2012 governance

8/13/2019 2012 Governance

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Profile of the Board of Directors

Chairmans Statement

Managing Director and CEOs Economic Review

MTB Management Committee

MTB Committees

Corporate Governance

Compliance Report on SECs Notification

Report of the Board Audit Committee

Report on Internal Control and Compliance

Market Discipline Pillar III Disclosure

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47

52

53

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034MTB Annual Report - 2012Governance - Profile of the Board of Directors

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Dr. Ari f Dowla, Chairman

Dr. Arif Dowla is the Chairman of Mutual Trust Bank Ltd. (MTB) sinceJanuary 17, 2012. He is the third incumbent in the apex position of this

third generation bank. Dr. Dowla is the Managing Director of the renowned

conglomerate, Advanced Chemical Industries (ACI) Ltd., as well as its

various subsidiaries. Son of Mr. M. Anis Ud Dowla, a leading name in

Bangladesh's corporate business and trade and industry circles, Dr.

Dowla is the Chairman of Tetley ACI (Bangladesh) Ltd. He is also the

Managing Director of ACI Pure Flour Limited, ACI Foods Limited, ACI

Motors Limited, ACI Logistics Limited, ACI Agro Chemicals Limited,

Premiaflex Plastic Limited, Stochastic Logic Limited. He is currently a

Director of ACI Formulations Limited, ACI Godrej Agrovet (Pvt.) Limited,

Creative Communication, Apex Leather Craft Limited and Consolidated

Chemicals Limited.

Dr. Dowla obtained a PhD degree in Mathematics from the University of

California, San Diego, USA. He is also a member of the American

Mathematical Society.

Dr. Dowla is Young Global Leader Honoree 2009 bestowed by World

Economic Forum.


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Mr. Rashed Ahmed Chowdhury, Vice Chairman

Mr. Rashed Ahmed Chowdhury is the Vice Chairman of Mutual Trust Bank

Ltd. (MTB). He is the Director of Associated Builders Corporation Ltd.

(ABC), a pioneer in the field of construction and real estate development

in Bangladesh. He is also the Chairman of Banga Garments Ltd. and ABCBuilding Products Ltd. (ready-mix concrete). He is a Director of ABC Real

Estates Ltd. and Shamsuddin Towels Limited. He has served as Senior

Vice President of Bangladesh Terry Towel Manufacturers and Exporters

Association.

Mr. Chowdhury obtained Higher National Diploma in Business Studies

from West London College, UK and a Post Graduate Degree in

Management from Kingston University of the United Kingdom.

He is a member of Chartered Management Institute, UK and is a Founder

Trustee and Syndicate Member of Independent University, Bangladesh

(IUB). He is a founding member of Cadet College Club Limited and servedas its Vice President.


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Mr. Syed Manzur Elahi, Director (Founding Chairman)

Mr. Syed Manzur Elahi is the Founding Chairman of Mutual Trust Bank

Ltd. (MTB). Mr. Elahi is a prominent businessman of the country and is the

Chairman of Apex Group, a leading business organization of the country.

He is the Chairman of Apex Tannery Ltd., Apex Adelchi Footwear Ltd.,Apex Pharma Ltd., Blue Ocean Footwear Ltd., Apex Enterprise Ltd., Apex

Investment Ltd., Grey Advertising (Bangladesh) Ltd., Quantum Market

Research, Manusher Jonno Foundation, the Holiday Publications,

Bangladesh Freedom Foundation and Central Depository Bangladesh

Ltd. (CDBL). He is also a Director of the Financial Express, Credit Rating

Agency of Bangladesh Ltd. (CRAB) and East West University.

Mr. Elahi is the former Chairman of the Bangladesh Association of Banks,

and has served as a Director on the Boards of Bangladesh Bank, Sonali

Bank and Bangladesh Krishi Bank. He has served as President of the

Metropolitan Chamber of Commerce and Industry (MCCI) and as Vice

Chairman of the Bangladesh Association of Publicly Listed Companies.Mr. Elahi was the Chairman of the East West University Foundation. He

has also served as a Director of the Export Promotion Bureau,

Bangladesh. Besides being an eminent industrialist, Mr. Elahi was also

appointed Adviser to the Caretaker Government of Bangladesh twice

(1996 & 2001), for his leadership qualities, professionalism and

non-partisanship.

He is the President of the Dhaka University Alumni Association and a

Trustee Board member of the Centre for Policy Dialogue. He was also the

Honorary Consul of Belgium in Bangladesh. He has won various awards

for his contributions to the business sector of the country, including

"Business Executive of the year 2000" by the American Chamber of

Commerce, Bangladesh and later the "Business Person of the Year 2002"award, sponsored by the Daily Star and DHL Worldwide Express. Mr.

Elahi holds an M.A. (Econ.) from the University of Dhaka.


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Mr. Md. Abdul Malek, Director

Mr. Md. Abdul Malek, Director of Mutual Trust Bank Ltd. (MTB), obtainedB.Sc. Engineering (Civil) from BUET, a renowned engineering institution ofthe country. He is the Chairman of Sheltech Consultants (Pvt.) Ltd.(SCPL). Since its establishment in 1990 as a major practitioner in UrbanPlanning, Architectural, Engineering Design and Tourism Development,the firm has successfully conducted many projects for major InternationalDevelopment Funding agencies, which includes Asian DevelopmentBank, The World Bank, UNDP, EEC, SDC, FINNIDA, USAID, UNICEF,DFID, DGIS and RNE on behalf of the Govt. of Netherlands.

Mr. Md. Wakiluddin , Director

Mr. Md. Wakiluddin, Director of Mutual Trust Bank Ltd. (MTB) is theChairman of Baridhara Enterprise (Pvt.) Ltd. He is the Managing Directorof Swadesh Properties Ltd. & Baridhara Corporation Ltd. He is also aDirector of HURDCO International School.

Mrs. Khwaja Nargis Hossain, Director

Mrs. Khwaja Nargis Hossain, Director of Mutual Trust Bank Ltd. (MTB)received Masters degree in Islamic History from the University of Dhaka.She is also a Corporate Director of SAHCO International Ltd. and amember of BOAO Forum for Asia (BFA), China. BFA is a non-profitinternational organization formed by 26 Asian countries and Australia for

socio-economic development of the people of Asia and rest of the world.


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Mr. Anjan Chowdhury, Director

Mr. Anjan Chowdhury, Director of Mutual Trust Bank Ltd. (MTB) represents

ASTRAS Limited on the MTB Board and has replaced the iconic and

legendary MTB Chairman, Late Mr. Samson H. Chowdhury.

He is the Managing Director of Square Toiletries Limited, Square

Consumer Products Limited, Aegis Services Limited, Square Securities

Management Limited, Square Spinning Limited, Mediacom Limited and

private TV channel - Maasranga Television Limited. He is also the

Chairman of Oracle Travels Ltd.

He is a Director of Square Pharmaceuticals Limited, the largest

pharmaceutical and bulk drug manufacturing company of the country and

also a Director of Square Hospital Limited, a well reputed international

standard private hospital in Bangladesh.

He is a Director of Square Textiles Limited, Astras Limited, HealthProducts Limited, Pharma Packages (Pvt.) Limited, Barnali Printers

Limited, Square Holdings Limited, New Dhaka Refractories (BD) Limited,

Square Informatix Limited, Square Distributions Ltd., Square Air Ltd. and

Abahani Ltd.

He is the President of Bangladesh Agro Processors Association,

Executive Committee Member of Bangladesh Golf Federation and

member of the Committee of The Metropolitan Chamber of Commerce &

Industry (MCCI).

Mr. Anjan Chowdhury is the President of Annada Gobinda Public Library,

Life Member of Pabna Press Club, Member of Pabna Station Club, Life

Member of Pabna Rifles Club and Pabna Bonomali Institute, ExecutiveCommittee Member of Pabna Police Line Development Committee,

Regent Board Member of Pabna University of Science & Technology,

Committee Member of Pabna District Law Enforcing Committee, Savar

Golf Club, Gulshan Club, Uttara Club, Dhaka Club and American

Recreation Association (Club). Mr. Chowdhury is an Executive Committee

Member of Kurmitola Golf Club and Chairman of its Development

Committee.


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Mr. Q. A. F. M Serajul Islam, Director

Mr. Q. A. F. M. Serajul Islam, Managing Director & CEO, Pioneer

Insurance Company Limited represents Pioneer Insurance Company

Limited as a Director on the Board of Mutual Trust Bank Ltd. (MTB). He

obtained Post-Graduate degree in Physics in 1972. He developed a keen

interest in insurance and in 1978 joined the state owned Insurance

Company Shadaran Bima Corporation (SBC). He held important positions

in different departments of SBC and in 2003, he voluntarily retired from

Shadaran Bima Corporation (SBC) as Deputy General Manager.

Then he joined Progati Insurance Limited as Deputy Managing Director in

2003. In September 2005, he switched to Pioneer Insurance Company

Limited as an Additional Managing Director then he assumed the office of

Managing Director & CEO on 14th January 2007. In 2011, under his skillful

leadership, Pioneer Insurance Company Limited became the 2nd largest

Company in terms of premium income among 43 non life insurance

companies.

Besides his educational degree, he also obtained professional degree,

BIA Diploma in General Insurance, from Bangladesh Insurance Academy

in 1986, and since then he is associated with BIA as a resource person.

He took part in training courses on General Insurance and Re-Insurance

both at home and abroad which included a three week in-house training

on Re-Insurance at Tysers, UK.

In addition, he negotiated Re-Insurance treaties of SBC, Progati

Insurance Limited and Pioneer Insurance Company Limited with

re-insurance companies of UK, France, Germany, Switzerland, Malaysia,

Singapore, India, Bahrain, etc.


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Mr. Anis A. Khan, Managing Director & CEO

Mr. Anis A. Khan (AAK) is Managing Director & CEO of Mutual Trust Bank

Ltd. (MTB), since April 15, 2009. Prior to joining MTB, AAK headed the

countrys largest multiproduct financial institution (non-banking), IDLC

Finance Limited (IDLC), from 2003 to early 2009, as its CEO & Managing

Director.

AAK, a career banker, earlier served for 21 years, in a multitude of roles,

with the erstwhile Grindlays Bank p.l.c., ANZ Grindlays Bank and

Standard Chartered Bank (SCB), both in Bangladesh and abroad. He has

received wide and intensive on job exposure and training on banking and

management practices, including wholesale, SME and retail banking,

international trade, leasing, factoring, banking and NBFI operations, legal

and compliance, mergers and acquisitions, business process

re-engineering and transformation and upgradation of information

technology platforms in Dhaka, Chittagong, Mumbai, Dubai, London and

Melbourne. His last posting for Standard Chartered Bank was in Dubai,UAE.

AAK serves as nominee director on the boards of Industrial and

Infrastructure Development Finance Company Limited (IIDFC),

Bangladesh Rating Agency Limited and BD Ventures Limited. He is a

member of the Chamber Committee of the Metropolitan Chamber of

Commerce & Industry, Dhaka (MCCI) and chairs its Commercial

Legislation Sub-Committee. He is a life member of the SAARC Chamber

of Commerce and Industry (SAARC CCI).

He serves as the Vice Chairman of Primary Dealers Bangladesh Limited

(PDBL), Member of the Executive Committee of Bangladesh Foreign

Exchange Dealers Association (BAFEDA), Member of the Board ofGovernors of the Association of Bankers, Bangladesh (ABB) and

Bangladesh Institute of Bank Management (BIBM). AAK was elected as

Fellow of the Institute of Bankers, Bangladesh (IBB) in December 2012.

AAK qualified for the Bangladesh Civil Service after passing the BCS

Examination in 1982. His academic and professional qualifications include

masters degree and post graduate diplomas in law, human resource

management and French and Spanish languages.


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042MTB Annual Report - 2012Governance - Chairmans Statement

Dr. Arif Dowla

Chairman

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043MTB Annual Report - 2012Governance - Chairmans Statement

As the worl d becomes a smal ler place, drawn together by increasingl y intertw ined economies and global markets, i t is ess ential

to be firm, sincere and dedicated to be successful in business. That is our goal to be successful in business. It is obviousthat, our achievements during the years of experience will have a profound influence on our futu re growth. This is the drive and

ambition that, in my opinion, will serve us well in todays business world.

Dear Respected Shareholders,

MTB's persistent focus on emerging opportunities has enabled us to show qualitative growth in a very challenging environment. In orderto provide superior banking services and move towards becoming one of the best performing banks in the country, we are consistently

innovating and adding value through technology-led delivery channels supported by a wide range of product offerings. The expanding

reach to grassroots levels through financial inclusion is another constructive initiative for us to forge ahead. We continue to invent newbusiness models and set new benchmarks for ensuring sustainable performance.

The global economic environment remained delicate throughout the Fiscal Year 2012. In fact, it turned sharply adverse from September

2011, due to the turmoil in the euro zone and concerns about the fading prospects for the U.S. economy. Global business and consumer

confidence declined significantly in the second half of the Fiscal Year 2012.

While I write this message, there seems to be a sense of gloom around our economy. There are concerns about slowdown in investment,

oil prices, energy crisis and corporate performance. Our capital and money markets are demonstrating high volatility, further impactingthis sentiment. However, if we look beyond the headlines towards a slightly longer time horizon, we can foresee a rather different picture.

Shareholders are the main concern for MTB and good returns can only be continued through the support and admiration of ouremployees, customers and the community. Our goal is to be a good corporate citizen to serve our stakeholders more.

In 2012, MTB group grew considerably with bank branches growing from 76 to 86. The network is expanding fast and we now have 150MTB 24/7 ATMs and over 1,000 Point of Sales (POS) devices installed across the nation.

Over the last few years, the executive team has handled the objectives of growth, profitability and risk management in an admirable

manner, further strengthening the balance sheet and the key drivers of profitability. This strategy has been advanced across all

businesses, while ensuring that capabilities continue to be built to participate in the future growth opportunities that our country willprovide. The Board continues to focus on a sound governance framework that encourages this balance and supports long-term

sustainable value creation.

We are confident about our countrys future and about the growth and profitability of the MTB Group in the years ahead. The Group is

strongly positioned in each of its businesses and focused on sustainable growth and profitability. We look forward to the years ahead with

excitement and optimism.

We believe our business plan for 2013 will be achieved with an enhanced platform. Our commitment towards corporate and socialresponsibilities will continue while considering all economic, environmental and social factors.

I am very thankful to my fellow Directors, who have given their unstinting co-operation and support. Moreover, I appreciate the ManagingDirector & CEO and all our employees of MTB Group for their dedication and efforts during the difficult year of 2012.

I am grateful to our customers and clients for their enduring confidence in our service quality according to their needs, as well as ourshareholders, stakeholders and our regulators for continuing to believe in our vision for growth.

I am delighted to invite you to attend this years Annual General Meeting on April 29, 2013 at the Bashundhara Convention Center02,BlockC, Umme Kulsum Road, Bashundhara R/A, Baridhara, Dhaka 1219 and look forward to seeing you there.

Thank You.

Dr. Arif Dowla

Chairman

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Dr. Arif Dowla

Chairman

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045MTB Annual Report - 2012Governance -Pqvigvbi evZv

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046MTB Annual Report - 2012Governance - Managing Director and CEOs Economic Review

Anis A. Khan

Managing Director and CEO

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8.00%

6.00%

4.00%

2.00%

0.00%

7.2%

6.0%

GDP

GOB WB ADB IMF

6.0% 5.8%

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What we say to cus tomers is very simple: If the challenges we are addressing are your challenges if you t hink we

can help you make better decisions - come and talk to us. We understand our business, and we understand our

customers. We want to be part of the conversation around the questions that matter.

GLOBAL ECONOMY

The global economy continued to show moderate growth in 2012; however, a downside risk emerged towards the end of the

period due to increasing concerns about the U.S. budget deficit, the European sovereign debt crisis and slowing growth in

emerging markets.

Global Financial Markets

Emerging market yields are likely to increase amid expected policy tightening in high-income countries. Spreads for

developing countries might also widen, as the declining trend in risk premiums partly reflects the very low policy rates and

quantitative easing in high-income countries. These easy monetary conditions have suppressed the price of risk in both

developed and developing countries, and prompted a search for yields similar to that observed in the pre-crisis period.

Policy tightening in high-income countries together with on-going banking sector deleveraging limiting the availability of

funding, will put upward pressure on the cost of cross-border financing in coming years.

Global Capital MarketsThe United States' stocks still dominate world market cap by a wide margin at 29.9%. Japan has the second largest stock

market representation at 8.2%, followed by the UK (6.8%), China (5.4%) and France (4.4%). China is remarkable because

it made up just 1.7% of global market cap at the start of 2004, and now it has the fourth largest representation.

However, the Dow Jones, NASDAQ and S&P have seen positive growth compared to the same period last year. Among the

Asian market Indices, only NIKKEI 225 is declining. American and European capital markets saw a significant recovery in

various indices after the global economic meltdown and projected higher growth outlook. However, the world capital markets

turned around in 2012 after a long bearish trend in 2010-11.

BANGLADESH ECONOMY

Gross Domestic Product (GDP)The Government of Bangladesh (GoB) has set a target of 7.2% GDP growth rate in the current fiscal year (FY), expecting

the thriving export and agriculture sectors to propel the growth rate beyond the 6.3% achieved in FY 2011-12. The GoB also

expects the global economy to experience a major turnaround by the year 2013.


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Inflation

Inflation is a major concern for a country like ours, where a large number

of people hover around the poverty line. The government of Bangladesh

is trying its best to address this issue. However, its contractionary

monetary policy and expansionary fiscal policy have complicated the

situation and made the possibility elusive.

RemittanceTotal remittance receipts in 2012 increased by 16.5% to USD 14.2 billion

against USD 12.2 billion in 2011. The month of December 2012 saw

non-resident Bangladeshis send USD 1.3 billion in remittances, sharply

up by 16.4% from November 2012 receipts. This figure is also 11.8%

higher than the USD 1.1 billion recorded for December 2011, which

boosted the foreign currency reserve of Bangladesh Bank (BB).

BANKING SECTOR SCENARIO

Major indicators describing banking sector performance showed mixed

trends during FY 2012. The overall deposits-advance ratio increased,

risk weighted capital asset ratio (RWCAR) for all banks remained fixed,

while the ratio of non-performing loans (NPL) to total loans for the

banking sector, in both gross and net terms, increased. The return on

assets (ROA) and return on equity (ROE), two important measures of

bank profitability, declined while the interest rate spread (IRS) for all

banks increased during FY 2012.

DepositsTotal deposits (excluding interbank items) of the scheduled banks

increased by BDT 836.2 billion from 2011 to BDT 5.0 trillion in 2012. MTB

deposits registered an increase of BDT 16.1 billion or 27.0% from 2011

to 2012.

Advances / Credi t

Advances increased by BDT 603.7 billion or 16.0% to BDT 4.39 trillion at

the end of 2012. MTB advances registered an increase of BDT 9.5

billion or 20.0% from 2011 to 2012.

Money Market

Bangladesh Bank reduced the repo and reverse repo rates by 50 basis

points and at present, the repo rate is at 7.3% and reverse repo rate is at

5.3%. The weighted average call money rate in the interbank market

remained below 10% for the last four months (September-December

2012).

Liquidity PositionTotal liquid assets of scheduled banks stands higher at BDT 1.5 trillion as

of end December 2012 against BDT 1.3 trillion in June 2012. Required

liquidity of the scheduled banks also stands higher at BDT 878.6 billion

as of end December 2012 against BDT 797.7 billion in June 2012. Rise

in foreign currency in the way of loans, remittances along with

distribution of burden of treasury bills & bonds among all the banks

instead of primary dealer banks only, helped ease liquidity pressure.

New Policy for Loan Administration

The central bank issued a new circular in 2012 with instructions aimed at

tightening credit and improving loan administration through revised

policies on loan classification, loan rescheduling and provisioning. This

move will have a big impact on the profitability of the countrys banking

industry.

Distribution of total l iquid assets(as of end Dec 2012)

Balance

with BB 32.29%

Cash in T-bills

+

Balances with

SCB5.51%

Unsubscribed

approvedsecurities

62.20%

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MTB 14.0

12.0

10.0

8.0

6.0

CPI Inflation (12 month average & P to P)

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Average P2P

6

5.8

5.6

5.4

5.2

5

Spread of Lending & Deposit Rate (in %)

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Spread of Lending & Deposit Rate


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Capital Adequacy Management

Banks in Bangladesh need to strengthen their capital base in order to adopt Basel III standards. Basel III has changed the

nature of banking - it is more difficult for banks to finance long term assets, long term dividends, long term project finance

and loans with comparatively poor financial strength; which is why maintaining high levels of capital is important.

The Risk Weighted Capital Adequacy Ratio (RWCAR), however, remained significantly above the regulatory requirement of

10% for foreign commercial banks (FCBs) and marginally higher for private commercial banks (PCBs) and scheduled

commercial banks (SCBs). The RWCAR of MTB remained at 10.7%, above the regulatory requirement of 10%.

ChallengesBangladesh Bank has recently awarded licenses to five commercial banks which will intensify competition in the banking

arena.

At present, banks face several challenges, such as increase in interest rates on deposits, a tighter monetary policy, a large

government deficit, increased stress in some sectors (e.g. power and real estate) and implementation of BASEL II and the

upcoming BASEL III framework.

BANGLADESH CAPITAL MARKET SCENARIO

While the Bangladesh capital market is one of the smallest markets in Asia, it is the third largest in the South Asian region.

Last year, the capital market experienced massive volatility in market capitalization and index movement. Compared to the

bullish performance from 2007 to 2010, recent market performance has been insignificant.

The performance of the Dhaka Stock Exchange during the last two years has raised questions about the structural

impediments facing the capital markets in Bangladesh. Many small investors saw their life savings dissipate due to a free

fall in the price of stocks they had invested in. Unfortunately, this phenomenon is not unique to Bangladesh. While the large

emerging markets and world equity benchmarks are enjoying strong investor demand, the world's next emerging markets,

the so-called Next-11 (N-11) including Bangladesh, Pakistan, Sri Lanka and Vietnam, have lost some of their attractiveness.

Rampant inflation, chronic trade deficits, and a lack of structural reform have deterred investors.

BANGLADESH CAPITAL MARKET

(http://www.bespokeinvest.com/thinkbig/2012/5/11/changes-in-share-of-world-market-cap.html)

However, the market is composed of well diversified sectors. Among the sectors, banking, fuel and power and

pharmaceuticals hold the largest market capitalization - over 60% of the total. During the last fiscal year, the market

capitalization and turnover have significantly decreased by 12.4% and 35.0% respectively. The contraction of the market

can also be explained by the percentage of market capitalization as compared to GDP at current price. It has shown that the

current market capitalization is 28.8% of the GDP in 2012, which was 45.0% in 2011.

Source: www.dsebd.org

Human Resources

MTB has taken some major Human Resources (HR) initiatives during 2012 in order to cement its position in the top league

of banks. Substantial training and developmental activities were carried out during 2012, which included comprehensive

programs in the areas of credit, foreign exchange dealings, branch management and risk management, among others,

through the MTB Training Institute for new and existing employees.

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During 2012, the bank added staff to its workforce in various cadres and scales. The newly recruited MTB Management

Trainees (MMTs) were inducted into the organization with various training programs aimed to groom, equip and mentor them

for their roles. Other current and new employees were also given training at various levels on various topics as part of our

ongoing program to keep skill and competence levels high.

MTB MANAGEMENT POLICIES

The year 2013 is the year for us to move forward steadily toward the achievement of our goals by fully capturing

opportunities with proactive ideas and action. While maintaining our focus on the development of business and synergies

between MTB and MTB subsidiaries, we will continue to strengthen initiatives in strategic business areas and establish a

solid financial base and corporate infrastructure.

Our focus in 2013 will be directed in three strategic business areas:

Retail Customers We will fully identify the needs and desires of each customer segment and offer the optimal set of products and services

and make every effort to improve our financial consulting capabilities for retail customers.

Tailor-made Solutions for Corporate Clients

In our business for corporate clients, against a backdrop of changing external business climate, we will reinforce our

solution-providing capabilities and lending business by evolving organizational framework for marketing and optimizing

staff allocation.

Non-asset Businesses- Payment & Settlement Services

Transaction Services is a profitable business that does not require the use of assets and is effective in improving our

risk-return profile. We will establish a Transaction Business Planning Department to promote transaction services for our

valued clients.

Apart from the above, we have also planned to increase our operational excellence and shareholders return through various

strategies, which are:

Establish a solid financial base and corporate infrastructureIn order to strengthen our corporate infrastructure to support the sustainable development of our business, we will upgrade

our risk management system and develop human resources with world-class business capabilities. We will also upgrade our

group-wide management capabilities by diversifying and enhancing our business portfolio, while reinforcing strategic

business areas. We will continue to pursue operational efficiency through business process re-engineering, proactively

address the changing regulatory environment and further strengthen our group-wide compliance and control systems.

Capital policy and returns for shareholders

In the medium-term management plan, we have set a Core Tier I ratio target of 9% as of 2014, which will be approximately

80% higher than the Basel II required level of 5%, as per guideline of the Bangladesh Bank.

MTBs basic shareholder return policy is to return a consolidated dividend yield ratio of over 8% through stable and

consistent distribution of profit, while enhancing retained earnings to maintain financial soundness, and to achieve

sustainable growth of enterprise value.

MTB FINANCIAL SNAPSHOT 2012

As of December 31, 2012, MTBs operating profit was BDT 1.3 billion. Deposits grew to BDT 75.1 billion, 27.3% over 2011.

Loans and advances rose by 20.2% to BDT 56.5 billion. Funds under management in 2011 were BDT 106.1 billion growing

to 131.7 billion in 2012, an increase of 24.1%. Non-performing loans were at 3.7%. Capital adequacy ratio as per BASEL II

was 10.7% (required 10%).


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MTBs consolidated operating result (in millions) during 2012 is summarized below:

2012 2011 Growth %

Profit before tax 818.8 975.7 -16.1

Tax 490.9 571.5 -14.1

Net profit after tax 327.0 404.2 -19.0

Earnings per Share 1.3 1.6 -19.0

Book Value per Share 19.0 18.9 0.004

Outlook for 2013While we have no doubt that 2013 will be challenging, we are nonetheless very optimistic about MTB Groups future and our

ability to continue to deliver superior returns to our stakeholders.

We firmly believe we can meet stakeholders expectations through the initiatives we have designed. We hope we cancontinue to count on your understanding and support in the years ahead.

Finally I would like to thank our customers, stakeholders, Bangladesh Bank, Securities and Exchange Commission, Dhaka

Stock Exchange, Chittagong Stock Exchange, the Ministry of Finance, other regulatory bodies and of course the employees

of the group on whom our success depends.

Anis A. KhanManaging Director & CEO


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052MTB Annual Report - 2012Governance - MTB Management Committee (MANCOM)

1. Mr. Md. Hashem Chowdhury

Deputy Managing Director

2. Mr. Anis A. Khan

Managing Director & CEO

3. Mr. Md. Ahsan-uz Zaman

Additional Managing Director

4. Mr. Quamrul Islam Chowdhury


5. Mr. Joyanta Kumar Mandal

Group Head of Treasury

6. Mr. Md. Nazrul Islam Mazumder

Chief Executive Officer, MTBSL

7. Mr. Iqbal Mahmud

Group Chief Risk Officer

8. Mr. Meer Sajed-Ul-Basher, FCA

Group Chief Financial Officer

9. Mr. Syed Rafiqul Hossain

Head of Wholesale Banking &

MTB Dhaka Division Branches

10. Mr. Kashif Rahman Siddiqui

Head of Syndications & StructuredFinance

11. Mr. Mohammad Ali Chowdhury

Head of Chittagong Division

Branches

12. Mr. Mohammed Sami Al Hafiz

Group Chief Communications

Officer

13. Mr. Md. Nurul Islam

Group Head of Human Resources

14. Mr. Md. Shah Alam Patwary

Group Chief Information Officer

15. Mr. Khondaker Rahimuzzaman

Head of NRB & Other MTB

Branches

16. Mr. Swapan Kumar Biswas

Head of Banking Operations

Department

17. Mr. Md. Bakhteyer Hossain

Head of International Trade

Services

18. Mr. Md. Zakir Hussain

Head of Credit Risk Management

19. Mr. Goutam Prosad Das

Group Head of Internal Control &

Compliance

20. Mr. Khairul Bashar Abu Taher

Mohammed

Chief Executive Officer, MTBCL

Sitting (from left to right) Standing (from left to right)

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Board Executive Committee

Mr. Hedayetullah Director Chairman of the Committee

Mr. Md. Abdul Malek Director Member of the Committee

Mr. M. A. Rouf Director Member of the Committee

Mr. Anjan Chowdhury Director Member of the Committee

Mr. Anis A. Khan Managing Director & CEO Member of the Committee

Board Audit Committee

Mr. Syed Manzur Elahi Founding Chairman & Director Chairman of the Committee

Mr. Rashed Ahmed Chowdhury Vice-Chairman Member of the Committee

Mr. M. A. Rouf Director Member of the Committee

Mr. Md. Wakiluddin Director Member of the Committee

Mrs. Khwaja Nargis Hossain Director Member of the Committee

Mr. Anis A. Khan

Managing Director & CEO

Chairman

Mr. Md. Ahsan-uz Zaman

Additional Managing Director

Member

Mr. Quamrul Islam Chowdhury


Member

Mr. Md. Hashem Chowdhury


Member

Mr. Md. Zakir Hussain

Head of Credit Risk Management

Member

Mr. Md. Nurul Islam

Group Head of Human Resources

Member

Mr. Goutam Prosad Das

Group Head of Internal Control &

Compliance

Member

Mr. Swapan Kumar Biswas

Head of Banking Operations

Department

Member

Mr. Khondaker RahimuzzamanHead of NRB & Other MTB

Branches

Member

Mr. Syed Rafiqul HossainHead of Wholesale Banking & MTB

Dhaka Division Branches

Member

Mr. Kashif Rahman Siddiqui

Head of Syndications & Structured

Finance

Member

Mr. Meer Sajed-Ul-Basher

Group Chief Financial Officer

Member

Mr. Joyanta Kumar Mandal

Group Head of Treasury

Member Secretary

Mr. Nurul Maruf Khan

Senior Vice President

Member

Mr. Md. Shah Alam Patwary

Group Chief Information Officer

Member

Mr. Gazi Yar Mohammad

Senior Vice President

Member

Mr. Iqbal Mahmud

Group Chief Risk Officer

Member

Asset L iabil ity Committee (ALCO)

053MTB Annual Report - 2012Governance - MTBCommittees

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054MTB Annual Report - 2012Governance - Corporate Governance

We strive to earn and retain the trust of our shareholdersthrough our high standards of corporate governance. Wehave rigorous oversight and regulations in place, and wework to embed those practices in our culture.

1. Board of Directors1.1. Composition of the BoardThe Board consists of 11 highly accomplished directors,who are professionals in management, law and business.

They possess the skills, experience and knowledge to setdirections and oversee the overall activities of the bank.

1.2. MeetingsDuring the year, board meetings were held atapproximately monthly intervals, to formulate policy, setgoals and evaluate overall performance.

1.3. Boards Responsibil itiesThe main responsibilities of the Board are:

a) Developing and implementing corporate strategies;b) Monitoring and reviewing the corporate governance

framework;

c) Monitoring and reviewing the risk managementprocess;d) Reviewing business results and monitoring budgetary

control;e) Maintaining a direct, ongoing and healthy

communication with regulatory bodies;f) Setting standards and monitoring compliance with our

social responsibility policies and practices; andg) Recommending shareholders to appoint an external

auditor.

1.3.1 Company SecretaryThe company secretary is responsible for advising theChairman and the Board on all corporate governancematters, board procedures and compliance with applicable

rules and regulations. The Board Secretary maintainsminutes of the board meetings.

1.4. Training for New DirectorsPresentations are made by the senior management to theBoard from time to time on industry related matters.

1.5. Delegation of PowerThe Board has delegated appropriate administrative,

financial and business authority to the management as perBangladesh Bank guidelines. As approved by BangladeshBank, the role of the Executive Committee is:

a) To review the policies and guidelines issued byBangladesh Bank; and

b) To approve credit proposals as per approved boardpolicy.

The Executive Committee is comprised of the followingmembers:

1. Mr. Hedayetullah Director Chairman2. Mr. Md. Abdul Malek Director Member

3. Mr. M. A. Rouf Director Member4. Mr. Anjan Chowdhury Director Member5. Mr. Anis A. Khan Managing Member Director & CEO

2. Role of Chairman, Managing Director & CEO2.1. Role of the ChairmanThe Chairman is a non-executive director, elected by theBoard, responsible for organizing the business of theboard, ensuring its effectiveness and setting its agenda.The Chairman is not involved in the day-to-day business ofthe bank. He ensures that board members undertakeappropriate induction, covering terms of appointment,duties and responsibilities.

Our governance responsibilities are integral to our performance and long-term sustainability

Our corporate governance standards reflect emerging best practices and meet or exceed legal and regulatory

requirements

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2.2. Role of the Managing Director and CEOThe Managing Director is responsible for overall activitiesof the business and for formulating and implementingboard strategy and policy. He has control of the bank on aday-to-day basis and is accountable to the Board for itsfinancial and operational performance.

3. Appointment to the Board

3.1. Director Appoin tmentsAppointment of a new director is made with the consent of

all directors at the immediate annual general meeting

(AGM). A detailed biography, a declaration of his or her

non-engagement with other financial institutions and that

he/ she is not a loan defaulter is required to be submitted to

the Bangladesh Bank. As per the Bank Companies Act,

1991 a person cannot be a director of more than one

financial institution, and we adhere to this rule.

4. Re-election o f the DirectorsAccording to the Articles of Association of the bank, each

director other than MD & CEO, retires by rotation once

every three years and is required to stand for re-election by

shareholders at the annual general meeting.

5. Appraisal o f the Managing Director & CEO

5.1. Appraisal of the Managing Director & CEO

The performance of the Managing Director is reviewed

every year by the full Board against financial and non

financial targets, which are in line with the short, medium

and long term objectives of the Bank.

5.2. Removal of the Managing Director & CEOThe Board is not authorized to remove the Managing

Director without prior consent of the Bangladesh Bank.

6. Directors Remuneration

6.1. Directors RemunerationThe directors do not receive any type of remuneration or

incentives. The board members receive BDT 5,000 for

attending board and committee meetings.

The remuneration package of the Managing Director is

determined by the Board and requires Bangladesh Banks

approval. He is entitled to get incentive bonus as per

Bangladesh Bank guidelines. The Managing Director has

been appointed for a three-year term and his remuneration

is not reviewed by the Board during such time.

6.2. Disclosure of Directors RemunerationThe law requires the disclosure of information related to the

remuneration paid to the Managing Director and directors.

Remuneration paid to the Managing Director is disclosed

on page 181 of this report. The directors fees during 2012

were as follows:

Sl. Name of the Directors Position Remuneration

BDT

1 Dr. Arif Dowla Chairman 65,000

2 Mr. Rashed Ahmed Chowdhury Vice Chairman 85,000

3 Mr. Syed Manzur Elahi Director 70,000

4 Mr. Hedayetullah Director 85,000

5 Mr. M. A. Rouf Director 80,000

6 Mr. Md. Abdul Malek Director 80,000

7 Mrs. Yasmeen Haque * Director 15,000

8 Mr. Md. Wakiluddin Director 80,000

9 Mr. Md Nasirullah * Director 15,000

10 Mrs. Khwaja Nargis Hossain Director 65,000

11 Mr. Mahaboob Morshed Hassan * Director 10,000

12 Mr. Anjan Chowdhury Director 35,000

13 Mr. Q.A.F.M. Serajul Islam Director 40,000

TOTAL 725,000

*Ceased to be Director at the 13th AGM held on May 27,2012

7. Relations wi th Shareholders7.1. Notice o f t he Annual General Meeting (AGM)The annual report including financial statements and thenotice of the meeting are sent to shareholders at least 14days prior to the AGM.

7.2. Beneficial Use of the Annual General Meeting(AGM)The primary means of communication between the bankand shareholders are the MTB annual report and the AGM.Required information is received by the shareholders priorto the AGM, which gives them an opportunity to exercise

their prerogative to raise any business-related issues,either verbally or in writing at the AGM. The Board ispresent at the AGM to answer any queries of theshareholders.

8. Accountability8.1. Financial Reporting, Statutory and RegulatoryReportingIn the preparation of quarterly and annual financialstatements, MTB has complied with the requirements ofthe Companies Act 1984, Bank Companies Act 1991,Bangladesh Bank, Dhaka Stock Exchange and ChittagongStock Exchange.

8.2. Report o f the Board Audi t Committee in the Annual

ReportThe report is given on pages 66 of the Annual Report

8.3. Declaration by the Board that the Business is aGoing ConcernThis is given in the Directors Report on page 123 the

Annual Report.

9. Audit Committee and AuditThe Audit Committee provides direction to the audit andrisk management functions in the bank and monitors thequality of internal audits and management audits. Theresponsibilities of the Audit Committee are:

a) Ensure proper disclosure of the financial statements;

b) Recommend appointment/removal of external


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auditors and fixing their remuneration;c) Review the financial statements before submission to

the Board;d) Review the adequacy of the internal control systems;

e) Review the findings of internal investigations;f) Discuss the scope of audit with external auditors; andg) Looking into reasons of substantial defaulters, if any,

of non-payment to stakeholders.

The Audit Committee is comprised of the followingmembers:

1. Mr. Syed Manzur Elahi Founding Chairman Chairman & Director2. Mr. Rashed Ahmed Chowdhury Vice- Member Chairman3. Mr. M. A. Rouf Director Member4. Mr. Md. Wakiluddin Director Member

5. Mrs. Khwaja Nargis Hossain Director Member

9.1. External AuditA. Qasem & Co., Chartered Accountants is the statutoryauditor of the bank. They do not provide any otheraccounting, taxation or advisory services to the bankexcept audit of cash incentives payable to exporters.

9.2. Audits by Bangladesh BankBangladesh Bank also undertakes audit and inspection ofMTB at regular intervals. The reports of the central bankare reviewed by the Board and its Audit Committee. Thebank gives utmost importance to the inspection report andcorrective actions are taken regarding the lapsesmentioned in the report.

10. Internal ControlThe internal control system is designed to manage ratherthan eliminate the risk of failure in achieving businessobjectives. Internal controls are aimed at providingreasonable and not absolute assurance against materialmisstatement or loss. The internal Audit Division of thebank as well as the Board reviews the internal controlsystem and its effectiveness.

11. Awards and RecognitionMTB received the Merit Certificate under the Institute ofChartered Accountants of Bangladesh (ICAB) National

Award 2011 for its published accounts for the year 2011 inthe banking category under the financial sector.

12. Contribution to National Exchequer

At MTB, we recognise that we have certain responsibilitiesto the development of the society and the country as awhole. MTB has contributed significantly to the governmentexchequer during 2011. The details are:

Items 2012 2011

Income Tax from Bank Earnings 443 307Income Tax, VAT and Excise Dutydeducted at source 946 693Income Tax from Employee'searning 43 32

Total 1,433 1,033

13. Disciplinary Committee

At MTB, we have four (4) written guidelines which are: a)

Mutual Trust Bank Ltd. Employees Service Rule-2000, b)

MTB Code of Conduct, c) MTB Winning and 4) MTB

Compliance Manual. These guidelines are based on the

following principles:

a) INTEGRITY:This implies adherence to accepted moral

principles of being honest, impartial and fair-minded.

b) CONFIDENTIALITY: Among the basic tenets upon

which the banking system is founded, is confidentiality.

This requires the utmost professional conduct in respecting

and protecting the privacy and secrecy of the employer, the

employers customers, fellow employees and any other

groups on the understanding that information acquired has

been obtained in confidence and merits the same care as

protection of funds.

c) LOYALTY: Above the requirement of honesty and

integrity, members owe their primary business loyalty to

their employer and must remain faithful to the employers

customers, the Bank and the profession.

d) LEGALITY: The ethical conduct of banking depends

upon the propriety and behavior of those engaged as

professionals in the banking industry. In this case,

members should always avoid any form of dubious

business practice in contradiction to the law and

regulations of the country.

If an employee is accused of violating any of the above, the

Disciplinary Action Committee plays a crucial role in

resolving the matter.

14. Risk Management Unit (RMU)The RMU has taken various steps to identify risks, which

are related to the lending, trading and operating activities of

the bank. The unit works to create risk awareness and

instill a risk management culture; it evaluates risk on a

comprehensive basis including, among others, balance

sheet management, capital adequacy, credit and

operational risk.

15. Our Governance Structure

The Board and its committees act independently. Every

board and committee meeting includes in-camera sessions

without management present.

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Shareholders

Shareholders

Auditors

ManagementAsset Liability Committee

(ALCO)

Management Committee

(MANCOM)

Credit EvaluationCommittee

Promotion/Recruitment

Committee

Disciplinary Action

Committee (DAC)

Purchase Committee

Board ExecutiveCommittee

Board Audit

Committee

Board of

Directors

BDT Millions


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065MTB Annual Report - 2012Governance - Compliance Report on SECs Notification

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4 (ii)

4 (iii)

4 (iv)

4 (v)

4 (vi)

4 (vii)

4 (viii)

5.

5 (i)

5 (ii)

5 (iii)

5 (iv)

5 (v)

6.

6. (i)

6 (i) a)

6 (i) b)

6 (ii)

7.

7 (i)

7 (ii)

Financial information systems design and implementation.

Book-keeping or other services related to the accountingrecords or financial statements.

Broker-dealer services.

Actuarial services.

Internal audit services.

Any other service that the Audit Committee determines.

No partner or employees of the external audit firms shall

possess any share of the company they audit at least duringthe tenure of their audit assignment of that company.

SUBSIDIARY COMPANY:

Composition of the Board of Directors

Appointment of independent director

Review of minutes of Board meeting by the holding company.

Reviewed the affairs of the subsidiary company also.

Review the financial statements by the Audit Committee ofthe holding company

DUTIES OF CHIEF EXECUTIVE OFFICER (CEO) ANDCHIEF FINANCIAL OFFICER (CFO):The CEO and CFO shall certify to the Board that:-

They have reviewed financial statements for the year andthat to the best of their knowledge and belief:

these statements do not contain any materially untruestatement or omit any material fact or contain statementsthat might be misleading;

these statements together present a true and fair view of thecompanys affairs and are in compliance with existing

accounting standards and applicable laws.

There are, to the best of knowledge and belief, notransactions entered into by the company during the yearwhich are fraudulent, illegal or violation of the companyscode of conduct.

REPORTING AND COMPLIANCE OF CORPORATEGOVERNANCE:

Obtainment of certificate regarding compliance ofconditions of Corporate Governance Guidelines

Directors statement on compliance with these conditions.

The Bank has appointed

two independent directors

on March 30, 2013 which

are awaiting approval from

regulators.

Condition

No.Title

Explanation for

non compliance

with the condition

Compliance status

(Put in the

appropriate column)

CompliedNot

Complied

The Bank has appointed twoindependent directors on March 30,2013 which are awaiting approvalfrom regulators.


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066MTB Annual Report - 2012Governance - Report of the Board Audit Committee

The bank formed an Audit Committee on January 18, 2003 comprising 3 (three) members of the Board as per BRPD

Circular no. 12 dated December 23, 2002 of Bangladesh Bank and the Notification of Securities and Exchange CommissionNo. SEC/CMRRCD/2006-158/134/Admin/44 dated August 07, 2012. However, the Audit Committee was reconstituted onJanuary 17, 2012 comprising 5 (five) members of the Board as per BRPD Circular Letter No. 08 dated June 19, 2011.

Role of the CommitteeThe Audit Committee of the Board of a bank can play an effective role in building a bridge among the board, management,shareholders, depositors and other stakeholders; and help in ensuring efficient, safe and sound banking practices. TheBoard of Directors of MTB recognizes the importance of the Audit Committee, which assists the Board in fulfilling itsoversight responsibilities including implementation of objectives, strategies and overall business plans. The committee isprimarily responsible for:

a) Internal Contro li) Evaluating whether management is setting the appropriate compliance culture by communicating the importance of

internal control and the management of risks and ensuring that all employees have good understanding of their roles

and responsibilities.ii) Reviewing arrangements made by the management for building a suitable Management Information System (MIS)including computerized system and applications.

iii) Consideration of whether internal control strategies recommended by internal and external auditors have beenimplemented by the management.

iv) Reviewing existing risk management policies and procedures for ensuring an effective internal check and controlsystem.

v) Reviewing corrective measures taken by the management regarding reports related to fraud-forgery, deficiencies ininternal control or similar issues detected by internal and external auditors and inspectors of regulatory authorities andinforming the board on a regular basis.

b) Financial Reportingi) Reviewing annual financial statements determining whether they are complete and consistent with accounting

standards set by regulatory authorities.ii) Meeting with the management and external auditors to review financial statements before finalization.

c) Internal Audi ti) Review the activities and organizational structure of the internal audit functions and ensure that no unjustified

restrictions or limitations are made.ii) Review the efficiency and effectiveness of internal audit functions.iii) Review the findings and recommendations made by the internal auditors for removing the irregularities detected, if any,

are duly acted upon by the Management in running the affairs of the bank.

d) External Audi ti) Reviewing the audit performance of external auditors and their audit reports.ii) Reviewing the findings and recommendations made by the external auditors for removing irregularities, if any, and

ensuring that they are duly acted upon by the Management.iii) Making recommendations to the board regarding the appointment of external auditors.

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067MTB Annual Report - 2012Governance - Report of the Board Audit Committee

e) Compliance with Existing Laws and RegulationsReviewing whether laws and regulations (Bangladesh Bank and other bodies) and internal regulations approved by theBoard have been complied with.

f) Other Responsibilitiesi) Placement of compliance report before the Board regarding regularization of the errors and omissions, fraud and

forgeries and other irregularities as detected by the internal and external auditors and inspectors of regulatoryauthorities.

ii) Performing other oversight functions as requested by the Board and evaluation of the committees own performance ona regular basis.

Composition of the CommitteeThe members of the Audit Committee are: 1) Mr. Syed Manzur Elahi Chairman 2) Mr. Rashed Ahmed Chowdhury Member 3) Mr. M.A. Rouf Member 4) Mr. Md. Wakiluddin Member 5) Mrs. Khwaja Nargis Hossain Member

The Company Secretary of the Bank functions as the secretary to the Committee as per regulatory guidelines. TheManaging Director & CEO, other members of corporate management, representatives of the external auditors, Head ofCredit Risk Management, Head of Internal Control & Compliance, Head of Special Asset Management and other bankofficials are invited to attend the meetings as and when the Committee requires their presence.

MeetingsThe Committee meets regularly with the Heads of Credit Risk Management, Internal Control & Compliance, Group Finance,Special Asset Management Department, other Bank Officials and external auditors to consider the banks financialreporting, audit review, internal control & compliance position, recovery of special assets and other relevant issues.

During the year, five meetings of the Audit Committee were held.

Activi tiesDuring the year under review, the Committee, inter alia, performed the following tasks: Reviewed the internal audit plan for the year 2012 along with its implementation. Reviewed the draft financial statements and recommended to the Board for consideration after holding meetings with

the representatives of the external auditors. Reviewed the management letter issued by external auditors, management responses thereon and corrective

measures taken to avoid recurrence of the lapses mentioned therein. Reviewed the half-yearly financials prepared to evaluate the performance for onward submission to the shareholders

as statutory requirements. Reviewed the major internal audit findings (branches and divisions/departments of Corporate Head Office) with a view

to taking corrective actions on time. Reviewed the major findings/observations in Bangladesh Banks Inspection Report and advised management to take

steps for rectification of lapses/irregularities toward fulfilling compliance requirements of the regulator. Placed compliance report/minutes before the Board detailing the decisions taken/recommendations made by the

Committee in its various meetings for information/concurrence of the Board.

Approval of Financial StatementsThe Audit Committee reviewed and examined the Annual Financial Statements 2012 prepared by the management andaudited by the external auditors A Qasem & Co. and recommended to place the same before the Board for consideration.

The Board approved the same in its 150th meeting held on March 30, 2013.

AcknowledgementThe Board Audit Committee expresses its sincere thanks to the members of the Board, Management and the Auditors fortheir support in carrying out its duties and responsibilities effectively.

Syed Manzur Elahi

Chairman of the Board Audit Committee

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Internal control and compliance is the process designed to provide reasonable assurance regarding the achievement ofobjectives in the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with

applicable laws, regulations and internal policies. It plays an important role in preventing and detecting fraud and protectingthe organizations resources.

Mutual Trust Bank Ltd. (MTB) has restructured the Internal Control and Compliance Division (ICC) headed by a senior levelexecutive in the light of Core Risk Management guidelines of Bangladesh Bank. The Division is comprised of threedepartments; Audit and Inspection, Compliance and Monitoring. The bank has an Internal Control and Compliance Policyand Compliance Manual duly approved by the Board of Directors.

The ICC division ensures a clear internal control structure in the bank with clear and appropriate assignments, personnelaccountability and delegation of authorities to functional management. This has been done to create control and ensure acompliance culture under the active guidance and supervision of senior management and the Board of Directors.

As an internal control tool, the Audit and Inspection Department undertakes periodic and special audits and inspections onthe branches and departments/divisions of the Head Office in order to sort out weaknesses and defects in controlprocesses; and reports to management for taking corrective measures to protect the interests of the bank.

The Compliance and Monitoring Department ensures timely and proper compliance of relevant laws, all regulatoryinstructions and internal policies and procedures in the day-to-day operations of the bank. They assess operational risksand take appropriate measures for mitigation.

The ICC division reports on serious non-compliance issues detected by internal and external auditors with up-to-datecompliance position thereon, large financial risk exposures, control weaknesses and other risk areas to the Audit Committeeof the Board for review and remedial measures.

The ICC Evaluation Committee assists the Management Committee (MANCOM) in certifying to the Board of Directors onthe effectiveness of internal control policy, practice and procedure of the Bank annually as a regulatory compliance.

The overall internal control and compliance position of the bank was at satisfactory levels during the year 2012.

068MTB Annual Report - 2012Governance - Report on Internal Control and Compliance

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069MTB Annual Report - 2012Governance - Market Discipline Pillar III Disclosure

1. Introduction

In accordance to Pillar III of the revised Framework for International Convergence of Capital Measurement and CapitalStandards (Basel II) and adopted under the Bangladesh Bank rules and regulations on risk based capital adequacy (issued

through Revised RBCA Guidelines, dated December 29, 2010), we are now required to make more in-depth and expanded

public disclosure regarding our risk profile (capital structure, capital adequacy, risk management, and risk measurement).

2. Disclosure PolicyThe Bank calculates Risk Weighted Assets (RWA) as per Basel-II guidelines (BRPD circular no.09, dated December 31,

2008) under:

a) Standardized approach for credit risk,

b) Standardized approach for market risk, and

c) Basic indicator approach for operational risk.

3. Scope of Application:

The Risk Based Capital Adequacy framework applies to all banks on Solo and Consolidated basis, where Solo basis refers

to all positions of the bank, its local and overseas branches/offices, and Consolidated basis includes subsidiary companies.Mutual Trust Bank Limited applies both Solo and Consolidated basis as the bank has three (3) subsidiaries, namely i)

MTB Securities Limited ii) MTB Capital Limited iii) MTB Exchange UK Limited.

4. Components of Disclosure Framework:

i. Regulatory capital

ii. Capital adequacy

iii. Credit risk in banking book

iv. Specific provisions

v. Equities: disclosures for banking book positions

vi. Interest rate risk in the banking book

vii. Market risk in trading book

viii. Operational risk

i. Regulatory Capital

a. Qualitative Disclosures The terms and conditions of the main features of all capital instruments have been segregated in terms of

eligibility criteria (BRPD circular no. 35 dated 29th December 2010, and other instructions given by Bangla-

desh Bank).

Core Capital (Tier-1) of MTB comprises of paid up capital, statutory reserve, general reserve and retained

earnings.

Supplementary Capital (Tier-2) comprises of general provisions (unclassified loans and off-balance sheet

exposure), revaluation reserves for securities up to 50% and MTBs partially convertible subordinate bond, as

approved by Bangladesh Bank, and Securities and Exchange Commission.

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The Bank does not have any Tier-3 Capital.

b. Quantitative Disclosures BDT Millions

Particulars Solo Consolidated

Total Eligible Capital The amount of Tier 1 capital, with separate disclosure of:

Tire-1 Capital: Paid up capital

Statutory reserve

General reserve

Retained earnings

Total Tier-1 Capital *(after deduction)

Tier-2 Capital:

General Provision

Revaluation Reserves for Securities up to 50%

Subordinated debt

Total Tier-2 Capital

Tier 3 Capital

Total eligible capital

*Shortfall in provisions required against investment in shares BDT 61.0 million from solo and BDT 65.9 million from consoli-

dated basis has been deducted.

ii. Capital Adequacy

a. Capital Calculation Approach

Assessment of capital adequacy is carried out in conjunction with the capital adequacy reporting to the Bangla-

desh Bank, and the three standardized and basic indicator approaches for risk (credit, market and operational

risk).

b. Capital of the Bank BDT Millions

Capital Adequacy Ratio (CAR) Solo Consolidated

Total

MTB 10.9% 10.7%

Requirement as per BB 10.0% 10.0%

The surplus will act as buffer to support future activities.

Tier 1

MTB 7.3% 7.1%

Requirement as per BB 5.0% 5.0%

Our policy is to maintain a strong capital ratio with high rating.

Risk Weighted Assets 2012 2011

Risk Weighted Assets 65,221.0 57,925.9

We maintain capital levels sufficient to absorb all material risks.

Capital MTB 6,976.8

Requirement as per BB 6,522.1

Surplus 454.7

The surplus is to meet Stress Tests and ICAAP requirements. Our strategy is to maintain 1-2% capital buffer.

MTB ensures compliance with the regulatory requirements, and satisfaction of external rating agencies, and other stake-

holders including depositors.

2,543.5

1,638.7

361.8

204.4

4,687.4

861.3

60.4

1,406.2

2,327.9

0.0

7,015.3

2,543.5

1,637.3

276. 8

255.2

4,646.9

875.4

60.4

1,394.1

2,329.9

0.0

6,976.8

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c. Capital Management

Initiatives to ensure adequate capital include the following:

Issuance of subordinated debt to raise Tier-2 capital, and to minimize the gap between Tier-1 and Tier-2

capital.

Consistently encouraging corporate clients to complete external credit rating to assess counterparty Credit

Risk status, and to reduce capital requirements.

Improving and enhancing eligible collateral, by way of collateral optimization.

Assessment of risk profile and credit rating of new clients.

MTBs CAR is periodically reviewed and assessed by the Risk Management Unit (RMU), and reported to

senior management. Moreover, we have planned to initiate:

Revaluation of fixed assets to enhance supplementary capital,

Revaluation of collateral securities for ensuring sound asset quality,

Revaluation of securities to strengthen Tier-II Capital.

Capital Adequacy Solo Consolidated

Capital requirement for Credit Risk 5,513.0 5,564.5

Capital requirement for Market Risk 424.4 452.6

Capital requirement for Operational Risk 491.7 505.0

Total and Tier-1 capital ratio:

- For the consolidated group (%) 66.8 66.6

- For standalone Tier 1 capital out of maintained CAR (%) 7.3 7.1

iii. Credit Risk in banking book

a. Qualitative Disclosure

MTB manages credit risk through a robust process that enables the bank to proactively manage its loan portfo-

lios in order to minimize losses, and earn an acceptable level of return for shareholders.

b. Credit Risk Management at MTB MTBs Credit Policy Manual (CPM), approved by the Board of Directors, defines organizational structure, roles

and responsibilities and processes whereby credit risks can be identified, quantified, and managed. Credit

instruction manuals address regulatory issues and establish control points. Product Policy Guidelines (PPG)

establish a system of identifying and monitoring problem accounts, at the early stages of delinquency, so that

timely corrective measures can be taken (for retail and SME clients as well).

MTB manages credit risk through continuous measuring and monitoring of risks at obligor (borrower) levels

and portfolio level. We follow the Bangladesh Bank prescribed Credit Risk Grading Model (CRGM), and have

developed a credit appraisal/approval process. The CRGM captures quantitative and qualitative issues related

to management risk, business risk, industry risk, financial risk, and project risk, and transaction-specific credit

features, while assessing the overall grading of a borrower. External credit ratings of our clients, when

available, are also taken under consideration. MTBs total rated corporate clients are 14.14% of its total clients

(funded and non-funded), which was only 5.95% in 2011. Delegations of credit approval authority are defined

for ensuring good governance and better control in credit approval.

c. Loan Classification Criteria

All the loans and advances are grouped into four categories for the purpose of classification: (i) Continuous

Loan (ii) Demand Loan (iii) Fixed Term Loan and (iv) Short-term Agricultural and Micro Credit.

Continuous and Demand Loans are classif ied:

Sub-standard -if past due for 3 months or more, but less than 6 months;

Doubtful - if past due for 6 months or more, but less than 9 months;

Bad/Loss - if past due for 9 months or more.

Fixed Term Loans are classif ied:

Sub-standard - if the defaulted installment is equal to or more than the amount of installment (s) due

within 3(Three) months;

Doubtful - if the defaulted installment is equal to or more than the amount of installment (s) due within 6

(Six) months;

Bad/Loss - if the defaulted installment is equal to or more than the amount of installment (s) due within 9

(Nine) months.

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Short-term Agricultural and Micro Credit are classified:

Sub-standard - if the irregular status continues after a period of 12 (twelve) months;

Doubtful -if the irregular status continues after a period of 36 (thirty six) months;

Bad/Loss - if the irregular status continues after a period of 60 (sixty) months.

A continuous credit, demand loan or term loan which remains overdue for a period of 60 days or more is classi-

fied as a Special Mention Account (SMA). BDT Millions

Capital Adequacy Amount

a) Total gross credit risk exposures broken down by major types of credit exposure 55,082.2

Term Loan 13,539.5

SME Financing 3,323.0

Consumer Financing 810.2

Retail Financing 1,458.7

General Loan 178.9

Demand Loan 2,130.2

Payment Against Documents (PAD) 196.2

Trust Receipts 6,912.0

Lease Finance 397.4

House Building Loan 1,446.4

Staff/ Employee Loan 525.6

Loans and Advances -Offshore Banking Unit 80.2

Loan to Subsidiaries 2,696.6

Cash Credit 8,634.3

Secured Overdraft 10,335.2

Bills Purchased and Discounted 2,417.8

Payable in Bangladesh 2,366.1

Payable Outside Bangladesh 51.6

b) Geographical distribution of exposures, broken down in significant areas

by major types of credit exposure. 56,511.1

Urban 52,099.0

Dhaka Division 39,191.0

Chittagong Division 10,537.6

Rajshahi Division 886.9

Sylhet Division 532.8

Khulna Division 610.5

Rangpur Division 339.9

Barishal Division 00.0

Rural 4,412.4 Dhaka Division 1,942.6

Chittagong Division 1,937.5

Rajshahi Division 477.9

Sylhet Division 11.3

Khulna Division 00.0

Rangpur Division 2.5

Barishal Division 40.6

c) Industry or counterparty type distribution of exposures, broken down by major

types of credit exposure. 56,511.1 Agriculture 738.5

Ready-Made Garments 2,492.2

Textile 4,049.0

Ship Building 641.1

Ship Breaking 115.8

Other Manufacturing Industry 10,722.9

SME Loans 2,428.0

Construction 502.1

Power, Gas 951.6

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Capital Adequacy Amount

Transport, Storage and Communication 1,163.1

Trade Service 7,507.5 Commercial Real Estate Financing 3,751.8

Residual Real Estate Financing 1,130.9

Consumer Credit 1,539.3

Capital Market 4,349.0

NBFIs 6,501.9

Others 7,926.4

d) Residual contractual maturity breakdown of the whole portfolio, broken

down by major types of credit exposure 56,511.1

On demand 4,202.3

Not more than three months 20,394.7

More than three months but less than one year 13,763.8

More than one year but less than five year 13,386.4

More than five year 4,763.9

iv. Specific Provisions - Guidelines for Loan Loss Provisions The Bank follows Bangladesh Bank guidelines regarding loan classifications, provisioning, and any other issues

related to Non-performing Loan (NPL). Internal credit guidelines direct loan provisioning review procedure, debt

write-off, facility grading, reporting requirement and interest recognition.

Particulars Rate

General Provision

Against all unclassified loans of Small and Medium Enterprise (SME) 0.25%

Against all unclassified loans and off-balance sheet exposures (other than loans under Consumer Financing, Loans to Brokerage House, Merchant Banks,

Stock dealers etc., Special Mention Account as well as SME Financing.) 1%

On the unclassified amount for (i) Housing Finance and (ii) Loans for

Professionals to set up business under Consumer Financing Scheme,

Brokerage House, Merchant Banks, Stock Dealers, etc. 2%

On the unclassified amount for Consumer Financing other than Housing

Finance, Loans for Professionals and Loans to share business 5%

On the outstanding amount of loans kept in the 'Special Mention Account'. 5%

Specific Provision

Specific provision on Substandard Loans and Advances: 20%

Specific provision on Doubtful Loans and Advances: 50%

Specific provision on Bad & Loss Loans and Advances: 100%

Throughout the year, we reviewed loans and advances to assess whether objective evidence of impairment had arisen.

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Gross Non Performing Assets ( NPAs) Amount

Non Performing Assets ( NPAs) to Outstanding Loans & Advances (%) 3.7

Movement of NPAsOpening balance 1,195.1

Additions 889.9

Reductions -

Closing Balance 2,085.0

Movement of specific provisions for NPAs

Opening balance 716.5

Provisions made during the period 345.6

Write-off 135.8

Write-back of excess provisions -

Closing Balance 926.3

Amount of Impai red LoansThe amount of classified and unclassified loans and advances/investments are given below as per Regulatory bodys

instruction:

Particulars Amount

Continuous Loans 512.7

Demand Loans 252.2

Term Loans 1311.7

Short Term Agro Credit and Macro Credit 8.4

Total 2,085.0

Specific and General Provisions

Specific and general provisions were made on the amount of classified and unclassified loans and advances/investments,off-balance sheet exposures, and off-shore banking units of the Bank.

Particulars Amount

Provision on classified loans and advances/ investments 918.3

Provision on unclassified loans and advances/ investments 697.2

Provision on Off-balance sheet exposure 176.8

Provision for Off-shore Banking Unit 0.8

Total 1,793.1

v. Equities: Disclosures for banking book positions

MTBs stock brokerage functions have been undertaken by a subsidiary - MTB Securities Limited as a corpo-

rate member of Dhaka Stock Exchange Limited (Member No. 197). For equity financing, only investment inunquoted securities are considered as Banking Book Assets; investment in equity for relationship or strategic

reason is considered under trading book. Investment in equity securities are broadly categorized into two

parts:

i) Quoted securities (common or preference shares and mutual funds) traded in the secondary market

(trading book assets).

ii) Unquoted securities are categorized as banking book equity exposures which are further sub-divided into

two groups:

a) unquoted securities which are invested without any expectation that these will be quoted in near

future i.e. Held To Maturity (HTM);

b) unquoted securities acquired under private placement or IPO which are going to be traded in the

secondary market after completing required formalities.

The primary aim is capital gain or dividend income. Dividends received from these equity securities are accounted for as

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and when received. Both quoted and un-quoted equity securities are valued at cost, and necessary provisions are main-

tained if the prices fall below the cost price. As per Bangladesh Bank guidelines, (HFT) Held for Trading equity securities are

marked-to-market (revaluated) once a week, and HTM equity securities are amortized annually. HTM securities are revalu-

ated if reclassified to HFT (with approval of the Board of Directors). The quoted shares of the bank are valued at cost or

market price, whichever is lower.

Equities Amount

a) Value disclosed in the balance sheet of investments, as Cost price 784.1

well as the fair value of those investments; for quoted

securities, a comparison to publicly quoted share values

where the share price is materially different from fair value.

Market price 708.4

* Difference (75.7)

b) The cumulative realized gains (losses) arising from sales

and liquidations in the reporting period. 0.0

c) Total unrealized gains (losses) 0.0

d) Total latent revaluation gains (losses) 0.0

e) Any amounts of the above is included in Tier 2 Capital. 0.0

f) Capital requirements broken down by appropriate

equity groupings, consistent with the banks Specific Risk 84.2

methodology, as well as the aggregate amounts and

the type of equity investments subject to any supervisory

provisions regarding regulatory capital requirements. General Market Risk 84.2

vi. Interest Rate Risk i