Mercantile Bank (MERCANBANK) financial analysis: 15% NPL, Tk2,139 crore provision shortfall, NII near zero (Oct 2026)

Investment considerations: a growing deposit base, but a 15% NPL ratio, a deferred Tk2,139 crore provision gap, NII near zero and CRAR just at the minimum

Mercantile Bank PLC (formerly Mercantile Bank Limited) is a private commercial bank whose paid-up capital history starts with BDT 245m in 1999, followed by an IPO in 2003 [1 p.286]. At 31 December 2025 it reported, on a standalone basis, loans of BDT 285.9bn, deposits of BDT 379.8bn, government securities of BDT 119.8bn and shareholders' equity of BDT 26.5bn on total assets of BDT 477.9bn [1 p.226]. Sponsors held 33.62% of the 1,106.58 million shares, financial institutions 25.73%, the general public 40.01% and foreign holders 0.64% [1 p.286].

The filings describe a bank whose franchise kept growing while its loan book and its margin broke down. Deposits rose from BDT 270.6bn in 2021 to BDT 379.8bn in 2025 [4 p.13] [1 p.226]. But the classified-loan ratio went from 4.54% in 2021 and 6.08% in 2023 to 17.25% in 2024 and 15.19% in 2025 [1 p.311], and net interest income shrank from BDT 4.7bn in 2021-2022 to BDT 578m in 2024 and BDT 199m in 2025 [4 p.15] [1 p.228]. Both FY2024 and FY2025 accounts were finalised with large provision shortfalls left out under Bangladesh Bank (BB) letters: Tk1,700.86 crore for 2024 and Tk2,139.31 crore for 2025 [3 p.269] [1 p.213]. Both audit opinions are unmodified, with the shortfall set out as an emphasis of matter.

Business: an urban, Dhaka-centred lender whose loan book was re-classified in 2024 and which now holds a quarter of its assets in government paper

Mercantile is a conventional commercial bank with Islamic banking windows (loans of BDT 9.4bn under Islamic modes at Dec-2025) and an offshore banking unit, and it owns Mercantile Bank Securities Limited, MBL Asset Management Limited and Mercantile Exchange House (UK) Limited [1 p.264] [1 p.263]. It is an urban, Dhaka-centred lender: BDT 275.4bn of the BDT 285.9bn loan book sat in urban branches at Dec-2025, BDT 195.2bn of it in urban Dhaka division and BDT 43.1bn in urban Chattogram [1 p.265].

By product, term loans are the largest line at BDT 145.3bn (BDT 129.4bn in 2024), followed by SME loans of BDT 36.9bn and overdrafts of BDT 29.6bn (BDT 38.2bn) [1 p.264]. By sector, ready-made garments are the largest exposure at about BDT 45.3bn, then trade finance at BDT 39.4bn, iron and steel at BDT 28.2bn and food commodities at BDT 26.9bn (note 7.4 shows these in lac) [1 p.264] [1 p.265]. Advances to 'customers' group' were BDT 71.6bn, a quarter of the book [1 p.264].

The story of the last five years has three phases. In 2021-2022 the bank earned BDT 4.7bn of NII a year and reported ROE of 14.70% and 8.87% [4 p.15] [1 p.311]. In 2023 deposit costs started to climb: the reported 'Cost of deposit' went from 4.68% in 2022 to 5.18% in 2023 and 6.27% in 2024 [1 p.311], while loan growth slowed to 1.4% [12]. In 2024 the loan book was re-classified: classified loans tripled from BDT 17.3bn to BDT 51.8bn, and the movement table shows an increase of BDT 34,448m in one year [1 p.268]. Since then the bank has written off, rescheduled and shrunk loans while parking deposits in government securities, which rose from 18.1% to 25.1% of total assets in 2025 [12].

Deposits and loans: deposits up 11% a year in 2024-2025 on term and scheme money, loans down 4.7% in 2025 after write-offs

Deposits. Deposits grew 4.2% in 2022, 8.9% in 2023, 11.7% in 2024 and 10.8% in 2025 [12]. The 2025 growth came from term money: scheme deposits rose 52% to BDT 84.5bn and fixed deposits rose from BDT 126.3bn to BDT 143.3bn, while the current-and-other-accounts line fell 10.5% to BDT 107.7bn [1 p.226] [12]. Fixed plus scheme deposits went from 53.1% to 60.0% of deposits, and current plus savings from 45.9% to 39.2% [12].

A caution on the CASA line. The balance-sheet line is 'Current/ Al-wadeeah current accounts and other accounts', which includes accounts other than current deposits. Note 12 classes only BDT 44.5bn of deposits as payable on demand at Dec-2025 (BDT 52.4bn in 2024) and BDT 335.3bn as time deposits [1 p.277]. On that basis demand deposits were 11.7% of the total, so the bank's funding is more term-heavy than the CASA ratio suggests [12]. Deposits from banks also rose from BDT 9.3bn to BDT 15.2bn [1 p.277].

2026. Deposits fell from BDT 379.8bn to BDT 368.6bn in H1 2026 (-3.0%), with fixed deposits down from BDT 143.3bn to BDT 123.1bn while scheme deposits rose to BDT 92.0bn and bills payable to BDT 5.8bn [2 p.10] [12]. Borrowings from banks and FIs almost doubled from BDT 14.4bn to BDT 27.2bn [2 p.10]. At Dec-2025 the bank also had BDT 13.5bn of repo outstanding with Bangladesh Bank [1 p.263].

Loans. Loans grew 5.3% in 2022, 1.4% in 2023 and 5.3% in 2024, then fell 4.7% in 2025 to BDT 285.9bn [12]; the BDT 20.8bn written off in 2025 accounts for more than the fall [1 p.268]. Loans then rose 5.5% in H1 2026 to BDT 301.7bn [2 p.10] [12]. Loans to deposits went from 98.6% in 2021 to 75.3% in 2025 on our basis; the bank's own 'Credit Deposit Ratio' was 72.89% [1 p.311] [12].

Line items: interest paid rose to 99% of interest income, treasury income now earns two-thirds of revenue, and fees halved from the 2022 peak

Interest income rose from BDT 18.2bn in 2021 to BDT 27.5bn in 2025 [4 p.15] [1 p.228]. Loan balances barely grew, so the rise is price: interest income over average loans went from 6.91% in 2022 to 9.38% in 2025 [12]. Against that, interest on classified loans is not taken to income: interest suspense rose from BDT 24.4bn to BDT 27.4bn in 2025 [1 p.268].

Interest expense rose faster: from BDT 13.5bn in 2021 to BDT 27.3bn in 2025, with jumps of 22.5% in 2023, 30.1% in 2024 and 20.5% in 2025 [12]. The drivers are the deposit rate cycle and the move to term money described above; interest paid over average deposits, borrowings and bonds rose from 4.51% in 2022 to 7.18% in 2025 [12].

Net interest income was BDT 4,678m in 2021, BDT 4,718m in 2022, BDT 2,729m in 2023, BDT 578m in 2024 and BDT 199m in 2025 [1 p.228] [3 p.283] [4 p.15]. Over average interest-earning assets it fell from 1.39% in 2022 to 0.05% in 2025 [12]. In H1 2026 it was BDT 1,086m against BDT 3,610m a year earlier, as interest paid rose 44% and interest income 21% [2 p.13] [12].

Investment income carries the bank. It rose from BDT 4.1bn in 2022 to BDT 7.4bn in 2024 and BDT 9.3bn in 2025 [4 p.15] [1 p.228], of which interest on investments was BDT 9,294m, itself including a BDT 2,051m gain on government securities (a loss of BDT 311m in 2024) [1 p.293]. It was 67% of operating income in 2025, up from 27% in 2022 [12]. Government securities rose from BDT 80.6bn to BDT 119.8bn in 2025 and to BDT 126.5bn at Jun-2026 [1 p.226] [2 p.10].

Fees and other income. Commission, exchange and brokerage peaked at BDT 5.0bn in 2022, when exchange gains were high, and fell to BDT 3.9bn in 2024 and BDT 2.8bn in 2025 [4 p.15] [1 p.228]; it was BDT 1,043m in H1 2026 against BDT 1,629m [2 p.13]. Trade drives this line: irrevocable letters of credit fell from BDT 120.3bn to BDT 98.3bn in 2025 and acceptances from BDT 56.4bn to BDT 55.6bn [1 p.227].

Operating expenses were flat at BDT 8.2-8.5bn from 2022 to 2024 and fell to BDT 8.1bn in 2025; salaries are about half, at BDT 4.06bn [1 p.228]. Cost-to-income was 58.1% in 2025 against 54.3% in 2021, because income stalled rather than costs rising [12]. H1 2026 opex fell to BDT 4.10bn from BDT 4.88bn, with 'other expenses' down from BDT 1,277m to BDT 765m [2 p.13].

Provisions and tax. Provisions took 31% of pre-provision profit in 2021, 77% in 2024 and 68% in 2025 [12]. The 2024 charge included BDT 200 crore transferred from pre-provision profit under a BB directive [3 p.122]. The 2025 charge of BDT 3,947m excludes the BDT 21,393m shortfall [1 p.228] [1 p.266]. Tax was a flat BDT 650-800m a year, which became 51% of pre-tax profit in 2024 [12]. One more claim on profit sits below the line: the 10% coupon on the BDT 3.63bn perpetual bond, BDT 363m in 2025, is charged as an appropriation, so it does not reduce reported PAT or EPS [1 p.228] [1 p.277].

NIM and cost of funds: the printed cost of fund rose from 4.25% to 7.40% in three years and NII fell to 0.05% of earning assets

The bank's own cost lines. Mercantile prints two cost measures in its highlights. 'Cost of Fund (in %)' was 4.40% in 2021, 4.25% in 2022, 4.89% in 2023, 5.86% in 2024 and 7.40% in 2025; 'Cost of deposit (%)' was 4.76%, 4.68%, 5.18%, 6.27% and 7.47% [1 p.311]. Both rose by about 3pp in three years. Our derived measure, interest paid over average deposits, borrowings and bonds, was 7.18% in 2025, close to the printed lines [12].

Yield against cost. Interest income over average loans rose from 6.91% in 2022 to 9.38% in 2025, about 2.5pp, while the printed cost of deposit rose 2.8pp [12] [1 p.311]. The loan yield is also held down by the growing non-earning book: BDT 43.4bn of classified loans earn nothing to income, and interest suspense equals 63% of classified loans [12]. Net interest income over average interest-earning assets fell to 0.05% in 2025; adding investment income, the bank earned 2.31% on its earning assets, against 2.59% in 2022 [12].

Sensitivity from history. In 2025 interest paid rose BDT 4,643m and interest income BDT 4,264m, so NII fell BDT 380m [12]. Each 1pp on the roughly BDT 380bn of average deposits, borrowings and bonds in 2025 is about BDT 3.8bn of interest a year, nineteen times the bank's 2025 NII of BDT 199m [12].

The 2026 quarterly pattern. The H1 2026 solo statement shows Q2 interest income of BDT 14,818m against interest paid of BDT 13,823m, and Q2 investment income of BDT (120.6)m, a negative figure; Q2 2025 showed the same pattern, with investment income of BDT (1,014.3)m [2 p.13]. The statement does not explain the quarterly split, so this note uses half-year totals, which show interest paid at 95.0% of interest income in H1 2026 against 79.7% in H1 2025 [12].

Asset quality: classified loans tripled in 2024; 2025 write-offs of BDT 20.8bn cut the ratio to 15.19% while SMA loans jumped to BDT 29.4bn

Classification. At Dec-2025 classified loans were BDT 43,421m, 15.19% of loans: sub-standard BDT 641m, doubtful BDT 2,545m and bad/loss BDT 40,235m [1 p.266]. Bad/loss is 93% of the classified book [12]. The 2024 figure was BDT 51,762m (17.25%), up from BDT 17,313m (6.08%) in 2023 [1 p.311] [1 p.268].

Write-offs explain the 2025 fall. The bank wrote off BDT 20,751m of loans in 2025 against BDT 3,350m in 2024, taking cumulative write-offs since inception to BDT 32,669m; it recovered BDT 175m from written-off loans in 2025 [1 p.268]. The write-off was 40% of the opening classified book, while classified loans fell by only BDT 8,341m [1 p.268] [12].

Special mention and rescheduling. SMA loans rose from BDT 2,015m to BDT 29,397m in 2025, 10.28% of loans [1 p.266]. The auditors explain part of this in their key audit matter: under BRPD Circular No. 07 of 16 September 2025, 'Significant proportion of the Bank's classified borrowers availed these special rescheduling and policy support facilities and were consequently reported as unclassified as at the reporting date. However, despite being unclassified these borrowers reflect high risk of default and hence may require additional provision.' [1 p.214]

Provisions. Required provision at Dec-2025 was BDT 33,902m (general BDT 13,710m including SMA and OBU, specific BDT 20,192m) against BDT 12,509m maintained, a shortfall of BDT 21,393m; in 2024 it was BDT 38,168m required against BDT 21,159m maintained [1 p.266]. Coverage of the requirement fell from 55.4% to 36.9% [12]. Provision kept against classified loans was 14.9% of classified loans in 2025, against 42.4% in 2021 [12].

The BB forbearance. Note 7.8 states: 'Bangladesh Bank has granted regulatory forbearance vide their directive (Ref: BSD-2/2203/2026-384, dated April 29, 2026) allowing the Bank to finalize the financial statements for the year ended December 31, 2025, with an unadjusted provision shortfall of BDT 2,161.31 crore.' [1 p.266] The same note's table and the auditors give the shortfall as BDT 2,139.31 crore [1 p.266] [1 p.213]. The filings do not explain the Tk22 crore difference; this note uses the audited Tk2,139.31 crore. For 2024 BB's letter DOS(CMS)1157/41(Dividend)/2025-3112 of 22 May 2025 allowed a shortfall of Tk1,700.86 crore [3 p.269]. The shortfall therefore grew by Tk438 crore in 2025 despite the write-offs. The bank's dividend disclosure to DSE on 3-May-2026 repeats the Tk2,161.31 crore figure [8]. The auditors also compared the accounts with BB inspection letter BSD-2/2203/2026-372 of 28-Apr-2026 [1 p.214].

Concentration. Customers whose exposure reached 10% or more of capital numbered 29 at Dec-2024, with funded loans of BDT 87.2bn and 'Nil' classified amount per the 2024 note [3 p.325]. Lawsuits for recovery were filed on BDT 20.1bn of written-off loans [1 p.268].

Audit: unmodified opinions for 2024 and 2025, each with an emphasis of matter on a BB-approved provision shortfall

FY2025. The joint auditors, Basu Banerjee Nath & Co. and Anil Salam Idris & Co., signed an unmodified opinion on 30 April 2026 [1 p.213] [1 p.228]. Their emphasis of matter reads, in the parts that carry numbers: 'As disclosed in Notes 7, 7.8 and 13.5.1, the Bank reported loans and advances of BDT 28,593.56 crore, including classified loans of BDT 4,342.07 crore (NPL 15.19%). Against the total required provision BDT 3,390.23 crore, BDT 1,250.92 crore has been maintained by the bank, resulting in a shortfall of BDT 2,139.31 crore.' [1 p.213]

It continues: 'The Bank reported a CRAR of 12.52%, which is marginally above the regulatory minimum. However, this CRAR has been computed without considering the above-mentioned shortfall of required provision.' And: 'Bangladesh Bank, through letter no. BSD 2/2203/2026/384 dated 29 April 2026, has allowed the Bank to finalize its 2025 financial statements without recognizing the provision shortfall of BDT 2,139.31 crore, having no adequate profit, subject to (i) non-declaration of dividends, (ii) enhanced market disclosures, and (iii) a Board approved time bound plan to address the provision and capital gaps. Our opinion is not modified in respect of these matters.' [1 p.213]

FY2024. The same two firms signed on 29 May 2025 [3 p.283]. Their 'Matter of Emphasis' says 'the required provision for loans and advances is amounting to BDT 3,816.77 crore against which the Bank has kept BDT 2,115.91 crore only. Thus, an amount of BDT 1,700.86 crore remained short in the provision for the said loans and advances', and that BB allowed the bank 'having no adequate profit, to finalize the financial statements for the year ended 31 December 2024 without required adjustment of the provisions' on condition of disclosure and 'a board approve time bound action for overcoming the shortfall of provision and capital' [3 p.269]. DSE carried emphasis-of-matter notices for both years, on 23-Jul-2025 and 24-Jun-2026 [8].

Key audit matters. Besides the loan provision matter quoted in the asset-quality section, the FY2025 auditors list interest-income recognition and the adequacy of income tax provision and deferred tax, noting net current tax and deferred tax assets of BDT 398.96 crore and BDT 28.67 crore [1 p.214] [1 p.215]. The bank also discloses a Gulshan Avenue land plot bought in 2005 that 'is under litigation and possession of the land is yet to be taken', against which it has made a provision [1 p.301].

Capital: CRAR of 12.52% with a BDT 58m surplus, the subordinated bond fully repaid and a Tk800 crore replacement still awaiting approval

CRAR. The bank reported CRAR of 14.09% in 2021, 14.35% in 2022, 14.79% in 2023, 13.07% in 2024 and 12.52% in 2025 [1 p.76]. At Dec-2025 total capital was BDT 36,031m against a minimum requirement of BDT 35,973m, a surplus of BDT 58m [1 p.287]. CET-1 was 8.68% and tier-1 9.94% [12]. The capital surplus was BDT 1,684m in 2024 and BDT 6,709m in 2023 [1 p.76].

Why capital fell. Tier-1 rose by BDT 0.9bn in 2025, but tier-2 fell from BDT 11.0bn to BDT 7.4bn because the general provision counted in tier-2 fell from BDT 11,033m to BDT 7,419m [1 p.287]. The 7.07% subordinated bond (Janata, Agrani, Sonali) no longer counted in tier-2 at Dec-2024; it fell from BDT 2.4bn in 2021 to BDT 600m in 2024 and was repaid in 2025 [1 p.277] [4 p.13]. The perpetual bond of BDT 3.63bn (BDT 3.13bn privately placed with Pubali, Bengal Commercial, Bank Asia and UCB at 10%, plus a BDT 500m public tranche) counts as additional tier-1 and is 10.1% of total capital [1 p.277] [12].

The shortfall against capital. The BDT 21,393m shortfall equals 7.43% of risk-weighted assets, more than the 12.52% CRAR itself, and the auditors say the CRAR was computed without it [1 p.213] [12]. The board approved a BDT 800 crore 'Mercantile Bank 3rd Subordinated Bond' on 22 June 2025 to raise tier-2 capital, 'subject to approval from concerned regulatory authorities' [8]; the H1 2026 balance sheet shows no subordinated bond outstanding [2 p.10].

Governance: a sponsor-led board with founders from 1999, a new MD since November 2024, and small disclosed related-party lending

Sponsors and board. The founding sponsors still sit on the board: A.S.M. Feroz Alam and M. Amanullah were first appointed on 29 May 1999 and last re-appointed on 26 June 2023 [1 p.104]. At Dec-2025 Annexure-B lists Md. Anwarul Haque as chairman with 24.9m shares, sponsor directors Al-Haj Akram Hossain (Humayun), Md. Abdul Hannan, A.S.M. Feroz Alam (34.9m shares, also chairman of Mercantile Bank Securities) and M. Amanullah, directors M. A. Khan Belal, Mohammad Abdul Awal and Alhaj Mosharref Hossain, and independent directors Prof. Dr. Md. Rezaul Kabir and Prof. Mohammad Thoufiqul Islam [1 p.304] [1 p.305]. Directors' holdings shown are the same at Dec-2025 and Dec-2024 [1 p.304] [1 p.305].

Changes since August 2024 that the filings and DSE record. Md. Mati Ul Hasan became managing director from 30 November 2024 (DSE notice of 2 December 2024) [8] [1 p.104]. A new company secretary was appointed (DSE, 9 December 2024) [8]. The audit committee was reconstituted at the 453rd board meeting on 11 December 2024 [3 p.142]. Prof. Mohammad Thoufiqul Islam was first appointed independent director on 25 May 2025, and Alhaj Mosharref Hossain retired and was re-elected on 24 August 2025 [1 p.104]. This list covers only the changes found in these sources.

Sponsor share movements. Dr. A.K.M. Shaheed Reza, a sponsor and former director [1 p.301], completed the sale of 5.8m shares (DSE, 7 November 2024); Md. Mizanur Rahman Chowdhury sold 189,000 shares (DSE, 2 November 2025); Md. Nasiruddin Choudhury gifted 19.5m shares to his son and two daughters (completed, DSE 3 September 2026); and Engr. Md. Monsuruzzaman declared a gift of 500,000 shares to his spouse (DSE, 29 October 2026) [8]. The sponsor share fell slightly from 33.63% to 33.62% in 2025, and financial institutions' share from 26.38% to 25.73% [1 p.286].

Related parties. Advances to allied concerns of directors were BDT 138.4m (BDT 139.0m in 2024) and to the MD and senior executives BDT 21.4m [1 p.264]. The bank lent BDT 323.8m to its subsidiary Mercantile Bank Securities as a secured overdraft [1 p.301]. It rents premises from directors and their families: an ATM booth from Md. Abdul Hannan, a Feni regional office from Dr. A.K.M. Shaheed Reza's family, a sub-branch from M. Amanullah, and a sub-branch and CRM booth from M. A. Khan Belal, each approved by BB or under its circular [1 p.301]. The note reports 'Nil' for business with directors' concerns under section 18(2) of the Bank Companies Act and for investments in directors' securities [1 p.301]. The directors' other interests include textile, cold storage, LPG, hotel, CNG, securities and insurance companies [1 p.304] [1 p.305].

Dividends: a 52-60% payout to 2023, nothing since, 'Z' category from May 2026 and a paid-up capital 44.7% short of BB's cash-dividend line

Record. Mercantile paid 12.5% cash plus 5% stock for 2021, 10% cash plus 2% stock for 2022 and 10% cash for 2023, then nothing for 2024 and 2025 [1 p.104] [1 p.76]. The bank's own 'Dividend Payout Ratio' was 52.89%, 60.30% and 54.64% for 2021-2023 [1 p.76]. Stock dividends built paid-up capital from BDT 7.4bn in 2016 to BDT 11.07bn in 2023 [1 p.286]. The BB forbearance for 2025 is conditional on 'non-declaration of dividends' [1 p.213].

Category change. On 3 May 2026 DSE placed the shares in 'Z' category from 'A' because the company 'failed to declare any dividend for a period of 2 (two) consecutive years', and brokers and merchant bankers were asked not to lend against the shares from that date under the BSEC margin rules [8].

The Tk2,000 crore rule. BB's SPCD Circular No. 06 of 23 May 2026 says a bank with paid-up capital below Tk2,000 crore may not pay any cash dividend, and caps cash at 50% of total dividend for eligible banks; it applies from the year ending 31 December 2026 [5 p.1]. Mercantile's paid-up capital is Tk1,106.58 crore, so it is 44.7% short of the line (1 - 1,106.58/2,000) [2 p.10] [12]. Reaching it needs paid-up capital to grow 1.81 times; at 5% stock dividends a year that would take about 12 years [12]. Authorised capital is exactly Tk2,000 crore [1 p.286].

Peers: an NPL ratio 11pp higher than NCC and Dhaka Bank and the lowest CRAR; the printed cost-of-fund lines are not defined alike

We compare Mercantile with two listed private banks whose FY2025 annual reports print the same items: NCC Bank and Dhaka Bank. Each figure is the label the bank itself prints; gaps are in percentage points [6 p.183] [6 p.184] [7 p.64].

Cost of fund. Mercantile's 'Cost of Fund (in %)' of 7.40% was 1.41pp below NCC's 'Cost of fund (COF) (%)' of 8.81% and 2.25pp below Dhaka Bank's 'Cost of Fund' of 9.65% [1 p.311] [6 p.184] [7 p.64] [12]. The labels match but the definitions are not printed; On the nearest like-for-like lines, Mercantile's 'Cost of deposit' of 7.47% was 0.90pp above NCC's 'Cost of deposits & borrowings' of 6.57% [1 p.311] [6 p.184]. The gaps are shown here with that caveat.

Asset quality and capital. Mercantile's classified-loan ratio of 15.19% was 11.07pp above NCC's 4.12% and 11.42pp above Dhaka Bank's 3.77% [12]. Its CRAR of 12.52% was 3.02pp below NCC's 15.54% and 0.87pp below Dhaka Bank's 13.39% [12]. NCC's paid-up capital of Tk1,110.4 crore is 44.5% short of the Tk2,000 crore line, about the same as Mercantile's [6 p.183] [12].

Multiples as printed. The banks' own tables give year-end 2025 price-earnings ratios of 6.92 for Mercantile, 2.79 for NCC and 4.44 for Dhaka Bank, and Mercantile's 'Market Value to Book Value Multiple' of 0.31 [1 p.311] [6 p.184] [7 p.64] [1 p.76]. These are facts as printed, not a comparison of value.

2026 so far: H1 profit down 88%, a Q2 loss, a profitable Q3, and the shares in 'Z' category

H1 2026 (solo). Interest income rose to BDT 21,566m but interest paid rose to BDT 20,479m, so NII fell to BDT 1,086m from BDT 3,610m [2 p.13]. Investment income was BDT 2,049m and fees BDT 1,043m; total operating income fell 36.7% to BDT 4,900m [2 p.13] [12]. Opex fell to BDT 4,103m, so pre-provision profit was BDT 797m against BDT 2,861m; with provisions of BDT 358m and tax of BDT 200m, profit after tax was BDT 239m against BDT 1,999m, and EPS BDT 0.22 against BDT 1.81 [2 p.13].

Q2 2026 loss. The second quarter showed a pre-provision loss of BDT (200.0)m, a provision write-back of BDT 124.9m and a net loss of BDT (75.1)m [2 p.13]. DSE reported consolidated EPS of BDT (0.07) for April-June 2026 against BDT 0.98 a year earlier [8]. Consolidated operating cash flow per share was BDT (15.57) for Q1 2026 and BDT 0.74 for H1 2026 [8].

Q3 2026. DSE's announcement of 28 October 2026 gave consolidated EPS of BDT 0.21 for July-September 2026 against BDT 0.05, BDT 0.43 for nine months against BDT 1.87, consolidated operating cash flow of BDT 0.64 a share for January-September 2026 against BDT 1.65, and NAV of BDT 24.96 a share [8]. The nine-month EPS of BDT 0.43 equals the H1 BDT 0.22 plus Q3 BDT 0.21, so the third quarter was a profit. The Q3 statements are not yet in our corpus. The H1 2026 statements we read do not update the classification table or the provision shortfall.

Market data as facts. At BDT 6.4 the market value was about BDT 7.08bn, 0.27x the Jun-2026 solo NAV of BDT 23.85 and 5.9x FY2025 solo EPS of BDT 1.08 [9] [2 p.11] [1 p.228] [12]. The bank's own table shows its 'Market Value to Book Value Multiple' at 0.72 in 2021, 0.58 in 2022, 0.57 in 2023, 0.44 in 2024 and 0.31 in 2025 [1 p.76]. The weekly close fell from BDT 8.8 to BDT 7.0 in the week of the FY2025 results and the 'Z' move [9] [8].

What's next: the first SPCD-06 year-end, the FY2026 forbearance decision, a rating renewal and LDC graduation in 2029

Nothing below is a forecast; each item is dated and sourced, with the line it moves.

FY2026 accounts (around 30-Apr-2027). The FY2025 accounts were signed the day after BB's forbearance letter [1 p.213] [1 p.228]. Each letter so far has covered one year and carried conditions, including a board-approved time-bound plan for the provision and capital gaps [1 p.213]. Whether BB issues another, and for how much, decides whether the Tk2,139.31 crore reaches equity and CRAR.

Dividend year-end (31-Dec-2026). SPCD Circular 06 applies from the year ending 31 December 2026 [5 p.1]. With paid-up capital at Tk1,106.58 crore, no cash dividend is possible under it, and the 2025 forbearance itself bars dividends [1 p.213] [12].

Rating (around July 2027). CRISL cut the long-term rating from AA to A+ on 9 July 2026, citing financials to March 2026 [8]. The previous rating ran from 10 July 2025 to 9 July 2026 [2 p.23]. The perpetual bond's coupon is fixed at 10% [1 p.277], so the rating moves the cost of any new capital rather than existing coupons.

LDC graduation (24-Nov-2029). The UN General Assembly adopted the move of Bangladesh's graduation from 24 November 2026 to 24 November 2029 on 29 October 2026 in New York (30 October in Dhaka) [10] [11]. For Mercantile the link is trade: RMG and textile loans of about BDT 63bn and commission, exchange and brokerage income of BDT 2.8bn in 2025 [1 p.265] [1 p.228]. The later date delays any loss of LDC trade preferences for its exporter borrowers.

Risks: the forbearance, SMA migration, a near-zero spread, treasury dependence, thin capital and dilution

Each risk is tied to the line it moves; we put no probability on any of them.

Forbearance. The largest number in the accounts is the BDT 21,393m of provisions not recognised [1 p.266]. Deducted in full, and before tax effects that the filings do not quantify, it would leave equity of about BDT 5.1bn against BDT 26.5bn reported [12].

Migration. The SMA book grew fourteen-fold in 2025 [12]. SMA loans carry a 5% provision rate in the 2025 table; if they become classified, bad/loss provisioning applies [1 p.266].

Margin. In 2025 a BDT 4.6bn rise in interest paid took NII to BDT 199m [12], and H1 2026 NII was 70% lower than a year earlier [2 p.13]. Profit depends on investment income, which itself included a BDT 2.05bn gain on government securities in 2025 [1 p.293].

Capital and dilution. With CRAR at the minimum and the shortfall outside the calculation, capital can come from retained profit, the pending Tk800 crore subordinated bond or new shares [8] [1 p.287]. The Jun-2026 balance sheet still shows no subordinated bond and unchanged paid-up capital of BDT 11,066m [2 p.10].

Key questions: the forbearance, the SMA book, the spread, capital and recoveries

FAQ

What is Mercantile Bank's NPL ratio?

Classified loans were BDT 43,421m, 15.19% of loans, at 31-Dec-2025, down from 17.25% in 2024 after BDT 20.8bn of write-offs, and up from 6.08% in 2023 [1 p.311] [1 p.268].

Does Mercantile Bank have a provision shortfall?

Yes. The auditors give Tk2,139.31 crore of required provisions not recognised at Dec-2025, allowed by BB letter BSD 2/2203/2026/384 of 29-Apr-2026; the bank's note cites Tk2,161.31 crore for the same letter [1 p.213] [1 p.266].

What is Mercantile Bank's CRAR?

12.52% solo at Dec-2025 against 12.50% including the conservation buffer, a BDT 58m surplus, computed without the provision shortfall [1 p.287] [1 p.213].

Was the FY2025 audit opinion qualified?

No. It is unmodified with an emphasis of matter on the provision shortfall and the CRAR. FY2024 was also unmodified with a similar emphasis [1 p.213] [3 p.269].

Why is net interest income so low?

Interest paid rose from BDT 13.5bn in 2021 to BDT 27.3bn in 2025 as deposit costs rose and funding shifted to term deposits, while loans stopped growing and classified loans earn no income; NII was BDT 199m in 2025 [1 p.228] [12].

Can Mercantile Bank pay a cash dividend?

Not for 2025 under the BB forbearance, and not under SPCD Circular 06 while paid-up capital (Tk1,106.58 crore) is below Tk2,000 crore; it is 44.7% short [1 p.213] [5 p.1] [12].

Which results does this note use?

Standalone audited statements 2021-2025, the unaudited H1 2026 standalone statements and DSE's Q3 2026 announcement. The Q3 2026 statements are not yet in our corpus.

Sources

1. Mercantile Bank PLC Annual Report 2025 (audited consolidated and separate financial statements, year to 31-Dec-2025; joint auditors Basu Banerjee Nath & Co. and Anil Salam Idris & Co.) · link · accessed 2026-10-31
2. Mercantile Bank PLC unaudited financial statements, six months to 30-Jun-2026 · link · accessed 2026-10-31
3. Mercantile Bank PLC Annual Report 2024 · link · accessed 2026-10-31
4. Mercantile Bank Limited Annual Report 2022 (with 2021 comparatives) · link · accessed 2026-10-31
5. Bangladesh Bank SPCD Circular No. 06, 23-May-2026, dividend declaration policy for banks (Bangla) · link · accessed 2026-10-31
6. NCC Bank PLC Annual Report 2025 (peer: five-year standalone information) · link · accessed 2026-10-31
7. Dhaka Bank PLC Annual Report 2025 (peer: five-year highlights) · link · accessed 2026-10-31
8. Dhaka Stock Exchange company news archive for MERCANBANK, Aug-2024 to Oct-2026 (results, dividend, category change, sponsor transfers, credit rating, board notices) · link · accessed 2026-10-31
9. AnalystBro price data (TradingView feed): DSE:MERCANBANK weekly bars to the week of 25-Oct-2026 · link · accessed 2026-10-31
10. The Daily Star, 'Bangladesh gets 3 more years for LDC graduation' (30-Oct-2026) · link · accessed 2026-10-31
11. The Business Standard, 'Bangladesh gets 3 more years before LDC graduation' (30-Oct-2026) · link · accessed 2026-10-31
12. AnalystBro model for this report (workbook tabs below) · link · accessed 2026-10-31