IFRS 9 Pre-Assessment Briefing

Mercantile Bank PLC.

Meeting Date: 16 September 2025

Time: 5:00 PM

Presented to: Senior Management

Executive Summary & Current Status

Our project is on track to meet the **October 15, 2025**, pre-assessment mandate from Bangladesh Bank.

29

Days to Deadline

100%

Committee Formation

Finalized

Data Template

This briefing covers our work-in-progress and seeks your input on the final structure of the Pre-Assessment Report.

Governance & Team Structure

IFRS 9 Implementation Steering Committee

Formed by HRD circular no. 983. Provides strategic direction & oversight.

  • Head: Mati Ul Hasan, Managing Director
  • Member Secretary: Tapash Chandra Paul, PhD, CFO
  • Members: DMD & CRO (Acting), DMD & Head of ICCD, Head of IT, Head of Credit

Working Committees

Responsible for day-to-day project execution.

  • IFRS 9 Implementation: Chaired by CFO, covering all key business, risk, and IT functions (HRD circ. 2589).
  • Database Development: Specialised team led by CTO, focused on the data foundation (HRD circ. 2075).

Project Plan, Timelines, & Milestones

Phase 1

Foundation (Q1-Q3 '25)

Phase 2

Pre-Assessment (Q3-Q4 '25)

Phase 3

Development (2026)

Phase 4

Go-Live (2027)

Our immediate focus is on delivering the **Pre-Assessment Report** by the October 15, 2025 deadline.

Gap Analysis

We have identified key gaps across our policies, data, and IT infrastructure that require a comprehensive plan for remediation.

Policy Gaps

Need for a new policy on ECL staging and a formal definition of default.

Data Gaps

Lack of structured historical data, especially for recoveries and undrawn commitments.

IT Gaps

Absence of an integrated ECL calculation engine and a dedicated data mart for reporting.

Model Development Methodology & Plan

Our plan is to develop and implement robust models for ECL calculation using our newly gathered data.

PD Methodology

(Probability of Default) To be modeled using logistic regression and historical data, with segmentation based on portfolio characteristics.

LGD Methodology

(Loss Given Default) Will be based on historical recovery rates and collateral values. We will use historical cash flows to estimate recovery outcomes.

EAD Methodology

(Exposure at Default) Will factor in drawn and undrawn exposures, incorporating Credit Conversion Factors (CCFs) for off-balance sheet items.

Impact Analysis: Capital, Profitability & Disclosure Effects

The transition to IFRS 9 will have a significant impact on our financial reporting and capital requirements. Initial analysis shows a material increase in provisioning requirements.

  • Capital: A potential one-time reduction in our Capital Adequacy Ratio (CAR) due to increased provisions.
  • Profitability: Earnings volatility is expected as provisioning is now forward-looking and sensitive to economic forecasts.
  • Disclosure: Will require new financial statement disclosures on our models, assumptions, and ECL provisions.

IT Systems: Infrastructure Assessment & Upgrade Plan

Our IT strategy is centered around leveraging our core banking system, Temenos Transact, as the engine for ECL calculation. A dedicated data mart is being built based on the **finalized data template** to feed this engine and our models.

Challenges: Risk Identification & Mitigation Strategy

We have identified key risks and developed corresponding mitigation strategies to ensure a smooth transition.

Risk: Data Quality & Availability

Mitigation: Initiate early data gathering projects and use proxy data where necessary.

Risk: Lack of Internal Expertise

Mitigation: Engage external consultants and implement comprehensive training programs.

Capacity Building: Training Plans for All Levels

Our training plan is structured to provide relevant knowledge to all levels of staff, ensuring a Bank-wide understanding of the new framework.

Board & Senior Management

Focus on strategic implications, governance, and oversight responsibilities.

Credit, Risk & Finance Teams

Deep-dive into model mechanics, provisioning calculations, and policy changes.

IT & MIS Teams

Practical training on data requirements, system configuration, and report generation.

Relationship Managers

Focus on understanding the impact of ECL on loan classification and customer conversations.

Discussion & Next Steps

We are now open to your feedback on the proposed structure and content of the Pre-Assessment Report.

Key Questions for Discussion:

  • Are we aligned on the report's overall strategic approach?
  • Do we need to adjust the focus or depth of any specific section?
  • What are the key concerns from senior management on our current progress?

Thank you.