Contingent liabilities and commitments were reflected in the Off-Balance Sheet.

2.17 lnfomation about business and geographical segmonts

The Bank's operations are divided under the following business segments:
i. Retail and Corporate Banking operation are under the umbrella of the Commercial Banking;
ii. Treasury operation under the umbrella ol the lnvestment Banking.

lnter-segment transactions are generally based on inter-branch fund transfer measures as determined by the
Management. lnmme, expenses, assets and liabilities are especially identified with individual segments. Based on such
allocation, segmental information as on 3'l' December 2005 and information related to Profit and Loss Account for the
year 2005 has been prepared:

75
 (Amaunt in BDT)
Particulars Commercial Banking lnvestmenl Banking Total

Operating Profit before Tax & Provision 862,547.931 104,685,969 967,233,900

Provision against Loans & Fixed Assets 263,900,000
Profrl before Tax 703,333,900
Provrsron for Tax 316,500,255
Net Profil 386,833,645
SegmentalAssets 23,009,476,376 5,881,007 368 28,890 ,483,7 44

Segmental Liabilities 23.009,476 376 5,881.007 368 28 ,890.483,7 44

The overai operations of the Bafk were n Bang adesh during the year-2005.

2.18 General

i) Wherever considered necessary, previous year's figures have been rearranged for the purpose of comparison;

ii) Figures appearing in the Financial Statements have been rounded off to the nearest BDT.

3. GASH

A. Cash in hand 200s (BDT) 2004 (B0T)

ln local currency 199,936,339 175.228,655
ln foreign currencies 8,969,383 4,540,956
.t79,769,611
208,905,722

B. Balance with Bangladesh Bank and Sonali Bank

(lncluding foreign currencies)
Bangladesh Bank
ln local currency 1,366,551,199 809,468,694
foreign currencies 302,011,228 22,509,163
"/,.1n
1,668,562,427 831,977,857
Sonali Bank
Sonali Bank, Cox's Bazar
(As an agent of Bangladesh Bank)-Local Currency 946,845 1,423,000
1,669,509,272 833 400.857
't,878,414,994 1,013,170,468

8.1 Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio(SLR)

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) have been calculated and maintained in accordance
with the Section 33 of the Bank Companies Act, 1991 and Bangladesh Bank's subsequent BCD Circular No.13 of 24
May 1992, BRPD Circular No. 12 of 06 September 1998, BRPD Circular No. 12 of 20 September 1999, BRPD
Circular No. 22 of 06 November 2003 and BRPD Circular No.12 of 25 August 2005.

81.1 Cash Reserve Ratio (CRRlt 5% (4% in20041of Average Oemand and Time Liabilities:
Required Reserve 1,161,260,000 775,125,000
Actual Reserve held with Bangladesh Bank 1,366,549,000 805,215,290
Surplus 205389,&t0 30,090,290

81.2 Statutory Liquidity Ratio (SLR): 18% (16% in 20041 of Average Demand a nd Time Liabitities:
Reserve
Required 4,180,534,000 3,100,500,000
held
Actual Reserve 4,356,388,000 4,216,702,356
Surplus .t75,9S4,000
1,fi6,202,356

76
 2005 (BDT) 2004 rBDTt
4. BALANCE WITH OTHER BAI{KS AT{D FINANCIAL INSTTTUTIONS

A. ln Bangladesh
Current Accounls
Sonali Bank 7,687,726 12,091,328
Agrani Bank 20,8'15,945 92,860
28,503,671 '12,181,188
Short Term Deposits
National Bank Ltd. 15,255,591 14,797.799
Arab Bangladesh Bank Ltd. 4.287,387 439,864
National Credit and Commerce Bank Ltd. 296,521 291,987
ONE Bank Ltd. 419 1'1,870
Dutch Bangla Bank Ltd. 250 000,000
Southeast Bank Ltd. 84,163 854.308
19,924,081 266,395,828
Fixed Deposits
lndustrial Promotion & Development Co. of Bangladesh Ltd.
200,000,000
48,427,752

B. Outside Bangladesh (Nostro Accounts) Currency Amounl Rate

Standard Chartered Bank, New York USD 76,768.27 66.2100 5,082,827 5,588,106\
American Express Bank, New York USD 81,6'14.89 66.2100 5,403,722 6,534,0491
MashreqBank, Ne\4, York USD 1 ,717.U 66.2100 113,718 2,897.922
\
Citibank N.A, New York USD 888.87 66.2100 58,852 310,705 I

HSBC, New York USD 235,246.08 66.2100 '15,575,643 226.342

|
Commerzbank. Frankfurt USD 49,279.00 66.2100 J,toz,toJ 1,537.889
Wachovia Bank, New York USD 127,677.70 66.2100 8,453,U1/, 1,766/57 ,

Standard Chartered Bank, London GBP 16,188.05 113.5926 1,838,843 656,815

The Bank of Tokyo [ritsubishi Ltd, Tokyo JPY 1,137,857.00 0.5617 639,134 3,733,362
Commonwealth Bank of Australia, Sydney AUD 8,771.21 48.2399 423,122 726,603
Citibank N.A., lrumbai ACU 174,816
lClCl, Mumbai ACU 25,398.17 66.2100 1 ,681 ,613
Hatton National Bank, Colombo ACU 698.93 66.2100 46,276 785,339
United Bank of lndia. Kolkata ACU 5,587.43 66.2100 369,944 688,662
American Express Bank Ltd., Kolkata ACU 87,059.11 66.2100 5,764,184 '162,181
HSBC, Karachi, Pakistan ACU u,283.22 66.2100 4,256,192 2.713,097
Bank of Bhutan, Phuentsholing ACU 8,241.20 66.2100 545,650 12,148
Arab Bangladesh Bank Ltd., Mumbai ACU '1,366.59 66.2'100 90,482 161,806
Standard Chartered Bank, Kolkata ACU 26,044.36 66.2'100 1.724,397 2,165,720
HSBC, Mumbai ACU 1,599.78 66.2100 105,92'1 54,668
Nepal BD Bank Ltd., Kathmandu ACU '1,002.65 66.2100 66,385 60,790
Toronto Dominion Bank. Toronto CAD 6,2't8.08 56.8192 353,306 306,046
Commezbank, Frankfurt
t EUR 68,986.99 78.U77 5,404,97\ 3,230,714\\
American Express Bank, Frankfurt
Unicredito ltaliano, Milan
] eun 4,e0e.28 78.U77 384,631 I 184.605 l
I
8,11g,g33/ 312,85L/
Lrr* r03,63e.71 78.3477
*59,766,051 34,991,692
118,193,803 sr3,571,708

77
 2005 [BpT) 2004 (BDT)
c Maturity.wise Groupings (lnside and Outside Bangladesh)
Payable on Demand 48,427,752 278,580,016
Not more than 3 (three) months 69,766,051 34,991,692
More than 3 (three) monlhs but not more than 1 (one)year 200,000,000
More than 1 (one)year but not more than 5 (flve)years
More than 5 (five) years
'fi8,'193,803 513,571,708

D Fixed Deposit Maturity-wise Groupings (ln Bangladesh)

Payable on Demand
Not more lhan 3 (three) months
More than 3 (three) months but not more than 1 (one)year 200,000,000
More than 1 (one) year but not more than 5 (five) years
More than 5 (five) years
. 200,000,000

5. MONEY AT GALL AND SHORT NOTIGE

Financial lnstitutions
lnternational Leasing and Financial Services Ltd. 50,000,000 170,000,000
lndustrial Promotion & Development Company of Bangladesh Ltd 70,000,000 250,000,000
lndustrial Development and Leasing Company of Bangladesh Ltd 115,000,000
Fareast Finance and lnvestment Ltd. 20,000,000
Phoenix Leasing Company Ltd. 125,000,000 '150,000,000

Prime Finance & lnvestment Ltd. 97,000,000

National Housing Finance and lnvestments Ltd. 150,000,000
GSP Finance Company (Bangladesh) Ltd. 30,000,000
United Leasing Company Ltd. 150,000,000
Delta Brac Housing Finance Corporation Ltd. 50,000,000 150,000,000

Sub Total
Banks
Bank Asia Ltd. 50.000,000
The Hongkong and Shanghai Banking Corporation Ltd. 50,000,000
Sonali Bank 200,000,000
First Security Bank Ltd. 50,000,000
Jamuna Bank Ltd. 30,000,000
Sub Total 300,000,000 80,000,000
Total

6, IT{VESTMENTS

Government Securities (Note{,1 )

Treasury Bills (at cost) 1,647,766,390 2,423,048,190
3 Years T& T Bonds @ 7.00% p.a. 250,000,000 100,000,000
5 Years Treasury Bonds @ 7.50% p.a. 250,000,000 250,000,000
10 Years Treasury Bonds @ 8.50% p.a 400,000,000 200,000,000
Prize Bonds 1,425,500 464,300
2,549.191 .890 2.97 3.512.490

Other lnvestments (Note- 6.3) 968,487,000 135,000.000

78
 200s rBpT) 2004 (BpT)
6.1 Maturity Grouping of lnvestmentsGovernment Securities
Payable on Demand 1,425,500 464,300
Not more than 3 (three) months 248,679,000
More than 3 (three) months but not more than 1 (one)year 611.521,050
More than 1 (one)year but not more than 5 (five)years 1.899,087,390 2.161.527.144
More than 5 (five) years 400.000.000 200.000.000
2,549,191,890 2,97 3,512,490

6.2 lnvestment.GovernmentSecurities
Treasury Bills
28 days Treasury Bills 248,679,000
182 days Treasury Bills
364 days Treasury Bills 611,521,050
2 years Treasury Bills 702,302,000 1 ,114,7 41 ,7 50
5 years Treasury Bills 696.785.390 696,785,390
1,647,766,390 2,423,048,190
Treasury Bonds
5 years Treasury Bonds
10 years Treasury Bonds
3YearsT&TBonds
Prize Bonds
901,425,500 550,464,300

6.3 Other lnvestments

Treasury Line
lnternational Leasing and Financial Services Ltd. 100,000,000
lndustrial Promotion & Development Company of Bangladesh Ltd 200,000,000
Prime Finance & lnvestment Company Ltd. '100,000,000
Phoenix Leasing Company Ltd. 50,000,000
Uttara Finance & lnvestment Ltd. 150,000,000
600,000,000
Shares (Annexure-C)
Central Depository Bangladesh Ltd. 2,000,000 2,000,000
Dhaka Stock Exchange Ltd. 8,100,000 4,000,000
lndustrial Development and Leasing Company of Bangladesh Lld. (Note-6.3.1) '129,387,000

139,487,000 6,000,000
Bonds
DBBL lndustrial Bond
United Leasing Company Ltd
229,000,000 129,000,000

6.3.1 ilartet value of IDLC Share as on 3l December 2005 was BDT 151,087,500.

7. LOAI{S AND ADVANCES

Loans, Cash Credit and Overdraft etc. (Note A) 2A .065 .17 4.273 16,766,308,540
Bills Purchased and Discounted (Note B) 1 .791.884 055 902.983,731
21,857,054,328 17,669,292,271

79
 2005 [BpT] 2004 (BDT)
7.A Loans, Cash Credit and Overdraft, etc.
Loan General 3,798,084,299 4,015,73't,055
Term Loan 1,095,944,846
Time Loan 402,563,672
Loan Against Trust Receipt 4,719,757,598 3,092,342,601
Packing Credit 266,9'1 5,201 2U,237,134
Lease Finance 119,691,503 107,938,877
Hire Purchase 1,569,707,157 1,669,656,378
Payment Against Documents 371,956,702 513,871,828
Cash Credit (Hypo) 2,350,827,171 2,4M,981,777
Overdraft 3,619,062,004 3,'161,803,457
Consumers Credit 121,477,709 138,538,403
House Building Loan 985,899,780 962,105,696
Staff Loan 115.524,737 71,364,363
EDF Loan 239,900,236 194,693,855
Other Credit Schemes 179.786.229 112,777,744
Personal Loan 1 05, 1 37, 't 89 55,949,640
Credit Card 2,9U,240 315,732
20,065,170,273 16,766,308,540

7.8. Bills Purchased and Discounted

Payable in Bangladesh 599175425 287,222,639
Payable outside Bangladesh 1192708630 615,761,092
1,791,884,055 902,983,731

B.1 Maturity Grouping

Payable within 1 (one) month
Over'1 (one) month but less than 3 (three) months 1,192,708,630 615,761,092
Over 3 (three) months but less than 6 (six) months 599,'175,425 287,222,639
6 (six) months and above
1,79't,884,055 902,983,731

7.1 Maturity Grouping of Total Loans &Advances

Payable on Demand 374,890,942 514,187,560
Not more than 3 (three) months 1,974,099,000 860,800,795
More than 3 (three) months but not more than 1 (one) year 11,446,710,386 9.733.819,916
i/ore than 1 (one) year but not more than 5 (five)years 5,590,'142,000 4,519,403,000
lvlore than 5 (flve) years (lncluding Staff Loan) 2,47',t,212,000 2,041,081,000
21,857,Oil,328 17,669,292,271

7.2 Loans and Advances (Broad Calegories)

ln Bangladesh 20,664,345,698 17,053,531,179
Loans 14,694,456,523 11,486,745,945
Cash Credit 2,350,827,17'l 2AU,981,777
Overdraft 3,619,062,004 3,16'1,803,457
Outside Bangladesh
Foreign Bill Purchased '1,192,708.630 615,761,092
21 ,857 ,054,328 17,665,292,271

7.2.1 Lease Finance

Lease Rental receivable within '1 year 45,637,285 43,210,903
Above 1 year but within 5 years 101,707,543 89,665,992
Total Lease Rental receivable 147,344,828 132,876,895
Less: Unearned lnterest receivable 27.653,325 24,938,0'18
119,691,503 107,938,877

80
 2005 (BDTI 2004 (BDTI
7.3 Signiricant Concentration of Credit
Advances to Directors and Others
Advances to Managing Director and Chief Executive 836,383
Advances to Customers 12,321 ,629,591 8,703,827,908
lndustry-wise 9,419.900.000 8,894,100,000
Staff Loan (Excluding Chief Executive's Loan) '114,688,354 71,364.363
21 ,857,05/t,32E 17,669,292,271

7.4 GeographicalLocation-wisebreak-up
Urban
Dhaka 13,720,747,350
Chittagong 2,322,750,244
Rajshahi 1,088,823,587
Sylhet 228,077,494
Khulna
21,364,540,727 17,360,398,675
Rural
Dhaka 209,621,250
Chittagong 282,892,35'l
492,513,601 308,893,596
21,857.05/1,328

7.5 Sec{or wise break-up ot loans:

Garments 5,793,431,368 4 ,292,400,000
Trading 4 ,07 8,528 ,392 3,377 ,592,307
Engineering (lron & Steel, Electrical Equipment, etc.) 757,886,263 1,202,500,000
Conlractor Finance 794,578,266 689,372,20S
Leasing Company 1,721,565,000 1,007,149,000
Housing 1,693,314,640 942,127,104
Food,Food product, Beverage, Edible oil, etc. 2,973,643,973 2,028,800,000
Pharmaceuticals 152,046,933 44,400,000
Tele- communication 252,746,788 305,900,000
Transport 177,267,536 250,000,000
Textile 576,084,706 865,400,000
lnformation Technology 48,326,071 27,030,000
Cement 13,573,000 66,400,000
Hospital & Medical Service 315,453,006 130,900,000
Paper, Paper Production & Publication 272,994,880 148,400,000
Plastic & Plastic Materials 266,273,417 167,200,000
Slorage 24,338,972 45,000,000
Glass & Glass Produc{ 245.624,580 75,000,000
Hotel & Restaurant 79,520,934 67,900,000
Agriculture 28,221,435 26,900,000
Others 1 ,591,634,168 '1,665,631,651
Total 21 ,857 ,054,328 t 7,669192,271

7.6 Loans and Adyances allowed to each customer exceeding l07o (15ol" for 2004) of Bank's total capital:
Total Loans andAdvances 5,743,600,000
No. of Customers 45
Classified amount thereon 216,500,000
Measures taken for recovery Legalactions are initiated

The amount represents the sum of total loan allowed to each customer exceeding BDT 2M.58 million which is
computed @ '10% of closing total Capital Fund.

81
 2005 (BpT) 2004 (BpT)
7.7 Loans & Adyances Classified as per Bangladesh Bank Circular
LJnclassified 20,95'1,311 ,328 16,943 .125 27 1

Sub-standard 188,765,000 177,334,000

Doubtlul 63,111,000 217.454.000
Bad & Loss 653.867,000 331,379,000
21,857,054,328 17,669,292,271

7.8 Nature wise Loans & Advances

Continuous 5,659,518,591 5 ,435 .601 ,27 1

Demand Loan 8,136,'182,000 5,673.207.000

Term Loans up to 5 ( five) years 5,590,142,000 4,519,403,000
Term Loans above 5 (five) years 2,355,687,000 1,969,716,637
Term Loans above 5 (five) years - Staff Loan 115,524,737 71,364,363
21,857,051,328 17,669,292,27',|

7.8.1 Provision for Loans and Advances

General Provision (including SMA) 214,258,993 169.081.850

Specific Provision(Classified Loans and Advances)
Sub-standard 27,964,800 14,794,000
Doubtful 23,555,000 69,379,000
Bad/ Loss 471,376,000 237,302,000
Total 137,154,793 490,556,850
Required Provision for Loans and Advances 737,154,793 490,556,850
Total Provision Maintained (Note-'1 2.2) 737,338,819 515,938,819
Excess/(Short) Provision ______r_q{q?6 25 81 969

7.9 Particulars of Loans and Advances

i) Loans considered good in respect of which the
Bank Company is fully secured 19,740,'103,539 16,354,877,486

ii) Loans considered good for which the Bank holds no other
security than the debtors personal security 1,724,499,240 1,007.149,000

iii) Loans considered good and secured by the personal security oF one
or more parties in addition to the personal security of the debtors 392,451,549 307,265,785
iv) Loans adversely classified; provision not maintained there against
21,857,0 54,328 17,669,292,271
v) Loans due by directors or executives of the Banking Company or any of
them taken either severally or jointly with any other person (Stafi Loan) 115,524,737 71.364,000

vi) Loans due by companies or firms in which the directors of the

Bank Company are interested as directors, partners or managing
agents or in case of private companies, as members.
vii) lvlaximum total amount of advances, including temporary advances
made at any time during the year to directors or managers or officers
of the Banking Company or any of them either separately or jointly
with any other person (Staff Loan) 115,524,737 71,364,000
viii) Maximum total amounl of advances, including temporary advances
granted during the year to the companies or firms in which the
directors of the Banking Company are interested as directors, partners
or managing agents or in the case of private companies, as members

82
 2005 (BDT) 2004 (BDT)
ix) Due from other banking companies

x) Total amount of Classified Advances on which interest

is not credited to income 905,743,000 _,,1?0,tazplo
a. Movement of Classified Loans and Advances
Opening balance 01 January 2005 726,167,000 444,022,000
lncrease/ (Decrease) during the year 179,576,000 282,145,000
905,743,000 726,167,00A
b. Amount of prov sion kept against Loan Classified as 'Bad/Loss'
on the reporting date of Balance Sheet 471,376,000 237,830.000
c. lnterest creditable to the lnterest Suspense Account 160,992,807 99,197,048
xi) Amount of written off loans:
Opening Balance
Amount written off during the year
Cumulative Balance

7.'10 Listing ofAssets Pledged as Security/ Collaterals

Nature of the Secured Assets
Fixed Assets 11,060,592,000 8,617,332,000
Cash & Quasi-Cash 4,483,497,000 3,976,205,000
Others 17,072,709,000 11,378,755,000

8. FIXED ASSETS II{CLUDING PREMISES, FURNITURE AND FIXTURES

At cost less accumulated depreciation (Annexure-A)

FREE HOLD PROPERTIES
Land 186,707,498
Fumiture & Fixtures 15,58'1,464 52,486 724
Ofiice Equipment 5.934.274 38,404,171
Vehicles 219,137 12,484,407
Books 100,144 166,744
103,542,046
LEASE HOLD PROPERTIES
Furniture & Fixtures 96,264,185
Office Equipment 43,759,891
Vehicles 18,047,510
Books '185,612

158,257,198

9. OTHER ASSETS

Advance Deposits 675,213 534,938

Stock of Stationery 8,214,445 7 ,672
,187
Suspense Account (Note 9.1) 13,421,730 5,181,889
Stamps in Hand 536,331 400,514
Advance Rent 34,244,302 45,825,426
Demand Draft paid without Advice 597,116 220,000
Adjusting Account Debit (Note 9.2) 401,313,747 293,517 ,260
Clearing Adjustment Account 5,136,601
Excise Duty 8,050
Mercantile Bank General Account 68,33'1,080
,342,014

83
 200s (BpT) 2004 (BpT)
9.1 Suspense Account

Advance against Ttr'/DA 50,000 6,500

Advance against Postage 4,884
Advance against Printing & Stationery 4,735,372 '1,000,000

Advance against lnterior Decoration of New Branches 202.210

Encashment of PSP/BSP 2,609,798 348,696
Payment proceed on Sanchay Patra 2,048,260 2,116,718
Others 3,978,300 1,502,881
13,421,730 5,181,889

9.2 Adjusting Account Debit

Accrued interest 377,207,070 291,200,627
Other accruals (Note 9.2.1) 24,106,677 2,3'16,633
4ol,313,717 293,5r7,260

9.2.1 Olher accruals

Foreign Currency Gain Receivable 1,600,000 1,620,000

Commission Receivable 369,988
Other Receivable 138,373 696,633
Fees Receivable 8,000
Prepaid lnsurance Premium 3,907,288
Prepaid Expenditure Others 2,900,000
Prepaid Expenditure Furniture '15,183,028

24,106,677 2,316,633

IO. BORROWINGS FROM OTHER BANKS, FINANCIAL INSTITUTIONS AND AGENTS

lnside Bangladesh - interest bearing

Call Deposits
lndustrial Development Leasing Company of Bangladesh Ltd. 50,000,000
BASIC Bank Ltd. 300,000,000
Rupali Bank Ltd. 300,000,000
lFlC Bank Ltd. 100,000,000
National Bank Ltd 100,000,000
The City Bank Ltd. 100,000,000 150,000,000
Dutch-Bangla Bank Ltd. 200,000,000
Janata Bank 200,000,000
Agrani Bank 400,000,000
Sonali Bank 250,000,000
Uttara Bank Ltd. 100,000,000
550,000,000 1,700,000,000
Other Borrowings
BASIC Bank Ltd. 90,000,000
90,000,000
Outside Bangladesh
640,000,000 1,700,000,000

A. Security wise grouping

Secured Borrowing 90,000,000
Unsecured Borrowing 550,000,000 1,700,000,000
640,000,000 ,1,700,000,000

84
 2005 (BDT) 2004 {BDT)
B. Nature of repayment

Repayable on Demand 550,000.000 1,700,000,000

Others 90,000,000
6/10,000,000 1,700,000,000

II. DEPOSITS AND OTHER ACCOUNTS

A. Deposits Received from Banks (Note A-1) 1,250,000,000 900,000,000

B. Other than Bank 23,41't,152,'142 18,854,17 4,237

Payable on Demand (Note B-1)

Time Deposits (Note B-2)
,|

C. Maturity Analysis (Deposits received trom other than Banks)

Repayable on Demand 3,857,216,304 2,77 4,002,389
Repayable within 01 month 1,655,305,904 1,405,46'1,009
Repayable over 01 (one) month but within 06 (six) months 6,681,387,860 3,347,006,751
Repayable over 06 (six) months but within 01 (one) year 3,828,401,658 5,442,604,933
Repayable over 01 (one) year but within 05 (five) years 4,024,054,380 3,463,321,366
Repayable over 05 (five) years but within '10 (ten) years 3,780,235,151 3,681,184,30'1
Unclaimed Deposits 10 (ten) years and above
23,826,601,257 20,
A.1 Deposits received from Banks
Sonali Bank 200,000,000
BASIC Bank Ltd. 350,000,000 200,000,000
United Commercial Bank Ltd. 150,000,000
Uttara Bank Ltd. 200,000,000 100,000,000
Dutch-Bangla Bank Ltd. 250,000,000
Rupali Bank Ltd. 150,000,000
Standard Chartered Bank 50,000,000
Agrani Bank 500,000,000

Maturity wise Grouping

Repayable within 01 month
Repayable over 01 (one) month but within 06 (six) months 1,250,000,000 900,000,000
Repayable over 06 (six) months but within 0'1(one)year
Repayable over 01 (one)year but within 05 (five)years
Repayable over 05 (five) years but within 10 (ten) years
Unclaimed Deposits for 10 (ten) years and above
1,250,000,000 900,000,000

B.1 Payable on Demand

Current Deposits 840,347 ,828 660,557,454
Savings Deposits ('10%) (Note 11.3) 147,357,666 '119,995,89'1
Foreign Currency Deposits (non interest bearing) 134,378,061 91,371,323
Security Deposit Receipt 48,142,220 46,679,997
Bills Payable (Note-'11.2) 415,449,115 359,406,5'12
Sundry Deposits 655,277,397 416,577,855
Foreign Currency held against Back to Back L/C 1 ,199,981,250 719,660,630
3,440,933,537 2,414,249,662

85
 2005 (BDT) 2oo4 (BDT)
8.2 Time Deposits
Savings Deposits (90%) (Note 11.3) 1,326,218,998 1,079,963,024
Fixed Deposits 7 .537,533,771 6,071,499 286
Short Term Deposits 744 763,315 560,188,403
Bearer Certificates of Deposits (Note-11.5) 21.343,516 25.n9.425
Deposits Under Schemes (Note-1'1.6) 10 ,278 .579,405 8.658.133,542
Foreign Currency Deposits (interest bearing ) 60.945.000 44,523,000
Non Resident Taka Deposit 948 32,080
Deposit Under Q-cash 833,652 346 215
19,970,218,605 16,439,924,575

11.1 Current Accounts & Other Accounts

Current Deposits 840,347 ,828 660,557,454
Short Term Deposits 7 44.763,315 560,188,403
Non Resident Taka Deposits 948 32,080
Foreign Currency Deposits 195,323,061 135,894,323
Deposit Under Q-cash 833,652 346,215
Security Deposit Receipl 48,142.220 46,679,997
Sundry Deposits 655,277,397 416,577.855
Foreign Currency held against Back to Back UC 1,199,981,250 719,660,630
3,684,669,671 2,539,936,957

1'1.2 Bills Payable

Pay Slip 6,917,358 2,635,290
TT Payable 4,500
Pay Order 389,932,397 346,068,519
Demand Draft 18,594,860 10,702,703
359,406,512

11.3 Savings Bank Deposits

As per BRPD Circular No. 03 of 07 July 1997, total Savings Bank Deposits amount is distributed into:
10% of total Savings Bank Deposits (Demand Deposits) 119,995,891
90% of total Savings Bank Deposits (Time Deposits) 1,326,2'18,998 1,07S,963,024
199,958,915

'l'1.4 Fixed Deposits Maturity wise Grouping

Repayable within 01 monlh 9't0.542.589 845,272,606
Repayable over 01 (one) month but within 06 (six) months 4,707,333,361 1,907,025,239
Repayable over 06 (six) months but within 01 (one) year 2.452,448,47 5 4,062,725,109
Repayable over 01 (one) year but within 05 (five) years 717,209,346 156,476,332
Repayable over 05 (five) years but within 10 (ten) years
Unclaimed Deposits for 10 (ten) years and above
771 6,971,{99,286

11.5 Bearer Certificates of Deposits

Repayable within 01 month
Repayable over 01(one) month but within 06 (six) months
Repayable over 06 (six) months but within 01 (one) year 21,343,516 25,239,025
Repayable over 01 (one) year but within 05 (five) years
Repayable over 05 (five) years but within 10 (ten) years
Unclaimed Deposits for 10 (ten) years and above
6 25,239,025
*Bearer Certificates of Deposits is discontinued for new account holders.

B6
 200s (BpT) 2004 {BpTl
1'1.6 Deposits Under Schemes
Monthly Savings Scheme 3,592.486,007 2,429 ,402,669
Double Beneflt Deposit Scheme 3,920.892,383 3,378,787,690
Family Maintenance Deposit 2,064,006,600 2,177 ,687 .500
Agrim Sanchaya Prakalpa 791.327 1 ,561 ,121

Special Savings Scheme 615,884.93S 612,891 .712

Pension and Family Support oeposit 84.518,149 57,802,850
10,278,579,405 8,658,133,542
,I2. OTHER LIABILITIES

Provision for Gratuity 10,000,000

Provision for Fixed Assets (Note-12.1) 42,500,000
Provision for lncentive Bonus 55,676,'l'1 3 44,194,675
Provision for Taxation (Note-12.'1.1) 166,878,126 142,117,600
Provision for Loans and Advances (Note-12.2) 737,338,819 515,938,819
Adjusting Acmunt Credit (Note-'1 2.3) 284,010J92 223.819,935
lnterest Suspense Account (Note-1 2.4) 160,992,808 99,197,048
Foreign Currency held against EDF UC 142,267,082 100.245,277
Lease Payable (Note-12.6) 158,'t60,685
Exchange Equalization Account 2,322,375 2,322,375
Mercantile Bank GeneralAccount (Net up) 73.731,560
1,760,1/16,200 1,201,fi7,289
'12.1 Provision for Fixed Assets
Provision held at the beginning of the year
Add: Provision made during the year 42,500,000
42,500,000

An amount of BDT 85.00 million has been identified by Bangladesh Bank as required provision against Fixed Asset-
Land. This amount is required to be provided for in two equal annual installments since 2005, reference - Bangladesh
Bank letter no. DBI-1 (vigilance) / 5050 (15)/ 2006-400 dated 20 [.4arch 2006.

12.1.1 Provision for Taxation

Provision held at the beginning of the year 766,680.000 525,000,000
Add: Provision made during the year (Note-12.1.2) 316.500.255 ?41
Total Provision 1.083.180,255 766,680,000
Less: Tax paid during the year 291.739.729 198.584.3S8

Less:Advance Tax paid up to last year

Balance held at the end of the year

Current Tax liabilities for the current and prior periods should be measured at the amount expected to be paid to
(recovered from) the Taxation Aulhorities, using the tax rates and tax law that have been enacted or substantively
enacted by the Balance Sheet date (BAS -12: Pa.a - 46\.

1212 Provision made during the year

Gross Profit 967,233,900 821.761,426
Less:
Provision against Good Advances 41,200,000 70,000,000
Provision for Classified Advances 180,200,000 197,500,000
Provision for Fixed assets 42,500,000
263,900,000 267,500,000
Operating Revenue after Provision 703,333,900 554,261,426
Less: Dividend and gain on sale of shares Note 18.4 (B) 17,196,'187
Taxable Profit 900
703.333 537.06s,239
lncome Tax @ 45% 316 500,255 241,679,358
Provision during the year 316.500.255 241 680.000
Add: Short Provision relating to previous years
316,s00,255 241,680,000

87
 2005 (BDT) 2004 (BDT)
'12.2 Provision for Loans and Advances

Provision for Classrfied Loans & Advances 523,000,000 342,800,000

General Provision (for Unclassified Loans and Advances) 214,338,819 't73,'138,819
q

Movement in Specific Provision

Provision held at the beginning of the year 342,800,000 145,300,000
Fully Provided Debts written off
Recoveries of amounts previously written off
Specific Provision for the year
Recoveries and Provisions no longer required
Net Charge to Profit and Loss Account
Provision held at the end of the year

General Provision (for Unclassified Loans and Adyances)

Provision held at the beginning of the year 173,138,819 103,138.819
Addition during the year 41
2't4,338,819 173,'138,819
Provision at lhe end of the year 737,338,819 515,938,819

12.3 Adjusting Account Credit

lnterest Provision 278,5'10,550 221,457,369
Other Provision 5,499,642 2,362,566

'12.4 lnterest Suspense Account

Opening Balance as at 01 January

Add: Amount transferred to 'lnterest Suspense Account' during the year
177,195,730 123,756,064
Less: Amount recovered in 'lnterest Suspense Account' during the year 15,056,600 24,559,016
Less: Amount written off during the year 1,146,322
Balance at the end of the year 160,992,808

12.5 Exchange EqualizationAccount

Balance as at 01 January 2,322,375 2,322,375
Addition during the year
2,322,375 2,322,375

'12.6 Obligation Under Finance Lease (Lease Payable)

Lease Rental Payable within I year
Above 'l year but within 5 years
Total Lease Rental Payable 216,301,680
Less: Finance Charge Payable 58,140,995

13. CAPITAL

Authorised Capital
12,000,000 ordinary shares of BDT'100 each 't,200,000,000 1,200,000,000

13.1 lssued, Subscribed and Fully Paid-up Capital

Total 9,992,656 Ordinary shares (7,994,125 Ordinary shares during 2004) of BDT 100 each were issued, subscribed
and fully paid up at the end of 31 December 2005
lssued for Cash
lssued for other than Cash ( Bonus Share)

88
 2005 (BpT) 2004 (BpT)
'13.2 Particulars of Fully Paid-up Share Capital

2005 2004 2005 2004

No, of Shares No.of Shares (%t (%t
Sponsor 5,542 554 4,268,554 55.46% 53.44%
Financial lnstitutions 1,142 722 864.272 11.440k 10.81%
General Public 3,307 340 2,861,299 33.10% 35.79%
9,992,656 7,994,125 100.00% 100.00%

13.3 Classification of Shareholders by Holding as on December 31,2005

No. of Share Holders l{o, ot Shareg % ot Holdings
1 to 499 Shares 4,305 517,688 5'18
500 to 5,000 Shares 727 927,991 oro
5,001 to 10,000 Shares 52 386,346
10.001 to 20,000 Shares 27 379,060 i t!
20,001 to 30,000 Shares 30 735,852 7.36
30,001 to 40,000 Shares I 319,307 3.20
40,001 to 50,000 Shares 7 310,824 311
50,001 to 100,000 Shares 21 1,480,751 14.82
100.001 to 1,000,000 Shares 21 4,934,837 49.38
5,199 9,992,656 100.00

13.4 Capital Adequacy Ratio

Tier- l(Core Capital)
Paid up Capital 999,265,600 799,412,500
Statutory Reserve 532,549,402 351,882,622
Retained Earnings 251,690,150 205,376,385
Dividend Equalization Fund (Other Reserve) 45,680,250 45,680,250
1,829,185,402 1,442,35',1,757
Tier -ll (Supplementary Capital)
General Provision 214,338,819 173,138,819
Exchange Equalization Account 2,322,375 2,322,375
216.661,194 175.461.194
A. Total Capital 2,045 96 ,617 ,812,951
1

B. Total Risk Weighted Assets 19,693,044,518 15,793,407,600

C. Required Capital based on Risk Weighted Assets (9% on B) 1,772,374,007 1,421,406,684
D. Surplus/ (Deficiency) (A -C) 273,472,589 't96,406,267
Capital Adequacy Ratio (%) 10.39 10.24

Capital Requirement Required (%) Held (%) Held (%)

'ller -l
4.50 9.29 9.13
'Iier -ll '1
.'t0 1.11
Total 9.00 10.39 't0.24

14. STATUTORY RESERVE

Opening Balance as at 01 January 391.882,622 281,032.622

Translerred during the year from Profit & Loss tuC 140,666,780 '110,850,000
Closing Balance 532,549,402 391,882,622
This has been done according to Sec. 24 of Bank Companies Act 199'1 and shall be maintained until it equals to Paid-up
Capital.

89
 2005 (BpT) 2004 (BpT)
15. OTHER RESERVES

Balance on 01 January 45,680,250 45,680,250

Add:Addition during the year (Dividend Equalizatlon Fund)
45,680,250 45,680,250

16. SURPLUS IN PROFIT & LOSS ACCOUNT

Total Profit before lncome Tax 703,333,900 554,261,426

Less: Statutory Reserve 666,780 110,850,000

Less: Provision for lncome Tax

Net Profit after lncome Tax for the year
Add: Brought forward from previous year balance 5,523,285 3,644,959
Retained Earnings (Note-1 6. 1 ) 5,523,285 3,6,14,959

16.1 Retained Earnings Brought forward

Opening balance 0'l January 205,376,385 163,527,459
Less: Bonus Share issued '199,853,100 159,882,500
5,523,285 3,644,959

17. ACCEPTAT{CES AND ENDORSEMENTS

Back to Back Bills 4,166,155,400 2,656,786,900

Back to Back Bills (EDF)
Bankeis Liabilities PAD (DEF) 1,751 953,240 1.006,106,740
5,918,108,640 3,662,893,640
,I7.,I LETTERS OF GUARANTEE

Money for which the Bank is contingently liable in respect of guarantees are given favoring
Directors
Government 1,031,626,163
Bank and Other Financial lnstitutions 8,218,050
Others (Note-l7.1.1) iIAEE 140,468,712
I 2,702,164,347 1,180,3't2,925

,I7.1.1
LETTERS OF GUARANTEE (OTHERS)
Letters of Guarantee (Local) 234,790,510 65,468,712
Letters of Guarantee (Foreign) 339,171,000 75,000,000
573,961,510 140,468,712

17.2 LETTERS OF CREDIT

Letters of Credit (lnland) 125,470,000 168,967,000

Letters of Credit (General) 4,002,908,691 3,910,872,919
Back to Back L/C '1,892,862,000 2,331,455,900
6,021,240,691 6,41'1,295,8't9

17.3 BILLS FOR COLLECTION

Outward Bills for Collection 13,440,864 17,351,265
Outward Foreign Bills for Collection 19,293,000 26,252,900
lnward Bills for Collection
lnward Foreign Bills for Collection
32,733,864 43,604,165

90
 2005 (BpT) 2004 (BpTJ
,I8. INCOME STATEMENT

lncom€:
lnterest, Dismunt and similar lncome 2,595,262,904 2.191.648.398
oividend lncome
Fees, Commission and Brokerage 300,6'11,339 217,146,130
Gain less losses arising from Dealing Securities
Gain less losses arising from lnvestment Securities
Gain less losses arising from dealing in Foreign Currencies Securities 259,202/08 268,2'10,909
lncome from Non-banking Assets
Other Operating lncome 192,323,414 94.289.760
Profit less losses on interest rate changes 82,610,516 (30,997,398)
Total 3,430,010,181 2,74,,297,799
Expen3es:
lnterest. Fees and Commission 1,944,655,065'1,531,630,250
Losses on Loans and Advances
Administrative Expenses 280,405,091 214.647 313
Other Operaiing Expenses 214,312,000 156 932.684
Depreciation on Banking Assets 23,404,125 15 366.126
Total 2,462,776,281 1,918,536,373
Oporating Profit before Provision 967,233,900 821,761,426

18.1 INTEREST INCOME

lnterest received from Banks & Other Financial lnstitutions (Note-18.2) 92,594.422 159,840,825
lnterest received from F.C. Clearing Account 12,945,448 2,385,353
lnterest received from ATM card 357,048 146,159
lnterest received from Loans and Advances (Note-18.3) 2,299,546,666 1,755,836,347
2,40s,,t43,584 r,918,208,684

18.2 lnterest received from Banks & Other Financial lnstitutions

lnterest received from Call Loan 69,121,647 92.282.381
lnterest received from FDR 22.692,188 67.533.158
lnterest received from Reverse REPO 77 4.725 5,666
lnterest received from Q-cash Settlement Deposits 5,862 19,620
92,594,422 't59,840,825

18.3 lnlercst from Loans and Advances

Loan General 475.954.298 302,219,070
Term Loan 34,133,691
-Time
Loan 30,'109,795
Loan Against Trust Receipt 506,737,085 380,706,047
'18,243,891 17 030,838
Packing Credit
Lease Finance 11.964,145 17 ,547 ,091
Hire Purchase 211,358,076 206,566,526
PaymentAgainst Documents 103,516,396 61,741,181
Cash Credit (Hypo) 311,299,309 281,217,691
Overdraft 412,898.115 362,206,784
Consumers Credit 16,385,927 22,95'1,958
House Building Loan 129,733,143 83,109,223
Staff Loan 4,317,564 4,'156,650
EDF Loan 1,998,556 445,301
Other Credit Schemes 20,185,700 13,275,068
Personal Loan 10,710,975 2,662,919
2,299,546,666 1,755,836,347

91
 2005 (BDT) 2004 (BDT)
18.4 INVESTMENT INCOME
lnterest on lnveslments (Note-A) 314,935.036 202,613.912
lncome on lnvestment in Shares (Note-B) 17,196,187
3't4,935,036 219,810,099

A lnterest on lnvestments
lnterest on Treasury Bills 189,604,559 183,407,358
lnterest on Treasury Line 55 408,542
lnterest on Treasury Bonds 36,803,'163 9,358,478
lnterestonT&TBonds 22,290,017 8,135,164
lnterest on Debenture 10,828,755 1.712.912
314,935,036 202,613,912

B lncome on lnvestment in Shares

Gain on sale of Shares 16.253.487
Dividend on Shares 942.740
17,196,.t87

19. INTEREST PAID ON DEPOSITS & BORROWINGS ETC.

lnterest paid on Deposits 1,961,306,814 1.507.938 108

lnterest paid on Borrowings 25,761,813 990.375
lnterest paid on Overseas Accounts 91,638 69,550
'1,987,160,265 1,508,998,033

20. coMMtsstoN, EXCHANGE & BROKERAGE

Commission 300,611,339 217.146,130

Exchange (Note-2o.1) 259,202,408 268.210.909
559,813,747 485,357,039

20.1 Exchange
Gains arising from Dealing Securities
Less: losses
Gains arising from Investment Securities
Less: losses
Gains arising from Foreign Trade Business (including dealings) 259,2'10,185 268,2'10.909
Less: losses 7,777
259,202,408 268,210,909

21. OTHER OPERATING INCOME

Services & other Charges 29,610,601 20,638,847

lncome from Rent of Locker 315,800 306,000
Telephone, Telex and E-mail Charges 15,831,624 13,'148,065
On.Line Client Fees 569,666 624,553
Discount lncome 57,287,600 20,510,000
ATM Card 690,517 172.537
Gain on Sale of Vehicles 393,318 179,999
l\riscellaneous Earnings (Note-21.1) 87,623,888 38.709.759
192,323,014 94,289,760

92
 2005 (BDT) 2004 IBDT)
21.1 Miscellaneous Earnings
Postage Charge Recovery 9,104,773 8,852,662
SWIFT Charge Recovery 13,725,254 8,000,490
lncidental Charge 23,976,737 7,759,087
Foreign Correspondence Charge 12,528,036 6,383,286
Others 28,289,088 7,7 t4,2U
87,623,88E 38,709,759

22. DIRECTORS'FEES

Directors'Fees (@ BDT 2,500 per meeting) 1,'170,000 1,292,500

Directors' Fees VAT 179,700 211,725
1,349,700 1,504,225

23. SALARIES t ALLOWANCES

Basic Salary 98,'198,606 61.669,327

Bonus 66,213,000 52.255.529
Bank's Contribution to Employees Provident Fund 8,833,229 5,750.089
House Rent 43,541,540 35,922,588
Conveyance Allowance 5,307,493 5,561,126
Car Allowance 19,988,857 16,616,041
Entertainment Allowance 1,581,384 2,648,763
Medical Allowance 11,593,242 8.210,579
Deamess Allowance 13,508,125 22.795,608
Overtime Allowance 284,27A 199,471
Other Allowances 9,081,345 2,978,192
278,131,091 214,607,313

23.1 Chief Executive's Salary and Fees

Salary 3,000,000 1,653,959
Bonus & Other allowances '1,750,000 373,816
4,750,000 2,027,71s
24. RENT, TAXES, INSURANCE, LIGHTING ETC.

Rent 33,815,055 29,196,945

Rates, Taxes & Excise Duty oz./o I 86,801
lnsurance 26,129,774 17,949,763
Lighting, cas & Water 9,646,377 7,972,886
69,653,967 5s,206,395

25. LEGAL EXPENSES

Legal Fees & Charges 2,385,742 487,855

Stamp & Notary Public Expenses 99.417 39,415
2,/45,159 527,270

26. STATIONERY, PRINTING AND ADVERTISEMENT

Printing & Stationery 14,286,257 6,234,592

Adverlisement 15,729,762 16,902,488
Computer Expenses 3,349,375 2,640,275
33,365,394 25,777,355

93
 200s (BDT) 2004 (BDT)
27. DEPRECIATION AND REPAIR OF FIXED ASSETS

Depreciation on Fixed Assets (Note-27.1) 23,404,125 15,633,126

Repairs & Maintenance 6,923,729 4,328,413
30,327,854 19,96'1,539

27.1 Depreciation on Fixed Assets (Annexure -A)

Lease Hold Property 7 ,7 42,802
Free Hold Property 15,661,323 15,633,126
23,401,125 15,633,126

28. OTHER EXPENSES

Bank Charges 727,461 618,740

Donation 99,000 4.027.000
Car Expenses 2,658,604 1,476 050
Discount & Commission Paid 1,122 500
Training Expenses 2,175,983 1,656 789
IPO Expenses 3,933.598
Exgratia 3,958,550 656,200
Securities & Cleaning 16,641,181 10,442.816
Subscription 1,503,575 1.279.337
Enlertainment Expenses 9,637,551 4,723.109
Travelling Expenses 5,6S3,290 2,929 785
Conveyance, Carriage & Freight 1,437,798 1,179,33'1

Business Development 5,227,090 3,442 489

Liveries & Uniforms 369,110 228.511
Medical Expenses 2,765,565 1,229,694
Newspapers and Magazines 553,257 857,652
Lease Rent 118,718
lnteresl Expenses Lease 7,492,087
o-cashiATM Cards 3,538,349 38,964
Gratuity 10,000,000
Miscellaneous Expenses 6,S93,809 15,483,590
81,592,100 54,204,'t55

29. EARI{|NG PER SHARE (EPS}

Net Prolit alter Tax 386,833,645 312,581,426

Number of Ordinary Shares outstinding 9,992,656 9,992,656
Eaming Per share (EPS) 38.71 31.28

Note:EPS has been calculated in accordance with BAS-33. Previous year's figures have been adjusted for the issue of
1,998,531 Bonus Shares (for 2004) during the year.

30. NU]IIBER OF EMPLOYEES

The number of employees engaged for the whole year or part thereof was 663 in 2005. Each employee received annual
remuneration of BDT 36,000 or more in 2005.

3I. RELATED PARTY DISCLOSURE

31.1 Name of Oirectors and their interest in the Bank and different entities-shown in annexure-B.

31.2 Significanl contracts where the Bank is a party and wherein direclors have inlerest:
1 ) Lease Agreement of Naogaon Branch premises renewed with l\.4rs. Rena Jalil, Sponsor of the Bank (wife of i.4r. Abdul
Jalil, Chairman ofthe Bank)with monthly rent of BDT 36,450. The Bank obtained NOC from Bangladesh Bank in this regard.

94
I
 As of the date of these flnancial statements the Bank had no other transaction with the related party(ies) as defined in
the BRPD Circular no. 14 issued by Bangladesh Bank on 25 June 2003.

32. RECONGILIATION OF IT{TER BANK/BOOKS OF AGGOUNTS

Books of Accounts with regards to anter-bank (in Bangladesh and outside Bangladesh) are reconciled and there are no
material difference, which may afiect the Financial Statements significanfly.

Un-reconciled entries in case of inter-branch transactions as on the reporting date are not mentionable due to the time-gap
before finalizing the same.

33. LAND UNDER LITIGATION

A land is included under free hold properties - land (Note-8), located at culshan, Plol No. 3, Block No. CWN (C), culshan
Avenue, Gulshan, Ohaka-1212, [.4unicipality Holding No. 105, culshan Avenue, culshan Area of land '1 bigha 2 chattakas
purchased during the year for Bank's own use as per decision of the Board of Directors in its 73' meeting held on 23 August
2005. The land is under litigation and possession of the land is yet to be taken.ln this connection a provision has been made
during the year as per Bangladesh Bank's instruction (Note-'12.1).

34. AUDIT COMMITTEE

The Audit Committee, re-constituted by the Board of the Bank on l\,4ay 18, 2005, is presently formed with three members of
the Board of Directors where Director representing public shareholders is holding the post of Chairmanl

l'lame Designation Educatioml Qualitication

Saber Hossain Chowdhury Chairman B A (Hons.) in Economics and Politics
- School of Oriental and African Studies, University ol London.
Post Graduation completion ofAcademic Stages for entry to Bar.
Westminster University, London.

Md. Nasiruddin Choudhury Member B.Sc. Engg (Civil)

Bangladesh University of Engineering and Technology (BUET)

Md. Shahabuddin Alam I\.4ember B.Com (Hons) l\,4 Com.

During the year 2005, the Audit Committee of the Board conducted 09 (Nine) meetings. Among others, the Committee
discussed the following issues and provided guidelines and necessary instructions:

' Comprehensive inspection report of Bangladesh Bank received from time to time and status of compliance thereof.

' lnternal inspection report of different branches conducted by Bank's Audit and lnspection Team from time to time.
. Annual Audit and lnspection program of the Bank.

' Half Yearly Financial Statements as on 30 June 2005, Financial Statements for the year 2OO4 and Appointment of
Auditors.

' Review of Policy Guidelines of lnformation Technology and System Audit. Anti-Money Laundering Guidelines, lnternal
Control, Card Marketing and Card System Setup, Employee Performance Appraisal, Formation of Board Audit Cell.
. Alleged lrregular and Fraudulent transactions in Branch Offices.
. Follow-up the recovery of Loans and Advances.

35. EVENTS AFTER BALANCE SHEET DATE

Proposed Dividend

The Board of Directors of the Bank has recommended issuance of 1 (one) Bonus Share for every 5 (five) Shares i.e. Stock
Dividend @ 20% and Cash Dividend @ 5ol" of paid up capital for the year 2005.

95
 Statement of Fixed Assets
as at December 31, 2005

FREE HOLD PROPERTY

co sT
Particulars Balance as on Sales
01 January'05 during the year

Land '186,707,498 '186,707,498

Furniture & Fixtures 68.444.123 68,796,967 120,843,358 16,397 732

Ofiice Equipment 65.167,359 2'1 ,

'1
91 , 530 79,478 833 6,880 0s6

Vehicles 21.256.537 9,867,970 30,607,723 516,784

Books 299 009 159,010 356, 't01.856

Total '155,167,028 1 286,722,975 231 ,286, 210,603,926

LEASE HOLD PROPERTY

C OST

Balance as on Additions Sales as at

0l Septembor'05 during the year during the year

Furnilure & Fixtures 99,758,281 99,758,28

Ofiice Equipment 46,879,118 46,879.118

Vehicles 19,165,498 19,'165,498

Books 197,103 197,103

Total 't66,000,000 166,000,000

The Bank made a lease arrangement with Phoenix Leasing Company Limited eflective from 0'1 September 2005

96
 Annexure . A
(Amount in BDT)

DEPREC IATION
Written down value
Balance as on Charge Adjustment on Balance as at at 31 December'05
01 January'05 for the year duing the year 31

186,707,498

15,957 399 5,943,946 21,085,077 816,268 15,581,464

26,763,187 6,782,310 32,599,715 945,782 5,934.274

8,772, 29 2,906,56'1 11 ,381,043 297 ,647 219,137

132,266 28,506 159,060 1 ,712 100,144

51.624,981 15,661,323 65,224,895 2,061,409 208,542,517

DEPRECIATION
Written down value
Balance as on Charge Adiustment on at 31 December'05
01 September '05 for the year during the year

3,494,096 3,494,096 96,264,185

3,119,227 3,119,227 43,759,891

1,117,988 '1,117,988 18,047,5'10

11,491 11,491 185,612

7 ,7 42,802 7,7 42,802 158,257,198

97
 Name of Directors and Their lnterest in The Bank And
Different Entities Annexure - B
St tte"nead Designaii0t No. d Name of Fims/Companies Pclilion(as t{run
No addr€ss Sharcs in wfiich inbreshd as propietor, profliebr,Ffier, and Vhlue
held in Bank pafier, direclor, mamging agen! dit€dor, ofinEEsl
guarantor, employee etc, mamgingagen! in 0E finri
$aranbr, companies
employee etc.) in whir$

inbrested.

2005 2004

01, IVD. ABDUL JALIL Cha rman 75,001 78.751 1 Ja il Traders Proprietor 100 00%
House No 17 (2" Floo0 2 Fayez Lldd n Co d Storage Ltd Chairman & [.4D 90 00%
Road'ss, Gulshan-2, Dhaka
02 GOLAM FARUK AHI\,IED Director 172.681 163,145 1. [y'/S. Ahmeds Proprielor 100.000/o
Amin Court {4' Floo0 2. Peoples lnsurance Co Ltd. Director 2.000/0
62/63 l,4olijheel C/A, Dhaka 3. Popular Life lnsurance Co. Ltd. Vice Chalman 3.33%
03 I\,40. NASIRUDDIN Director 126.185 120,948 1. Holiday Travels Ltd Chairman 35.00%
CHOUDHURY 2. Technocon Ltd. l\,10 80.000/o
"Kalpaneel'. Apt. No-3A 3. l\y'anar Associates Lld. MD 80.000/o
House-35. Road-10/A (New) 4. Global lnsurance Ltd. Drreclor
Dhanmondi R/A. Dhaka-1205 5. Delta [.4edical Center Ltd. Director 3.000/o
04. I4ORSHED AIAM '1.
Director 229.913 203.931 Bengal Plaslic lnduslies Ltd. l\,10 44.120/a
House-12/A. Road-63 2. Bengal Poly and Paper Sack Ltd. Chairman 22.500/o
Gulshan'2, Dhaka-1213 3. Bengal overseas Corporation Ltd. Chairman
4. Bengal Chemical & Synlhelic Products Ltd. t\,10 40.000/o
5. Bengal Poly Pack Ltd. Chairman 36.36%
6. Rahman a Bread & Biscuit lndLstries Ltd Chairman 30.000/0
7. Rahmania Food & Beverage Ltd. Chatman 30.000/0
8. BengalAdhesive & Chemicals Producls Lld. Chaiman 33.330/0
L Bengal Corugated Ca(on lnd Ltd. Chaiman 36.360/0
10. Bengal Hyper lvarket Ltd. t\.4D 18.000i.
11. Jack in the Box Ltd. Chaiman 22.00yo
12. BengalAgro Estate Ltd. MD 17.00v"
13. Bengal Marbles Ltd Charman 50.00Y.
14. BengalCNG-LNG Servlces Ltd. IVD 25.000i0
15 Compact Fluorescent Lamps Company L1d Chalman 26.670/"
16. Bengal Concept & Holdings Ltd. Chaiman 30.007.
17 Bengal Spinning & Weaving Ltd. Chaiman 25.000/0
18. Power Utilily 8D Ltd. Chaiman 35.000/"
19. Bengal Teletech (Bangladesh) Lld Chairman 42.860k
05. I\,4D, SHAHABUDDIN ALAM Director 191,804 163,145 1. S.A Oil Refinery Ltd MD 85.OO7o
S A Group of lndust es 2 K.S.A.oil Refinery & Vegetable Products Ltd MD 94.000/o
Finlay House 3. Samannaz Super Oil Ltd MO 50.000/o
(3' Floor), Agrabad C/A 4. Laila Vanaspati Producls Ltd MD 50.00%
Chitlagong 5. Kamal Vegetables 0ils Ltd. MD 75.000/o
6. S.A. Condensed Mik Ltd. MO 75.00%
7. Shamannaz Condensed Milk Ltd. MD 75.00%
I
8. Shamannaz Dairy Food Products Ltd. t\,1D 80.00%
I S. A. Pulp & Paper Products Ltd. t\.4D 70.00%
10. South Easlern Tank Teminal Ltd. MD 60.00%
11. ShahAmanath Edible Oil Ltd. MD 32.000/0
12. S.A. Telecom System Ltd. MD 85.00%
13. Prominenl Drum lnduslries Lld. MD
..85rq00/r
06. S I\,1 AEDUL I,4ANNAN Director 98,380 98,380 1. Techno-Foki (Bangladesh) Ltd. MD 80.000/o
Yeasmin Palace 2. Global lnsurance L1d. Dkector
House-227. Elock-B 3. Della Medical Cenler Ltd Director 2.400/"
Bosundora Housing Stale 4. Premier Leasing lnternational Lld. Direclor 712%
Dhaka 5 Della Millers Ltd. Director 10.000/.

9B
SL llame and Designatjon No. of l,lame ot timJcompanies Parilion(s Naturc
l.lo addess Stpres in which inbrcs$d as popdehr, proFiek'r, pafier, atd Value
ti€ld in Bank padner, dirclor, managing agent dhrclor, of inhrest
guanntor, employee eh. managingqenl in tE lin
guardntor, compani€s
employee et ) in f,hLh
inbcstd.
2005 N4
6. Piu De Fashionova Ltd Chairman 34.00%
7 [4arga Nel one Ltd. Director 20.00%
07 NARGIS ANWAR Director 50.982 40.786 1. Living Plus Lld cr,riiip"*r- 20.004/"
Livinq Rowshan. Apt.-4-A
House-45-0. Road-15/A
Dhanrnondi R/A, Dhaka
08, TAZNEEN AMAN Director 3'1.250 - 1. Arena lndustries Lld. Direclor i30.00%
House-06, Road-80 2. l\,4ousumi Enteprises Ltd Director i 27.080/.
Gulshan-2.0haka
09. ISRAT JAHAN Dhector 26.656 - '1. Global lnsurance Ltd Director 3.33%
190 Arambag.
lnner Circular Road. Dhaka
10, FARIDA BEGUM Director 25,000 - 1. Synthia Seclriues Ltd Director 20.00%
Fla!904, 10 Paribagh 2 Satrong Proprielor 100.00%
Ramna. Dhaka.
11, NAZIFA KHANAM Director 25.000 - 1 Tanvir Enlerprise Proprietor i100.000/,
CHOWOHURY
Karakanan Nilima-56
Khuliapara, Sheikhghat, Sylhet
12, A K,M. SHAHEED REZA Director 70,301 86.626 '1. Allure Apparels Ltd. Chairman 40.00%
House-B'135 Road-22 2. Fashion Plus Ltd. Chairman 30.00%
New DOHS, Mohakhali, Dhaka Jan 08. 06 3. Reza Fabrics Ltd. Chairman
4. Fashion Exporls Proprielor 100.00%
13. SABER HOSSAIN Director i 37,500 30 000 1. Karnaphuli Ltd. [,D 24.980/,
CHOWDHURY 2. Karnaphuli lndustries Ltd. [.,!D 24.980/0
HR Bhaban. 26/'1 Kakrail 3. Karnaphuli Works Ltd. MD 24.970/r
Dhaka 1000 4. Karnaphuli Farms Lld. MD 24.900/,
5. HR Holdings Ltd. MD 0.010k
6. Karnaphuli Engineering Company Lld. t\,tD 19.900/o
7. Conlainer & Teminal Services Ltd. t\40 79.940/0
8. Regensea Lines Ltd. tul0 98.97%
9. Karnaphuli Foundries Lld. IVD 24.83%
10. Travelscene Ltd. Director 14.280/0
11. Mediascene Ltd. Chairman 28.510/"
12. KamaphuliExport lmport Ltd. MD 24.940/,
13. Reliable Automobiles Ltd. MD 24.91y0
14. Karnaphuli Nalional Assoc. Ltd. MD 24.820/r
15. Karnaphuli Leasinq SeNices Ltd. MO 24.700k
16. Kamaphuli Links Ltd. MD 8.000/0
17. KarnaphuliFarming & Fishing Ltd. MD 8.00%
18. Karnaphuli Texporl Ltd. MD 24.960k
19. Asia Conlainer Lines Lld MD 12.28%
20. Karnaphuli Automobiles Ltd. MD 25.00%
21. Karnaphuli Holdings Ltd. t\,10 24.96y0
22. Finvest Services Lld. Director 20.00%
23. HR Securities & lnvestments Ltd. MD 74.00%

99
 lnvestment in Share
as at December 31, 2005
Annexure . C
Type of Face No. of Cost of Average Quoted rate of Total Market
Name of the Company Shares Value Shares holding Cosl the Share as Value
on 31.12.m05 ar 31.12.2005
(BDT) (BDT) (BDT) (BDT)

Quoted

lndustrial Development and

Leasing Company of Bangladesh Ltd. 151,087,500

lJn.Ouoted

Central Depository Bangladesh Ltd. '1,000,000 2 2.000,000 1,000,000 2,000,000

Dhaka Stock Exchange Ltd. 2,000 8.100,000 8,100,000 8,100.000

Total 50,003 '139,487,000 -1 61,187,500

Total market value/book value on lnvestment is higher than cost, therefore, no provlsion has been made in the Financial Statements.

Highlights
for the year 2005 and 2004

(BDT in million)
Particulars 2005 2004
Paid-up Capital 999.27 799.41

Total Capital Fund 2,045.85 1 ,617.81

Capital Surplus (Deflcit) 273.47 196.41

TotalAssets 28,890.48 24,098.09

Total Deposits 25,727.43 22.385.19
Total Loans and Advances 21,857.05 17,669.29

Total Conlingent Liabilities and Commitments 14,674.25 11 .298.11

Credit Deposit Ratio (%) 91 .68 89.30

Percentage of Classified Loans against Total Loans and Advances (%) 4.14 4.11

Profit after Tax and Provision 386.83 312.58

Amounl of Classified Loans during the year 179.57 282.15

Provision kept against Classified Loans 523.00 342.80

Provision Surplus (Deficit) 0.18

Cost of Fund (%) 8.42 8.10

lnterest Earning Assets 26,117.92 22.623.37

Non-interest Earning Assets 2,772.56 1,474.72
Return on lnvestment (%) 9.51 I.43
Return on Assets (%) 1.47 1 .46
lncome from lnvestment 314.94 219.81
Earning Per Share (BDT) 38.71 31.28
Net lncome Per Share (BDT) 38.71 31.28
Price Earning Ratio 10.09 x 17 .26 x

100
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