Banking Services Provided for International Business in DBBL

The main objective of this report is to analysis about banking services provided for International Business through Dutch-Bangla Bank Limited, Dhanmondi branch. Other objectives are to analyze the situation of different activities of DBBL over all banking activities which helpful for the economy of this country. Finally identify major strength and weakness of DBBL based on other Banks and evaluate the growth rate on DBBL and suggest recommendation to solve problems regarding Banking.

OBJECTIVES OF THE STUDY

The broad objective of the research is to know about banking services provided for International Business through Dutch-Bangla Bank Limited, Dhanmondi branch.

Objectives regarding this study are as follows:

• To fulfill academic requirement;
• To assess the performance of DBBL over all Banking Activities in both absolute and relative term in a comparative manner.
• To analyze the status of different parameters of DBBL over all banking activities Dealings which contributes to the economy of this country
• To gain practical knowledge in banking
• To identify major strength and weakness of DBBL in respect to other Banks.
• To assess and evaluate the growth trends on DBBL among other Banks.
• To recommend ways and means to solve problems regarding Banking.

INTRODUCTION

Dutch-Bangla Bank is a second generation commercial private Bank. During the period of its operation, this bank creates a milestone of success in banking sector. This bank holds an experienced team of banking professional. They achieve this success because of their experienced banking professional team, proper management & so on.

Dutch-Bangla Bank Limited is a Bangladesh–Netherlands joint venture scheduled commercial bank established in Bangladesh with the primary objective to carry on all kinds of banking business in and outside of Bangladesh.

Starting with one Branch in 1996, DBBL has expanded to one sixty four (175) branches including nine Branches outside of the capital. To provide client services all over Bangladesh it has established a wide correspondent banking relationship with a number of local banks. To facilitate international trade transactions, it has arranged correspondent relationship with large number of international banks which are active across the globe.

In addition to its banking activities, Dutch-Bangla Bank Limited takes part in different national activities promoting sports, culture, social awareness, etc. Participation in these activities as sponsors is part of its business development policy.

Philosophical standing of DBBL

The objectives of Dutch-Bangla Bank Limited remains to offer modern & innovative products & services to its clients in Bangladesh the partnership with FMO is optimistically scene to offer scopes opportunities to draw on modern tools & techniques of Banking from western world which could be blended with the currently prevalent local customs & practice.  The Bank is committed to being a sophisticated prominent and professional institution, providing a one window service to its customers. During the first five years Dutch Bangla Bank’s strategy was focused on continuing in provident of internal procedures and operating structures, to have a greater control on the quality of our business and to provide better management direction. After five years of working on the Banks structure, its culture and controls, the management is confident that the Bank can move forward on a rapid growth path.  The DBBL’s corporate philosophy is to build its non-funded fees and commission income stream, thus reducing its reliance on interest income alone.

Core objective of DBBL

Dutch-Bangla Bank believes in its uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in banking that uphold and epitomize its vaunted marques “Your Trusted Partner”

Focus of DBBL

DBBL’s focus is to provide one counter service to our clients covering:

• Commercial Banking (Deposit Accounts)
• Consumer Banking (Retail Baking)- Traveler Cheques; Foreign & Inland Remittances

• Financial Services
• Corporate Banking
• Asset & liability management
• Liquidity & capital Resources Management
• Information technology
• Human Resources

Mission of DBBL

Each business unit needs to define its specific mission within the broader company mission. Dutch-Bangla Bank engineers enterprise and creativity in business and industry with a commitment to social responsibility. “Profits alone” do not hold a central focus in the Bank’s operation; because “man does not live by bread and butter alone”. Mission statements are at their best when they are guided by a vision.

ATM Services

We can find DBBL ATMs beside our home, in our office premise, nearby market, university, college & school premises, Airport, Railway stations etc., throughout the country.

Using any of the DBBL ATM pools any where in the country, you can perform the following:

• Account balance enquiry
• Cash withdrawal – 24 hours a day, 7 days a week, 365 days a year
• Cash deposit to a certain number of ATMs any time
• Mini statement printing
• PIN (Personal Identification Number) change

All the ATMs can accept DBBL-NEXUS ATM / POS card, DBBL-

Maestro/Cirrus Debit card and DBBL Credit card.

 Table3: ATMs of DBBL

Account Service

DBBL provides all the accounts services as prescribed by the guidelines of Central Bank (Bangladesh Bank). We offer competitive interest rate and provide premium quality services for the accounts. Account services are:

1. Foreign Currency Account
2. Non-Resident Foreign Currency Deposit Account (NFCD)
3. Resident Foreign Currency Deposit Account (RFCD)
4. Convertible and Non-Convertible Taka Account

DBBL Internet Banking

DBBL Internet banking enables customer to access his/her personal or business accounts anytime anywhere from home, office or when traveling. Internet Banking gives customer the freedom to choose his/her own banking hours. It can save time, money and effort. It’s fast, easy, secure and best of all.

Using any of the DBBL ATM booths any where in the country, its customers can perform the following:

• Securities with DBBL Internet Banking
• A/C Opening & Accessing Internet Banking
• Internet Banking Features
• Terms & Conditions of Internet Banking

GENERAL BANKING ACTIVITIES

INTRODUCTION

General Banking department is the “Heart” of al banking activities. General Banking department performs the core functions of Bank, operates the day-to-day transactions. General banking is the starting point of all the banking operations. General banking is the front-side banking service department. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service from bank. Since bank is confined to provide the services everyday, general banking is also known as ‘retail banking’

• FUNCTION OF GB DEPARTMENT:

General Banking department generally deals with the following section:

Table: Activities Of GB Department

Front Desk:

Front desk of DBBL Dhanmondi Branch is one of the important parts of general banking department. The works and procedure of conducting those are given bellow.

• Account Opening Process:

The relationship between banker and customer begins with the opening of an account by the customer. Opening an account binds the customer into contractual relationship. Infect all kinds of fraud & forgery start by opening an account. So, the bank should take extreme caution in selection customers.

Under this section, DBBL Bank Assistant Officer opens different types of accounts on the request of clients. Such as:

(a)        Current Deposit (CD)

(b)        Saving Deposit (SB)

(c)       Other type

Current Account: A current deposit account may be operated in several times during a working day. There is no restriction on the number and the amount of withdrawals from a current account and banker does not allow any interest on this account DBBL Banks normally prefer current account due to its cost free nature.

Savings account: A saving account is meant for the person of the lower and the middle classes who wishes to save a part of their income to meet their future needs and intend to earn an income from their savings .This is an interest bearing account and a reasonable rate of interest is offered, which is higher than that of short term deposit account but lower than that of fixed deposit account.

Other type account:

• For Joint Stock companies, Association, Clubs etc: In case of opening a current account of joint stock companies, association, clubs etc, are said to fulfill true copies of certificate of incorporation or registration (in case of companies and registered bodies only).
• For Partnership / Proprietorship Company: To open a current a/c on the name of any partnership or company, the following documents are required to fill up application from stating about the name and address of the firm.

Bank activity:

After selecting the type of account, customer needs to fill up a form which is known as account opening from. After fill up account opening form by customer the assistant officer done following job:

• Verify all information
• Entry all customer information into  DBBL’s online server
• After completion of entry assistant officer it sends to Second officer/Manager for authorization.
• If Second officer/Manager satisfies with customer information he gives authorization. Assistant officer gets new account number for certain customer after authorization.

The procedure of opening account is given is given below:

Table: Account procedure

After fulfilling the above formalities, DBBL Bank provides the customer pay-in-slip book that customer deposit their initial deposit.

Cheque book issuing:

There are tow different procedure of issuing cheque book for savings account holders and current account holders. For savings account holders officer need to send request online for cheque book. It takes three working days to prepare their cheque books. After two working days the clients have to collect their cheque book from front desk..

• Account related activities:

In general banking bankers maintain some other activities such as: Scanning photo and signature of new account holder and linked with server. Proper preservation of respective files, Change of account holder address (application from customer), Change of Board resolution of several limited company accounts, issuing of thanks letter to A/C holders & introducers etc.

• Account Balance inquiry:

Customers can inquiry about their account balance or any transaction within the banking hour.

• Transfer of an A/C:

Account holder may transfer his account from one branch to another branch. For this he/she must apply to the manager of the branch where he is maintaining account. Then manager sends a request letter to the manager of the branch where the account holder wants to transfer his account. With his request he sends original copy of account opening application and specimen Signature Card and photocopy of application for transferring the account with the balance remained account. But now-a-days customer need not transfer their account from one branch to another branch. They can make transaction any DBBL branch with truly on-line facility.

• Deposits:

Bank is a financial intermediary, which mobilizes fund from surplus unit and allocates it to deficit unit. Surplus unit means the people who have surplus money and willingness to save. Deficit unit means the people who need money for industry, trade, business, or for personal use but don’t have sufficient money of their own for such purposes. Bank mobilizes the fund by accepting deposits from depositors and allocates the fund by providing loan to borrower. Therefore, accepting deposits is one of the two classic functions of commercial banks.

• Current Deposit Account:

CD accounts are unproductive in nature as banks loan able fund is concerned. Sufficient fund has to be kept in liquid form, as current deposits are demand liability. Businessmen and companies are the main customers of this product. Thus huge portion of this fund become non-performing. For this reason banks do not pay any interest to CD Account holders. There is no restriction on the number and the amount of withdrawals from a current account. Service charge and incidental charges are recovered from the depositors since the bank make payments and collect the bills, drafts, cheques, for any number of times daily. The Banks through current accounts grant the loans and advances in practice of DBBL, a minimum balance of TK.5000 has to be maintained.

• Savings Deposit Account:

As per Bangladesh Bank instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability Interest is paid on this account. DBBL offers a reasonable rate of interest (5.00%) for SB A/C on day basis. Generally, banks require a 7-day prior notice if the total amount of one or more withdrawals on any date exceeds 25% of the balance of the account unless is given. But in DBBL there is no restriction about drawing money from savings account. Any time holders may draw money of any amount without prior notice. Generally householders, individuals and other small-scale savers are the clients of this account Minimum Balance of Tk.500 is to be maintained. But initial deposit is Tk 2000.Very limited service charge (Tk.100 per year) as it is an interest bearing account. Govt. charge 10% only on interest income of the customer.

• Short Term Deposit Account (STD):

Customers deposit money for a shorter period of time. STD account can be treated as semi-term deposit STD should be kept for at least thirty days to get interest. The interest offered for STD is less than that of savings deposit. In practice, DBBL offers 5.00% rate of interest (half yearly compounding) for STD account. It may increase depending on the fund. Volume of STD A/C is generally high. In DBBL, various big companies, organizations, Government Departments keep money in STD accounts. Frequent withdrawal is discouraged and requires prior notice.

• Local Remittance:

In banking language money transmitted domestically are known as local remittance. For local remittance purpose DBBL purchases and sells some instruments for its customers. The instruments are Pay Order (PO), Demand Draft (DD), Telegraphic Transfer (TT), and Mail Transfer (MT).

• Pay Order (PO):

Pay order is an instrument, which is used to remit money within a city through banking channel. The instruments are generally safe as most of them are crossed.

Bill Collection and Clearing Section:

Customers do pay and receives bill from their counter party as a result of transaction. DBBL collects the bills on behalf of their customers.  Collection mechanisms in DBBL are clearing, Outward Bill for Collection (OBC), Inward Bills for Collection.

• Clearing:

When the bill is within the range of the clearinghouse it is sent for collection through clearing section. As far as safety is concerned customers get crossed cheque for the transaction Crossed check can’t be encashment from the counter; rather it has to be collected through banking channel i.e., clearing. If a client of DBBL received a check of another bank that is located within the clearing range and deposit the instrument in his account at DBBL, then DBBL will collect the money through clearing house. After received the check DBBL will credit client account. However, the amount is credited in the customer a/c but he will not get the money until the check is honored.

Procedures for collection:

1. “Received” seal is stamped on the cheque
2. Crossing of the cheques are done
3. Proper endorsement is given
4. “Clearing” seal with date is given
5. Cheques are sorted bank wise and entries are given to the software-NIKASH2  (Provided by Bangladesh Bank)

Function in the Clearing House:

1. The clearinghouse is an assembly of the locally operating scheduled banks for exchange of checks, drafts, and other demand instruments drawn on each other and received from their respective customers for collection.
2. The house meets at the appointed hour on all working days under the chairmanship of the central bank. The clearinghouse sits twice in a working day.
3. The members submit the claimable checks in the respective desks of the banks and vice-versa.
4. Consequently, the debit and credit entries are given.
5. At the end, the debit summation and the credit summation are calculated. Then the banks clear the balances through the check of Bangladesh Bank.
6. The dishonored checks are sorted and returned with return memo.
7. If the instruments are dishonored then they are sorted again and sent back to the returning house along with their return memo.
8. Later on all the instruments of DBBL which were claimed by other banks are sorted and delivered to respective branches.

Accounts and ATM Section:

• ATM Card:

An account holder gets a NEXUS Debit card at free of cost after opening account. It takes usually three weeks to prepare the card and sends him by mail.

• PIN mailer of ATM card delivery:

After opening account an inactive ATM card send to customer within two or three weeks. Then account holder come to the branch with card and fill up the form for requesting activation of ATM card. A secret PIN number delivered the account holder. Concern officer verify signature and photo of account holder. ATM Card will be activated with in one week and user can use it.

• Term deposits:

The fixed deposit account is repayable after the expiry of a predetermined period fixed by the customer himself. The period varies from three months to three years. The customer may open his /her account for different time periods, which may be for three months, six months, one year, two years and three years.

• General Characteristics:

1. Popularly, it is known as Fixed Deposit Receipt (FDR). Term deposits are made with the bank for a fixed period of time.
2. The bank needs not to maintain cash reserves against these deposits and therefore, the bank offers high rate of interest on such deposits.
3. In DBBL, fixed deposit account is opened in customer choice time.

• Fixed deposit:

Fixed deposit is one, which is repayable after the expiry of a predetermined period fixed by him. The period varies form 3 months to 1 year. These deposits are not repayable on demand but they are withdrawal subject to a period of notice. Hence, it is a popularly known as ‘Time Deposit’ or ‘Time Liabilities”. Normally the money on a fixed deposit is not repayable before the expiry of a fixed period.

The depositor has to fill an application form. In case of a deposit in joint name; DBBL also takes the instructions regarding payment of money on maturity of the deposit. The banker also takes the specimen signatures of the depositor(s).Necessary entries are given on the FDR register and on line .An FDR is then issued to the depositor acknowledging receipt of the sum of money mentioned therein. It also contains the rate of interest & the date on which the deposit will mature.

LOAN AND ADVANCES

INTRODUCTION

Making advances is the primary function of a bank. A major portion of its funds is used for this purpose and this is also the major sources of bank’s income.

Loans are the right to receive payment or an obligation to make payment on demand or at some future time on account of the immediate transfer of goods (securities).

Loans are the largest asset item, which generally account for half to almost three-quarters of the total value of all banks assets. A bank’s loan account typically is broken down into several groups of similar type

loans. The Loan and Advances made by the DBBL can broadly be classified by following categories-

• Continuous Loan
• Demand Loan
• Term Loan

Other Special Scheme

• Loan against Trust Receipt
• Transport Loan
• Consumer Credit Scheme
• Real Estate Loan (Res. & Comm.)
• Loan Against Accepted Bill
• Industrial Term Loan
• Agricultural Term Loan

Types of Loan

Continuous Loan:

These are those advances which do not have any set schedule for drawing or disbursement but usually have a terminal date of full adjustment or repayment. Example: Cash Credit (CC), Over Draft (OD) .

 Continuous Loan of DBBLfor last five years (2004-2008) is-              

Table: continuous loan                                      Tk in millon

Source: Annual Report 2004-2008

Cash Credit (CC):

A Cash Credit (CC) is an arrangement by which the customer is allowed to borrow money up to a limit. This is a permanent arrangement and the customer need not draw the sanctioned amount at once, but draw the amount as and when required. They can put back any surplus amount, which they may find with them. Thus Cash Credit (CC) is an active and running account, which deposits and with drawls may be affected frequently. Interest is charged only for the amount withdrawn and not for the whole amount charged.

If the customer does not use the cash credit (CC) limit to the full extent, a commitment charge is made by the bank. This charge is imposed on the unutilized portion of Cash Credit (CC) only.

Cash Credit (CC) provides an elastic form of borrowing since the limit fluctuates according to the needs of the business. Cash Credits (CC) are the most favorite mode of borrowing by large commercial and industrial concerns in our country.

Cash Credit (CC) arrangements are usually made against the security of commodities hypothecated or pledged with the bank.

a) Cash Credit (Hypothecation): This type of credit is allowed to the traders and industrial borrowers for promoting trade and commerce and industries. In case of hypothecation the possession of goods is not given to the bank. The goods remain at the disposal and in the go downs of the borrower. This is given access to goods whenever it so desires. The borrower furnishes periodical return of stock with the bank

b) Cash Credit (Pledge): Allowed for promoting trade, commerce and industries of the country against pledge of stock in trade under Bank’s control. In case of the pledge, the goods are placed in custody of the bank with its name on the go down where they are stored. The borrower has no right to deal with them.

Cash Credit (CC) of DBBL for last five years (2004-2008) is-

Table-6:Cash  credit(CC)                              Tk in millon

Source: Annual Report 2004-2008

Over the year DBBL cash credit increased. Reason behind this is – they provided quality services to their customers and other thing is- business people understood the usefulness of this type of advances.

Overdraft:

Overdraft (OD) is an arrangement between a banker and its customer by which the latter is allowed to withdraw over his credit balance in the current account up to an agreed limit. This is only a temporary accommodation usually granted against securities. The borrower is permitted to draw and repay any number of times, provided the total amount overdrawn does not exceed the agreed limit. The interest is charged only for the amount drawn and not for the whole amount sanctioned.

A cash credit is differs from an overdraft in one respect. A cash credit is used for long term by businessmen in doing regular business whereas overdraft is made occasionally and for short duration.

There are two kinds of overdraft.

a) Secured overdraft

b) Unsecured overdraft

a) Secured overdraft: Secured overdrafts are loans which have collateral attached to them in the form of a lien. A lien is a monetary claim against a property to be fulfilled before repeat ownership can take place.

Secured overdraft divided into two forms. There are – a) Secured overdraft financial obligation (SOD-FO), b) Secured overdraft general (SOD General).

1. SOD (FO): Allowed against financial obligation (Like- FDR, SSS etc.) for promotion of economic and business activities.
2. SOD (General): Generally allowed to the traders for business promotion and economic activities. In case of  SOD (General), bank keep the land as collateral.

b) Unsecured overdraft: Banks, sometimes, grant unsecured overdraft for small amount to customers having current account with them. Such customers may be government employees with fixed income or traders. Unsecured overdrafts are permitted only where reliable source of funds are available to a borrower for repayment.

Overdraft of DBBL for the year 2004-2008 is –

Table:Overdraft(OD)                                        Tk in million

Source:  Annual Report 2004 -2008

Loan against Imported Merchandise (LIM): 

Usually, importer fails to retire the documents in spite of repeated reminders of the banker or the bank has to clear the goods imported under the letter of credit at the request of the importer (borrower). In both the cases, whether the importer fails to retire the documents or request for clearance of goods, the outstanding under PAD or B/E is transferred to “Loan against Imported Merchandise (LIM)” account and the overdue interest from the date of accompanying Bills of Exchange or negotiating date to the date of transfer to LIM account is charged. At the time of opening of letter of credit the banks obtain from the importer an arrangement on stamped paper which provides for financing and, if necessary, clearance and storage of goods by debiting importer’s account at their risk and responsibilities. After clearance, consignments are taken delivery by the importer on full payment of bank’s liability. Normally part delivery is not allowed while on LIM account. When the delivery in part is desired by the importer, the LIM is converted into cash credit account retaining proper margin and executing charge documents, the delivery is effected thereafter on obtaining pro rata payment.

Loan against Imported Merchandise (LIM) of DBBL for last five years (2004-2008) is-

Table:LoanagainstImportedMerchandise(LIM)  Tk. in million

SOURCE: Annual Report 2004-2008

Loan against Trust Receipt (LTR):

Under this arrangement, credit is allowed to the importer to retire documents and release the consignment from the customs authority against trust, receipt keeping the goods under importer’s control. The rate of interest of DBBL on LTR @ 13.5%

Loan against trust receipt (LTR) of DBBL Bank for the year 2004-2008is–

 Table- Loan against trust receipt (LTR)    Tk  in Million

SOURCE: Annual Report 2004-2008

Payment against Documents (PAD):

The bank that opens the letter of credit is bound to honor its commitment to pay for import bills when these are presented for payment, if drawn strictly in terms letter of credit.

The foreign correspondent bank, who negotiates the documents, debits the account of the opening bank and, in fact, the amount thus stands advanced on behalf of the importer. The opening bank will lodge the shipping documents to their book and will respond to the debit advice originated by the foreign correspondent to the debit of “Payment against Documents (PAD)” account or “Bills of Exchange (B/E)” accounts and present the bill to the importer for payment

Table: Payment against Document                       Tk in  million

Source:  Annual Report 2004-2008

Loan against Packing Credit:

Packing credit is a short term advance granted by bank to an exporter for assisting him to buy, process, packs and ships the goods. The credit is gradually extended for payment of freight, handling charges, insurance and export duties. A packing credit advance does not normally extend beyond 180 days and has to be liquidated by negotiation/ purchase of the bills of exchange. The rate of interest of DBBL on this packing credit @ 7%.Loan Against Packing Credit of DBBL for 2004-2008 is –

Table: Loan against packing credit                 Tk in million

Source:  Annual Report 2004-2008

Term Loan

These are loans which have a specific term for repayment as specified in the loan agreement. Example: Loan (General), Transport Loan, Project Loan, Lease Financing, Small business loan, personal loan, House Building Loan and Other Loan etc.

Term Loan of DBBL for 2004-2008 is –

Table-Term loan                                        Tk in millon

Source:  Annual Report 2004-2008

Loan (General):

In case of loan general, the baker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid on an occasion either in cash or by credit in his/her current account which he/she can draw at any time. The interest is charged for the full amount sanctioned whether he/she withdraws the money from his/her account or not. The loan may be repaid in monthly installments or at the expiry of a certain period.

Loan (General) of DBBLfor 2004-2008

Table: Loan (General)                                          Tk in million

Source: Annual Report 2004-2008

Higher the loan amount higher the income of the bank. In this sense, DBBL is doing well. In the year 2003 this loan general was Tk.927 million, but in 2007 it was Tk2697 million. This picture indicates that DBBL is aggressive to earn interest income. By doing this job management maximize the profit of the bank and maximize the wealth also.

Micro credit financing:

To fulfill its commitment to play a vital role in socio economic development of the country DBBL Bank Ltd has introduce a small and medium credit scheme for its customers. The objective of the scheme is:

1. to encourage and develop medium and small entrepreneurs
2. to provide credit with minimum complexity and
3. to generate employment

Under the scheme, DBBL Bank Ltd. is providing loan:

1. to meet working capital
2. to purchase capital machinery and for expansion of business and
3. for purchasing household durably

The Scheme covers he following areas of options:

• Agriculture sector – seed or crop loan, Poultry and Fisheries, Fish processing, Plot , Fish storage and Marketing Project, with processing project etc.
• Small and Cottage Industry – Handicraft maker, Blacksmith, Fishing net weaver, handloom industry, Goldsmith, watch assembling project, mineral water plant etc.
• Service Industry: – Transportation, medical service provider, different type of shop owners, hotel and restaurant owners, vocational training center etc.
• Household durable and Consumer credit – Electric equipment, Electronics, Vehicles, Furniture, medication and Hospitalization, cookeries etc.

Non Performing Loan:

Loans are designated as nonperforming when they are placed on non accrual status or when the terms are substantially altered in a restructuring. Non accrual means that banks deduct all interest on the loans that was recorded but not actually collected. Banks have traditionally stopped acquiring interest when debt payments were more than 90 days past due. However, the interpretation of when loans qualified as past due varies widely. Many banks did not place loans on non accrual if they were brought under 90 days past due by the end of the reporting period. This permitted borrowers to make late partial payments and the banks to report all interest as accrued, even it was not collected. On occasion, banks would lend the borrower the funds that were used to make the late payment.

The impact of this practice on financial statements is twofold. First, nonperforming loans are understood on the balance sheet, so that credit risk is actually higher than it appears. Second, interest accrued but not collected increase net interest income, thus overstating NIM, ROA, and ROE. Volume of nonperforming loan of DBBL for the year 2004-2008 as bellow:

Table- Non performing loan                                         Tk in millon

Source:  Annual Report  2004-2008

FOREIGN EXCHANGE DEPARTMENT

INTRODUCTION

Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Dr. Paul Einzing defines “Foreign Exchange as the system of process of converting one national currency into another & of transferring money from one country to another”. The Foreign Exchange Regulation Act 1947 as adopted in Bangladesh defines Foreign Exchange as foreign currency including any investment draws, accepted, made or issued as per clause 13 of article 16 of Bangladesh Bank order 1972 & all deposits, credits & balances payable in any foreign currency, any drafts, travelers cheques, L/C & bill of exchange express or drawn in currency but payable in foreign currency.

According to Bangladesh Bank order 1972, FE means foreign currency & includes any instrument drawn, accepted made or issued under clause 13 of section 16 of the Bangladesh Bank order 1972, all deposits & credit & balance payable in any foreign currency, any drafts, travelers cheques, L/C & bill of exchange express or drawn in  Bangladeshi currency but payable in foreign currency.

All branches of a bank cannot practice the foreign Exchange. To practice the foreign Exchange it must be Authorized Dealer (AD). To become AD, the bank must show that the branch is capable & has sufficient manpower to practice FE business.

Foreign Trade

The foreign trade of a country refers to its imports & exports of merchandize from & to other countries under control of sale. No country in the world produces all the commodities it requires. On the contrary, a country may produce more of those commodities in the production which it has a greater or comparative advantage & May or may not produce smaller quantities of those in the production of which it has a greater or comparative disadvantage. The commodities which country can economically produce it exports, which those in it has greater disadvantage if imports. Foreign trade constitutes a sizable position of international transaction of a country.

International Commercial terms/ Foreign Exchange terminology

The Inco Terms were evolved by the International Chamber of Commerce to provide a set of International rules for the interpretation of the chief terms used in foreign trade contracts. Inco Terms were first published in 1936 & subsequently revised in 1953, 1967, 1976, 1980, 1990 & 2000 version defines 13 terms, providing & up-to-date set of rules broadly in line with the current practices of majority of businessmen engaged in International trade.

Rate of Exchange

The rate of exchange is the price of one currency in terms of another or in other words, the number of units of one currency which exchange for a given number of units of another currency. It varies continuously with every variation in the relationship between the world demand & supply of the currency concerned. Thus the exchange rate of a country is determined by the interaction of demand for the supply of the same.

The Rate of Exchange is guided in two ways:

1. Rate quoted in terms of a given number of units of foreign currency per one unit of home currency is known as “Currency Rate”. In case of currency rate buy high & sell low. It is known as indirect quotation.
2. Rate quoted in terms of a given of home currency per one unit of foreign currency is known as “Pence Rate”. In case of Pence Rate, buy low & sell high. It is known as direct quotation.

The basic rate of exchange of Bangladeshi Taka with US dollar is fixed periodically by Bangladesh Bank depending on REER & the rates of exchange of other major currencies with Bangladeshi Taka are fixed daily on the basis of New York/ Tokyo/ Hong Kong/ Singapore Exchange market.

The Exchange or Currency Position:

The currency position of DBBL includes the daily total sales & purchase, both spot & forward in a particular currency. That means the daily total sales & purchase; both spot & forward in a particular currency indicates the banker’s currencies position in the concerned currency. It is expressed in US $.

Fund or Cash Position:

The fund position or cash position of an exchange dealer is the actual balances in his overseas account in particular currency. In case of DBBL in a particular currency the dealer takes into consideration the actual amount of foreign currency that is to be received & to be paid out on the date for calculating the cash position.

Exchange Control:

In Bangladesh, the exchange control is administered under the provision of foreign exchange regulation act, 1947 as adopted in Bangladesh. Authorized dealers are guided by Guide Lines for foreign Exchange Transaction issued by Bangladesh Bank- 1996 Edition.

The main objectives of exchange control:

1. To conserve scarce foreign exchange & to ensure its best utilization.
2. Acquisition by the Government of all foreign currency.
3. Rationing of these holding for such purpose as the Govt. may consider essential in the interest of the country’s economy.

Authorized Dealer:

DBBL deals in foreign exchange when he is so authorized by license by the Bangladesh Bank under section 3 of the foreign exchange regulation act 1947, which are known as Authorized dealers.

Authorized Money Changer:

In DBBL, who are not Authorized dealers; those people are authorized to change the money or can do limited foreign exchange licensed by Bangladesh Bank Agency arrangement.

Agency Arrangement:

International agency arrangements are being maintained between the bank different countries for the purpose of the easy & early settlement of accounting procedures arising out of the bank (home & abroad) transactions. In DBBL, agency arrangement refers to an arrange for conducting banking transaction between an authorized dealer & a foreign bank branch. Each one is Foreign Correspondent of the other.

All branches of a bank cannot practice the Foreign Exchange. To practice the Foreign Exchange it must be the Authorized dealer (AD). To become AD, the bank must show that the branch is capable & has sufficient manpower to practice FE business.

Documents for Foreign Exchange Business:

• Letter of Credit (L/C)

Letter of Credit can be defined as a ‘credit contract’ whereby the buyer’s Bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. L/C is also known as documentary credit. A documentary credit may either be revocable or irrevocable

Summary of the Procedure of L/C Operation:

1. The buyer and the seller conclude a sales contract providing for payment by documentary credit.
2. The buyer instructs his Bank-the “issuing” Bank to issue a credit favor of the seller (beneficiary).
3. The issuing Bank asks another Banks, usually in the country of the seller, to advise or confirm the credit.
4. The advising or confirming Bank informs the seller that the credit has been issued.
5. As soon as the seller receives the credit and satisfied that he can meet its terms and conditions, he is in a position to load the goods and dispatch them.
6. The seller then sends the documents evidencing the shipment to the Bank where the credit is available (the nominated Bank). This may be the issuing Bank, or the confirming Bank, or a Bank named in the credit as the paying, a accepting or negotiating Bank.
7. The Bank checks the documents against the credit. If the documents meet the requirements of the credit, the Bank will pay, accept, or negotiate according to the terms of the credit.
8. The Bank, if other than the issuing Bank, sends the documents to the issuing Bank.
9. The issuing Bank checks the documents.

10. When the documents have been checked by the issuing Bank and found to meet the credit requirements they are released to the buyer upon payment of the amount due or upon other terms agreed between him and the issuing Bank.
11. The buyer the transport document to the carrier who will then proceed to deliver the goods.

Legal Framework

Foreign exchange business is a crucial and complex business all over the world. Fraud and forgery may arise in very sphere of this business. To overcome those mishapenings and to settle international disputes, a legal framework is a must. An apex body is doing these functions named International Chambers of Commerce (ICC). The publication made by the ICC is treated as compulsory law for each and every country. Among many publications no. 500 is related to L/C opening and such other purposes.

Import L/C

By opening a letter of credit on behalf of the customer (importer) Bank undertakes to make payment to an exporter subject to submission of documents drawn in strict compliance with letter of credit terms giving title to goods to the importer.

Following documents must be submitted by the buyer/importer at the time of opening a L/C:

1. Import Registration Certificate – IRC
2. Tax Identification Number – TIN
3. Membership Certificate from registered organization or trade association
4. Pro forma Invoice
5. LCA form and L/C application form duly filled in and signed by the importer
6. Insurance cover note with Bank clause along with premium paid receipt.

If the import L/C application is found to be order in all respect then mark the serial on the appropriate space in the L/C application.

International Department (ID) of DBBL Bank, Head Office grants any L/C proposal forwarded by the branch. ID of DBBL Bank gives sanction of L/C subject to the following conditions:

1. Proposed importer is a current account holder.
2. The items to be imported according to import policy.
3. Proposed importer is a good and reliable constituent and he is a man of commitment.
4. Excess cost of imported merchandise due to fluctuation of Foreign Trade rate must be beard by the importer.
5. L/C must be opened according to the specified invoice.
6. The constituent is not a defaulter of the Bank nor is the guarantor of any defaulter.

Having completed all the formalities discussed there, the Bank grants credit as required by the importer in favor of the exporter.

Preparation of L/C

All the terms and conditions as embodied in the L/C application of the imported are typed in the L/C pro forma in manifold.

Scrutiny of the typed L/C

They typed L/C is scrutinized as under:

1. Documents required to be clear mentioned
2. Separate re-imbursement instruction is clearly given
3. All other instruction have been incorporated
4. L/C number, date and amount in foreign currency has been mentioned on the L/C
5. The L/C has been prepared in accordance with Uniform Customs and Practices for Documentary Credit (UCPDC).

Then the particulars of L/C are recorded in the L/C opening register:

1. Date and L/C number
2. Name of the party
3. Amount in Tk. and foreign currency
4. Merchandise to be imported and country of origin
5. Name of advising bank
6. Expiry date
7. Percentage of margin and amount of margin
8. Amount of commission, postage charges, telex charges and foreign correspondence charge.

Disposal of L/C

L/C types in the printed form are disposed in the following manner.

1. First two copies to the advising Bank original for beneficiary and 2^nd copy for advising Bank
2. One copy Head Office
3. One is sent to the importer
4. One copy is retained as office copy

Then L/C is advised either by Airmail or by telex to the advising Bank.

After receiving the document the advising Banker may negotiate the document or may not (in case of negotiating) banker before negotiation to see that full sets of documents have been received and that they are in order and have been correctly drawn in accordance with the terms of the credit.

Export L/C

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, Bank may act as advising bank and negotiating for the exporter. As a negotiating Bank, it receives documents from the foreign importer and hand it over to the exporter. Sometimes it adds confirmation on the L/C on request from the opening Bank. By adding confirmation it assumes the responsibility to make payment to the exporter.

As negotiating Bank, it negotiates the bills and other shipping documents in favor of the exporter. That is, it collects proceed of the export-bill from the drawee and credits the exporter’s account for the same. Sometimes the bank purchases the bills at discount from the local exporter and waits till maturity of the bill. When the bill matures, Bank presents it to the drawee to encash.

In our country, export and import operation of Bank is very much related with one another because of use on Back to Back L/C. Most of the L/C opened is Back to Back L/C and maturity of payment for Back to Back L/C is set in such that it can be paid our of export proceeds. So export and import sections works as one unit. These two operations can hardly be separated from one another in the branch.

Back-to-Back L/C

As per existing provisions recognized export oriented units permitted to make import of raw materials and packing materials under the Back to Back L/C arrangement where import payments are made out of realized proceeds of exports of the manufacture’s products.

Back-to-Back L/C Condition

Security

1. Lien and physical possession of export L/C in favor of the Bank (affixing lien mark on it).
2. Imported items will be stored in a bonded warehouse under joint and effective control of Bank and customs authority after clearing through the approved C& F agent.

Other Conditions

1. Drawing to draft clause
2. Import of raw materials in proportion to the working capacity and convenience of the factory
3. Treatment of interest
4. Undertaking must be given by the party in case of any failure to export the goods
5. Time of opening L/C and negotiation within specified period
6. Back-to-Back L/C shall be opened only in the currency in which export L/C would be received to avoid loss due to exchange fluctuation.

 Inland L/C

Bank also finances export trade normally by opening and Inland Letter of Credit on behalf of the exporter, who has received on export letter of credit from overseas buyers. The suppliers are generally paid after negotiation of export documents submitted by the exporters. Documents for negotiation are:

• Bill of Exchange
• Delivery Chalan
• Commercial Invoice
• Country of Origin Certificate
• Packing list
• Transport document

Credit Facilities in L/C Operation

Bank provides some credit facilities to the importer and exporter during L/C operation. These facilities described below:

PAD

Since Bank pay to exporter on the basis of shipping documents, that’s why it is known as Payment Against Documents (PAD). After opening L/C, foreign exporter sends goods to the importer and a bill of exchange along with shipping documents to the L/C opening Bank. Bank hands over the shipping documents to the importer only after his recovery of the payment from the importer.

ECC

Export Cash Credit is given for processing of raw materials such as light, gas, wages, and rent etc. so that the exporter can manufacture the goods for export.

LIM

Since this loan is given on the imported goods, this is called Loan Against Imported Merchandise. Sometime or financial crisis, importer fails to pay the amount stipulated in bill or exchange to the opening Bank. In this case, he requests to the Bank to treat PAD as credit and hand over the shipping documents to him so that he can clear the imported goods from the port. Then Bank converts the PAD to regular credit and hand over the documents to the importer and takes the imported goods as security for the loan.

Foreign Bills Purchased

This loan is given to the exporter. Bank purchase it at discount. When local exporter gets a bill of exchange, he has to wait until the maturity of the bill for receiving payment. Sometimes he can’t wait until maturity and request the Bank to purchase it. If Bank decides to purchase it, then it makes payments to the exporter against the bill of exchange and upon maturity, and Banks present it to the drawee of the bill for encashment.

Findings:

While working at DBBL Bank ltd, Dhanmondi Branch, I have attained to a newer kind of experience. After the collection of data, I have got some findings. These findings are completely from my personal point of view. Those are given below:

• DBBL Bank Limited has already achieved a high growth rate accompanied by an impressive profit growth rate in 2005. The number of deposit and investment are also increasing rapidly.
• DBBL Bank has an interactive corporate culture. The working environment is very friendly, interactive and informal. And there are no hidden barriers or boundaries while communication between the superior and the subordinate. This corporate culture provides as a great motivation factor to the employees.
• DBBL Bank Limited has already established a favorable reputation in the banking industry of the country. It is one of the leading private sector commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector.
• They follow the traditional banking system in general banking department. The entire general banking procedure is not fully computerized.
• From the clients view introducer is one of the problems to open an account. It is general problem to all commercial bank.
• DBBL Bank uses manual system to verify specimen signature of clients it consumes a lot of time.
• Lack of update products is also a drawback of the general banking area of the DBBL Bank. The bank provides only some limited traditional services.
• They face troubles with those clients who have not any knowledge in banking transactions and banking rules.

DBBL Bank has own training Institution for its employees, so they don’t require to train them in other training Institutions.

They are not using Data Base Network in information technology Department. So they have to transfer data from branch to head office by using floppy disk. For example clearing cheque.

Bank has no office assistance that’s why officer of Bank transfer papers and documents from one desk to another, it consumes time of officer and also clients.

DBBL Bank has insufficiencies of Authorized Dealer Branch in respect of the total foreign exchange business. Bank has only six branches, which have AD licenses. As a result it total foreign exchange business is very small in respect of total market.

DBBL Bank’s numbers of customers are also very small in compared to other banks in the market. This is because of small number of branches.

The number of branches is not sufficient to cover the country most.

The bank failed to provide standard recruitment policies in lower level like Assistant Officer to Junior Officer. As a result the services of the bank face problems in resent   days.

Present Problems

• There are no party wise files.
• There are no file lists.
• There are no country wise beneficiary’s credit report files.
• Sanction letter is not kept in the concerned files.
• Inspection of godown is not done & we are depending on the godown keepers having cores of LIM liabilities.
• Regularization of documentation & other works are not done.
• It was that no letters were send to the parties who haven’t submitted the bill of entry.

• They follow the traditional banking system in general banking department. The entire general banking procedure is not fully computerized.
• From the clients view introducer is one of the problems to open an account. It is general problem to all commercial bank.
• DBBL Bank uses manual system to verify specimen signature of clients it consumes a lot of time.
• Lack of update products is also a drawback of the general banking area of the DBBL Bank. The bank provides only some limited traditional services.
• They face troubles with those clients who have not any knowledge in banking transactions and banking rules.
• DBBL Bank has own training Institution for its employees, so they don’t require to train them in other training Institutions.
• They are not using Data Base Network in information technology Department. So they have to transfer data from branch to head office by using floppy disk. For example clearing cheque.
• Bank has no office assistance that’s why officer of Bank transfer papers and documents from one desk to another, it consumes time of officer and also clients.
• DBBL Bank has insufficiencies of Authorized Dealer Branch in respect of the total foreign exchange business. Bank has only 17 branches, which have AD licenses. As a result it total foreign exchange business is very small in respect of total market.
• DBBL Bank’s numbers of customers are also very small in compared to other banks in the market. This is because of small number of branches.
• The number of branches is not sufficient to cover the country most.
• The bank failed to provide standard recruitment policies in lower level like Assistant Officer to Junior Officer. As a result the services of the bank face problems in resent

Recommendations

For the probable solutions of the identified problems ensure better progress to DBBL Bank in future, some necessary steps are recommended bellow on the basis of collected data, observation, expert staffs opinion and my knowledge and judgment.

If the entire banking system is fully online on computerized system then they satisfy the customer by providing fast service with minimum service charge.

DBBL Bank should ensure networking system with its branches then it could easily transfer data within short time.

• DBBL Bank should give more attention to advertisement for creating more attraction among its customers, which is helpful to collect more deposits and increase investments scope. That’s why bank should give emphasis on advertisement in various media like TV, News Paper, Internet and Billboard.

The entire department should be well informed regarding their goals and objectives. It is essential to execute company objective into individual target.

A philosophy of working for the customer instead of working for boss must be introduced.

Job description should be clarified and proper training facilities should ensure to improve the performance of bottom line management.

It was observed that the officers of DBBL Bank have to spend more time in preparing vouchers; this can be avoided by the automation.

• DBBL Bank should develop online banking system to compete with other commercial banks.

The bank has the provision of internship but there is no organized program for internship.

Credit Card and Automated Teller Machine (ATM) should be introduced as soon as possible because of present market demand of the customer and the educated customer now wants technology based banking.

Attractive incentives packages for the exporters will help to increase the export and accordingly it will diminish the balance of payment gap of DBBL bank.

• DBBL Bank is to be concentrating in always monitoring the performances of its competitors in the field of foreign trade.

Bank can provide foreign market reports that will enable the exporter to evaluate the demand for their products in foreign countries.

Due to lack of proper knowledge about the operation procedure and services provide to the customers by SWIFT certain customers are facing problem as they have to wait for certain time to get service. And sometimes personnel are not being able to operate SWIFT without any confutation. They are not fully independent handing SWIFT. Official training is the solution of this problem.

Bangladesh Bank should take initiative to form a high-powered committee consisting scholars and experts from different disciplines and professions such as academicians, economists bankers, lawyers etc. to design an appropriate and useful legal framework for Islami Shariah Based Banking. This type of committee may be helpful for the necessary correction of government policies in Islami Banking.

DBBL Bank will have to encourage entrepreneurs, businessmen, rich people and government to come forward to established ancillary organizations.

Branches of DBBL Bank are not sufficient as per demand of the people. So DBBL Bank should setup new branches

• They should also focus on the marketing aspects by informing the customers about its products and offering services charges.
• DBBL Bank Ltd. Should focuses on their promotional activities on its marketable products.

Conclusion

The profit destroying intra industry rivalry in the banking industry makes a bank’s operation challenging to squeeze out any abnormal profit. In such situation, with an enormous financial strengths and brand image, Dutch-Bangla Bank Limited is serving the local people of Bangladesh by offering diversified banking services. Doing outstanding performance and being the dominant among the industry in this cut throat competitive situation depends not only on the internal strengths but also on the external opportunities. Considering this, efficient, timely and updated corporate strategy makes a way out for an organization to reach the desired position. Dutch-Bangla Bank Limited is such a multinational bank which was able to grow its size in banking industry of Bangladesh through consistent performance. Though Dutch-Bangla Bank Limited has established image as one of the best service provider for its potential customers; yet Dutch-Bangla Bank Limited is not the market leader. The consistent performance of the bank over the last few years is the evidence of the strengths of the bank, efficiency of management team, and uphill struggle of employees. Despite the existence of deficiencies in some areas, the overall performance of Dutch-Bangla Limited was outstanding among the banking industry in Bangladesh. The bank has to overcome the shortcomings in the near future and offer new innovative services in order to retain its position as a leader amongst banks year after year.