Foreign Exchange Operations of Commercial Banks”- An Empirical Study for Trust Bank Limited.

Letter of Transmittal:

December 18, 2007

Mr. Mosharref Hossain

Internship Supervisor

Stamford UniversityBangladesh.

Dear Sir,

Subject: Submission of Internship Report on “Foreign Exchange Operation of Commercial Banks”- An Empirical Study for Trust Bank Limited.

Here is the Internship Report on “Foreign Exchange Operation of commercial Banks”-An Empirical Study for Trust Bank Limited. which is a mandatory part of three months’ internship program bearing three credit hours under MBA curriculum.

I have tried my best to make use of the opportunity of undergoing my three months’ internship in Trust Bank Ltd., a renowned and leading third generation bank in Bangladesh. This Internship Program has given me a wider opportunity to work in the Foreign Exchange Division of Trust Bank Ltd. and to have a better understanding of the foreign exchange related operations like L/c opening, L/C advising, L/C Confirmation, Reimbursement Authorizations, Payment Instructions, Export Bill Collections/Negotiation and foreign remittance related transaction that is Inward and Outward FDD, FTT and Foreign Currency buying & Selling etc. Within the report writing- various issues of foreign exchange related transaction are presented so that a concrete idea can be developed about TBL Foreign Exchange Division.

I really enjoyed preparing this report because it provides me an opportunity to have a real life orientation of my academic knowledge so far I have learned during my two-years MBA program. I gladly acknowledge the helps of all concerned people in preparing this report.

Sincerely yours,

Tanmina Choudhury

ID No: 027-06614

Certificate:

This is to certify that the Internship Report on “Foreign Exchange Operation of Commercial Banks”- An Empirical Study for Trust Bank Limited submitted for the award of the degree of Masters of Business Administration (MBA) from Stamford University Bangladesh, is a record of bonafied research carried out by Tanmina Choudhury under my supervision. No part of the Internship Report has been submitted for any degree, diploma, title or recognition before.

She is permitted to submit the Internship Report.

Mr. Mosharref Hossain

Lecturer

Department of Business Administration

Stamford UniversityBangladesh.

Declaration

I am Tanmina Choudhury, student of M.B.A 27^th Batch, ID No: 027-06614 hereby declaring that the Internship Report on “Foreign Exchange Operation of Commercial Banks”- An Empirical Study for Trust Bank Limited, has been prepared by me after completion of the internship program in Trust Bank Limited.

I also confirm that the report is made only for the academic requirement. It will not hamper the confidentiality and interest of any concerned people. It will not serve the interest of any third parties. The main purpose of preparing the report is just to gather my workings in a disciplined manner and let the concerned parties of the division have a concrete idea of the functionality of the division.

I also declare that this report is made by me and not made copy from other. To enrich this report I have used different published materials, internet and my personal experiences and discussion with the employees in TBL.

Acknowledgement:

At the very outset, I would like to express my heartily appreciation and thanks to my Internship Supervisor Mr. Mosharref Hossain, Lecturer, Department of Finance ,Stamford University Bangladesh, Without his enthusiastic guidance and comments during the entire phase of the study, and valuable suggestions in writing this report, it might not be possible for me to prepare this report. I would also like to express my heartiest gratitude to my attached organization supervisor Mr. Shahud Ahmed Senior Vice President (Head of HRD), branch supervisor Manager and Assistant Vice President Mr. Md. Mozakkerul Islam and authorized person of Foreign Exchange Department for their outstanding support and proper guidance in completing my internship successfully.

I am also grateful to Mr. Mohammad Mostafa, AVP and Sub- Manager and Mr. Monzur Morshed Khan, Senior Executive Officer, FCD Dept. TBL Head Office who co-operated me to collect various requirement supports from various sources & helped me to complete this internship report.

Their close supervision has immensely strengthened my confidence during the work during the preparation of the report I have come to the very supportive touch of different individuals (respondents and seniors from TBL) and friends, who lend their ideas, time, and caring guidance to amplify the report’s contents. To be true to myself I must say that without their help it would be very tough for me to prepare such a long report. I am indebted to them with all of my thanks. I further want to convey my heartiest gratitude to the respondents (from TBL) for their valuable responses – these are the backbone of the report. To whom I discussed all my problems during the study. And lastly a sincere thanks to those who helped me by giving information personally and institutionally regardless of their busy schedule.

Preface:

This report is the outcome of the internship program under the Masters of Business Administration (MBA) course of Department of Business of the StamfordUniversityBangladesh organized at Trust Bank Ltd., Dhanmondi Branch, and Dhaka. During the period of 03 months the objective of the program was to familiarize the student with the practical implementations of the knowledge provided the theoretical aspects of the practical life. Hence, the internship program works as the link between the theory and practical.

It is my pleasure to submit my Internship report titled ““Foreign Exchange Operation of Commercial Banks”- An Empirical Study for Trust Bank Limited” Dhanmondi Branch, Dhaka. While preparing this report I have tried to gather as much information as possible and together all the information pertaining the report to enrich it. I believe that it was a fascinating experience to work in the banking sector and it has enriched both my knowledge and experience.

This report is not free from limitations. There might have problems regarding lacks and limitations in some aspects.

Regards,

Tanmina Choudhury

MBA 27^th Batch

Roll: 027-06614

Department of Business Administration

Stamford UniversityBangladesh.

                                                            Acronyms

TBL                 Trust Bank Ltd.

ATM               Automated Tailor Machine

EPZ                 Export Processing Zone

BIBM              Bangladesh Institute of Bank Management

IPO                 Initial Public Offering

FDR                Fixed Deposit Receipt

TSSS               Three Stage Savings Scheme

LSS                 Lakhpati Savings Scheme

SOD                Secured Overdraft

LIM                 Loan against Imported Merchandise

LTR                 Loan against Trust Receipt

EDF                Export Development Fund

PCC                Packing Cash Credit

ECC                Export Cash Credit

KYC               Know Your Customer

TIN                 Tax Identification Number

BMRE             Balancing. Modernization, Replacement, Expansion

FI                    Financial Instrument

OD                  Overdraft

AD                  Authorized Dealer

LIBOR            London Inter Bank Offered Rate

BB                   Bangladesh Bank

RMG               Ready Made Garments

ROO               Rules of Origin

RM                  Relationship Manager

BM                  Branch Manager

IRR                 Internal Rate of Return

LRA                Lending Risk Analysis

PAD                Payment against Document

Table of Contents

Executive Summary:

Bank is an economic institution whose main aim is to earn profit through exchange of money & credit instruments. It is a service oriented as well as profit oriented organization. To perform those two functions simultaneously, bank divides its operation mainly in three parts- General Banking, Loan & Advances and Foreign Exchange. Bank also invests their money into different financial security and also in different types of project to diversify the risk and getting more profit.

The banking sector of Bangladesh is passing through a tremendous reform under the economic deregulation and opening up the economy. Currently this sector is becoming extremely competitive with the arrival of multinational banks as well as emerging and technological infrastructure, effective credit management, higher performance level and utmost customer satisfaction.

Trust Bank Limited is one of the leading private commercial Banks having a spread network 35 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Bangladesh. The bank has been operating in Bangladesh since 1999 and has achieved public confidence as a sound, stable and trustworthy Bank.

I have completed my internship in the Dhanmondi Branch of Trust Bank Limited. During my internship period I found here a good job environment and also got a lot of cooperation from every department and every person. It is a great task to prepare a report on a big branch and at this moment I feel very happy to complete this. I found that Trust Bank gained success very early because they have a very strong backup to provide financial as well as administrative support. Within a very short time this bank has become very much popular to the people. They gained success from the very beginning of their operation and were capable enough to hold the success year after year.

The 1st chapter contains the background, objectives, limitations etc of the study and the 2nd chapter highlights on the Overview of Banking, Overview of TBL. On the other hand, the 3rd chapter deals with the operational and financial performances of TBL; the 4th chapter contains International Trade and Balance of Payments and in 5th chapter discussed the Letter of credit. The 6th and 7th chapter discussed with the import & export of TBL and finally in 8th chapter the findings, recommendation and conclusion are drawn on the basis of published contents.

                   Chapter One

Introduction:

• 1.1 Introduction
• 1.2 Objective of the study
• 1.3 Scope of the study
• 1.4 Methodology of the study
• 1.5 Limitation of the Report

 Introduction:

The Internship Program exercises a significant importance as it enables a student to be accustomed with the business activities practically. The students get the chance to work closely with the people of an organization and learn about the functions, responsibility and corporate culture of that organization. This program enables a student to develop their analytical skills and scholastic aptitudes and to have a real-life orientation of the academic knowledge.

As a student of M.B.A., Department of Finance, StamfordUniversity, I have conducted my Internship Program in Trust Bank Ltd. Dhanmondi Branch, one of the reputed third generation bank in the growing banking sector in Bangladesh. This report has been prepared under the guidance, supervision and inspiration of Mr. Mosharref Hossain, Lecturer, Department of Finance, Stamford University Bangladesh. Moreover, while preparing the report I was under the supervision and guidance of Mr. Mozzakerul Islam, Assistant Vice President & Manager Dhanmondi branch.

 Objective of the Study:

The main objective of the study are to evaluate the performance of the foreign trade of Trust Bank Ltd. and to have an overall idea on how it operates and what functions it does, and prepare a report on it. Besides this main objective there are some specific objectives.

General Objective:

ü  The General Objective is to prepare & submit a report on the topic “Foreign Exchange Management of Trust Bank Ltd.”.

Specific Objective:

ü  To apply theoretical knowledge into practical arena

ü  To be familiar with the banking management systems

ü  To evaluate the performance of foreign exchange division

ü  The return on export, import and remittance.

ü  Estimate the cost of export, import and remittance

ü  Foreign exchange earnings as compared to total earnings interest income and non-interest income.

ü  To analyze the financing systems of the Bank and find out whether the bank needs any improvement to be done and make greater contribution towards the country’s economy.

ü  To familiarize the working hours, values and environment of the bank.

ü  To explain the role of Financial Institution of Trust Bank Ltd. in facilitating international trade.

ü  To describe the detail operational procedure of Correspondence Banking services & it’s associated benefits.

ü  To familiarize different rules and regulation of export and import formalities.

 Scope of the Study:

The study has basically covered the followings—

• Theoretical aspects of the new integrated rules & regulations of the foreign exchange business.
• Current Payment procedures exercised by TBL both theoretically and under the UCPDC -600.
• Categorization of different types of income from foreign exchange transaction.
• Rationale behind deploying the new system.
• Practical orientation of the proposed system.

Methodology of the study:

This report is basically based on the topic named “Foreign exchange operation of commercial Banks (A case study of Trust Bank Ltd). Since I’ve undergone my internship program on this particular department, therefore, in preparing the report I’ve concentrated on the issues exclusively focused by TBL in this project. The report is based mostly on secondary data that means on the support documents related to Foreign Exchange operation of commercial bank. Moreover my three months’ practical orientation in TBL Dhanmondi branch and visit to TBL head office in Dilkhusha also helped me to have a very concrete idea regarding the current procedures and the related issues as well.  Finally, my time to time conversation with the concerned employees and analysis of the multiple regression of foreign exchange income with the banks operating income, correlation of foreign exchange income with the operating income, meeting with concerned person from International division and TBL employees helped me a lot to have a better understanding of the whole topic.

Limitations of the Study:

While undergoing the study, I was zealously trying to present the topic in a concrete manner. In doing so, I was confronted with some problems as follows:

• Internship program is a short duration program to study the foreign exchange business related activities of the bank.
• Capturing the whole topic regarding foreign exchange business and presenting it in the report in a disciplined manner was not fully possible due to conservatism practiced by the bank.
• Since this report involves activities & performance of foreign exchange business of the bank, some foreign exchange related activities was not perfectly clear to me.

                    Chapter Two

  Literature Review:

• 2.1 Introduction
• 2.2 Overview of banking industry
• 2.3 Organizational Overview
• 2.4 Vision of Trust Bank Limited
• 2.5 Mission of Trust Bank Limited
• 2.6 Positioning Statement of Trust Bank Limited
• 2.7 Number of Employees of Trust Bank Limited
• 2.8 Number of Branches of Trust Bank Limited
• 2.9 Chairman, Directors & Management List

Introduction:

The purpose of banking is to ensure transfer of money from surplus unit to deficit units. Bank in all countries work as the as the repository of money. The owners look for safety and amount of interest for their deposits with Banks. Entrepreneurs try to obtain money from the banks as working capital and for long-term investment. These entrepreneurs welcome effective and forward-looking advice for investment. Banking sector thus owe a great to the deposit holders on the hand and the entrepreneurs on the other. They are expected to play the role of friend, philosopher, and guide for the deposit holders and the entrepreneurs.

Since liberation, Bangladesh passed through fragile phases of development in the banking sector. The nationalization of banks in the post liberation period was intended to safe the institutions and the interest of the depositors. Those handling the banking sector have borne the burden of putting banks on reliable footings. Despite all that was done, some elements of irregularities appeared. With the assertion of the role of the Central bank, The Bangladesh bank started adopting measures for putting banking institutions on right track. Yet the performance of public sector management of banks left some negative effects in the money market in particular and the economy in general. The agility among the borrowers manipulates the banking sector as a whole. In effect, a default culture appeared on the scene.

The opening of private and foreign participants to the banking sector was intended to obtain desirable results from banking. The authorization of private banks was designed to create competition among the banks and competition in the from of efficiency with and the productivity in enterprises funded by banks. Unfortunately, for the people, at large banking sector is yet to obtain the credit for efficiency, credibility, and growth.

The clever, among the user of banking services, have influenced the management of banks, for obtaining short-term and long-term loans. They sometimes showed inflated to get money for investment in business and industry. Few diverted their loan money to purposes different from the loan proposals, and invested in non-profitable units have failed to repay their loans to the banks. For this reason new entrepreneurs are not getting capital while defaulting entrepreneurs have started obtaining either relief in the form of rescheduling of the repayment program or additional inevitable money for diversified units.

Overview of banking industry:

Domestic banks can be divided into four main groups: Nationalized Commercial Banks (NCBs); Private banks established in the early 1980s; and private banks established in 1999:

Nationalized Commercial Banks (NCBs) In general terms; NCBs are large, operationally inefficient and technically insolvent. They are used as vehicles of government directed lending. These banks enjoy an enormous and stable customer deposit base, which provides a cheap source of funding. In addition, most large government related business is routed through these banks;

Private Banks, 1980s- set up to service the sectors not being addressed by the larger NCBs. Not subject to state directed lending but have generally suffered from related lending to directors and their extended families;

Private banks, 1995 – six new licenses were granted. These are the better-managed banks with strong capital base and good asset quality and under a much-improved regulatory regime. All the banks clustered in this group have successfully raised capital from secondary market and all the shares are now traded in the stock exchange at premium.

New private sector banks. Ten new banks have been granted licenses over the year 1999. While some bankers complain that the country is over-banked, the more commonly held view, including that of the World Bank, is that there is adequate scope for these banks to survive given currently untapped gaps in the market, fat in existing interest margins (currently circa 5%), and efficiency/ service level disparities. It is estimated that up to 70% of the Bangladeshi economy remains un-banked. While this appears to imply that the newer banks may move downstream in terms of asset quality but in reality the last two sets of new banks are successfully competing with NCBs and Foreign banks on the top end market segment.

Generally asset quality is poor with the level of non-performing loans at worryingly high levels. Across the whole banking sector, classified loans, as reported by Bangladesh Bank (BB) in December 2002, the Central Bank, were 34.93%. As a percentage of their own total loan portfolio, non-performing loans accounted for 38.55% of the NCBs loan book, and 22.01% of private banks (both categories). In October 2002, the provisioning requirements changed for past due loans from 180 to 90 days, now requiring a 20% provision. Generally, provisioning levels are weak, impairing capital. It is however necessary to understand why the banks carry such high levels of non-performing loans. Firstly, the legal position of banks’ recourse is weakened once a loan is written-off; and secondly, BB imposes a six-year moratorium on write-offs. As the legal system is slow and time consuming, this results in NPLs remaining on the books for longer than would otherwise be the case in other countries. There is also a significant proportion of NPLs, which is due to non-payment by Government or Government owned agencies.

Lower credit growth in 2002, compared to deposits, has meant that the banks now have excess liquidity. With investment rates in call, money market and government bonds remaining static at their lowest levels, some banks are now cutting back on their long-term deposit rates and are refusing to accept large deposits.

Long-term interest rates have traditionally been lower than short-term rates. This inverted yield curve is a fall out from the source of long term lending. Long term lending was traditionally extended by the NCB’s, usually for non-commercial loans, thus setting a low benchmark for longer-term funds.

Clearly the banking industry is in a very poor state and it will take years to clean up. The Government and BB have been working with the World Bank to introduce reforms, including related party lending, restricting lending concentrations to 15% of the capital base, capital adequacy and bankruptcy laws. The World Bank has indicated that there are funds available to assist individual banks improve their capital bases, but this depends on them first making full provision for NPLs. Some banks have also successfully raised capital through IPOs. BB has reaffirmed its intention to continue extension of support to banks through rediscounting. However care should be exercised when taking comfort from BB’s assertion that it will not allow any bank to fail. While this pledge has held true to date, in effect it means that BB will allow a technically insolvent bank to continue in operation with BB guidance and “technical” support but BB will not provide a capital injection or write-off government related bad loans.

Sources: Chowdhry, L.R. (2002, 2^nd edition), “A Text Book On Banker Advances”

Some words used as a abbreviate form in the diagram are:

BKB                –           Bangladesh Krishi Bank

RAKUB          –           Rajshahi Krishi Un

RAKUB          –           Rajshahi Krishi Unnayan Bank

BSB                –           Bangladesh Shilpa Bank

BSRS              –           Bangladesh Shilpa Rin Shangshta

BASIC                        –           Bangladesh Small Industries & Commerce.

BSBL              –           Bangladesh Samabaya Bank Ltd.

CCBL             –           Central Co-operative Bank Ltd.

PCS                 –           Primary Cooperative Socites.

 Organizational Overview:

Background of “Trust Bank Ltd.”

Trust Bank Ltd. is a private, commercial, scheduled Bank, which obtained license from Bangladesh Bank on July 15,1999. Presently Army Welfare Trust is the major shareholder. The authorized capital of the Bank is Taka two thousand million and paid-up capital of Taka five hundred million. Public shares are expected to be floated in the near future. The Bank was formally inaugurated and listed as a scheduled Bank on November 1999.

The idea of setting up a Bank by Bangladesh Army was first conceived in 1987 and on November 29, 1999 the first branch of Trust Bank Ltd. came into operation.

Composition of the Board of TBL consists of Ex-officio Directors of in-service senior Army personnel, with the Chief of Army Staff as its Chairman and the Adjutant General as its Vice-Chairman.

Trust Bank Ltd. having a spread network of 20 branches across Bangladesh and plans to open few more branches to cover the important commercial areas in Dhaka, Chittagong, Sylhet and other areas in 2006. The Bank sponsored by the Army Welfare Trust (AWT), is first of its kind in the country with a wide range of modern corporate and consumer financial products. Trust Bank Ltd. has been operating in Bangladesh since 1999 and has achieved public confidence as a sound and stable Bank.

In order to provide up-to-date information on the bank at fingertips to the trade and business communities of the world, their own IT team has developed a E-mail address and a web page for the bank. It can be accessed to under the domain: tbl@global-bd.net and www.trustbankbd.com

In addition to ensuring quality, Customer services related to general banking the bank also deals in Foreign Exchange transactions. In the mean time, the bank has extended credit facilities to almost all the sector of the country’s economy. The bank has plans to invest extensively in the country’s industrial and agricultural sectors in the coming days.

It has also plans to promote the agro-based industries of the country. The bank has already participated in syndicated loan agreement with other banks to promote textile sectors of the country. Such participation would continue in the future for greater interest of the overall economy. Keeping in mind the client’s financial and banking needs the bank is engaged in constantly improving its services to the clients and launching new and innovative products to provide better services towards fulfillment of growing demands of its customers.

Trust bank limited recently at the end of the year 2006 changed their name from “The Trust Bank Limited” to “Trust Bank Limited” and also changed their logo to bring the bank more closer to the general public.

  “Previous Logo”                                                   “New Logo”        

  Corporate Information At a Glance

• Banking License received on                                                  : 15th July.1999
• Certificate of incorporation received on                                : 17th June 1999
• Certificate of Commencement of business received on         : 17^th June  1999
• First branch licenses on                                                           : 9^th August 1999
• Formal inauguration on                                                           : 29th November 1999
• Sponsor Shareholders                                                             : Army Welfare Trust
• Number of Branch                                                                  : 30

 Nature of Business:

Trust Bank Ltd offers full range of banking services that include:-

• Deposit banking
• Loans & advances
• Export
• Import
• Financing inland
• International remittance facilities
• Passport Services

The bank offers a full scale commercial banking includes:–

• Foreign Exchange transactions
• Personal
• Credit
• Consumer & Corporate Banking

The bank has plans to invest extensively in the country’s industrial and agricultural sectors in the coming days. The bank has participated in syndicated loan agreement with other banks. Such participation would continue in the further for greater interest of the overall economy. The bank is keen to constantly improve its services to the clients and launching new & innovative products to provide better services towards fulfillment of growing demands of its customers.

Vision Statement of “Trust Bank Limited”

• To build a sustainable and respectable financial institution.
• To be a leading Commercial Bank, with a social focus, assisting in the economic development of the country.
• The Profit of the bank used for the Socio-economic development of the members of the Bangladesh Army and thereby the nation as a whole.

Mission Statement of “Trust Bank Limited:

• Achieving sound and profitable growth in Assets & Liabilities, with focus to maintain non-performing assets at acceptable levels.
• To build long-lasting, credible and mutually dependable relationships with customers.
• Efficiently managing interest and operating costs.
• To excel in rendering superior customer service.
• To be the preferred employer among Banks in Bangladesh.

 Positioning Statement of Trust Bank Limited:

Trust Bank is a contemporary, upbeat brand of distinctive quality of service and solution that offers a rewarding banking experience as preferred choice of banking partner every time, every where.

 Number of Employees of Trust Bank Limited:

Employees of Trust Bank Limited from the year 2003 to 2007.

                 Graphical presentation of Growth of Employees

As the above graph shows that the growth of employees has an increasing and decreasing trend. It has been observed that one-year growth is high and the next year the growth is low. When there are some branch open, the growth is high. The highest growth was in 2007 (65%) and the lowest growth was in 2004 (35%).

 Number of Branches of Trust Bank Limited:

The bank now continues its operation with 30 branches across the country mainly in Dhaka, Chittagong, Jessore, Sylhet, Sirajgong and Mymensingh. The district wise pictorial presentation of the branches appears as follows:

Thirty branches and Head Office of Trust Bank Limited are located in the following areas:

 Chairman, Directors & Management List:  

• 3.1.1. Introduction
• 3.1.2. Basis of preparation of the financial Statements
• 3.1.3. Deposit Mobilization of Trust Bank Limited
• 3.2. Loans and Advances
• 3.3. Import Business of Trust Bank LTD from the year 2003 to 2006
• 3.4. Export Business of Trust Bank LTD from the year 2003 to 2006
• 3.5. Investment of Trust Bank LTD
• 3.6. Total Income of Trust Bank LTD from the year 2003 to 2006
• 3.7 Total Expense of Trust Bank LTD from the year 2003 to 2006
• 3.8. Total Income Vs Total Expense of Trust Bank LTD from the year 2003 to 2006
• 3.9. Net Profit After Tax of Trust Bank LTD.
• 3.10. Fixed Assets of Trust Bank LTD from the year 2003 to 2006
• 3.11. Earning per share of Trust Bank LTD from the year 2003 to 2006
• 3.12. Dividend of Trust Bank LTD from the year 2003 to 2006
• 3.13. Return on Equity of Trust Bank LTD
• 3.14 Return on Assets of Trust Bank LTD from the year 2003 to 2006
• 3.15. Non performing loan as % of Total Advances of Trust Bank Ltd from the year 2003 to 2006
• 3.16: Volume of Non-performing loans of Trust Bank LTD from the year 2003 to 2006
• 3.17. Amount of provision against classified & unclassified loans of Trust Bank LTD from the year 2003 to 2006
• 3.18. Capital adequacy ratio of Trust Bank LTD from the year 2003 to 2006.
• 3.19. Net Interest Margin of Trust Bank LTD from the year 2003 to 05 

 Introduction:

scheduled commercial bank established under the Bank Companies Act, 1991 and incorporated as a Public Limited Co. under the Companies Act, 1994 in Bangladesh on 17 June 1999 with the primary objective to carry on all kinds of banking businesses in and outside Bangladesh as of 31 December 2006. Initially bank has started its operation in the name of “The Trust Bank Limited” but on 12 November 2006 it was renamed as “Trust Bank Limited” by the Registrar of Joint Stock Companies. The new name of the bank was approved by Bangladesh Bank on 03 December 2006.

Trust Bank Limited offers full range of banking services that include deposit banking, loans and advances, export, import and financing national and international remittance facilities etc.

  Basis of preparation of the financial Statements:

All financial statements have been prepared under the historical cost convention on a going concern basis in accordance with International Accounting Standards as adopted in Bangladesh and in the format prescribed by Bangladesh Bank vide BRPD circular- 14 dated 25 June 2003.

Total Deposit of Trust Bank Limited from the year 2003 to 2006

(Taka in Million)

Graphical presentation of Total Deposit of Trust Bank Ltd.

 Loans and Advances from the year 2003 to 2006                                                                                                                                                       ( Taka in Million)

Graphical presentation of Loans and Advances of Trust Bank Ltd.

 Import Business of Trust Bank Ltd from the year 2003 to 2006                                                                                                                                           ( Taka in Million)

              Graphical presentation of Import Business of Trust Bank Ltd.

Export Business of Trust Bank LTD from the year 2003 to 2006

( Taka in Million)

Graphical presentation of Export Business of Trust Bank Ltd:

 Investment of Trust Bank LTD from the year 2003 to 2006                                                                                                                                                                                                                                                                                     ( Taka in Million)

   Graphical presentation of Investment of Trust Bank Ltd:

 Total Income of Trust Bank LTD from the year 2003 to 2006                                                                                                                                             ( Taka in Million)

                            Graphical presentation of Total Income of Trust Bank Ltd.

Total Expense of Trust Bank LTD from the year 2003 to 2006                                                                                                                                                         ( Taka in Million)

                     Graphical presentation of Total Expense of Trust Bank Ltd.

 Total Income Vs Total Expense of Trust Bank LTD from the year 2003 to 2006                                                              

(Taka in Million)

Graphical presentation of Total Income vs Total Expense of Trust Bank Ltd.

3.9. Net Profit After Tax of Trust Bank LTD. from the year 2003 to 2006                                                                                                                                ( Taka in Million)

Graphical presentation of Net Profit After Tax of Trust Bank Ltd.

                          Total Assets of Trust Bank LTD from the year 2003 to 2006                                                                                                                                                         ( Taka in Million)

                Graphical presentation of Total Assets of Trust Bank Ltd.

                    Earning per share of Trust Bank LTD from the year 2003 to 2006                                                                                                                                               ( Taka in Million)

Graphical presentation of Earning per share of Trust Bank Ltd.

                        Dividend of Trust Bank LTD from the year 2003 to 2006

Graphical presentation of Dividend of Trust Bank Ltd.

 Return on Equity of Trust Bank LTD

Graphical presentation of Return on Equity of Trust Bank Ltd.

 Return on Assets of Trust Bank LTD from the year 2003 to 2006                                                                                                                                     

Graphical presentation of Return on Assets of Trust Bank Ltd.

 Non performing loan as % of Total Advances of Trust Bank Ltd from the year 2003 to 2006                                                                           ( Taka in Million)

Graphical presentation of Non performing loan of Total Advances of Trust Bank Ltd.                                                                                                     ( Taka in Million)                

Graphical presentation of Non performing loan of Trust Bank Ltd.

Amount of provision against classified & unclassified loans of Trust Bank LTD from the year 2003 to 2006                           

Graphical presentation of Amount of provision against classified & unclassified loans of Trust Bank Ltd.

Net Interest Margin of Trust Bank LTD from the year 2003 to 2005                                                                                                                               

Graphical presentation of Net Interest Margin of Trust Bank Ltd.

Chapter Four

International Trade and Balance of Payments

• 4.1. International Trade
• 4.2. Reason for International Trade
• 4.3. Benefits of International Trade
• 4.4. Problem in International Trade
• 4.4. Problem in International Trade
• 4.5. The Role of Banks in Enhancing International Trade
• 4.6. Balance of payments
• 4.7. Balance of payments Considerations:

 International Trade:

International trade involves a flow of goods from seller to buyer in accordance with a contract of sale. It is the exchange of goods and services between peoples of different countries.

Reason for International Trade:

Main reason for international trade is as follows:

• Uneven resources distribution: Different countries have different amounts of natural resources, while other might have not. Therefore, countries need to exchange goods to satisfy mutual needs and wants.
• The lack of self-sufficiency: Each country can obtain those goods that each alone can not produce or obtain the resources or materials to turn them into finished products.
• Specialization: The need for trade will arise because a country cannot survive with only one kind of goods (specialization goods).
• Economic principal of comparative advantage: It is mutually beneficial if each country specializes in producing the goods which is has a greater advantage and obtains those goods from other countries that it cannot produce cheaply at home.
• Differences in the demand of goods among countries: Some countries, which are producers of certain goods, still have to import the same goods from abroad. This may due to the insufficient supply locally to meet the strong demand for the goods.

Benefits of International Trade:

Some major benefits of international trade are:

• A gain in output for the participating countries: International trade enables a country to specialize in the production of goods and services in which it has comparative advantages.
• Better living standard: Specialization in production makes goods cheaper, so the standard of living is improved.
• Economics of scale: As countries specialize in the production of goods and services, they are able to operate on a larger scale, and thus enjoy the benefits arising from the economics of scale.
• Transfer of technology: The transfer of technology automatically accompanies an exchange of goods because nation can learn from the products of other nations (Computer Software).
• Improving International Relationship: With more trade activities and closer contact, there comes an exchange of culture and ideas resulting in better understanding among the nation.
• Maintaining price stability: With international trade, shortage of resources and goods can be solved by imports. Demand and supply can be brought closer together. Price fluctuation can be minimized.
• International trade encourages competitions: Competitions may help to prevent the growth of domestic’s monopolies. Efficiency in production can be achieved.

Problems in International Trade:

Problems associated with International Trade are as follows:

Risk of goods, Fraud, Credit risk, Risk of foreign exchange, Differences in legal systems among countries, Differences in political systems among countries, Economic divergence. The political and economic condition in one country may deteriorate etc.

The Role of Banks in Enhancing International Trade:

• Provision of advances: The Provision of finance to importers (e.g. trust receipt facility, documentary credit facility) and exporters (e.g. negotiation of export bills, purchase of bills for collection) encourages enterprises to engage in trade and enhances their liquidity position.
• Provision of alteration payment methods: Importers may not accept the payment of cash in advance, which gives exporters the greatest protections. On the other hand, the exporters may not accept open account, which gives importers the best payment methods. A letter of credit, through bank channels overcomes the disadvantages of these two settlement methods and satisfies to a great extent, both the importer and exporters. So with help of banks trading volumes can be enlarged.
• Medium of fund transfer: A banking system allows payment to be made safely and quickly by one party to another, e.g. telegraphic transfer.
• Export advance from banks: In case of any queries as to the trading terms especially those related to documentary credit (D/C) transaction, traders can ask for their bankers advises.

 Balance of payments:

The balance of payments is a bookkeeping system for recording all payments that have a direct bearing on the movement of funds between a nation (private sector and government) and foreign countries.

 Balance of payments Considerations:

Balance of payments considerations were more important than they are under the current management floating regime. When a no reserve currency country is running balance-of-payments deficits. To keep from running out of these reserves, it had to implement concretionary monetary policy to strengthen its currency.    

• Current Account
• Capital Account  

Chapter Five

            Letter Of Credit

• 5.1 Letter of Credit
• 5.2. Documentary Credit (D/C) classification
• 5.3. Parties related to a letter of credit
• 5.4. Securitization of L/C Application:
• 5.5. Accounting Treatment in case of L/C opening:
• 5.6. Transmission of L/C to Beneficiary through Advising Bank:
• 5.7. Presentation of the documents:
• 5.8. Examination of shipping document:
• 5.9. Amendment of the Letter of Credit:
• 5.10. Retirement of shipping document:
• 5.11. Number of Foreign Correspondent/Bank:

Letter of Credit:

Letter of Credit can be defined as a Credit Contract where by the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal ur1er some agreed conditions. Since the agreed condition include among other things, the presentation of some specified documents, the Letter of Credit is called

Documentary Credit (D/C) classification:

Documentary Credit can be classified as follows-

1. Red Clause Credit

A Red Clause credit is a special type of credit with a clause inserted which authorized the advising or confirming bank to make advances to the beneficiary before presentation of the documents.

The clause is added in the documentary credit at the request of the applicant for the credit. In other words, it is a pre-shipment finance in their form of a loan the advising/confirming bank provides to the beneficiary, with payment of principal and interest guaranteed by the issuing bank of the credit, which in turn has a right of recourse to the applicant in case the beneficiary fails to ship goods and defaults in payment of the advances.

The credit specifics the amount of the advances to be given to the beneficiary, which can be in the form of a percentage or a fixed sum.

Finance is given against undertaking from beneficiary certifying that he promise to ship goods and submit documents to advising bank, which has provided him with finance.

Possible risk in issuing a red clause credit

1. Exporter may use the advance for other purpose
2. Documents presented from the exporter may have discrepancies unacceptable to the importer

1. Revolving Credit

A revolving credit is a credit, which provides for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. It can be revolved with respect to either:

1. time or
2. amount (i.e. total value of the credit)

A revolving credit “with respect to time” can be cumulative or non-cumulative. A cumulative revolving credit allows any unused credit amount of a previous month to be carried forward to the next month. A non-cumulative revolving credit, on the other hand, provides for a maximum amount of credit to be drawn each month. If the exporter fails to draw for the month, the amount in the month (full amount or any utilized balance) will be forfeited automatically.

1. Transferable Letter of Credit:

A transferable letter of credit, which can be transferred in whole or in part by the original beneficiary to one or more “second beneficiaries”. It is normally used when the first beneficiary does not supply the goods himself, but acts as a middleman between the supplier and the ultimate buyer.

1. Back-to-Back Letter of Credit:

A Back-to-Back letter of credit is a new credit. It is different from the original credit based on which the bank undertakes the risk under the back-to-back credit. In this case, the bank’s main surety/security is the original credit (Master L/C). The original credit (Selling credit) and the back to back credit (Buying Credit) are separate instruments independent of each other and in no way legally connected, although they both from part of the same business operation. The suppliers (beneficiary of the back to back credit) ships goods to the importer or suppliers goods to the exporter and presents documents to the bank as is specified in the credit. It is intendment that the exporter would substitute his own documents for negotiation under the original credit, his liability under the back to back credit would be adjusted out of these proceeds. The export L/C is marked lien and no margin is taken. So we can say that Back to Back is a term given to an ancillary credit which arises where the seller used the credit granted to him by the Issuing Bank to his suppliers.

1. Confirmed Credit:

If a letter of credit is confirmed by a bank (the advising bank), this means, in addition to the definite undertaking to the issuing bank to honor beneficiary’s draft, the advising bank makes also it’s promise to pay the beneficiary. Such confirmation by the advising bank not only confirms the undertaking of the issuing bank but also constitutes an additional promise on the part of the advising bank (which becomes a confirming bank).

Documentary credit may be either:

• Revocable Credit:

A revocable credit is a credit, which can be amended are cancelled by the issuing bank at any time without prior notice to the seller.

• Irrevocable Credit:

An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are resented and the seller satisfies the terms and conditions. This sort of credit always referred to revocable letter of credit.

Parties related to a letter of credit:

The parties are:

1)      The issuing bank.

2)      The advising bank

3)      The beneficiary.

Other parties, which facilitate the documentary credit, are:

1)      The applicant

2)      The confirming bank , if any

3)      The negotiating bank/applicant bank

4)      The transferring bank, if any.

The parties of L/C:

Importer: Buyer who applies for opening an L/C.

Issuing Bank: It is the bank which opens/issues a L/C on behalf of the importer.

Confirming Bank: It is the bank, which adds its confirmation to the credit and it is done at request of issuing bank. Confirming bank may or may not be the advising bank.

Advising/Notifying Bank: It is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and/or negotiating bank depending upon the condition of the credit.

Negotiating Bank: It is the bank that negotiates the bills and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.

Paying/Accepting Bank: It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank

Reimbursing Bank: It is the bank that would reimburse the negotiating bank after getting payment instruction from issuing bank.

5.4. Securitization of L/C Application:

a) The TBL Official scrutinizes the application in the following manner –

b) The terms and conditions of the L/C must be complied with UCPDC 600 and

Exchange Control & Import Trade Regulation.
c) Eligibility of the goods to be imported.
d) The L/C must not be opened in favor of the importer.
e) Radioactivity report in case of food item.
f) Survey report or certificate in case of old machinery.
g) Carrying vessel is not of Israel or of Serbia- Montenegro.
h) Certificate declaring that the item is in operation not more than 5 years in case of car.

 Accounting Treatment in case of L/C opening:

Now if the Officer thinks fit the application to open an L/C. the following entries are given to realize the L/C commission, charges, postage, L/C margin etc.

Client’s Account ………………………………………………………Dr.
Sundry deposit margin on L/C…………………………………….  . ..Cr.
Income A/C commission …………………………………….………. Cr.
Foreign Correspondent Charge (F.C.C.) A/C  …………………………Cr.
VAT (15% of commission) on L/C …………………………….….… Cr.
Income A/C (postage/telex)……………………………………….….. Cr.
After that L/C number and the above entries are given in the L/C Register. The contra entries stating the liability of the bank and the client are as follow:

Customer’s Liability…………………………………………………….Dr.
Banker’s Liability……………………………………………………….Cr.

 Transmission of L/C to Beneficiary through advising Bank:

Then the transmission of T/C is done through tested telex or fax to advise the L/C to the advising bank. The advising bank verifies the authenticity of the L/C.

TBL has corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take any liability if otherwise not required.

 Presentation of the documents:

1. The seller being satisfied with the terms and the conditions of the credit makes shipment of the goods as per L/C terms.
2. After making the shipment of the goods in favor of the importer, the exporter submits the documents to the negotiating bank
3. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiable to TBL.
4. Branch & bank received seal to be affixed on the forwarding schedule.
5. The bill of exchange & transport documents must immediately be crossed
   to protect loss or fraudulent.

TBL checks the documents. The usual documents are:

• Invoice.
• Bill of lading
• Certificate of original.
• Packing list/Weight list.
• Shipping advice.
• Bill of exchange.
• Pre-shipment inspection report.
• Shipment certificate.

Examination of shipping document:

One of the principals of document credit is that all parties deal with document and not with goods (Articles 6 of UCPDC-600). That is why; the documents should be scrutinized properly. If any discrepancy in the documents is found that is to be informed to the pity. A checklist may be followed for examining the documents.
 Amendment of the Letter of Credit:

When the parties involved in a L/C, especially the seller want to change the terms and conditions due to some obvious and genuine reasons the credit should be amended. TBL transmits the amendment by tested telex to the advising bank. If the L/C is amended, service charge and telex charge is debited from the party account accordingly. According Articles 5 of UCPDC 500. Amendments must be complete and precise.

 Retirement of shipping document:

On scrutiny, if is found that the document drawn in conformity with the terms of the credit i.e. the documents are in order MDL lodges the documents in pad and following vouchers passed,

Accounting—————-treatment:
L/C Margin                             Debit
PAD A/C                                Credit
(Margin amount transferred to PAD A/C)

Customer A/C                         Debit
PAD AIC                                Credit
(Customer A/C debited for the remaining account)

PAD A/c                                 Debit
TBL General A/C                   Credit
Exchange gains A/C               Credit
(Amount given to TBL General A/C and interest credit)

Reversal————————entries
Banker’s Liability                   Debit
Customer’s Liability               Credit
(Lodgments is given)

After realizing the telex charges, services charges, interest (if any), the shipping documents is than stamped with pad numbered and entered in the PAD registered. Intimation is given to the customer calling on the bank’s counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsement is made on the back of the bill of exchange as received Payment” and the bill of lading is endorsed to the effect” Please delivered to the order of M/S, under two authorized signature of the bank’s officers (P.A. holder). Then the documents are delivered to the importer.

Number of Foreign Correspondent/Bank:

Foreign correspondent relationship facilities foreign trade operations of the Bank, mainly in respect of export, import and foreign remittances. The number of Foreign Correspondents and Agents of the Bank covers important business and trade centers of the world to ensure better and hassle free services to its import, export and remittances oriented clienteles.

Number of Foreign Correspondent Bank:

Graphical presentation of Foreign Correspondents Bank:

In the above graph it is clear that the number of Foreign Correspondent is increasing day by day. Because of the foreign transaction is increasing. The increasing trend reflects that the Foreign Correspondent will also keep increasing in the coming years. The no. of foreign correspondent in 2007 was 219 while in 2003 it was 189.

Chapter Six

                 Import Section

• 6.1. Introductions      
• 6.2. The Most Commonly Used Documents In Foreign Exchange
• 6.3. Import Procedure
• 6.4. Amendment Of Letter Of Credit
• 6.5. Import Business Of Trust Bank Limited

 Introductions:       

Banks play a very important role in effecting foreign exchange transaction of a country. Mainly transaction with overseas countries in respect of imports, exports and foreign remittance come under the purview of foreign transactions. Banks are the vital sector by which such transactions are settled. Central Bank records all sorts of Foreign Exchange transaction and therefore, transaction effected by the Banks and other authorized dealers are to be reported regularly (viz. daily, fortnightly, monthly, quarterly, yearly etc) to Bangladesh Bank.

Functions of Foreign Exchange Division of Trust Bank Ltd.

Imports:

1. Opening of letter of credit
2. Advance bills
3. Bills for collection
4. Import loans and guarantees

Exports:

1. Exports Pre-shipment advances
2. Purchase of foreign bills
3. Negotiation of foreign bills
4. Export guarantees
5. Advising/Confirming letters—letters of credit
6. Advance for deferred payment Exports
7. Advance against bills for collection

Remittances:

1. Issue of DD, MT, TT, etc.
2. Payment of DD, MT, TT, etc.
3. Issue and enhancement of travelers cheques
4. Sale and enhancement of foreign currency notes
5. Non-resident accounts

Dealings:

1. Rate computation
2. Maintenance of foreign currency accounts
3. Forward contracts
4. Exchange position & cover operations

 The Most Commonly Used Documents in Foreign Exchange:

• 6.2(a)  Documentary Letter of Credit
• 6.2(b)  Bill of Exchange
• 6.2(c)  Bill of Leading
• 6.2(d)  Commercial invoice
• 6.2(e)  Certificate of origin of goods
• 6.2(f)  Inspection certificate
• 6.2(g)  Packing list
• 6.2(h)  Insurance policy
• 6.2(i)  Proforma invoice/Indent
• 6.2(j)  Master receipt
• 6.2(k)  G.S.P. certificate

Documentary Credit:

In simple terms, a documentary credit is a conditional bank undertaking of payment. Expressed more fully, it is a written undertaking by a bank (issuing bank) given to the seller (beneficiary) at the request, and in accordance with the instructions, of the buyer (applicant) to effect payment (that is, by making a payment, or accepting or negotiating bills of exchange) up to a stated sum of money, within a prescribe time limit and against stipulated documents.

These stipulated documents are likely to include those required for commercial, official, insurance, or transport purpose, such as commercial invoice, certificate of origin, insurance policy or certificate, and bill of lading or combined transport document.

There are various types of documentary credits. A revocable credit can be amended or cancelled at any time without prior warning or notification to the seller. An irrevocable credit can be amended or cancelled only with the agreement of all parties thereto. As there are often two banks involved, the issuing bank and the advising bank, the buyer can ask an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit.

The customary clauses contained in a L/C are the following,-

• A clause authorizing the beneficiary to draw bills of exchange up to a certain on the opener.
• List of shipping documents, which are to accompany the bills.
• Description of the goods to be shipped.
• An undertaking by the opening bank that bills drawn in accordance with the conditions will be duly honored.
• Instructions to the negotiating bank for obtaining reimbursement of payments under the credit.

Parties to a letter of credit:

The parties to a L/C are,-

1. Importer/buyer
2. Opening bank/Issuing bank
3. Exporter/Seller/Beneficiary
4. Advising bank/Notifying bank
5. Negotiating bank
6. Confirming bank
7. Paying/Reimbursing bank

Description of the Diagram:

The buyer and the seller conclude a sales contract providing for payment by documentary credit.

1. The buyer instructs his bank-the ‘issuing’ bank-to issue a credit in favor of the seller .
2. The issuing bank asks another bank, usually in the country of the seller, to advice or confirm the credit.
3. The advising or confirming bank informs the seller that the credit has been issued.
4. As soon as the seller received the credit and is satisfied that he can meet its terms and conditions, he is in a position to load the goods and dispatch them.
5. The seller then sends the documents evidencing the shipment to the bank where the credit is available (the bank). [This may be the issuing bank, or the confirming bank, or any bank named in the credit as the paying, accepting or negotiating bank, or it may be the advising bank or any bank willing to negotiate under the credit.]
6. The bank checks the documents against the credit. If the document the requirements of the credit, the bank will pay, accept, or negotiate, according to the terms of the credit. In the case of a credit available by negotiation, the issuing bank or the confirming bank will negotiate without recourse. Any other bank, including the advising if it has not confirmed the credit, may negotiate same for payment.
7. The bank, if other than the issuing bank, sends the documents to the issuing bank.
8. The issuing bank checks the documents and if they meet the credit requirements, either-

a)      effects payment in accordance with the terms of the credit, either to the seller if he has sent the documents directly to the issuing bank or to the bank that has funds available to him in anticipation, or

b)      Reimburses in the pre-agreed manner the confirming bank or any bank that has paid accepted or negotiated under the credit.

9. 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.
10. The buyer sends the transport documents to the carrier who will then proceed to deliver the goods.

 Bill Of Lading:

A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constituted a document that is, or may be, needed to support an insurance claim.

The details on the bill of lading should include-

• A description of the goods in general terms not inconsistent with in the credit
• Identify marks and numbers, if any
• The name of the carrying vessel
• Evidence that the goods have been loaded on board
• The ports of shipment and discharge
• The names of shipper, consignee and name address of notifying party
• Whether freight has been paid or is payable at destination
• The number of original bills of lading issued
• The date of issuance

A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit.

 Commercial Invoice:

A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally includes the following information:

i)                    Date

ii)                  Name and address of buyer and seller

iii)                Order or contract number, quantity and description of the goods, unit price and the total price.

iv)                Weight of the goods, number of packages, and shipping marks and numbers.

v)                  Terms of delivery and payment

vi)                Shipment details.

Certificate Of Origin:

A certificate of origin is a signed statement providing evidence of the origin of the goods.

 Inspection Certificate:

This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and/or the L/C. The inspection company is usually nominated by the buyer who also indicates the types of inspection he wishes the company to undertake.

 Insurance Certificate:

The insurance certificate document must

i)                    Be that specified in the credit

ii)                  Cover the risks specified in the credit

iii)                Be consistent with the other documents in its identification of the voyage and description of the goods

iv)                Unless otherwise specified in the credit

1. be a document issued and / or signed by an insurance company or its agent, or by underwriters
2. be dated on or before the date of the date shipment as evidenced by the shipping documents or establish that cover is effective at the latest from such date of shipment
3. be for an amount at least equal to the CIF value of the goods and in the currency of the credit

Import Section:

Import is foreign goods and services purchased by consumers, firms & Governments in Bangladesh .An importer must have Import Registration Certificate (IRC) given by Chief Controller of Import and Exports (CCI & E) to import any thing from other country. To obtain IRC the following certificate are required

1. Trade License
2. Income tax clearance certificate
3. Nationality certificate
4. Bank’s solvency certificate
5. Asset certificate
6. Registration partnership deed (if any)
7. Memorandum and article of association / certificate of incorporation (if any)
8. Rent receipt of the business premises
9. Certificate of incorporation (if any)

Import Procedure:

To import through TBL, a customer requires-

1. Bank account
2. Import Registration Certificate
3. Tax Paying Identification Number
4. Proforma Invoice Indent
5. Membership Certificate
6. LC Application form duly attested
7. One set of IMP Form
8. Insurance Cover note with money receipt
9. Others 

Import Mechanism:

To import, a person should be competent to be and importer’. According to Import and Export Control Act, 1950, the Office Of Chief Controller Of Import and Export provides the registration (IRC) to the importer. After obtaining this person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Importer’s Application For L/C Limit/Margin:

To have an import L/C limit, an importer submits an application to the Department of EBL furnishing the following information, –

1. full particulars of bank account
2. nature of business
3. required amount of limit
4. payment terms and conditions
5. goods to be imported
6. offered security
7. repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

The L/C Application:

TBL provides a printed form for opening of L/C to the importer. A special adhesive stamp is affixed on the form.  While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage. The importer gives the following information,-

1. Full name and address of the importer.
2. Date and place of expiry of the credit
3. The mode of the transmission of document (mail/courier/telex)
4. Whether the confirmation of the credit is requested by the beneficiary or not
5. Whether the partial shipment is allowed or not
6. The type of loading (loading on board)
7. Brief description of the goods to be imported.
8. Availability of the credit by sight payment acceptance /negotiation/deferred payment.
9. The time bar within which the document should be presented.
10. Sales terms (FOB/C &F/CIF)
11. Account number
12. L/C amount
13. shipping mark
14. HS Code no of the goods to be imported.
15. IRC Number
16. LCA Number
17. Insurance cover note
18. Country of origin

The above information is given along with the following documents, –

1. Proforma Invoice stating description of the goods including quantity, unit price etc.
2. The insurance cover note, issuing company and the insurance number.
3. Four set of IMP Form

Securitization Of L/C Application:

The TBL Official scrutinizes the application in the following manner,-

• The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation.
• Eligibility of the goods to import
• The L/C must not be opened in favor of the importer.
• Radioactivity report in case of food item.
• Survey report or certificate in case of old machinery
• Carrying vessel is not of Israel
• Certificate declaring that the item is in operation not more than 5 years in case of car.

Now if the Officer thinks fit the application to open an L/C, the following entries are given to realize the L/C commission, charges, postage, L/C margin etc.,-

Client’s Account————————————-Dr.

Sundry deposit margin on L/C———————————–Cr.

Sundry deposit margin foreign currency clearing A/C——–Cr.

Income A/C commission————————————— –Cr.

Income A/C (postage/telex)———————————– –Cr.

After that, L/C number and the above entries are given in the L/C Register. The contra entries stating the liability of the bank and the client are as follows,-

Client’s Liability————————————Dr.

Bank’s Liability————————————————-Cr.

TRANSMISSION OF L/C:

The transmission of L/C is done through tested telex or fax to advise the L/C to the beneficiary.

Advising A Letter Of Credit:

The advising or notifying bank is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank. It becomes customary to advise a credit to the beneficiary through an advising bank. Advising depicts the proof of authenticity of the credit to the seller. The opening bank has corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take any liability if otherwise not requested.

 Adding Confirmation:

Adding confirmation is done by the confirming bank. Confirming bank is a bank which adds its confirmation to the credit and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. The advising usually does not it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him.

a) Issue L/C and request to add confirmation

b) Review the L/C terms

c) Provide reimbursement

d) Drafts to be drawn on L/C opening bank

e) Availability of credit facilities

f) Line allocation from the business & ownership units in the importer’s country

g) Confirm & advise L/C

Credit Report:

If the amount of L/C exceeds a certain limit, TBL takes the credit report of the beneficiary to ensure the worthiness of the of supplying goods

 Amendment Of Letter Of Credit:

Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reason .In such a situation, the credit should be amended. TBL transmits the amendment by tested telex to the advising bank .In case of revocable credit; it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable letter of credit, it can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge is debited from the party account accordingly.

Retirement of The Shipping Documents:

On scrutiny, if it is found that the document drawn in conformity with the terms of the credit i.e. the documents are in order TBL lodges the documents in PAD and the following vouchers are passed, –

Accounting Treatment:

Sundry Deposit L/C Margin A/C——————–Dr.

PAD A/C————————————————————Cr.

(Margin amount transferred to PAD A/C)

Customer A/C—————————————-Dr.

PAD A/C ———————————————————–Cr.

(Customer account debited for the remaining amount)

PAD A/C ———————————————Dr.

Head Office A/C +Exchange Trading A/C———————–Cr.

Income A/C interest on PAD————————————-Cr.

(Amount given to Head Office ID and interest credited)

Reversal Entries:

Banker’s Liability ————————————Dr.

Customer’s Liability ——————————————–Cr.

(When lodgment is given)

After realizing the telex charge, service charge, interest (if any), the shipping documents is then stamped with PAD Number & entered in the PAD Register. Intimation is given to the customer calling on the bank’s counter requesting retirement of the shipping documents. After passing the necessary vouchers, endorsements is made on the back of the Bill Of Exchange as “Received Payment” and the Bill Of Lading is endorsed to the effect “Please deliver to the order of M/S———”, under two authorized signatures of the bank’s officers (P.A. Holder). Then the documents are delivered to the Importer.

Precautions taken by officer before issuing L/C:

After submission of Documentary Letter of Credit application from, the concerned officer scrutinize the terms and conditions that mentioned in application he must check the following things:

Whether the terms and conditions of L/C application are consistent with Exchange Control and Import Trade regulation, UCPDC-600.

The credit report of beneficiary must be taken

L/C must not be opened in favor of the importer or his agent

L/C must be signed by the importer agreeing all terms and conditions mentioned in the application

Indenting registration number

Whether IMP from dully filled and signed

Validity of IRC

Insurance cover note with date of shipment

The HS code of the goods

The balance of the accounts of the importer

The goods are not from Israel to be used is not of Israel

The issuing officer will try to keep as much margin as possible

Accounting treatment:

 Later on the officer prepares a contra voucher:

Dispatching the import L/C:

After opening of import L/C, branch dispatches the L/C. branch sends an original copy of the L/C for negotiating and a copy to the advising bank for advising. It also sends reimbursing bank for reimbursement.

Radio Activity Report (applicable for import of foods only):

After receiving all the documents, the negotiating bank then checks the documents against the credit, if the documents are found in order, the bank will sends to the issuing bank.

Lodgment and Retirement Section:

Lodgment means retirement of funds. If the documents receiving from the negotiating bank also scrutinize the documents. The officer carefully examines the following points:

PAD:

This is the most sensitive task of the Import Department. The Officials have to be very much careful while making payment. This task constitutes following:

Date of payment:

Usually payment is made within seven days after the documents have been received. If payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing sale memo:

A sale memo is made at B.C rate to the customer. As the T.T and O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Advice is sent to ID.

Requisition for the foreign currency:

For arranging necessary fund for payment, a requisition is sent to International Department.

Transmission of telex:

A telex is transmitted to the correspondent bank that payment is being made.

Loan against Imported Merchandise (L.I.M):

Loan against import merchandise through the bank may be allowed retaining margin prescribed on their Landed Cost, depending on the categories and credit restrictions imposed by the Bangladesh bank /head office from time to time. Branches shall also obtain letter of undertaking and indemnity from the clients, before getting goods cleared through LIM account. Clearance of the goods should be taken through Approved Clearing Agent of the Bank.

The following points must be taken to consideration while allowing advance against the security of imported goods.

Storage of imported goods under LIM facility may be allowed for specified time as prescribed by Bangladesh Bank /head office of the bank within which period importer should take delivery of the goods against payment, generally part delivery is not allowed from LIM account. This may however, be allowed only on specific request and consideration. While allowing part delivery, it must be ensured that the landed cost of the merchandise is properly worked out before the goods are delivered to the customers against proportionate payments. Landed cost of valuable and less valuable items should not be averaged together.

 Import business of TBL:

Import Business of Trust Bank LTD from the year 2003 to 2006

(In million taka)

Graphical presentation of Import business of TBL

Source: Annual Report 2003- 2006 of Trust Bank Limited

It can be seen from the table and the graph that the import business of TBL is increasing every year at a very high rate. In the year 2004 to 2006 the increase is more compared to 2003. The increasing trend reflects that the import business will also keep increasing in the coming years. But alternatively we can also observe that the percentage growth in import business has fluctuated. In the year 2004 & 2006 it has been increased. In the year 2005 it is only 14%, which is lower than the year 2004.Though the growth rate is not increased that much but the volume of import is increasing every year.

Graphical presentation of Import Business of TBL as growth (%)

Chapter Seven

Export Section:

• 7.1. Export Section
• 7.2. Export LC Process
• 7.3. Export Financing
• 7.4. Position of Export Business of Trust Bank Limited

Export Section:

There is profit to be made in exports. The international market is much larger than the local market. Growth rates in many overseas markets far outpace domestic market growth. And meeting and beating innovative competitors abroad can help companies keep the edge they need at home.

There are also real costs and risks associated with exporting. It is up to each company to weigh the necessary commitment against the potential benefit.

Ten important recommendations for successful exporting should be kept in mind:

• Obtain qualified export counseling and develop a master international marketing plan before starting an export business. The plan should clearly define goals, objectives, and problems encountered.
• Secure a commitment from top management to overcome the initial difficulties and financial requirements of exporting. Although the early delays and costs involved in exporting may seem difficult to justify in comparison with established domestic sales, the exporter should take a long-range view of this process and carefully monitor international marketing efforts.
• Take sufficient care in selecting overseas distributors. The complications involved in overseas communications and transportation require international distributors to act more independently than their domestic counterparts.
• Establish a basis for profitable operations and orderly growth. Although no overseas inquiry should be ignored, the firm that acts mainly in response to unsolicited trade leads is trusting success to the element of chance.
• Devote continuing attention to export business when the local market booms. Too many companies turn to exporting when business falls off in the domestic market. When domestic business starts to boom again, they neglect their export trade or relegate it to a secondary position.
• Treat international distributors on an equal basis with domestic counterparts. Companies often carry out institutional advertising campaigns, special discount offers, sales incentive programs, special credit term programs, warranty offers, and so on in the domestic market but fail to make similar offers to their international distributors.
• Do not assume that a given market technique and product will automatically be successful in all countries. What works in Japan may fall flat in Saudi Arabia. Each market has to be treated separately to ensure maximum success.
• Be willing to modify products to meet regulations or cultural preferences of other countries. Local safety and security codes as well as import restrictions cannot be ignored by foreign distributors.
• Print service, sale, and warranty messages in locally understood languages. Although a distributor’s top management may speak English, it is unlikely that all sales and service personnel have this capability.
• Provide readily available servicing for the product. A product without the necessary service support can acquire a bad reputation quickly.

 Export LC Process:

The letter of credit is a highly standardized instrument, which has evolved over many years into a reliable method of effecting payment for commercial transactions throughout the world. To ensure a seamless transaction when relying on an export letter of credit for payment, it is important to understand the responsibilities of the parties.

Elements of the Letter of Credit:

Every letter of credit should be scrutinized as soon as it is received. Special attention should be paid to the following key elements.

• Key Dates. These include the latest date for shipment, the number of days for presentation of documents, payment (in the case of deferred payment or time letters of credit), shipping frequency (in the case of a multiple shipment letter of credit), and the expiration date. These dates should be realistic and acceptable.
• Amount. A letter of credit which says “about $X” means the exporter may draw 10% more or less. If the merchandise description calls for “about X” amount of product, then the exporter may ship 10% more or less.
• Documentary Requirements. Documents should be obtainable in time to meet the latest date for presentation. Special consideration must be given requirements for consularized invoices, inspection certificates and evidence of prior notification.
• Negotiability. The letter of credit can be freely negotiable or restricted to the counters of a named bank.

Export Financing:

Export Financing can be two types: –

i)                    Pre-shipment Credit

ii)                  Post Shipment Credit

i)                    Pre Shipment Credit:

Pre Shipment credit, as the name suggest, is given to finance the activities of an exporter prior to the actual shipment of goods. Pre shipment credit is essentially a short-term credit and liquidated by negotiation or purchase of export bills covering the merchandise. Generally, the bank grants pre-shipment credit against irrevocable, confirmed, unrestricted letter of credit received by an exporter from an overseas buyer. Before extending pre-shipment credit, the bank takes into consideration the credit worthiness, export performance of the exporters and other documents and information which are otherwise required for sanction of loan as per the existing rules and regulation in force.

1. Export Cash Credit (Hypothecation)
2. Export Cash Credit (Pledge)
3. Export Cash Credit against Trust Receipt
4. Packing Credit
5. Back-to-Back Letter of Credit
6. Credit against Red-Clause Letter of Credit.

1. Export Cash Credit (Hypothecation):

Under this arrangement, a credit is sanction against hypothecation of the raw materials or finished goods for export. Such facility is allowed only to major exporters. As the bank has got no security in this case, except charge documents and lien of export L/C or contract, the bank normally insists on the exporter furnishing collateral security. The letter of hypothecation creates a charge against the merchandise in favor of the bank but neither the ownership nor the possession is passes to it.

  Export Cash Credit (Pledge):

This credit facility is allowed against a pledge of exportable goods or raw materials. In this case, cash credit facilities are extended against the pledge of goods to be stored in the godown under bank’s control by signing a letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods to the bank’s effective control as security for payment of bank dues. In the event of failure of the exporter to honor his commitment, the bank can sell the pledge merchandise for recovery of the advance.

Export Credit against Trust Receipt:

In this case, credit limit is sanctioned against Trust Receipt (TR). Here also, unlike the pledge, the exportable goods remain in the custody of the exporter. He is required to execute a stamped export trust receipt in favor of the bank, wherein a declaration is made that goods purchased with financial assistance’s of bank are held by him in trust for the bank. Thus type of credit is granted when the exporter wants to utilize the credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank’s custody. This facility is allowed only to the major party and collateral security is generally obtained in this case.

 Packing Credit:

In this case, credit facilities are extended against security of Railway Receipt/Steamer Receipt/Barge Receipt/Truck Receipt evidencing transportation of goods to the port for shipment of the goods in addition to the usual charge documents and lien of export letter of credit. This type of credit is sanctioned for the transitional period from dispatch of the goods till negotiation of the export documents. The drawings under export cash credit (hypothecation/pledge) limit are generally adjusted by drawings in packing credit limit which is in turn liquidated by negotiation of export documents.

 Back-to-Back Letter of Credit:

Under this arrangement, the bank finances export by opening a letter of credit on behalf of the exporter who has received a letter of credit from the overseas buyer. As he (the exporter) is required to purchase raw materials for producing exportable, this new letter of credit is opened in favor of the supplier of raw materials within or outside the country. Since the second letter of credit is opened on the strength of, and backed by, another letter of credit it is called back-to-back credit. The need for a back-to-back credit arises because the beneficiary of the original (export) letter of credit may have to procure the raw materials from the actual producer or supplier, who may not supply the raw materials unless its payment is guaranteed by the bank in the form of letter of credit. The bank’s credit related to back-to-back L/C is realized subsequently from export proceeds.

   Advance against a Red-clause Letter of Credit:

Under a Red clause letter of credit, the opening bank authorizes the advising bank/negotiation bank to make an advance to the beneficiary prior to shipment to enable him to procure and store the exportable goods in anticipation of his effecting the shipment and submitting a bill under the L/C. As the clause containing such authority is printed/typed in red ink, the L/C is called Red Clause L/C. Though it is not prohibited, it is very rare in Bangladesh.

  Post-Shipment Credit:

Post Shipment credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises, as the exporter cannot afford to wait for a long time without paying manufacturers/suppliers. Before extending such credit, it is necessary for banks to look carefully into the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulation in force. Banks in our country extend post-shipment credit to the exporter through:

1. Negotiation of documents under L/C
2. Purchase of DP & DA Bills
3. Advance against Export Bills surrendered for collectio

1. Negotiation of Documents under L/C:

Under this arrangement, after the goods are shipped, the exporter submits the concerned documents to the negotiating bank for negotiation. The documents should be negotiated strictly in accordance with the terms and conditions and within the period mentioned in the letter of credit. If the documents are found to comply to comply with the terms and conditions of L/C, the bank may purchase/discount the draft/documents.

1. B.     Purchase of DP & DA Bills:

In such a case, the bank purchased/discount the DP (Documents against Payment) and DA (Documents against Acceptance) bills operated under the payment method of documentary collection. While doing so, the banks should scrutinize all the export documents separately and minutely, and clear instructions have to be obtained from the drawer of the bill in regard to all-important issues related to the negotiation of the bills.

Purchase and discount of bills under open account mode of payment has not been found to be practiced by the banks in Bangladesh.

1. C.    Advances against Bills for Collection:

Banks generally accept export bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. The bank generally negotiates bills drawn under L/C, without any discrepancy in the documents and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain an advance from the bank against the security of export bills. In addition to the export bills, banks may ask for collateral security like a guarantee by a third party or an equitable/registered mortgage of property.

. Position of Export Business of TBL:

Export Business of Trust Bank LTD from the year 2003 to 2006

                                                                                   (In million taka)

Source: Annual Report 2003- 2006 of Trust Bank Limited

        Graphical presentation of Export business of TBL 

It can be seen from the table and the graph that the export business of TBL has an increasing and decreasing trend. In the year 2004 Export business falls. But in the year 2005 export business increased dramatically. In the year 2004 & 2006 it has been decreased. In the year 2005 it was increased 14% (5%+9%) than 2004.Though the growth rate is not increased that much but the volume of import is increasing almost every year.

CHAPTER 8

Findings, Recommendation and Conclusion

Findings and Recommendations:

At the time of preparing the report I have find out some problem that the bank faces in operating its foreign exchange related activities. If they can overcome the limitations then they will be able to perform their activities more efficiently and effectively. Major findings of the foreign exchange business and the suggestion that will help the bank to overcome the challenge are listed below:

(i)At the theoretical framework chapter it is reviewed that foreign exchange business is highly dependent on the world economic situation. Any change in the world economic situation will affect the business. .So for eliminating the risk of foreign exchange business, the bank should higher expert who can understand the future economic situation and can take initiative based on the forecast. Again the bank can achieve success from the economy if they can handle the situation efficiently.

(ii)Administration of foreign exchange business is not a simple issue as this business is operated by following the rules and regulations of International Chamber of Commerce (ICC).And sometimes bank has to suffer from misinterpretation of the rules of ICC So bank should improve their research centre and training centre to enrich the knowledge regarding Uniform Customs and Practice for Documentary Credit (UCPDC).

(iii) By analyzing the performance of the foreign exchange division of TBL it can be seen that foreign exchange income is a major component of net operating income of the bank. But management of this division is not so much effective to handle the problem that the division faces in critical moment of world financial market. That is there is a great chance that the bank has to face a loss on their international trade payment related transaction .So I recommend that the bank should improve its management of international division who are responsible for handling their foreign exchange related risk. Again the bank should maintain correspondence relationship with the bank that will help them to settle their payment and receipt regarding foreign exchange transaction.

Conclusion:

Over the last few decades there have taken place dramatic transformation in the area of foreign exchange and financing of foreign trade. In the wake of these changes the financial experts have developed a whole range of new ideas and techniques on management exchange rates, investment of foreign exchange reserve and most of all management of exchange risks. Banking sector of Bangladesh is passing through a tremendous reform under the economic deregulation and opening up the economy .Currently this sector is becoming extremely competitive with the arrival of multinational banks as well as technological infrastructure, effective foreign trade management, higher performance level and utmost customer satisfaction. Again the advent of a new era of information technology has changed the ways banks handle their foreign exchange related transaction. As a commercial bank Trust Bank has to manage their foreign currency exchange risk to overcome the challenges of loss of foreign exchange business.. We know that institutional support is necessary for undertaking international trade and foreign exchange business. On the other hand expertise regarding management of exchange rate is essential for successful operation of foreign exchange related transaction. By undertaking these activities efficiently Trust Bank will be able to maximize their profit and wealth maximization objectives. Trust Bank Ltd undertakes and support foreign exchange business and management of exchange rate in different way. But some improvement regarding exchange rate risk minimization is necessary for handling the competition that arises from competitive financial market, as the foreign exchange division of the bank has an influential effect to the net operating income and net income of the bank. Recently this division has achieved quite success as they have achieved permission to perform most of the foreign exchange related transaction. But rival among local and foreign banks will make the act ivies of the bank more competitive in the near future. So the bank have to perform the foreign exchange  transaction in a more innovative way .So Trust Bank has to reengineer its plan and reform the service improvement strategy to retain  the higher performance level, customer satisfaction and to compete with challenges.

In upshot it can be recommended that foreign exchange business can become successful when it can capture the existing system in more efficient way and can minimize the exchange rate risk by improving their knowledge regarding world financial market and can align with the business requirement. Efficiency of the business has to be strongly controlled and monitored. Client friendliness is another important issue to be considered. Business to work smoothly should not only focus on foreign currency exchange risk minimization but also broaden its service regarding international payment, purchase order, sales invoice, correspondence relationship maintenance etc. so that not only Trust Bank Ltd. but also all its stakeholder like suppliers, Clients, distributors can get advantage of the business.

Appendix:

Financial Summary:

A summary of the overall performance of the Trust Bank Limited is given below:

References

• Brigham Eugene F., Besley Scott, Weston Fred J., Essentials of Managerial Finance, 11^th Edition, the Dryden Press, 1996.
•  Gerald L White, Ashwinpaul C. Sondhi, Dov Fried, The Analysis And Use of Financial Statements, McGraw-Flu Publication.
•  Peter S. Rose, Commercial Bank Management, 5th Edition, McGraw-Hill Publication.
•  Reading Materials published by Trust Bank Training Institute.
•   Annual Report of Trust Bank Limited from the year 2003 to 2006
• Prospectus and Brochures of different products and services of Trust Bank Ltd.

•   Reading Material for Probationary Officers, published by Arab Bangladesh Bank Training Institute.
• Official Website of Trust Bank Limited: www.Trustbank.com.bd
• Some training book of BIBM