Breakdown of Non-performing

Loan (NPL) of Mercantile Bank

Limited
Breakdown of Non-performing Loan of
Mercantile Bank Limited

Submitted to:
Rashik Amin
Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted by:
Group-13
Class of 2020
Section - C (23rd Batch)
Department of Finance
University of Dhaka
Name Roll No. Marks
Md. Azizul Haque 23-043
Mohammed Tharak Rahman 23-055
Sadia Sultana 23-103
Rabin Chakma 23-191
Nadia Taipie 23-324

Date of Submission: January 07, 2019

 Letter of Transmittal
January 07, 2019
Rashik Amin
Lecturer
Department of Finance
University of Dhaka

Subject: Submission of the report for course F-209: Law and Practice of Banking

Dear Sir:
With due respect and honor, I, on behalf of group 13, am submitting the term paper
named “Breakdown of NPL of Mercantile Bank Limited” for the course titled F-209:
Law and Practice of Banking.
Writing this report has been a challenging but interesting experience for me. After
completing this report, we have learnt a lot about NPL conditions of the country. It gave
us an opportunity to grasp a thorough knowledge on the subject matter and we are
confident that this knowledge will prove to be of utmost value and importance to us in
future.
I have tried to give my best effort to complete this report through your instructions. I
hope that any unintentional error, omission or mistake committed by us while preparing
this report will be considered with sympathy.

Sincerely yours,

Mohammed Tharak Rahman

On behalf of
Group: 13
Id: 23-055
Section: C
BBA 23rd Batch
Department of Finance
University of Dhaka
 Table of Contents

EXECUTIVE SUMMARY..............................................................................................V
CHAPTER-1: INTRODUCTION....................................................................................6
CHAPTER-2: ESTIMATION AND CONFIDENCE INTERVAL..............................7
EXERCISE- 69:..................................................................................................................7
EXERCISE- 70:..................................................................................................................8
EXERCISE- 71:................................................................................................................10
CHAPTER-3: MULTIPLE REGRESSION ANALYSIS............................................12
EXERCISE- 33:................................................................................................................12
EXERCISE- 34:................................................................................................................15
EXERCISE- 35:................................................................................................................19
 Executive Summary
Making an inference from a set of limited variables known as sample variable on entire
group of variables known as population variables is the main purpose of inferential
statistics. Confidence intervals, a range values constructed sample data so that population
parameter is likely to occur within that range at specified probability, and multiple
regression equation, a relationship between independent and dependent variables are two
mathematical instruments to make such an inference from such a set of sample variables.
We develop several 95% confidence intervals which means that population parameter
will likely to occur within that range based on point estimator such as mean selling price
or mean distance for Goodyer Arizona, Major League Baseball and Buena School
District using MS excel and interpret the result.
In multiple regression analysis we develop regression equations for multiple variables
including interpretation, developed correlation matrix and show the relevant test such as
global test necessary for our equations.

v
 Chapter-1: Introduction
In the previous year we learnt statistics only to organize, summarize, represent data in an
informative way but we didn’t have to make any inference or prediction then. But in our
daily life we need to make decisions. In other words, we have to make inference on a
contingent event and make predictions. This is one of the main objectives of Applied
Statistics which remains implied in our learning. Here in this course we look for how to
make inference based on a sample data. Different mathematical tools have been being
used for making predictions. But in our term paper we will only show the application of
two instruments namely confidence intervals and multiple regression equation.

Objective of the Study

The main objective of this study is to make inference based on confidence intervals and
regression equation for multiple variables including their interpretations.

Methodology

To solve the data set exercise and to show the application of confidence intervals and
regression equation we mostly use MS excel and MegaStat.

6
 Chapter-2: Estimation and Confidence Interval

Exercise- 69:
We have gone through the Goodyear Real Estate data and generate the following
summary statistics using MS Excel. This table will help us to calculate the confidence
interval.

(a) Confidence interval for mean selling price:

We know, confidence interval= Point estimate ± marginal error
Here, point estimate = mean = 221.1029
Marginal error = confidence level (95%) = 9.1161

∴ Confidenceinterval=221.1029± 9.1161¿ 211.987 up ¿ 230.219

That means, we have 95% confidence that population mean of the selling price will be
within this interval. In other way, we can say, 95% of these confidence intervals will
contain the population mean of selling price.

(b) Confidence interval for mean distance:

Here, point estimate = mean = 14.6286
Marginal error = confidence level (95%) = 0.9432

7
∴ Confidenceinterval=14.6286 ±0.9432¿ 13.685 up ¿15.572

That means, we have 95% confidence that population mean of distance will be within this
interval. In other way, we can say, 95% of these confidence intervals will contain the
population mean of distance.

(c) Confidence interval for garage:

Here, point estimate = mean = 0.67619
Marginal error = confidence level (95%) = 0.09099

∴ Confidenceinterval=0.67619 ±0.09099¿ 0.585 up ¿ 0.767

That means, we have 95% confidence that population proportion of home with an
attached garage will be within this interval. In other way, we can say, 95% of these
confidence intervals will contain the proportion of home with an attached garage.

Exercise- 70:
Summary statistics for Baseball 2012 data is given below-

(a) Confidence interval for mean home runs:

Here, point estimate = mean = 164.4667
Marginal error = confidence level (95%) = 12.31274

8
∴ Confidenceinterval=164.4667 ±12.31274¿ 152.154 up ¿ 176.779

That means, we have 95% confidence that population mean of home runs will be within
this interval. In other way, we can say, 95% of these confidence intervals will contain the
population mean of home runs.

(b) Confidence interval for mean number of errors:

Here, point estimate = mean = 100.2667
Marginal error = confidence level (95%) = 5.066013

∴ Confidenceinterval=100.2667 ±5.066013¿ 95.200 up ¿ 105.333

That means, we have 95% confidence that population mean of number of errors will be
within this interval. In other way, we can say, 95% of these confidence intervals will
contain the population mean number of errors.

(c) Confidence interval for mean number of stolen bases:

Here, point estimate = mean = 107.6333
Marginal error = confidence level (95%) = 9.443703

∴ Confidenceinterval=107.6333± 9.443703¿ 98.190 up ¿ 117.077

That means, we have 95% confidence that population mean of number of stolen bases
will be within this interval. In other way, we can say, 95% of these confidence intervals
will contain the population mean number of stolen bases.

9
Exercise- 71:
Summary statistics for Baseball 2012 data is given below-

(a) Confidence interval for mean bus maintenance:

Here, point estimate = mean = 450.2875
Marginal error = confidence level (95%) = 11.94722

∴ Confidenceinterval=450.2875 ± 11.94722¿ 438.34 up ¿ 462.23

That means, we have 95% confidence that population mean bus maintenance will be
within this interval. In other way, we can say, 95% of these confidence intervals will
contain the population mean bus maintenance.

(b) Confidence interval for mean bus miles:

Here, point estimate = mean = 830.1125
Marginal error = confidence level (95%) = 9.388533

∴ Confidenceinterval=830.1125 ± 9.388533¿ 820.724 up ¿ 839.501

That means, we have 95% confidence that population mean bus miles will be within this
interval. In other way, we can say, 95% of these confidence intervals will contain the
population mean bus miles.

10
 Chapter-3: Multiple Regression Analysis

Exercise- 33:
We have gone through the Real Estate data and generate the following summary table using MS
Excel. Using this table, we will continue our further exercise.

(a) Multiple regression equation and it’s interpretation:

The regression equation is-
Price = 43.1372 + 7.3755 Bedrooms (in number) + 0.0386 Size (in square feet) – 1.7390
Township + 23.0925 Baths (in number) – 1.0127 Distance (in km) + 35.4980 Garage +
19.1114 Pool
That means, for each additional bedroom, price will increase by 7.3755 dollar; for each
additional square feet of space, price will increase by 0.0386 dollar; each additional bath
will add about 23.0925 dollar to the price; for additional mile of distance, price will
decrease by 1.0127 dollar; an attached garage adds 35.4980 dollar to the price; a pool
increases the price by 19.1114 dollar.
(b) Determining intercept:
From the summary table we can get the intercept whose value is 43.1372 dollar. This
value represents the price when the values of all the independent variables are zero.
(c) Correlation matrix:

11
The correlation matrix is given below-

From the matrix, we see, Garage has the strongest correlation with price.
In case of multi-collinearity, if the correlation among the independent variables are
within range of -0.70 to 0.70, we can say multicollinearity does not exist. But no such
case is present here. So, we can say, independent variables are free from multi-
collinearity problem.
(d) Global Test
Step-1: H0 = β1= β2= β3= β4= β5= β6= β7= 0
H1 = Not all the βi’s are 0
Step-2: Significance level is 0.05.
Step-3: We will use F statistic.
Step-4: Df of numerator is 7 and df of denominator is 97. So, critical value = 2.11.
Now the decision rule is- reject H0 if calculated value is greater than critical value.
Step-5: Calculated f value is 15.8534 which is greater than critical value. So, we have
failed to accept H0. That means we must reject H0.
Step-6: We can conclude that all the coefficients are not equal to zero.
(e) Hypothesis test of all independent variables
we can do this by comparing the p value of each variable with significance level. If the p
value of any variable is greater than 0.05, significance level, we can say that variable is
insignificant. From our summary table we see, the p value of township and distance are
greater than 0.05. So, we can say, township and distance are insignificant variables and
we can delete them.
(f) Regression analysis with significant variables only:

As we know, township and distance are insignificant variables, now we will try to do
regression analysis with the rest 5 significant variables. The summary table generated by
MS Excel is given below-

12
In this solution we see that the p value for the global test is less than 0.05 and the p value
for ach of the independent variables are also less than 0.05. Again, the r square value
remained almost unchanged. So, we can say, only the significant coefficients exit in this
equation.
So, the new regression equation is-
Price = 17.0125 + 7.1689 Bedrooms (in number) + 0.0392 Size (in square feet) +
24.62355 Baths (in number) + 38.8472 Garage + 19.1104 Pool

(g) Histogram of residuals:

With the help of “MegaStat” we draw the following histogram of residuals-

Histogram
30
25
20
Percent

15
10
5
0
0

20

40

60

80
00

0
0

0
-8

-6

-4

-2
-1

Residuals

SO, we see the normality assumption is almost reasonable.

13
(h) Scatter Diagram
Plot of residuals verses the fitted value is given below-
80.00
60.00
40.00
20.00
Residuals

0.00
140.00 160.00 180.00 200.00 220.00 240.00 260.00 280.00 300.00 320.00
-20.00
-40.00
-60.00
-80.00
-100.00

Predicted Values

There does not seem to be any pattern to the plotted data, this plot appears to be random
and to have a constant variance.

Exercise- 34:
The summary output of Baseball 2012 data is given below-

14
(a) Multiple regression equation and it’s interpretation:
The regression equation is-
Wins = 78.1888 + 282.5010 BA – 19.5659 ERA + 0.0445 HR + 0.0647 Errors – 0.0443
SB + 0.7619 League.
That means, for each additional run in the team batting average increases, number of wins
will increase by 282.5010; an increase in the ERA will decrease the number of wins by
19.5659; each home run adds .0445 wins; an error increases the average number of wins
by 0.0647; each stolen base decreases the average number wins by 0.0443; playing in
American league the number of wins is higher by 0.762 on an average.
One thing needs to be mentioned that though stolen base is a positive thing it has a
negative slope. Again, errors is a negative thong but it has a positive slope. So,
significance of these two variables need to be justified which we will do later.
(b) Determining coefficient of determination:
From the summary table we see coefficient of determination, R square, is 0.7304. This
means that, about 73.04% of changes in dependent variable can be explained by the
changes in independent variables.
(c) Correlation matrix:
The correlation matrix is given below-

From the matrix, we see, ERA has the strongest correlation with price.
In case of multi-collinearity, if the correlation among the independent variables are
within range of -0.70 to 0.70, we can say multicollinearity problem does not exist. But no
such case is present here. So, we can say, independent variables are free from multi-
collinearity problem.
(d) Global Test
Step-1: H0 = β1= β2= β3= β4= β5= β6= 0
H1 = Not all the βi’s are 0
Step-2: Significance level is 0.05.

15
Step-3: We will use F statistic.
Step-4: Df of numerator is 6 and df of denominator is 23. So, critical value = 2.53.
Now the decision rule is- reject H0 if calculated value is greater than critical value.
Step-5: Calculated f value is 10.3930 which is greater than critical value. So, we have
failed to accept H0. That means we must reject H0.
Step-6: We can conclude that all the coefficients are not equal to zero.
(e) Hypothesis test of all independent variables
we can do this by comparing the p value of each variable with significance level. If the p
value of any variable is greater than 0.05, significance level, we can say that variable is
insignificant. From our summary table we see, except BA and ERA the p values of all
other variables are greater than 0.05. So, we can say, only BA and ERA are significant
variables and the rest are insignificant.
(f) Regression analysis with significant variables only:
As we know, except BA and ERA, all others are insignificant variables, now we will try
to do regression analysis with 2 significant variables only. The summary table generated
by MS Excel is given below-

In this solution we see that the p value for the global test is less than 0.05 and the p value
for each of the independent variables are also less than 0.05. Again, the r square value
remained almost unchanged. So, we can say, only the significant coefficients exit in this
equation.
So, the new regression equation is-
Wins = 82.3488 + 304.9904 BA – 19.6870 ERA.
(g) Histogram of residuals:
With the help of “MegaStat” we draw the following histogram of residuals-

16
 Histogram
35
30
25

Percent
20
15
10
5
0

5
0

-5

10

15

20
5
-1

-1
Residuals

SO, we see the normality assumption is almost reasonable.

(h) Scatter Diagram
Plot of residuals verses the fitted value is given below-
20.00

15.00

10.00
Residuals

5.00

0.00
60.00 65.00 70.00 75.00 80.00 85.00 90.00 95.00 100.00
-5.00

-10.00

-15.00

Fitted values

There does not seem to be any pattern to the plotted data, this plot appears to be random
and to have a constant variance.

17
Exercise- 35:
The summary output of Buena school bus data is given below-

(a) Multiple regression equation and it’s interpretation:

The regression equation is-
Maintenance = 102.2750 + 0.3740 Miles + 5.9385 Age – 11.8036 Type.
That means, for each additional mile increase maintenance cost by 0.3740 dollar on an
average; each additional year of age increase maintenance cost by 5.9385 dollar on an
average; gasoline buses are cheaper to maintenance cost than diesel by 11.8036 dollar per
year.
(b) Determining coefficient of determination:
From the summary table we see, R square, is 0.2861. This means that, about 28.61% of
changes in dependent variable can be explained by the changes in independent variables.
(c) Correlation matrix:
The correlation matrix is given below-

18
From the matrix, we see, Age has the strongest correlation with price. But miles is not so
far from the Age.
In case of multi-collinearity, if the correlation among the independent variables are
within range of -0.70 to 0.70, we can say multicollinearity does not exist. But no such
case is present here. So, we can say, independent variables are free from multi-
collinearity problem.
(d) Global Test
Step-1: H0 = β1= β2= β3= 0
H1 = Not all the βi’s are 0
Step-2: Significance level is 0.05.
Step-3: We will use F statistic.
Step-4: df of numerator is 3 and df of denominator is 76. So, critical value = 2.72.
Now the decision rule is- reject H0 if calculated value is greater than critical value.
Step-5: Calculated f value is 10.1507 which is greater than critical value. So, we have
failed to accept H0. That means we must reject H0.
Step-6: We can conclude that all the coefficients are not equal to zero.
(e) Hypothesis test of all independent variables
we can do this by comparing the p value of each variable with significance level. If the p
value of any variable is greater than 0.05, significance level, we can say that variable is
insignificant. From our summary table we see, only the p value of “Type” is greater than
0.05. So, we can say, only “Type” is significant variables and the rest are insignificant.
(f) Regression analysis with significant variables only:
As we know, except “Type”, all others are significant variables, now we will try to do
regression analysis with 2 significant variables only. The summary table generated by
MS Excel is given below-

19
In this solution we see that the p value for the global test is less than 0.05 and the p value
for each of the independent variables are also less than 0.05. Again, the r square value
remained almost unchanged. So, we can say, only the significant coefficients exit in this
equation.
So, the new regression equation is-
Maintenance = 105.8991 + 0.3629 Miles + 6.1654 Age.
(g) Histogram of residuals:
With the help of “Megastat” we draw the following histogram of residuals-

Histogram
50
40
30
Percent

20
10
0
50 00 0 0 50 0 0
-1 -1 -5 10 15

Residuals

SO, we see the normality assumption is almost reasonable.

(h) Scatter Diagram
Plot of residuals verses the fitted value is given below-

20
 150.00

100.00

50.00
Residuals

0.00
380.00 400.00 420.00 440.00 460.00 480.00 500.00 520.00 540.00 560.00

-50.00

-100.00

-150.00

Fitted values

There does not seem to be any pattern to the plotted data, this plot appears to be random
and to have a constant variance.

21