Report on Foreign Exchange Division of Standard Bank

Main objective of this report is to analysis Foreign Exchange Division of Standard Bank Limited. Other objectives are identify the documents used in foreign exchange system and evaluate export, Import and foreign remittance of the Standard Bank. Finally identify problems regarding foreign exchange operation and suggest in order to improve the foreign exchange operation of the Standard Bank.

Introduction

Banking sector is expanding its hand in different financial events every day. At the same time the banking process is becoming faster and easier. As the demand for the better service increases day by day, banks are coming up with different innovative ideas and products. In order to survive in the competitive field of the banking sector, all the banking organizations are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure.

The word bank has been derived from the Latin word Bancs or from Basque, which means a bench in English. The early bankers transacted their business at a bench in a market place. Bank is a financial institution which deals in money, receive deposit from customers, honor customers’ drawings against such deposits on demand, collect Cheques for customers and lend or invest deposits to individuals, companies or other organizations. So, bank is an intermediary institution that makes relationship between the owner of surplus savings and the investor of deficit capital. In this process, banks earn profit by receiving interest from the borrowers who want to take short-term or long-term loans and making relatively lower interest payment to the depositors for providing their funds for use by the bank.

Objective of the study:

This report has been prepared for the following objectives:

• To identify the documents used in foreign exchange system in SBL.
• To evaluate export, Import, & foreign remittance of the selected Bank.
• To identify problems regarding foreign exchange operation of the sample Bank.
• To suggest in order to improve the foreign exchange operation of the given Bank.

Methodology of the study:

Both primary and secondary data have been used in this study. Primary data have been collected with the help of a questionnaire method through field survey and ten bankers & thirty customers have been selected in this report

Primary Sources:

The primary data have been collected from the following sources: Face to face conversation with the employees and the customers.

Secondary Sources:

The secondary data have been collected from the annual report of Standard Bank Limited & different manuals of sample Bank. The collected data has been analyzed by using different tables & graphs.

The secondary data have been collected from the following sources:

• Annual report of Standard Bank Ltd.
• Different manuals of Standard Bank Ltd
• Web site of Standard Bank

Background of SBL:

Standard Bank Limited (SBL) was incorporated as a Public Limited Company on May 11, 1999 under the Companies Act, 1994 and the Bank achieved satisfactory progress from its commercial operations on June 03, 1999. SBL has introduced several new products on credit and deposit schemes. It also goes for Corporate and Retail Banking etc. The Bank also participated in fund Syndication with other Banks. Through all these myriad activities SBL has created a positive impact in the Market.

Features of SBL:

• Standard Bank builds up strong pillar of capital, promote trade, commerce and industry; discover strategies for achieving systematic growth.
• It is the pioneer in introducing and launching different customer friendly deposit Schemes to tap the savings of the people for channeling the same to the productive sectors of the economy.
• It has created congenial atmosphere so that the client becomes interested to deal with the Standard bank limited.
• For uplifting the standard of living of the limited income group of the population, the Bank has introduced Retail Credit Scheme by providing financial assistance in the form of loan to the consumers for procuring household durables.
• The Bank is committed to maintain continuous research and development to keep pace with modern banking.
• Recently the bank starts internet banking in order to provide prompt and efficient services to the customers.
• The bank has introduced customer relations management system to assess the needs of various customers and resolve any problem on the spot.

Objectives of Standard Bank Limited  

• To be a dynamic leader in the financial market in innovating new products as to the needs of the society.
• To earn positive economic value addition (EVA) each year to come.
• To top the list in respect of cost efficiency of all the commercial Banks.
• To become one of the best financial institutions in Bangladesh economy participating in the most significant segments of business market that we serve.

The Major Products & Service of SBL:

Products:

• Opening of different types of Accounts
• Issuing checkbook and delivering Deposit receipt book

There are several kinds of Account are held:

Savings Account:

When a person will open this A/C, the important things are necessary.

1. Introduction of Depositor / A/C’s holder
2. Photocopy of passport/ Chairman Certificate/ Attested of First Class Officer/ Voter ID Card.

3. Two copies of photographs.
4. KYC {Know Your Customer) form & TP (Transaction Profile)

SBL Regular Deposit Programme ( SRDP )

If any monthly installment remains unpaid for 5 (five) consecutive months, the account will be closed automatically and the account will be settled as detailed below:-

If failure to pay monthly installment on due dates he/she will pay penalty of Tk. 20/-(Twenty) next subsequent installment.

Monthly Installment, Tenure and Maturity Value will be as per following Schedule:-

Consumer Credit Scheme :

Lending rate has been shown in the following table where fixed rate (Bangladesh bank instructed rate) and mid-rate are given. Bank may re-fix ±1.50 over the mid rate considering the risk involvement. These rates are effective from January 01, 2010.

1.00% additional interest rate will be charged for default in payment/ adjustment. All other charges, commissions and fees shall remain unchanged.

Current Individual Account:

1. Requirement same as savings Account
2. Proprietorship /Firm Account
3. Common Individual of S/A
4. Trade License with validity
5. Seal of the Firm.

Partnership Account:

1. Common Individual of S/A
2. Trade License with validity (more than two owners)
3. Partnership Deed with Registered
4. TK.l000 stamp
5. Partnership letter (Bank will gives)
6. Firm’s Seal

Private (LTD)

1. Common Individual of S/A
2. Trade license
3. Memorandum or articles of association
4. Certificate in Corporation
5. Regulation of full board with signature
6. List of Directors
7. Organizations seal
8. Certificate of commencement
9. STD (Short term Deposits)
10. Requirement same as individual A/C
11. STD (Public & Private)
12. Requirement same as Public and private A/C

Club/ Society

1. By Laws
2. Regulation
3. Common Individual
4. Seal of club/society
5. Registration number

Trustee

1. Common as club/society
2. Trustee Deed

NGO

1. Common as club/society
2. Registration of NGO Bureau

Local Remittance:

Transmission/transfer of money from one place to another, Local remittance represents remittance that takes place within the territory of a country.

Banks have a wide network of Branches all over the country and offer various types of remittance facilities to the public/customer/client etc.

Virtually there are main works of remittance department that are as under: —

1. Transfer of funds through Demand Draft (DD), Telegraphic Transfer (TT), and Money Transfer (MT)

2. Issuance of Pay Order (P0), pay slips (PS), Security Deposit (SD), Bearing Certificate Deposit (BCD) etc.

3. Local Bills for Collection (LBC), Outward Bills Collection (OBC)
4. Collections of cheques, Drafts and presenting them to clearing house
5. Maintenance of FDR

 Foreign Remittance:

These activities are:

1. Activities related to L/C opening
2. Receiving documents from Exporters Bank
3. Perform all activities for retirement of document for collecting the importing Goods.

The main functions of the Exports are:

1. Getting the L/C Documents from Foreign importers Bank
2. Gives this L/C to Exporter
3. Advising the L/C
4. Opening the Bank-to-Bank L/C
5. Collection and distribution of the payment of Bank to Bank
6. When after shipment of goods the exporter submits all documents as per as L/C,

This department scrutinizes those documents and sent to Importer Bank.

Foreign Exchange

• Deals with inward foreign Remittance.
• Dealing of Traveler Checks.
• Transfer money and currency through Western Union.
• Transfer fund through draft, Telegraphic Transfer, Mail Transfer etc.
• Foreign Bills collection.
• Foreign Bills purchase and discount.

WESTERN UNION                       

Standard Bank is the pioneer to launch Western Union in Bangladesh  and now it is one of the most popular way to transfer money.

It is used for foreign dealings.

ID (To Receive Money through Western Union).

• Passport (within the validity period)
• Driving License
• Ration Card
• Voters ID
• Pan Card
• Refugee Card
• Student JD (Nationalized University and college)
• Bank Account
• Credit Card
• Army Card
• Post office loyalty card, Govt., employee ID card, local (W/C) ID card. All ID are valid only if they have a photograph and the ID verifies the person’s signature

Services Of SBL:

Exchange House

SBL Exchange Houses at various locations (USA, UK, etc) is enabling Non Resident Bangladeshis to send their remittances at home in a quickest and safest way.

Islamic Banking

Standard Bank has introduced Islamic banking to meet the growing needs of the customers for Shariah-based banking. It offers a wide range of financial services that covers the entire spectrum of banking operations. Islamic Banking Client can also access Net Banking through this site.

Visa Credit Card

Credit Cards facilitate your lifestyle in all facets like shopping, dining, accommodation, traveling, hospitalization, purchasing furniture & equipment for a interest free time, gift cards and so on that would be determined in needs of time.

ATM Service

Standard Bank Limited has modern banking facility. Withdraw cash 24 hours a day. 7 days a week. You can get a mini-statement of your account whatever required. For the safety reason our ATM

SME Banking

From the perspective of SME banking, there is no doubt that the world is getting flatter every day. Standard Bank launched SME banking to deliver the highest standard of service to its clientele.

Corporate Banking

Bangladesh economy is changing every day. Changes are more and more visible and sometimes it seems they are happening overnight. Now days the economical challenges require flexibility and adjustment capacity. To face the challenges and business opportunities Standard Bank delivers cash Management and Lending Solutions match for specific business and requests.

Company Environment Analysis:

Bank is a financial Institution, which deals with money.

In recent years there are dramatic changes in the national banking sector. Banks are being called upon to deliver prompt and efficient services through state-of-the art technology in a competitive and demanding market. At the same time, banks are expected to play an increased role to meet the national needs of economic growth and productive employment. By identifying and promoting schemes that will lead to greater employment and mobilization of resources, the banking sector will not only contribute to a more dynamic economy but also enhance the quality of the lives of the people of the country. International banking too has transformed itself in the last decade. Bands have had to operate in a global market place where trade barriers have been firstly disappearing.

A truly international bank must now finance foreign trade, handle foreign exchange in branch banking as well as involved in activities such as correspondent banking, cross border lending, money market investments, bond trading, project financing, leasing, issuing stand-by letter of credit, and offering international cash management services etc. The banking sector thus requires bank to be much more dynamic, global and sophisticated than ever before. Very few banks have taken up the challenge and attempted to modernize and offer a comprehensive package of services.

Considering the above situation and a demand for a bank fully equipped handle the national and international requirements of the private sector, Standard Bank Ltd. has emerged as the nation’s progressive bank which is innovative modern, and international in its outlook. It is committed to take care of all banking requirements through state.

Internal Environment Analysis:

The management of the Bank is vested with the Board of Directors comprising of 21 members including the managing director who are reputed professional business personalities and leading industrialists of the country. Commercial banking, with its great reliance on public confidence and influence on the nation’s economy needs high quality management and organization structure. The organization structure is shown below. The board of directors being at the highest level of organizational structure plays an important role in the policy formation. The board of directors is not directly concerned with the day-to-day operation of the bank. It has delegated authority to its management committee. The position of the chairman of the Board carries with it a great deal of dignity and respects in banking circles. The chairman keeps the Board of Directors informed of the progress of the bank and in turn implements the policies established. The Managing Director of is the Chief Executive of the Bank. He is responsible for administering the business affairs of the bank. He is also concerned with planning and its implementation. He represents the bank to the meeting and responds to the various inquiries of the members of the board.

The growth and progress of a band can be realized only through combined and coordinated efforts of its members who work there. Keeping these in mind, recruited very skilled and qualified people in the bank having banking expertise and experience has also been recruiting probationary officers having good academic background. As on December 31, 2007 the total number of employees of the bank stood at 2008.

Audit and Risk Management Division:                                                                             

The main functions of this division is to provide legal assistance to the branches and implement recovery strategy for stuck-up loan and to ensure strict adherence of rules and policies by all concerned of the bank through routine and surprise inspection and audit. The functions of this division area as follows:

• Monitor the individual cases with respect to their securities, value of securities, and finally review the possibility of recovery of bank’s stuck-up dues. Implement rescheduling process of stuck-up classified loan to the branches for obtaining repayment schedule through strong persuasion and serve final notice etc., as the condition required.
• Time to time follow-up stuck-up advances of branches and keep the branches under constant pressure
• Appointment of branch lawyers from a panel of lawyer kept in the division.
• Personal contact is made at the head office level, especially with the big borrowers and arrangements are for recovery.
• Incase of failure of moral persuasion, concerned branches are advised to serve legal notice to the defaulters.
• Time to time follow up of the cases and keep the top management informed.
• Maintain statistics of recovery of classified advances.
• Inspect all branches operation audits at least once in a year.
• Carry out surprise audits as felt necessary.
• Investigate suspicious or irregular matters being directed by higher management.
• Also conduct such inquiry being requested by affected branch-in-charges.
• Receive non-performing advances classification recommendation form branches and approve disposal.
• Prepare classified advance report; recommend bank’s strategy to deal with that for management and Board of Directors.

Card Division:                  

They are now in this business for last 9 months the response to which has been found quite satisfactory. Master-Card International, is to allow cash drawings facility from its branches against Master-Card cards, whether issued by or any other bank/institutions in the world.

Initially such cash drawing arrangements can be made in 14 branches of the bank. For cash drawing, branches will have to take prior authorization from Head Office Credit Card division over phone and after and cash drawing, a debit advice along with the sales slip to be sent to HO Credit Card division.

The customer can draw from other bank (branches) if he has any account for that, in that case the Head Office will issue a Debit advice for that branch. Any individual, who is an account holder of for at least six months, is between 21 and 70 years of age. Has a regular gross monthly income of TL. 10,000 above after tax are eligible for a Credit Card. A person can use his/her Credit Card at over 500 retail and service outlets around the country. Just look for the “VISA/Master Card” sign —it the outlets and enjoy the benefits of being a Credit Cardholder.

With this service they have newly started the service of DEBIT CARD.

Human Resources Division

The growth and progress of a Bank can be released only through the combined and coordinated efforts of its members who work there. Keeping these in mind, SBL recruited very skilled and qualified people in the bank having expertise and experience. SBL have also been recruiting probationary officers having good academic background. SBL have also decided to recruit probationary officers every year through competitive examination and create s strong management cadre for the future. The Bank has offered a new pay scale to the employees bringing significant improvement in salary structure. In line with salary raise SBL have also revised house building loan scheme for the employees with higher ceiling and SBL have allocated more fund. Leave Fare Assistance is being introduced in the Bank for the first time to inspire the Executives.

SBL consider promotion cases for the deserving and eligible employees every year and accordingly has promoted a total of 235 employees in different categories during the year.

Incentive Bonus equivalent to 15 days basic salary has been given to all eligible Executives, Officers and Staffs for the appreciable loan collection of 1996. SBL have also decided to bring the outstanding performance. Those who have achieved their budgeted targets in different areas of business operations were rewarded with cash prize in the form of prize bonds, crest and appreciation letter. It is to be hoped that all these measures will raise the spirit of the employees and they will feel encouraged to contribute more towards the growth of business for the Bank.

Investment Division

The major functions of this division are as follows:

a) Capital market operations.

b) Lease.

c) Hire-purchase.

d) Merchant-Banking etc.

Foreign Exchange Division                                                                                    

It is an essential part of the Standard Bank. Most of the private bank has their separate branch which is known as Foreign Exchange Branch and they will only deal with foreign exchange related work. Although Standard Bank doesn’t have this option but they have given much priority to this division. This division performs several activities which are given below:

• Provide L/C facilities.
• Monitoring exchange rate of different currencies.
• Facilitates the exchange rate to other branches.
• Managing good relation with foreign correspondent.
• Increase foreign correspondent.
• Provide endorsement facilities.
• Provide travelers Cheque facilities.
• Buy and sell foreign exchange.
• Provide transfer facilities.

Problems of the Standard Bank Limited

Following various problems is including in the SBL:

Political disturbances:

It is not favorable for Bank Business in Bangladesh. It is the main problem of SBL. It is also a problem of all Banking system in Bangladesh

Competitive Banking Market:

Different kinds of commercial Bank are serving in our commercial Banking Market. Therefore, no single Bank is allowed or capable to establish personal interest especially due to heavy competitive market.

Company representative effect:

There are so many representatives working in the market to collect the sales price directly from the customer of each product daily. So merchant group, Businessman₁ Traders, Agency, Wholesalers and high Depositor are not capable to Deposit the money in the Bank. Due to this Deposit system, they hamper it.

High rate of Government security:

Practically, the Government security likes Bond, Security, Debenture; Savings certificate etc. gives high rate of interest than commercial Bank. So, all the investors are invested to utilize their idle fund to purchase the Government security due to higher rate of interest.

Credit Sales:

Now a day, Businessperson is bound for credit sales to increase their sales in the competitive market. For this reason Business organization need less working capital and Banking companies are loosing their opportunities to invest in Business organization.

Lack of modem tools and techniques:

SBL performing activities by using backdated tools and techniques. It is fully far from information technology. Though SBL enough strength to play proactive role in every aspect, it play reactive role.

Lack of proper training:

SBL should be arranging adequate training. Though SBL has its own training center, it is not adequate for its employees. Because, it is not well furnished to with this modem world.

Lack of Marketing Activities:

SBL does not promote itself for catering its services to the public or the Business organization

Lack of favorable market image:

SBL has a higher book value per share but market value per share is very low corresponding to its book value.

Recommendations:

All the services offered by the bank are similar and prone to imitation by its competitors. Long established services may cease to satisfy fully the changing needs of the customers; such product may become increasingly uncompetitive, unprofitable and even unnecessary. When all the banking institutions are offering similar services, SBL can offer differentiated service. A significant part of the marketing effort must be devoted to the monitoring of existing services, and where such deterioration is found, a decision must be taken on how to remedy the situation. In essence there are two alternatives. Firstly, to add new features to services. The product may be updated and renovated so as to bring it bring in line with customer requirements. The following may be considered:

a) Payment of customer’s monthly bill

b) Bills collection agreement

c) Tele-Banking

d) Mobile Banking

e) On-line Banking

Secondly, to maintain existing services. Current services can be maintained despite its fault or unpredictability and without alteration, either because the service is continuing to make a profit, however slight, or because it is considered an important component of the company’s image, which cannot be dispended with. Such services may include Deposit Pension Scheme (DPS) Marriage Deposit Scheme (MDS), Daft coequal and so forth.

Customers of Standard Bank who come from largely middle class income-groups are likely to be very price sensitive. SBL can offer services, which have less/no service charge.

Service advertising should emphasize tangible cues that will help the customers. SBL may consider using advertising to promote principally the name of organization and keep it in the forefront of consumer’s consciousness. SBL may also pursue advertising strategy aimed at raising the general level of awareness of the range of services available without attempting to give details of any particular item. SBL can advertise its specific services either to promote and establish new products or to maintain the success of existing ones. SBL should put its advertising effort to arouse the need in respect of a particular service. SBL may also focus on one attribute of the product, which is not emphasized in the campaigns of competitors.

SBL must continually monitor its branch networks to ensure that they reflect demographic and economic changes. Areas develop and decline or change their nature, and SBL must ensure that its branches reflect these developments.

They are dealing with huge number of accounts customers of Standard bank are losing their confidence day-by-day. Because they are treating their customer with poor service, lack of profitable schemes, old banks environment and improper management. SBL is not keeping pace with the changes, which have taken place in the last few years in private banking sector. SBL’s import business has fallen in considerably. They have proper manpower but they are not utilizing it. Its advance policy is also faulty. Top management is very much reluctant to take corrective action in this regard.

Bank should go for modernization and they should increase their collaboration with foreign and domestic banks. Export and import facilities should be given due consideration. Renovation of the old branches is of top priority if SBL is to compete with the other private banks doing business in the market.

As the SBL realized a negative interest spread in 1999 and its average percentage of interest income from loan and advances had been low consistently over the year 1999 to 2001, more emphasis should be placed to increase the interest income from loans and advances. In doing so the SBL should utilize its funds properly.

Interest expenses on Deposits of SBL may be tried to keep low with due regard to balances Deposit mix.

The SBL should introduce on-line facilities so that the SBL can know its present resources not past month or past week’s resources. By this way SBL can use its funds properly.

It should maintain a separate cost accounting cell at the head office of this Bank furnished by professional cost accounts for implementation of appropriate costing system.

The research cell of this Bank should be strengthening with the efficient manpower by studying the feasibility of introduction of new products, analysis of manpower productivity and similar other research works.

In order to sustain and remain profitable, this Bank should identity and reinvests in productive sector and terminates unproductive operations/divisions.

SBL should establish investment priorities and develop corporate Budgets that steer resources into those internal activities critical to strategic success. It should be involved in channeling resources into areas where earning potentials are higher and away from areas where they are lower.

SBL should initiate responses to change under way in the industry, the economy at large, the regulatory and political arena and other relevant areas.

SBL should observe competitors closely to analyze any new action taken by them and react competitively to that action. It can be accomplished by the following Ways:

• SBL can get information about a certain competitor’s Business policies by recruiting that company’s employees.
• It can get information from people who do Business with rivals.
• It can get information about other Banks from published materials and published document.
• SBL should reengineer its core Business process in order to eliminate duplicate
• Work and reduce cost.
• SBL should enhance its market exposure and create a favorable image because its market value per share is very low than its Book value.

At present people does not deprived of facilities of modern world due to its sum hindrance. Every better have its own negative aspects. Think about transportation facilities that makers the world so advanced. Nobody can think to stop it or avoid it. It is the part of our life. So everybody thinks to reduce its negative aspects rather than avoid or stop it.

Similarly now a day in our Banking sectors exports and imports facilities are necessary elements. In banking sectors people keeps their excess money for various kinds of necessary works. From it they will get interest/profit. Although for our socio-cultural environment, it has some problems government and other related sectors have to appreciate Banking sectors by providing favorable environments and take steps to prevent and protect this problem solving of our country. If proper steps are taken in this regard we think it will be a highly prospective edition of the Banking sectors of Bangladesh.

On the other hand customers are needed to their necessary goods to export or import that will be essential for Business sectors, then they comes Bank to transaction their goods from Bank to Bank (Other Countries). Bank suggests their customers to open L/C against their necessary documents that will be valid and that will be related with Business. As for any security will be taken Bank.

In our country, now it is the golden period of banking sectors. So, there is a greater suitable place to keep customer’s money and dealings their transactions for their necessary works. All new entrance and existing documents, Bank always keep in mind this thing because it will be a highly competitive area.

Assessment of documents used in foreign exchange of SBL

Export:

It is an essential part of the Standard Bank. Most of the private bank has their separate branch which is known as Foreign Exchange Branch and they will only deal with foreign exchange related work. Although Standard Bank doesn’t have this option but they have given much priority to this division. This division performs several activities which are given below:

• Provide L/C facilities.
• Monitoring exchange rate of different currencies.
• Facilitates the exchange rate to other branches.
• Managing good relation with foreign correspondent.
• Increase foreign correspondent.
• Provide endorsement facilities.
• Provide travelers Cheque facilities.
• Buy and sell foreign exchange.
• Provide transfer facilities.
• Give the Master Card facilities.

Documentary Letter of Credit-Concepts & Types:

Definition of L/C:

Documentary Letter of credit is a conditional Bank undertaking of payment. For more illustration, Letter of credit is a conditional undertaking given by a Bank (Issuing Bank) at the request of a customer (applicant) to pay a seller (Beneficiary) against stipulated documents provided all other terms and conditions of the credit is complied with.

Types of Documentary Letter of Credit:

There are various types of documentary Letter of Credit:

• Revolving L/C
• Irrevocable L/C
• Confirmed Irrevocable L/C
• Back to Back L/C
• Transferable L/C
• Red Clause L/C
• Green Clause L/C
• Stand by L/C
• Performance L/C

There are various types of documentary letter of credit.
1. Revocable Credit:

This type of credit can be revoked or cancel at any time without the consent of, or notice of the beneficiary. As per Article 8 (a) of UCPDC 500 “A revocable credit may be amended or cancelled by the Issuing Bank at any moment and without prior notice to the Beneficiary”.

2. Irrevocable Credit:

 The Irrevocable Credit is a commonly used type of documentary credit. The Credit which cannot be revoked, varied or changed/amended without the consent of all parties – buyer (Applicant), seller (Beneficiary), Issuing Bank and Confirming Bank (in case of confirmed LC).

3. Confirmed Irrevocable Credit:

It is a credit of issuing Bank, which is opened at the request of buyer/importer upon a seller/exporter abroad through an advising Bank with a request to add confirmation. Advising Bank, the agent/correspondent of issuing Bank add their confirmation under credit line arrangement already existing between issuing Bank and advising Bank, i.e. in addition to the commitment of the issuing Bank the advising Bank makes its own, independent payment commitment when it add its confirmation. (Article 9 b, UCPDC 500).

4. Revolving Credit:

A Revolving Credit is one where, under the terms and conditions thereof, the amount of the Credit is renewed or reinstated without specific amendment to the Credit being needed. Revolving Credit may be revocable or irrevocable. It can revolve in relation to time or value. But credit that revolves in relation to value is not in common use.

5. Back to Back Credit:

One credit backs another. It may so happen that the beneficiary/seller of an L/C is unable to supply the goods direct as specified in the Credit as a result of which he needs to purchase the same and make payment to another supplier by opening a second Letter of Credit. In this case, the second Credit called a “Back to Back Credit”. These concepts involve opening of second Credit on the strength of first Credit i.e., mother L/C opened by foreign importers.

6. Transferable Credit:

A transferable Credit is one, which can be transferred by the original Beneficiary to one or more parties. In transferable Credit, the original beneficiary becomes the middleman and transferee becomes the actual supplier of the goods. It is normally used when the first beneficiary does not supply the merchandise himself, but is a middleman and thus wishes to transfer part, or all, of his rights and obligations to the actual supplier(s) as second beneficiary(s). This type of Credit can only be transferred once, i.e., the second beneficiary(s) cannot transfer to a third beneficiary. (Article 48, UCPDC 500).

7. Red Clause Credit:

A red clause Credit is a credit with a special clause incorporated into it that authorizes the advising Bank or confirming Bank to make advances to the beneficiary before presentation of documents. The clause is incorporated at the specific request of the applicant, and the wording is dependent upon his requirements. It is so called because the clause was originally written in red ink to draw attention to the unique nature of this credit. It specifies the amount of the advance that is authorized, in some instances it may be for the full amount of the credit.

8. Green Clause Credit:

A Green Clause Credit is a credit with a special clause incorporated into it that which not only authorizes the advising Bank to grant pre-shipment advances but also storage cost for storing the goods prior to shipment. It is useful in situations where shipping space is not ready available, i.e., some African countries. It is so called because the clause was originally written in green ink to draw attention to the unique nature of this Credit.

Different Banks of a Documentary Credit:

1. Issuing Bank:

The Bank, which issues the Letter of Credit, is known as Issuing Bank.

2. Advising Bank:

The L/C issuing Bank sends L/C to its correspondent Bank in the Beneficiary’s country with request to advise the same to the Beneficiary after authentication of the Credit.

3. Negotiating Bank:

The correspondent Bank which negotiates the documents and pay the document value to the Beneficiary provided that all credit terms are fully complied with.

4. Reimbursing Bank:

As per instruction of L/C issuing Bank, the correspondent Bank, which debits the Nostro account of L/C issuing Bank and make payment to negotiating Bank or any other Bank.

5. Confirming Bank:

The Correspondent Bank, which confirms the L/C of the issuing Bank and advises the same to beneficiary after adding its confirmation

Operational Exchange Rate:

Exchange rate:

This is the rate at which two national currencies are exchanged. The twin forces of market demand and supply of foreign currency determine the exchange rate. The demand for foreign exchange arises primarily in the course of importing goods and services from abroad and making foreign investments and loans. The supply of foreign exchanges arises in the course of exporting goods and services and receiving foreign investments and loans.

Selling and Buying Rates: 

A foreign exchange transaction is either a sale or purchase transaction. That means a transaction could be either a sale transaction in which case conversion of domestic currency into foreign currency takes place, or purchase transaction in which case conversion of foreign currency into domestic currency takes place. The Bank would, therefore, quote two different rates of exchange:

Selling rate i.e., a rate of exchange at which it would put through a Sale transaction, and

Buying rate i.e., a rate of exchange at which it would put through a purchase transaction.

Export Business:

Literally, by the export we mean out earring of anything from one country to another. Export as sending of visible things outside the country for sale. Export trade plays a vital role in the development process of an economy with the export earning we met out import.

The total export business handled by SBL amounted to the TK 24795.65 million as of December 31, 2010. Export items handled by the Bank in clouded jute goods, readymade garments, handicraft, shrimps etc.

Export of frozen foods or mainly shrimps has developed in recent years as an important export activity in Bangladesh. The sector obviously has a promise. It was the third largest foreign currency earner for the country in 2001-2002 fiscal years but earning in that year was below that of the previous year. This pointed to the urgency of tanking steps to ensure steady higher earning from the sector. The country’s highest foreign currency earner, the Ready-Made Garments (RMG) industry, faced a similar situation of enforcing labor standards by getting rids of child workers. Timely steps in this direction saved the RMG sector from serious adverse experiences. In the same manner, producers and exporters in the frozen food, Leather industry sector need to understand of importers and work sincerely to fulfill them as a way of ensuring the viability of their business.

A rich new vein of export earnings for the country can open up at a time when there exists much eagerness for understandable reasons to boost the foreign currency reserve. This is possible through the development of an export-oriented silk industry. Bangladesh has been on the world map as a silk producing country for a long time. It’s production of natural silk industry in order part of the Indian subcontinent. But India is among the top five countries of the world in respect of silk production whereas Bangladesh is a very tiny player in the world silk industry, not with standing the fact that it possesses hospitable natural conditions for the establishment of a large silk industry with a strong export- oriented component.

Legal Requirements:

Although payment aspect of exports in Bangladesh Bank’s concern, physical aspect is controlled by the Export Policy Order (EPO) announced by the Ministry of Commerce. Bangladesh Bank has set out elaborate procedure and laid down detailed rules and regulations concerning exports and export payments. All exports, to which the requirement of declaration applies, must be declared on the Exp. form. The branch should before certifying any export form, consider and take notices of the following:

i) The intended exporter shall have valid export Registration Certificate (ERC).

ii) Payment for goods exported from Bangladesh should be received though the branch in freely convertible currency or in Taka forms a non-resident Taka account of a branch or a Correspondent abroad.

iii) Commission, brokerage and other trade charges are admissible only up to a maximum of 5% of the value of goods. The charges beyond 5% may be admissible subject to prior approval of Bangladesh Bank.

iv) In order to avoid any loss of foreign exchange to the country, the branch should see that

• Arrangements have been made for realization of export proceeds within prescribed period of 4 (four) months.
• Arrangements have been made for receipt of little to goods like Bill of lading, Airway Bill, etc. by the branch on shipment of goods.
• The EXP form is signed either by the exporter or one holding valid legal power of attorney form exporter and the terms of the power of attorney are such that both the exporter and the attorney be held responsible jointly and severally for realization of export proceeds.
• Bonfires of the buyers/ consignees abroad and their credentials.

v) The branch and its officials certifying the export forms as well as exporter render themselves liable to punitive action under the FER Act for delay in repatriation or non-realization of export proceeds.

vi) In respect of export of goods by land route or by sea, the Bill of lading, Railway Receipt and documents of title to cargo should be drawn only to the order of Pubali Bank limited.

vii) In respect of export of goods by air, the Airway Bill and other document of title to cargo should be drawn to the order of a Bank in the country of import nominated by the branch.

Opening of Back-to-Back L/C:

The garment industry in Bangladesh is allowed to import raw materials/fabrics and accessories free of duty under bonded warehouse arrangements. On receipt of Export L/C Garments and specialized Textile unit under bonded warehouse system is allowed to open Back to Back L/C for import up to maximum 75% of net FOB value of export L/C. for computation of FOB value, freight charges, insurance and commission involved in shipment of merchandise under the export L/C are to be deducted.

The export L/C which the Bangladesh exporter has received from abroad is commonly refereed to as Master Export L/C and the second L/C issued by the Bank in favor of textile mills is referred to as Back-to-Back L/C. The export L/C is separate transactions and are independent to each other. Since the payment of Back to Back L/C is made out of export proceeds, the Back to Back L/C is to be established on basis covering usance period of not more than 180 days and most of the time 90 days.

The import documents are to be delivered to the customer against acceptance and execution of trust receipt. The customer clears the goods from the port, manufactures the garments and makes the export. Export documents are submitted to the Bank for negotiation and collection of proceeds. The exporter is only entitled to receive his CM portion (Export bill value minus Import obligation) and Banks pay the CM portion to customer by purchasing the amount. After realization of export proceeds the import obligation under Back-to-Back L/C is being set aside for payment on maturity date out of export proceeds.

Before opening of any Back-to-Back L/C relevant documents should be scrutinized properly by A/D branch should ensure that’s areas follows

• The export L/C issuing Bank must be a reputed one
• The export L/C is a sight L/C and freely negotiable
• In case of terms of delivery FOB is preferable For C&F. freight Certificate is to be obtained.
• Reimbursement instruction of export L/C must be very clear.
• Quantity of merchandise with price must clearly be mentioned
• Port of destination must be clearly mentioned.
• Shipment period shall not be insufficient.
• L/C must bear the clause that it is transferable.
• Beneficiary and transferor must be identical.
• Transfer must be authenticated by advising Bank.
• The export L/C is to be authenticated by the advising Bank in Bangladesh.

Performance Appraisal and Feedback:

The SBL follows closed appraisal system and appraisal in mainly done for the use of promote, disciplinary action and to control human resources. Performance feedback is almost absent in SBL. No systematic culture has yet been developed for performance feedback.

Swot  Analysis:

Strength of SBL

• Transparent & quick decision making
• Efficient team of performers
• Satisfied customer
• Internal Control
• Skilled risk management
• Diversification

Weakness of SBL

• Comparative slow than other commercial bank in service & Profit
• Job satisfaction of employees are not satisfactory
• Online services are not available for all branches.

Threat for SBL

• Global recession

Opportunity for SBL

• Bank has 371 Branches which is highest in private commercial bank
• It has an opportunity to diversify its business.

Ratio Analysis:

Current Ratio:

Current ratio is widely used measure for evaluating a company’s liquidity and Short term debt paying ability.

Assets turnover:

Assets turnover ratio indicates to the capability of the company’s to create sales using the asset appropriately.

Return on Asset:

Return on asset compute the success of a company by using the advantage to create to get self-governing of the financing of those assets.

Net Profit margin:

The profit margin tells you how much profit a company makes for every Tk. 1 it generates in revenue.

Return on equity:

Return on common stock ration indicates the amount of which the company is capable to exchange in service income into an after tax income that finally can be maintain by the investor.

Foreign Exchange and Foreign Trade: Problems & Prospects

1. Chambers of commerce may be permit the sub-section or any of the conditions of the L.C issuing bank. So the exporter may not export the goods to the importer.
2. Some profitable goods are prohibited.
3. Some rules and regulations of government work as barrier for the free flow of remittance, export and import of profitable goods.
4. Unholy intervention of the superior member of various sectors.
5. Some foreign buyers ask for discount showing the reason that quality of goods has not been maintained.
6. Rate of very competitive.
7. Untimely shipment due to lack of backward linkage.
8. Labor problem causes huge problem for the bank.
9. Proprietors do not pay wages to the labor which results in dissatisfaction though they receive the investment from the bank.
10. WTO imposes unjust rules on the transaction system.
11. Uneasiness exists due to handling new IT system.
12. Discontinuity of same type of transaction which occurs in infrequency of work resulting in slow dynamics of work.
13. Delay payment in export.
14. Delay or cancelled shipment.
15. Bonded warehouse restricts the sell of export quality products in the local market rather letting it to rot which protocol is not suitable for our economy.
16. Technical problems reduce the performance of the branch and extend the span of time resulting in loss (financial) and providing less service to both the bank and customers.
17. Environmental problem also causes slow pace.
18. Restrictions imposed for sometimes on new investment due to the sudden rise of assets of the Bank.
19. Restrictions imposed by the Indian govt. on export of food items of Bangladesh, in which SBL has a good share, led to decline in business growth from April to August and it went down to 20%.
20. Weak monitoring squad for RMG sector.
21. Discretionary power for L/C and MPI is not same.
22. Some faults and irregularities exist in the AD branches.
23. AD branches have to deal the L/C of the non-AD branches.
24. Fall in product price in the market than the price at the of order causes loss.

Remittance:

The following are the problems:

1. All types of SWIET massages are handled by a single Operator instead of authorized officials.
2. Swift operators are transferred /changed without proper substitute.
3. PC Connect at branches sometimes become inoperative due to inept handling by the operator.
4. Branches do not maintain security password properly.
5. Branches are not taking archive, backup of their massage.
6. Branches do not log in timely to receive message from SWETFT in the server.
7. Some Branches do not send their message in standard formats.
8. Branches do not show their actual income from SWIFT in the statements.
9. There is negative Propagation against Standard Bank Limited.
10. Because of the volatility of the Foreign  Exchange Market the remittance inflow has been affected substantially & encouraged remitters to send money through illegal channel.
11. SBL is facing stiff competition because third generation Bank is entering to the business.
12. Some Banks are marketing aggressively.
13. Due to non automation of all remittance services and logistics supports in some Branches customer services have not yet fulfilled the requirement of Exchange house.
14. Unskilled manpower is another problem to achieve higher income in remittance.
15. Shortage of manpower.
16. Concentration of remittance operation through a single location.
17. No conduction of the proper market research.
18. Lack of innovation of foreign exchange products.
19. Absence of Client profile and planned steps to be taken.
20. Proper Marketing of the bank in foreign countries.
21. In some Branches mass marketing is being proven problematic to handle.
22. Absence of promotional effort to keep pace with the stiff competition.
23. The higher Exchange rate causes lose in more remittance.
24. Limited transaction to be made.
25. Handling a lot of inactive accounts with no transaction causes problem.
26. Decrease/fall in foreign currency occurs in huge loss though it happens rarely.

The Prospects of foreign exchange & foreign trade are as follows:

1. Restrictions imposed by Chamber and Commerce make the dealing fair and thus authenticate and guarantee the dealing and in this way reduce risk.
2. Foreign currency of SBL is very strong which lets the Bank to invest without the help of other banks.
3. Poverty of Bangladesh is cut by 6% by remittance constituting 6% of GDP & 42% of national export.
4. The foreign countries can be targeted for more remittance through skilled manpower business.
5. More knowledgeable employees are recruited and existing employees are trained in regular basis.
6. SBL is trying to get more licenses for AD branches through creating more pleasing rapport with Bangladesh Bank.
7. Expanding various services like sport cash etc.
8. Specially driving for increasing Import and export business initiated through Zones and AD/ Forwarding branches.
9. Introduction of web based global remittance.
10. Enhancement of Internet and E-mail connectivity that is gearing the speed of income gain.
11. Placement of new Representative.
12. Open position limit enhancement that will let the bank invest more largely.
13. Utilization of FC funds in overseas investment.
14. Utilization of FC funds effectively and efficiently.
15. Automated reconciliation of all NOSTRO A/C.
16. Computer ledger posting and balancing.
17. Centralization of Foreign Trade process that will decrease the loss of time.
18. Major steps have been taken to make solution of the technical and managerial problems.
19. Preparation of client profile which will help to take decision if any problem arises and other things concerning investment in export and import.
20. Hunting EPZ clients will open new sectors for investment which ultimately increases fund.
21. Innovation of foreign exchange products is going on.
22. SBL is going to expand the coverage countries.
23. SBL is going to open Exchange house abroad.
24. SBL is going to manage round the clock remittance operation.
25. Offering Competitive terms to cope with the competition.
26. Entrepreneurship development is another prospect of F-Ex department.
27. Steps are thought to be taken to survey the market for potential import / export business and constitute strong monitoring squad for RMG sector.
28. Steps are going to be taken to supervise & give technical support for Bulk import from Head office.
29. Concentration is being taken to encourage export non- traditional items.
30. Steps have been taken to abolish the national rate, minimize F-EX risk.
31. The growth of import business is increasing day by day.
32. To remove the communication gap a pool of leading Foreign Exchange officials has been formed to arrange interaction amongst them on different issues relating to development of Foreign Trade.
33. The number of Foreign Trade dealing branches is increasing.
34. In order to increase export business of the bank and avoid loss incurred by the bank / client and to facilitate maximum services to the clients by changing existing system of Inland Bill Purchase (IBP), a committee was formed comprising executives / officials of Head office. The committee is working on the matter. Report of the committee will be submitted very soon.
35. It has obtained permission from Bangladesh Bank for new AD Branches.
36. Developed software on C & F Agent.
37. SBL has taken plan for technical up-gradation through Service Bureau.
38. On-line banking facilities.
39. Opening New Branches at the major remittance receiving localities.
40. Enforcement of Anti Money Laundering Act.
41. Floating and attractive Exchange Rate.
42. SBL has the plan to increase investment, to broaden the sources of foreign currency, enhance the ancillary business which is very much prospective.
43. SBL has a strong base of well-wisher.
44. Terms & conditions is easy & it will increase the business.
45. Promotion of products quality is very important for sustainable business.
46. Participation is foreign trade fair to exhibit its product.
47. Good negotiation is established for increasing export.
48. Political environment should keep in favorable position for increasing export.
49. Proper utilization of raw material which are imported from other countries & established those product based industries.

Overall

1. Over customer according to service capacity.
2. Lack of technological assistance.
3. Lack of co-ordination among department.
4. Customer cannot identify their needs & assessment properly for lacking sufficient information & desk set up system within the bank.
5. It has not sufficient manpower according to their responsibility.
6. Most of employee doesn’t have any initial knowledge about banking. They come from other subjects than commerce.

Recommendation:

It is not unexpected to have problems in any organization. There must be problems to operate an organization. But there must be remedies to follow. The following commendations can be suggested to solve the above mentioned problems:

1. SBL should increase its manpower level. Additional and skilled manpower in the officer and staff level should be recruited in an urgent basis.
2. Efficient manpower should be recruited with having strong academic background of the related subjects.
3. ATM Booth should be established.
4. More equipment like Note Counting Machine, photocopier etc. should be brought.
5. SBL should appoint a Customer Relation Officer at Branch level.
6. Specialized services to be undertaken to the customers.
7. SBL should try to reduce their disbursement timing.
8. Arrangement of monthly / quarterly training courses/ workshops for the selected by the authority in order to promote employee to their desired level.
9. More technological instruments should be brought for smooth working speed.
10. More furniture should be brought to the Branch, like chairs, cabinet etc.
11. To avoid the gathering of customers during the first hour of the work days, shift working system of the employees should be started. Shift- wise working may also reduce over work pressure on one’s own account.
12. Proper job appreciation should be done by proving performance based awards etc.
13. Marketing expertise should be recruited.
14. SBL needs to increase the job satisfaction level of its employees by proving several performance based awards.
15. Enhancement of remuneration package should be competitive and attractive.
16. Employees should be properly learnt about the mission and vision of General Banking, Islami Banking, thus will implement their job in that way.
17. The authority of SBL should Conveyance pressure on Government bodies to run proper and sufficient application of Banking law in Bangladesh.
18. SBL should utilize “Internship Program” as one kind of promotion policy. To do so this bank should provides facilities to the internees through proper placement and practical operations as well as job certainty to those who bring introduce themselves the best performers in doing their particulars.
19. SBL should try to attend different types of target customer.
20. Maximum clients do not know about SBL’s Foreign exchange policy. They should carry out more promotional activities to make clients aware about their offers.
21. of branches should be increased so that importers and exporters find it within their convenient locations.
22. In case of Export L/Cs, the Government encourages the exporters by giving different facilities like tax-cuts. I think the bank should also think about such type of facilities to be given to the Exporters because Bangladeshi Exporters like Readymade garments Exporters are going to face a tuff situation in coming years from the exporters of other countries.
23. Margin and commission on L/Cs varies from customer to customer. A customer is allowed to open a L/C even with nil margins. I think that the bank should review the customers’ transaction behavior for a period of time and should develop a certain policy in this regard.
24. In case of Export L/Cs, sometimes customers insist to give their payments though their documents are found discrepant. In some cases, Bank has to give payment to these customers for different reasons. But it lessens the credibility of the Bank. I think the Bank should be as stricter as possible about giving payments against discrepant documents without hurting the customers.
25. In many cases, the foreign banks want confirmations from other foreign banks with which this bank has correspondence. This proves the poor financial condition of our country. Banks should try to improve this situation.
26. The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of International Trade Financing.
27. To communicate with the Negotiating Bank, Advising Bank. Reimbursing Bank the branch uses SWIFT as well as these media. The Bank could use the E-mail, which is cheaper and faster than those media.
28. Bank can introduce more advanced MIS system to mobilize its day to day activities. It will help the employee to do their works more quickly and at the same time maintaining their quality of work.
29. They should expand their business in a balanced way which means they should not focus on a particular industry like readymade garments industries.
30. Over burden of work and ill defined assignment unable the employee to discharge their duties in cool manner. It also creates a hazardous situation in the work process. So all the employee should be assigned with proper and specific assignment.
31. Increase manpower as per as requirement to provide better service to the customers.

Conclusions:

SBL is well positioned to meet the challenge of 2012 and will seize the opportunity of benefit from economic growth. The bank will focus on its large customer base to generate more business from existing customers. This strategy is supported by wide spectrum of products and services. The bank will continue to harness the potential of retail, credit card and SME markets, in its pursuit for growth the SBL will always adhere to good corporate governance policies and strict credit evaluation procedure. After globalization and free trade policy, now-a-days our manufactures as well as the exporter both are facing acute constrain to meet up the challenge. Our business cannot ignore these international realities. If we intend to maintain our market share and keep pace with our competitors we have to take careful decision and careful assessment of the advantages and disadvantages of expanding into new markets.

In the international marketplace, knowledge not only means power, it means survival. If our companies are going to succeed internationally, we must know as much or more than our customers and our competitors. A single misstep may not only cost our company business, it can lead to big delays and stiff fines. Unfortunately, most information about international trade is targeted at big companies with large logistics and legal staffs that know how to navigate the maze of import-export rules and regulations. Small and midsize companies lack the resources – and often the training – of larger corporations.

The bank has the vision to be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management etc. it is now one of the top most profitable private sector commercial bank. The bank’s is now “A” rated bank in CAMEL rating.

The bank is maintaining a well-structured communication from top to bottom level. Each official should be valued and treated as a part of the bank and they must have the privilege to devote themselves for the betterment of service of the bank. Prime Bank places utmost importance on managing credit risk. The whole process includes Management of Credit Risk, Foreign Exchange Risk, Prevention of money Laundering, Asset liability Management, Internal control and Compliance.

The 10 years success story though helped the bank to attain a leading role but to remain unrivalled among new generation banks, the bank must face new challenges.

Overall, the bank must make a positive attempt to be more outward looking in their goals and aware of what is happening