Thesis Paper on Foreign Exchange Activities of Selected Banks in Bangladesh

 1.1 Origin of the Report

I am lucky to say that, Stamford University, Bangladesh, assigned me the report on “foreign Exchange operations of selected banks”. The data required for preparing this report has been collected from the annual reports of most recent years.

DBBL, NCC, NBL & South East Banks that perform most of the standard banking services and investment activities on the basis not only profit sharing but also social partnership. This study attempts to analyze the nature of modern banking activities and performance of selected banks. Its performance was reviewed and analyzed through the annual reports, and internal records of the bank.

This thesis report covers:

ð        An Overview on foreign exchange operations of MBL

ð       Financial Performance of the Bank

ð       Export and Import Performance.

The objectives of the study are as follows:

General Objectives:

The general objective of the report is the evaluation of foreign exchange operation of selected banks and compare with its competitor.

Specific Objective:

ð       To apply theoretical knowledge into practical area.

ð       To be familiar with the banking management system.

ð       To attain practical knowledge on the foreign exchange operations performed by selected banks.

ð       To evaluate the performance of General Banking division.

ð       To know the banking operational guideline of a bank.

ð       To get a brief idea about operational procedure.

ð       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.

ð       To familiarize different rules and regulations of Bank’s formalities.

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

ð       To adopt with the everyday banking activities.

ð       To find out the contribution of private commercial banks for the economic development of the country.

ð       To attain practical knowledge on the foreign exchange operations performed by MBL.

ð       To have better direction to identify and suggest the scope of enhancement in foreign exchange operations to fulfill the requirement of the internship program.

ð       L/C Opening.

ð       To learn about the benefits and incentives provides to the export proceeds.

ð       To know the collection process of export proceeds.

ð       To detect the problems involved and to obtain solutions.

The main objective of the study is to obtain a clear idea about the Foreign Exchange business of our banking operation i.e. how the L/C is opened and how the import & export is done

To meet the objectives of the study, I realized that a single method would not be effective. Formal & oral discussion, direct observation, questioning clients & printed papers of the Banks were found useful. To collect the necessary and meaningful information, the following methods were applied. Both primary and secondary sources were used here.

1.5.1 Research Design

Exploratory research has been conducted for gathering better information that will give a better understanding on different financial data. Both primary and secondary sources of data collection procedure have been used in the report. Primary data has been collected mainly through the writer’s observation of the approval process and monitoring techniques, informal interviews of executives, officers and employees of selected banks.

To make the Report more meaningful and presentable, two sources of data and information have been used widely.

Figure 1.1 Sources of data

Both primary and secondary data sources were used to generate the report. The information incorporated in this report has been gathered from primary and secondary sources. Apart from this, a review of related circular and office circular as well as face-to-face interview of the executives, officials and clients were carried out.

1.6.1 Primary Sources

ð       Face to conversation with the respective officers and stuffs of the banks.

ð       Discussing with my supervising teacher and manager.

ð       In-depth study of selected cases.

1.6.2 Secondary Sources

ð       Annual Report of the banks.

ð       Website of the banks.

ð       Several books and periodicals related to the banking sector.

ð       Bangladesh Bank Report.

ð       Various documentary file of the banks.

ð       Prior research report.

2.1 Banking System of Bangladesh

The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancient time Jews used to do money -lending business sitting on long benches.

First modern banking was introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era of banking activities throughout the European Mainland.

In the South Asian region, early banking system was introduced by the Afgan traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afganistan came to India and started money lending business in exchange of interest sometime in 1312 A.D. They were known as ‘Kabuliawallas”.

The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalised Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs).

Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector.The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks 1,177.

Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform programme to ensure quality services by the banks.

Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government’s monetary policy and implementing it thereby.

The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

A commercial bank (or business bank) is a type of financial institution and intermediary. It is a bank that provides transactional, savings, and money market accounts and that accepts time deposits.

2.4.1 Service

Accounts, Current, FDR, PDS & Deposit Scheme

2.4.1.1 Current Account

Generally this sort of account opens for business purpose. Customers can withdraw money once or more against their deposit. No interest can be paid to the customers in this account. If the amount of deposit is below taka 1,000 on an average the bank has authority to cut taka 50 from each account as incidental charge after every six months. Against this account loan facility can be ensured. Usually one can open this account with taka 500. One can open this sort of account through cash or check/bill. All the banks

2.4.1.2 Saving Bank Account

Usually customers open this sort of account at a low interest for only security. This is also an initiative to create people’s savings tendency. Generally, this account is to be opened at taka 100. Interest is to be paid in June and December after every six months. If money is withdrawn twice a week or more than taka 10,000 is withdrawn (if 25% more compared to total deposit) then interest is not paid. This account guarantees loan. Almost all the banks follow the same rules in the field of savings account, except foreign banks for varying deposit. On an average, all the banks give around six percent interest.

2.4.1.3 Special Service

Some Banks render special services to the customers attracting other banks.

2.4.1.4 Internet Banking         

Customers need an Internet access service. As an Internet Banking customer, he will be given a specific user ID and a confident password. The customer can then view his account balances online. It is the industry-standard method used to protect communications over the Internet.

To ensure that customers’ personal data cannot be accessed by anyone but them, all reporting information has been secured using Version and Secure Sockets Layer (SSL).

2.4.1.5 Home Banking

Home banking frees customers of visiting branches and most transactions will be automated to enable them to check their account activities transfer fund and to open L/C sitting in their own desk with the help of a PC and a telephone.

2.4.1.5 Electronic Banking Service for Windows

Electronic Banking Service for Windows (EBSW) provides a full range of reporting capabilities, and a comprehensive range of transaction initiation options.

The customers will be able to process all payments as well as initiate L/Cs and amendments, through EBSW. They will be able to view the balances of all accounts, whether with Standard Chartered or with any other banks using SWIFT. Additionally, transactions may be approved by remote authorization even if the approver is out of station.

2.4.1.6 Automated Teller Machine (ATM)

 Automated Teller Machine (ATM), a new concept in modern banking, has already been introduced to facilitate subscribers 24 hour cash access through a plastic card. The network of ATM installations will be adequately extended to enable customers to non-branch banking beyond banking.

2.4.1.7 Tele Banking

Tele Banking allows customers to get access into their respective banking information 24 hours a day. Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to other accounts irrespective of location either from home or office.

2.4.1.8 SWIFT

SWIFT is a bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion.

SWIFT is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network.

Having SWIFT facility, Bank will be able to serve its customers more profitable by providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc.

2.5 Money and Banking sector review

2.5.1 Monetary & Credit Policy

The monetary and credit policy for the financial year that ended  in June,2000 was formulated with the objective of full utilization of domestic  resources and rapid economic growth through priorities for agriculture, industry, export, and expansion and strengthening of the private sector, at the same time keeping inflation within tolerable limits. A modern expansionary monetary and credit policy was adopted in order to make good the losses to agriculture, industry, and infrastructure by the devastating floods of 1998. After the flood the economy remained sluggish in the first quarter of 1999-2000 and the private sector demand for credit shrank. In view of this, the Annual Development Programmed (ADP) was expanded and development activities in the private sector were geared up. As a result, the public sector absorbed credit at an accelerated rate. Though credit to the private sector picked up towards the end of the year, the overall annual growth was smaller than programmed, although gross domestic credit expanded a little faster than projected. Money supply increased by 15.3% in 1999-2000 compared to the expansion of 8.6% in the preceding year.

2.5.2 Narrow Money

Narrow Money increased by Tk. 2,631.90 crores or 15.3% to Tk.19,881.30 crores in 1999-2000. Of the components of Narrow Money, currency outside banks went up by Tk.1,489.40 crores or 17.2% to Tk.10,176.00 crores, and demand deposits went up by Tk.1,142.50 crores or 13.3% to Tk.9,705.30 crores.

2.5.3 Broad Money

Broad Money increased by Tk.11,735.70 crores or 18.6% to Tk. 74,762.40 crores in 1999-2000 compared to the increase of  12.8% in the preceding year. Of the components of Broad Money, Narrow Money increased by 15.3% and time deposits rose by 19.9% compared to the increase of 8.6% in Narrow Money and 14.5% in time deposits in the preceding year. The shares of currency outside banks, demand deposits and time deposits in Broad Money stood at 13.6%, 13.0%, and 73.4% respectively on 30th June, 2000 compared to 13.8%, 13.6% and 72.6% respectively on 30th June, 1999.Expansion of credit to the private sector, government sector (net), public sector, and other assets (net), along with a surplus in net foreign assets contributed to the expansion of Broad Money.

2.5.4 Reserve Money

Reserve Money increased by Tk.2, 321.80 crores or 15.7% to Tk.17,064.50 crores in 1999-2000 compared to the increase of 8.3% during the preceding year. Of the components of Reserve Money, currency outside banks increased by Tk.1,489.40 crores or 17.1% compared to the increase of Tk.533.30 crores or 6.5% during the preceding  year. Scheduled banks balances with the Bangladesh Bank increased by Tk.770.90 crores or 15.3% in 1999-2000 compared to the increase of Tk.488.20 crores or 10.8% in the preceding year. Their cash in tills increased by Tk.61.50 crores or 6.0% as against the increase of Tk.103.60 crores or 11.2% in the preceding year. The increase in Bangladesh Bank’s credit to the  government (net) by Tk.1,738.10 crores and net surplus in the foreign sector by Tk.1,262.40 crores played the main role in exerting expansionary influence on the Reserve Money. However the decline of Tk.333.60 crores and Tk.44.90 crores in the borrowings by the scheduled banks and other financial institutions respectively along with the fall of Tk.300.20 crores in other assets (net) partly offset the expansionary impact of those sectors.

2.5.5 Domestic Credit

Total domestic credit increased by Tk.8, 581.20 crores or 13.6% to Tk. 71,489.00 crores ( including adjustment of bonds issued by the government) in 1999-2000 as compared to the increase of Tk.7,267.60 crores or 13.1% in the preceding year. Expansion of credit to the government, private, and public sectors to the extent of Tk.3,524.30 crores (31.3%), Tk.4,906.10 crores (10.7%), and Tk.150.80 crores (2.5%) respectively contributed to the expansion in total domestic credit in 1999-2000. Credit to the government and private sector had increased by 21.3% and 13.8% respectively, while credit to the public sector declined by 3.7% in the preceding year.

2.5.6 Bank Credit                                                                                                           

The outstanding level of bank credit (excluding foreign bills and inter-bank items) increased by Tk.5, 123.30 crores or 10.3% to Tk.54, 646.10 crores in 1999-2000 as compared to the increase of 12.4% in the preceding year. Of the components of bank credit, advances increased by Tk.4, 892.70 crores or 10.3% and the bills purchased and discounted went up by Tk.230.60 crores or 11.3%.

2.5.7 Bank Deposit

Bank deposits (excluding inter-bank items) increased by Tk.11,044.70 crores or 18.6% to Tk.70,278.70 crores in 2009-2010 compared to the increase of 14.2% in the preceding year. Of this increase , time deposits went up by Tk.9,103.80 crores or 19.9% to Tk.54,881.10 crores, government deposits by Tk.723.60 crores or 14.8% to Tk.5,615.20 crores and demand deposits by Tk. 1,142.50 crores or 13.3% to Tk.9,705.30 crores. On the other hand, restricted deposits increased by Tk.74.80 crores in 2009-2010.

 3.1 Profile of Southeast Bank Limited

The emergence of Southeast Bank Limited was at the juncture of liberalization of global economic activities. The experience of the prosperous economies of the Asian countries and in particular of South Asia has been the driving force and the strategic operational policy option of the Bank. The company philosophy – “A Bank with Vision” has been precisely an essence of the legend of success in the Asian countries.

Southeast Bank Limited is a scheduled commercial bank in the private sector, which is focused on the established and emerging markets of Bangladesh. In Dhaka, the first branch was launched in 1995 and the bank has been growing ever since. Southeast Bank Limited has 22 branches throughout Bangladesh and its aim is to be the leading bank in the country’s principal markets. The bank by concentrating on the activities in its area of specialization has achieved good market reputation with efficient customer service. The Bank is committed to providing continuous training to its staff to keep them up to date with modern practices in their respective fields of work. The Bank also tries to fulfill its share in community responsibilities. By such measures the Bank intends to grow and increase shareholders’ earning per share. Southeast Bank Limited pledges to maximize customer satisfaction through services and build a trusting relationship with customers, which has stood the test of time for the last nine years.

3.1.2 Vision of Bank

ð    To stand out as a pioneer banking institution in Bangladesh

ð    To contribute significantly to the national economy.

3.1.3 Mission of Bank

ð    High quality financial services with the help of latest technology.

ð    Fast & accurate customer service.

ð    Balanced growth strategy.

ð    High standard business ethics.

ð    Steady return on shareholders’ equity.

ð    Innovative banking at a competitive price.

ð    Deep commitment to the society and the growth of national economy.

ð    Attract and retain quality human resource.

3.1.4 Social Responsibility

An organization cannot move along. Organization needs people to generate its activities & people needs organization to get some kind of services. Southeast bank is an organization that is concerned to maximize its profit along with maintaining some kind of social responsibilities. It is fully devoted to fulfil the needs for its customer’s satisfaction as well as it is involved socio-economic development activities. Objectives of the banks are:

ð    Creating employment opportunities within the bank through expanding its network

ð    Cooperating with organizations such as Gramen Bank which are helping the poor through micro credit and other facilities.

ð    It finances the small scale industries to help them survive.

3.1.5 Management Team

To achieve the mission, a set of efficient drivers is mandatory. Commercial banks in Bangladesh are now in a hard competition. This is because of continuous growth of similar service oriented local bank along with special service providing foreign bank due to globalization.

In this respect, Southeast bank enjoys a team of sound professionals. It is managed by a team of professionals having long experience in the banking industry. While the board sets the management objectives and policies, the management is instrumental in providing the inputs and implementing the strategies set by the board. The bank maintains a continuous policy of developing its human resources. It believes that, the professionals are the key forces behind the achievement of success in banking business at the face of prevailing rigorous competitive market situation.

3.1.6 Management Information System

      South east bank uses PC Bank/M a branch banking software developed by leads Corporation- developed on SQ: on windows platform. The head office and branches use the software for book keeping, automatic interest calculation, daily transaction listing and audit trials, auto maturity and auto renewal of FDRS, automatic integration of customer’s ledger and general ledger, printing of general ledger position including balance of subsidiaries, monthly income and expenditure position etc.

3.1.7 Service & Products

      SEBL always try to provide best services and products to their clients to   acquire their satisfaction. The bank provides the following the products and services to consider client’s demand

                                                                 Table: 3-1

                                                               Table: 3-2

3.1.2 Deposit

SEBL always try to collect deposits from their clients by providing high interest against the deposits. The bank provides the following deposits to consider client’s demand

Customer Friendly Deposit Schemes

Table: 3-3

Savers Benefit Deposit Scheme

   Table: 3-4

Loan Schemes:

Table: 3-5

3.1.3 Foreign Exchange Division

Foreign Exchange Department is international department of Bank. It deals globally. It facilitates international trade through its various modes of services. It bridges between importers and exporters. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency. This is why this department is called foreign exchange department.

Some national and international laws regulate functions of this department. Among these, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control Act, 1950 is for Documentary Credits (UCPDC – 1993 revision & International Chamber of Commerce Publication no – 500) is also an important law for settlement of terms and conditions between exporter and importer in international trade. Governments’ Import &Export policy is another important factor for import and export operation for banks.

3.1.4 Functions of Department

Import Operation

Import section helps business and other people to import goods. In international environment, buyers and sellers are often unknown to each other. So seller always seek guarantee for the payment for his goods exported. Here is the role of bank. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’.

When a buyer goes to import some goods from a foreign buyer, he request his bank makes payments to the exporter of goods. And the bank recovers the amount from the importer.

 Export Operation

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through SBLare readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.

a. As an advising bank: It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

1. b.      As Negotiating Bank: It negotiates the bills and other shipping documents in favor of the exporter. That is, it collects the proceeds of the export-bill from the drawee and credits the exporter’s account for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawee to encase it.

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

Foreign Remittance Department

This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a bank must provide some services to the clients regarding foreign exchange and this department provides these services. The basic function of this department are outward and inward remittance of foreign exchange from one country to another country. In the process of providing this remittance service, it sells and buys foreign currency. In such transactions the foreign currencies are like any other commodities offered for sales and purchase, the cost (convention value) being paid by the buyer in home currency, the legal tender.

Miscellaneous Services by this Department:

Table: 3-6

Analysis of this Department

Table: 3-7

Number of Different Accounts Maintained by this Department

Fig. 3.2

                                Fig. 3.3

3.1.5 Banks Performance

The bank’s overall objective is to have a higher\profitability than that of the weighted average of other banks

Capital and Reserve    

The authorized capital of the bank was Tk. 3,500.00 million and paid-up capital was Tk. 2,852.20 million as of December 31, 2008. The capital and reserve of the banks in 2008 stood at Tk. 7,657.01 million compared with Tk. 6,468.36 million of the previous year showing an increase of 18.38%

The capital and reserve position of the Bank as on 31-12-2005 is appended as:

Table: 3-8

3.2 Profile of Mercantile Bank

Mercantile Bank Limited, a private commercial Bank with head office at 61 Dilkusha C/A, Dhaka Bangladesh started operation on 2^nd June, 1999. The Bank has 45 branches spread all over the country with assets of Tk. 44,940.54 million and more than 1000 employees, the bank have diversified activities inertial banking, corporate banking and international trade.

3.2.1 World Economy

The year 2008 reminds us the worst financial meltdown since the 1930’s. It is argued that the meltdown of the financial system was “made in America” because it relaxes rules of providing loans to the people with no income for buying houses, called “sub-prime housing loans” amounting to about $2.1 trillion. Furthermore, US regulators did not monitor the way in which the banks were providing loans during the housing-boom period. The regulatory bodies in the US ignored warning signs of a financial storm since August 2007 and believed that the free market system would take care of it. But free market could not prove its effectiveness in avoiding the financial crisis. As a result, almost every country of the world faced the ongoing world economic crisis.

World growth is expected to fall to 0.5% in 200, its lowest rate since World War 2. The US economy, the world’s largest and the epicenter of the Financial Tsunami would shrink to 1.3% in 2009. Output in the advanced economies is now expected to contract by 2% in 2009, first contraction during the post war period. Growth in emerging and developing economies is expected to slow sharply from 6.25% in 2008 to 3.25% in 2009. China, the fastest growing economy in the world is expected to slow down to 7.5% in 2009 from a double-digit growth rate over the past several years, while India’s deceleration would be less steep to 5.0% from 6.2% and the economy of Japan would shrink to 1.2% in 2009.

Sluggish real activities and lower commodity prices resulted from tiny demand caused by the current economic meltdown have dampened inflation pressures. In the advanced economies, headline inflation is expected to decline from 3.5% in 2008 to a record low of 0.25% in 2009, before edging up to 0.75% in 2010. In emerging and developing economies, inflation is also expected to subside to 5.75% in 2009 and 5% in 2010, down from 9.%% in 2008.

3.2.2 Bangladesh Economy

Bangladesh Economy recorded satisfactory growth in FY2008 in spite of experiencing two consecutive floods and devastating cyclone Sidre, price hike of oil and other commodities in the world market. Governments growth generating and poverty reduction programs coupled with the prudent monetary policy of Bangladesh Bank lead to achieve 6.2% growth in FY2008, slightly lower than 6.4% of FY2007. Nearly all sectors contributed to the GDP growth, particularly significant were the growth of export-oriented sectors, inflow of remittances and some service sector like transport and communication.

3.2.3 Background of MBL

Banking system occupies an important place in an economy. A banking institution is indispensable in modern society. It plays a liberalization of economics policies in Bangladesh. Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking service with a view to improving the socio-economic development of the country.

Mercantile Bank Limited has been incorporated on May 20, 1999 in Dhaka, Bangladesh as a Private limited company with the permission of the Bangladesh Bank; Mercantile Bank Limited commenced formal commercial banking operation from the June 2, 1999. The bank stood 45 branches all over the country up to December, 2008.

There are 28 sponsors involved in creating Mercantile Bank Limited. The sponsors of the bank have a long heritage of trade; commerce and industry. They are highly regarded for their entrepreneurial competence. The sponsors happen to be members of different professional groups among whom are also renowned banking professionals having vast range of banking knowledge. There are also members who are associated with other financial institutions like insurance companies, leasing company etc.

3.2.4 Vision

Would make finest corporate citizen.

3.2.5 Mission

• Will become most caring,
• Focused for equitable growth based on diversified deployment of                                                   resources, an
• Nevertheless would remain healthy and gainfully profitable Bank.

3.2.6 Objective

v Strategic Objectives:-

Æ  To achieve positive Economic Value Added (EVA) each year.

Æ  To be market leader in product innovation.

Æ  To be one of the top three Financial Institutions in Bangladesh in terms of cost efficiency.

Æ  To be one of the top five Financial Institutions in Bangladesh in terms of market share in all significant market segments they serve.

v Financial Objective:-

Æ  To achieve a return on shareholders’ equity of 20% or more, on average.

3.2.7 Core values

v For the customers:-

Providing with caring services by being innovative in the development of new banking products and services.

v For the shareholders:-

Maximizing wealth of the Bank.

v For the employees:-

Respecting worth and dignity of individual employees devoting their energies for the progress of the Bank.

v For the community:-

Strengthening the corporate values and taking environment and social risks and reward into account.

3.2.8 Hierarchy of Positions in Mercantile Bank Limited

3.2.9 Organ gram

3.2.10 Coverage of MBL

3.2.11 Function of MBL

A bank has a lot of function in different ways. A Bank means an institution, which borrows money from the surplus unit of the society and lends money to the deficit unit for earning profit. The deposits are mainly accepted by the banker through current and saving account that is withdrawal by cheques. A bank includes a body of person’s weather incorporated or not who carry on business of banking. Thus a bank is a profit intuition which deals in money and credit.

The functions of Commercial banks are now wide and varied. However, the functions of Commercial Banks may broadly be classified under the following two categories:

Æ    Primary Function

Æ    Secondary Function

3.2.11.1 Primary Function:

The Primary functions of Commercial Bank/MBL are as follows-

ü Accepts Deposits:

The first primary functions of bank are to accept deposits of money from the public

or sever group. The total deposits held by the banker are broadly classified as-

ü  Demand Deposit: Demand deposits are withdrawn able on demand and thus no prior notice is needed. Deposits in Current Account and Saving Account fall in this category.

ü  Time Deposit: Time deposits are repayable on the expiry of a fixed period of time only. Fixes deposit Accounts, recurring Deposit Accounts and deposit payable at specified

Lends Money:

Banking system essentially involves lending. Depending on the requirements of the borrower, banks lend money in the forms following:

ü  Loans: In case of loan, the entire amount is paid to the borrower in lump sump, either in cash or way of transfer to his account. The borrower can withdraw the amount at any time. Interest is calculated and charged on the debit balance usually with quarterly rests. A loan once repaid in full or in part cannot be withdrawn further. Thus, no cheque book is issued against the loan account.

ü  Overdraft: Overdraft is usually a temporary arrangement where the customer is allowed to withdraw money exceeding the credit balance of the current account up to an agreed limit. Interest in charged only for the amount drawn.

ü  Cash Credit: A cash credit is an arrangement where the customer is allowed to withdraw money up to the sanctioned limit.  Unlike overdraft this is a permanent arrangement and usually used to meet the working capital needs of business housed, industries etc. in cash credit account withdrawals and deposits may be effected frequently. Interest is charged on the daily balanced. Cash credit arrangement is usually made against pledge or goods but this could also be extended against personal security.

ü  Bill Discounted and Purchase: Another mode of advancing money is discounting of the issuance bill of exchange. The banks buy the bill before its maturity at a price less than the face value. The amount, which the bank deducts from the face value of the instrument, is actually the interest calculated up to the date of maturity of the bills.

ü  Creates Credit: The creation of credit is one of the important functions of Commercial Bank. The bank accepts deposits from the public and lends money to its customers. When a bank extends loan, it does not pay the amount in the bank account of the borrower and allow withdrawing the required amount by cheques. In this way the bank creates credit or deposit which is regarded as money and can be used for the purchase goods and services and also for the payment of debt just like currency notes.

Creates medium of Exchange: Commercial bank usually issues cheque which circulates like money in the society and creates the medium of exchange.

3.2.11.2 Secondary Function

Modern commercial bank like MBL, besides performing the primary functions, cover a wide range of financial and non-financial services to meet the growing needs of the time. Some of the services are available only to the customer while others are available to the public in general. The subsidiary services provided by a modern banker may be classified into the following two groups:

q Agency Services:

In many cases the Commercial Banks acts the agent of the customers. As agents the banks provide the following services:

ü  Collection of cheque, draft, bill of exchange, promissory note, dividends, salaries, pension, rent etc. on behalf of the customer.

ü  Acting as correspondent and representative of its customers, other banks, and financial institutions.

ü  Conducting stock exchange transaction i.e. purchase and sale of share and securities for the customers.

ü  Functioning as trustee, executor or administrator of estate of a customer.

q  General Utility Services: Commercial banks provide a variety of general utility services to the customers. They are given below:

ü  Issue letter of credit (L/C)

ü  Accepts valuables for safe custody

ü  Conducts in foreign exchange business

ü  Lease financing

ü  Provides Internet banking services

ü  Provides specialized advisory services

ü  Issues debit and credit cards

ü  Underwrites of share and securities

ü  Merchant Banking

ü  Serving as a referee as to the financial standing business reputation and respectability of their customers

3.2.12 Foreign Exchange business

A commercial Bank/MBL is involved in financing foreign trade apart from financing internal credit requirement in the economy. This involves handling of import business through opening L/C and handling of export business. As banking has become very keenly competitive, banks find it convenient to involve in foreign exchange business as a lucrative source of earning income and profit.

Apart from financing foreign trade, Commercial Banks also provide guarantees of various types to their clients. While these facilities clients to undertake jobs assigned to them by various corporations and organization, this enables the bank to earn commission.

A commercial Bank also provides the facilities of remittance to its clients for transfer of funds to various traded centers within the country and also outside the country in keeping with the foreign restrictions of the Central Bank.

3.2.13 Lone Products

Consumers Credit Scheme

Objectives:-

• Help fixed-income people for buying house hold durable.
• For the amount up to Tk. 1, 00,000 the period is two years.
• Interest rate will be charged quarterly rest.

Terms & Conditions:-

• Interest Rate   16.00%
• Risk Fund   1.00%
• Supervision Charge (per year on outstanding balances)   0.25%
• Application Fee  BDT 200.00

Special Feature:-

• The loan amount is directly credited to the customer’s account.

CAR LOAN Scheme

Doctors’ Credit Scheme

3.3.1 Profile of the Organization

Sponsored by some dynamic and reputed entrepreneurs and eminent industrialists of the country and also participated by the Government, UCB started its operation in mid 1983, company act 1962 and has since been able to establish the largest network of 85 branches as on 031.12.2006 among the first generation banks in the private sector.

With its firm commitment to the economic development of the country, the Bank has already made a distinct mark in the realm of Private Sector Banking through personalized service, innovative practices, dynamic approach and efficient Management. The Bank, aiming to play a leading role in the economic activities of the country, is firmly engaged in the development of trade, commerce and industry thorough a creative credit policy. It has resulted in great success in all areas of operation with a view to improve the socio-economic development of the country. The high profitability track record underpins value that the shareholders derive from investing in the shares of United Commercial Bank. In doing business, United Commercial Bank follows the fundamental principles of Corporate Governance Accountability, Responsibility and Transparency. United Commercial Bank Limited will uphold its business motto of “people come first” and strive to provide the best banking products and services to its customers. In the process of reform and development, the bank is trying to improve its management capabilities and service standards through hard work and innovation.  And such efforts have helped it gain a good reputation from its customers.

3.3.2 Vision of the Bank

To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

3.3.3 Mission of the Bank

• To build United Commercial Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure.
• Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels.

3.3.4 Strategic Statement

To have sustained growth, broaden and improve range of products and services in all areas of banking activities with the aim to add increased value to shareholders investment and offer highest possible benefits to our customers.

3.3.5 Objectives of the Bank

To build up strong pillar of capital, To promote trade, commerce and industry, To discover strategies for achieving systematic growth, To improve and broaden the range of product and services, To develop human resource by increasing employment opportunities, To enhance asset of shareholders, To offer standard financial services to the people, To keep business morality, To develop welfare oriented banking service, To offer highest possible benefit to customers.

3.3.6 Corporate information of UCBL

  Name of the bank               : United Commercial Bank Ltd                                              

 Status                                   : Private Limited Company

 Date of Incorporation          :  June 23, 1983

Authorized Capital               :  Tk.350.00 Crore

Paid-up Capital                     :  Tk.171.375 Crore

Numbers of Branches           : 85 (Eighty Five)

Proposed Branches               : 15 (Fifteen)

Chairman                              : Mr.Md.Jahangir Alam Khan

Company Secretary              : Mr. Mahmud Rafiqur Rahman

Managing Director               : Mr. M. Shahjahan Bhuiyan

Number of Employees         :  2500

Credit Rating                        : Long Term: A3 (Adequate Safety)

                                              Short Term: ST-2

Registered Office                  : Federation Bhaban (4^th through 6^th Floor)

                                                60, Motijheel Commercial Area, Dhaka-1000.

                                                Bangladesh G.P.O- Box: 2653

                                                PABX: +88-02-955075-77, 9568690-93

                                                Fax: +88-02-9560587

                                                Email: iinfo@ucbl.com

                                               Web site:   WWW. Ucbl.com   S.W.I.F.T: UCBLBDDH

3.3.7 Capital and Reserve

During the year under report authorized capital of the bank remained unchanged at tk.1000 million and the paid up capital stood s at tk.230million.The reserve fund of the bank increased by 33% to Tk-1045 as against Tk-783 million in the previous year. The capital fund of the bank stood at Tk. 1943 million in 2008 against Tk.1389 million of 2007 recording an increase of Tk.39.88%. Core capital increased by TK.492 million and stood at Tk.1735 million while supplementary capital increased by Tk.62 million and stood at Tk.208 million. Total capital fund is equivalent to 9.72% of risk weighted Assets.

3.3.8 Risk Management

Risks   involved in different operational area are under control of the management. The bank has taken appropriate measures to enforce and follow all approved risk manuals /guidelines covering the following risk area in order to control and minimize the business as well as financial risks at an acceptable level.

1. Policy guidelines on asset liability management
2. Policy guidelines on   credit management
3. Policy guidelines on  foreign exchange risk management
4. Policy guidelines on money laundering prevention
5. Policy guidelines on internal control and compliance

The bank has formed a management committee (MANCOM) to review proper implementation and regular monitoring of core areas of risk management.

3.3.9 Hierarchy of Positions in UCB Bank Limited

3.3.10 District –Wise Branch Distribution

Dhaka Division

Chittagong Division

Rajshahi Division

Khulna Division

Barisal Division

Sylhet Division

3.3.11 Product and Service

• UCB Multi Millionaire
• UCB Money Maximizer
• UCB Earning Plus
• UCB DPS Plus
• Western Money Transfer
• SMS Banking Service
• Online Service
• Credit Card
• One Stop Service
• Time Deposit Scheme
• Monthly Savings scheme
• Deposit Insurance Scheme
• Inward & Outward Remittances

Balance Sheet as at 31^st December 2010

United Commercial Bank

Balance Sheet

As at 31^st December, 2010

Source: Annul Report of UCBL during year 2010

Table: 3-9

Profit & Loss account (Income Statement) for the year ended 31^st December 2010

Source: Annul Report of UCBL during year 2010

Table: 3-10

 What Is Foreign Exchange

Every country has certain natural advantages and disadvantages in producing certain commodities while they have some natural disadvantages as well in other areas. As a result we find that some countries need to import certain commodities while others need to export their surpluses. Foreign trade brings the fruits of the earth to the homes of the humblest among the countries. These transactions are the basis upon which international trade is made.

As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which is known as Foreign Exchange. The term ‘Foreign Exchange’ has three principal meanings:

Firstly it is a term used referring to the currencies of other countries in terms of any single one currency. To a Bangladeshi, Dollar, Pound Sterling, etc. are foreign currencies and as such foreign exchanges.

Secondly, the term also commonly refer to some instruments used in international trade, such as bill of exchange, drafts, traveler’s cheque and other means of international remittance.

In terms of section 2(d) of the Foreign Exchange Regulations-1947, as adopted in Bangladesh foreign exchangemeans foreign currency and includes any instrument drawn, accepted, made or issued under clause 13 of article 16 of the Bangladesh Bank Order, 1972, all deposits, credits and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign currencies.

In exercise of the powers conferred by sec. 3 of the Foreign Exchange Regulations-1947, Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as AuthorizedDealers (AD). Licenses are also issued by Bangladesh Bank to persons or firms to exchange foreign currency instruments such as T.C., Currency notes and coins. They are known as Authorized Money Changers.

4.1 International Trade and Foreign Exchange of MBL

The import business of the Bank decreased to Tk. 40,380.10 million in 2007 from Tk. 42,442.80 million in 2006 and export bills decreased to Tk.32, 670.10 million in 2007 from Tk.34, 592.10 million in 2006. Remittances handled by the Bank increased and reached Tk. 3,510.40 million and Tk. 2,989.10 million respectively in 2007 and 2006 It was tk. 679.10 million in 2005.

The number of foreign correspondents is 584 as of December 31, 2007. Efforts are being continued to further expand the Correspondent Relationship to facilitate Bank’s growing foreign trade transactions. The Bank is using SWIFT communication system for fast and accurate handling for foreign trade. The Bank is connected to REUTERS also for up-to-date information on the foreign exchange markets.

To have crystal clear idea about the Foreign Exchange of MBL Critical analysis of the following are essential

         Credit policy of the Bank

         Credit sanctioning Authority of MBL and

         Credit Monitoring / Supervision of Cell

Import section helps business and other people to import goods. In international environment, buyers and sellers are often unknown to each other. So seller always seek guarantee for the payment for his goods exported. Here is the role of bank. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’.

When a buyer goes to import some goods from a foreign buyer, he request his bank makes payments to the exporter of goods. And the bank recovers the amount from the importer.

Sections:

Foreign exchange department of MBL, Main Branch is divided into two sections:

      L/C Operation

      Foreign Remittance

4.1.2 L/C OPERATION

Letter of Credit (L/C) can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary letter of credit.

The Uniform Customs and Practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (1993) publication no 500 define Documentary Credit:

a)         Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the Applicant) or on it’s own behalf,

b)        Is to make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills of exchange(Drafts)drawn by the beneficiary or

c)         Authorize another bank to effect such payment or to accept and pay such bills of exchange (Drafts).

d)        Authorize another bank to negotiate against stipulated documents provide that terms and conditions are complied with.

4.1.3 Types of Documentary Letter of Credit

Documentary letter of credit, basically, can be classified into two segments:

a)         Revocable letter of credit

b)        Irrevocable letter of credit

a) Revocable Letter of Credit:

This type of letter of credit can be revoked or cancelled at any time without consent of, or notice to the beneficiary. As per article 8 (a) of UCPDC-500 “A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary”.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread.

b)     Irrevocable Letter of Credit:

An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed L/C).

As per Article 9(a) of UCPDC 500, an irrevocable credit constitutes a definite undertaking of the Issuing Bank, provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the credit are complied with. Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent on an undertaking of a foreign bank.

4.1.5 Documents Used in L/C Operation

The most commonly used documents in foreign exchange are:

                                i.            Bill of Exchange

                              ii.            Bill of Lading
                            iii.            Commercial invoice
                            iv.            Certificate of origin
                              v.            Inspection certificate
                            vi.            Packing list
                          vii.            Insurance document
                        viii.            Pro Forma Invoice (PI)/Indent

BILL OF EXCHANGE:

Bill of exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating settlement of payments between buyer/importer and seller/exporter at home and abroad. A bill when accepted by the drawee, gives evidence of the claim as made by the drawer as well as testimony to the acceptance of the debt by the drawee. The payment is done either in accordance with the terms of sale contract or under a L/C opened by the buyer/importer in favor of the seller/exporter.

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 constitutes a document that is, or may be, needed to support an insurance claim.

The details on the bill of lading should include

ü  A description of the goods in general terms not inconsistent with that in the credit.

ü  Identifying marks and numbers.

ü  The name of the carrying vessel.

ü  Evidence that the goods have been loaded on board.

ü  The ports of shipment and discharge.

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:

ü  Date

ü  Name and address of buyer and seller

ü  Order or contract number, quantity and description of the goods, unit price and the total

ü  Price

ü  Weight of the goods, number of packages, and shipping marks and numbers

ü  Terms of delivery and payment

ü  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 buyer who also indicates the type of inspection he wishes the company to undertake usually nominates the inspection company.

PACKING LIST:

This is a unique document and not combined with other document. This is a listing of the contents of each package, cartoon etc. and other relevant information.

INSURANCE DOCUMENT:

Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the agreed manner and extent against fortuitous losses. Insurance document generally contains the following information:

• The name of the insurer or his agent
• The name of the ship/carrier
• The name of assured
• The subject matter of insurance

4.2 Functions of Foreign Exchange Department of (UCBL):

Foreign Exchange Department performs many functions to facilitate the foreign exchange transactions. These are:

v  Facilitating Import Trade

v   Facilitating Export Trade

v   Providing Funded and Non-funded Credit Facility.

v   Provide Non Commercial Remittance

v   Foreign Currency Accounts

v   Selling of Foreign Currency Bond

v   Preparation and Submission of Statements

The International Division placed at the United Commercial Bank’s head office at Motijheel is the backbone of all international transaction that is conducted through the various branches of the bank. A total of 85 branches of United Commercial Bank have the license to carry out international trade functions. Each of these AD branches have foreign exchange department whose sole purpose is to carry out cross border transaction demanded by the customers. The functions of such Foreign Exchange Department can be divided into three sections:

v Import Section

Import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad.

We can simplify Import as a means purchase of goods and services from the foreign countries into Bangladesh. Normally consumers, firms and Government of Bangladesh import foreign goods to meet their various necessities. Import section of the Foreign Exchange Department helps business and other people to import goods. So seller always seeks guarantee for the payment for his goods exported. Here is the role of bank. Bank gives export guarantee that it will pay for the goods on behalf of the buyer. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its ‘Letter of Credit’. When a buyer goes to import some goods from a foreign buyer, he request his bank makes payments to the exporter of goods. And the bank recovers the amount from the importer.

4.2.1 Letter of Credit:

Letter of Credit is a guarantee or undertaking or commitment to the beneficiary/exporter for making payment issued by the issuing bank on behalf of the importer upon fulfillment of some conditions. Central Banks, therefore assure these things to happen simultaneously by opening Letter of Credit guaranteeing payments to seller and goods to buyer. By opening a Letter of Credit on behalf of buyer in favor of seller, commercial banks undertake to make payments to a seller subject to submission of documents drawn on in strictly compliance with Letter of Credit terms giving title of goods to the buyer. It is a conditional guarantee. The Letter of Credit thus constitutes one of the most important methods of financing foreign trade. In the Import Policy Order 2003-2008 Letter of Credit denoted as – ‘“Letter of Credit” means a letter of credit opened for the purpose of import under this Order’ The expression “Documentary Credit(s)” and “Standby Letter(s)” means any arrangements, however named or described, whereby a bank (“the issuing bank”) acting at the request and on the instruction of a customer (the “Applicant”) or on its own behalf,

v  Is to make a payment to or the order of a third party (“the Beneficiary”), or is to accept and pay bills of exchange (Draft’s) drawn by the Beneficiary, Or

v   authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Draft(s)),Or

v   authorizes another bank to negotiate,

v  Against stipulated document(s), provided that the terms and conditions of the Credit and complied with.

On the other hand Letter of credit can be defined as a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary letter of credit. The uniform customs and practices for documentary Credit (UCPDC) published by international Chamber of Commerce (1993) revision, publication no 500 define Documentary Credit:

v  Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the Applicant) or on it’s own behalf,

v  Authorize another bank to effect such payment or to accept and pay such bills of exchange (Drafts)

v   Authorize another bank to negotiate against stipulated documents provide that terms and conditions are complied with.

4.2.2 Types of Letter of Credit:

There are many types of Letter of Credits that are used in different countries of the world. But International Chamber of Commerce (ICC) vides their UCPDC- 500, which denotes only two types of LETTER OF Credits; mentioned:

• Ø Revocable Letter of Credit

A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. That is to say, this type of letter of credit can be revoked or cancelled at any time without consent of, or notice to the beneficiary.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread.

In this case the issuing banks must perform the following two roles:

• Reimburse another bank with which a revocable Credit has been made available for sight payment, acceptance or negotiation – for any payment, acceptance or negotiation made by such – prior to receipt by it of notice of amendment or cancellation, against documents which appear on their face to be in compliance with the terms and conditions of the Credit;

• Reimburse another bank with which a revocable Credit has been made available for deferred payment, if such a bank has, prior to receipt by it of notice of amendment or cancellation, take up documents which appear on their face to be in compliance with the terms and conditions of the Credit.

• Ø Irrevocable Letter of Credit

An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed Letter of Credit). Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent on an undertaking of a foreign bank. In the issuance of Irrevocable Letter of Credit both the Issuing and Conforming Bank have some liability, mentioned bellow, as per UCPDC -500: The following types of Letter of Credits are used in the UCBL, Mohammadpur Branch:

• Ø Cash Letter of Credit

Payment made form cash foreign exchange not from export proceeds; there is not export L.C. which backs the import Letter of Credit Payment term is at sight.

• Ø Deferred Letter of Credit

The only difference between cash Letter of Credit and deferred Letter of Credit lied in the terms of payment. Payment under deferred Letter of Credit is made after certain days of presentation of the export bill. Letter of Credit the differed payment basis may be opened for the following cases:

• Ø Items Period

Back to Back Imports Maximum 180 days

Agricultural Industrial Raw Materials (For own use) Maximum 180 days

Implements & Chemical Fertilizer Maximum 180 days

Capital Machinery Maximum 360 days

Coastal Vessel Maximum 360 days

Life Saving Drugs Maximum 90 Day

• Ø Back to Back Letter of Credit

The back to back credit is a new credit opened on the basis of an original credit in favor or another beneficiary. Under back to back concept, the seller as the beneficiary of the first credit offers it as security to the advising bank for the issuance of the second credit. The beneficiary of the back to back credit may be located inside or the out side the original beneficiary’s country.

• Ø Anticipatory Credit

The anticipatory credits make provision for pre-shipment payment to the beneficiary in anticipation of his effecting the shipment as per L/C conditions.

4.2.3 General Conditions of Import of Goods:

• Import Trade Control Schedule Number For import purpose, use of ITC Number (H.S. Code) with at least six digits corresponding to the classification of goods as given in the Import Trade Control Schedule 1988, based on the Harmonized Commodity Description and Coding System, shall be mandatory. The seven Digit H.S. Code published by Bangladesh Bureau of Statistics may also be mentioned in the Letter of Credit. Form, Letter of Credit and other relevant paper within a bracket in addition to normal H. S. Code as mentioned above. No bank shall issue Letter of Credit Authorization form or open Letter of Credit without properly mentioning I. T. C. number (H. S. Code) thereon.

4.2.4 Parties of a Letter of Credit:

• • APPLICANT FOR THE CREDIT: The importer or buyer on whose request and on whose behalf the letter of credit is opened is called the applicant.

• • ISSUING BANK/ OPENING BANK: The bank that opens a Letter of Credit, at the request of the importer, is known as Issuing Bank. The Issuing Bank is the buyer’s bank and is also called opening bank.

• • BENEFICIARY: The party, normally the supplier of the goods, in whose favor the Letter of Credit is opened is called beneficiary. The seller, after shipping the goods as per terms of the credit, presents the documents to negotiating bank/conforming bank for negotiation.

• • ADVISING BANK: The bank is the exporter’s country, usually the foreign correspondent of the importer’s bank; through which Letter of Credit is advised to the supplier is called the ‘advising bank’.

• • CONFORMING BANK: If the advising bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, it becomes the conforming bank. The conforming bank, in addition, becomes liable to pay for documents in conformity with the Letter of Credit terms and conditions.

• • NEGOTIATING BANK: The Bank, which negotiates the bill (draft) of the exporter drawn under the credit, is known as negotiating bank. If the advising bank is also authorized to negotiate the bill (draft) drawn by the exporter it itself becomes the negotiating bank.

• • ACCEPTING BANK: A bank that (as specified in the Letter of Credit) accepts time or usance drafts on behalf of the importer is called the accepting bank. The Letter of Credit issuing bank can also take on the responsibility of an accepting bank.

• • PAYING BANK: The bank that effects payment to the beneficiary (as named in the Letter of Credit) is known as paying bank/drawee bank.

• • REIMBURSING BANK: If the issuing bank does not maintain any account with THE

NEGOTIATING bank an alternate arrangement is made to reimburse it for the amount payable under a credit form some other bank. The later bank is termed as reimbursing bank. An authority to debit his account is sent to the bank with whom the account is maintained to honor the claims placed by a negotiating bank.

4.2.5 Preparation of Proposal and submitting it to the Competent Authority for Obtaining Permission of Opening Letter Of Credit:

Before opening Letter of Credit the applicant must take permission from the competent authority. Whether the authority has to be taken form the Branch or from the Head Office depends on the amount of Letter of Credit and the percentage of margin. A proposal for obtaining permission for opening Letter of Credit generally contains the following points:

• • Name and address of the importer;
• • Name and address of the Guarantor if any;
• • Particular of Merchandise to be imported along with name of the item Harmonized   System (H.S.) Code, country of origin, quantity, unit price and purpose of import.
• • Particulars/ Terms of LC along with name and address of the beneficiary, tenor of payment, port of loading and discharge, shipment validity and expiry date etc.;
• • Landed cost of the goods;
• • Market price of the goods at Dhaka and Chittagong (if applicable);
• • Name of the previous banker with outstanding liability (if any);
• • Number of CD accounts and transaction performance through this account;
• • Present liability position with the bank;
• • Present liability position of allied/sister concerns with the bank
• • Letter of Credit performance of the party during the year/previous year;

4.2.6 Steps for Import L/C operation:

Step 1: Registration with CCI & E:

•  For engaging in international trade, every trader must be first registered with the chief Controller of Import and Export.
• By paying specified registration fees to the CCI & E. the trader will get IRC/ERC to open L/C with Bank, this IRC is must.

Steps 2- Determination terms of credit:

The terms of the letter of credit are depending upon the contract between the importer and exporter. The term of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and of destination, nature of credit, expiry date, name and number of sets of shipping documents etc

Steps 3- Proposal for opening of L/C:

To have an import LC limit an importer submits an application to department to united commercial bank ltd. The proposal contains the following particular:

• Full particulars of the bank account.
• Nature of business
• Required amount of limit
• Payment terms and conditions
• Goods to be imported
• Offered security
• Repayment schedule

Step 4-Application by importer to the banker to open letter of credit:

• For opening LC, the importer is required to fill up a prescribed application form provided by the banker along with the following documents:

Step 5- Opening of L/C by the bank for the opener:

• Taking filled up application form the importer
• Collects credit report of exporter from exporter’s country through his foreign correspondence there.
• Opening bank then issues credit by air mail/ TELEX/SWIFT followed by L/C advice  as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own from where it is addressed to him or merely hand over the original L/C to the beneficiary if it is so addressed.

Step 6- Shipment of goods and lodgment of documents by exporter:

• Then exporter ships the goods to the destination of the importer country
• Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the opening banker with L/C:

Step 7- Lodgment of document by the opening bank from the negotiating bank:

After receiving the document, the opening banker scrutinizes the documents. If any discrepancy found, it inform the importer. If importer accepts the fault, then opening bankers call importer retiring the document. At this time many thing can happen. These are indicated in the following:

• Discrepancy found but the importer accepts- no problem occurs in lodgment.
• Discrepancy found but the importer not agreed to accept- in this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C.
• Documents are ok but importer is willing to retire the documents- in this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD.
• Everything is ok but importer is failed to clear goods from the port and request bank to clear- in this case banks clear the clear the goods and takes delivery of the same by paying custom duty and sales tax etc. so, this expenditure is debited to the importer account and in banking it is called LIM.

The above mentioned description could be pointed out as under:

a. The seller being satisfied with the terms and the conditions of the credit makes shipment of the goods as per Letter of Credit terms.

b. After making the shipment of the goods in favor of the importer the exporter submits the documents to the negotiating bank.

c. 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 negotiate to Prime

Bank

d. Branch & Bank received seal to be affixed on the forwarding schedule

e. The Bill of Exchange & transport documents must immediately be crossed to protect loss or fraudulent.

Step 8- Retirement:

On receipt of cost memo/lodgment voucher the importer pays the necessary amount. This stage of the documentary credit operation is known as ‘Retirement of Import Bills’. The branch will prepare the retirement voucher to reflect the amount of cost and other charges to be collected from the importer, adjustments of margin and PAD Account. Thereafter the documents may be handed over to the importer against proper acknowledgement after certification and endorsement. The certifications by authorized personnel of the bank are as follows:

• The invoice is certified by the authorized officer of the bank with the exchange rate as applied in lodgment;

• The bill of Exchange received from negotiating bank on issuing bank by the beneficiary;

• The Transport Documents evidencing the carrying of goods as per Letter of Credit term has to the endorsed by the AD branch.

On receipt of intimation, the importer is given necessary instructions with regard to retirement of the bill, disposal of the shipping documents and clearance of the goods from the customs authorities. The importer may ask the bank to retire the bill by debiting his account or may request for the providing LIM or LTR facility, if arranged earlier. On intimation the importer approaches with a letter for retirement of the document against full payment with up to date interest and charges payable. Bank prepares cost memo in printed form on account of the concerned party giving details head of charges payable.

4.2.6 Financing Related with Import:

Advances against Import Bill are originated for the lodgment of shipping documents received from foreign correspondents against Letter of Credit estimated by the Bank on behalf of its customers. Threes bills of lodged by debiting PAD account and crediting HO account. To Create PAD, the documents received form the negotiating bank is to be scrutinized thoroughly whether they are in order as per L/C terms. If on scrutiny, the documents are found in order, lodgment of the same is done as PAD, after converting the foreign currency into Taka at the conversion rate.

4.3 About Export Policy of Mercantile Bank Limited.

Export policies formulated by the Ministry of Commerce, which provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target.

It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime.

The export-oriented private sector, through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government.

4.3.1 Export Incentives:

Different incentives are:

 Financial Incentives:

q  Restructuring of Export Credit Guarantee Scheme;

q  Convertibility of Taka in current account;

q  Exporters can deposit 40% of FOB value of their export earnings in own accounts in dollar and pound sterling;

q  Export Development Fund;

q  Expansion of export credit period from 180 days to 270 days;

q  50% tax rebate on export earnings;

q  Duty draw back;

q  Bonded warehouse facilities to 100% export oriented firms;

q  Duty free import of capital equipment for 100% export oriented firms;

General Incentives:

q  National Export Trophy to successful exporters;

q  Training course on external trade;

q  Arrangement of international trade fairs, commodity-based exhibitions in the country and participation in foreign trade fairs.

Other Incentives:

q  Assistance in improvement of quality and packaging of exportable items;

q  Simplification of export procedures;

4.3.2 Export Procedure:

The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950.

Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to incorporate on EXP forms and other papers connected with exports.

4.3.3 Registration of Exporters:

For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barisal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents:

q  Nationality and Assets Certificate;

q  Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company;

q  Bank Certificate;

q  Income Tax Certificate;

q  Trade License etc.

Signing the Contract:

After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc.

4.3.4 Receiving the Letter of credit:

After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment.

The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit:

(1)   The terms of the L/C are in conformity with those of the contract;

(2)   The L/C is an irrevocable one, preferably confirmed by the advising bank;

(3)   The L/C allows sufficient time for shipment and negotiation.

(Here the regulatory framework is UCPDC-500, ICC publication)

Terms and conditions should be stated in the contract clearly in case of other mode of payment:

• Cash in advance;
• Open account;
• Collection basis (Documentary/ Clean)

(Here the regulatory framework is URC-525, ICC publication)

Procuring the Materials:

After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

Shipment of Goods:

Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C and Inco terms, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time.

Documents for shipment:

q  EXP form,

q  ERC (valid),

q  L/C copy,

q  Customer Duty Certificate,

q  Shipping Instruction,

q  Transport Documents,

q  Insurance Documents,

q  Invoice,

q  Other Documents,

q  Bills of Exchange (if required)

q  Certificate of Origin,

q  Inspection Certificate,

q  Quality Control Certificate,

q  G.S.P. Certificate,

q   

Final Steps:

Submission of the documents to the Bank for negotiation.

4.3.5 Export Financing:

Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract.

³ Pre-shipment credit

³ Post-shipment credit

Pre-shipment credit

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes:

q  Cash for local procurement and meeting related expenses.

q  Procuring and processing of goods for export.

q  Packing and transporting of goods for export.

q  Payment of insurance premium.

q  Inspection fees.

q  Freight charges etc.

q  An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings:

q  Export cash credit (Hypothecation)

q  Export cash credit against trust receipt.

q  Packing credit.

q  Back to back letter of credit.

Post-shipment credit

This type of 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 for without paying manufacturers/suppliers. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through:

1. Negotiation of documents under L/C;
2. Foreign Documentary Bill Purchase (FDBP):
3. Advances against Export Bills surrendered for collection;

4.3.6 Packing Credit (P.C):

Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and ships the goods. Generally for movement of goods from the hinterland areas to the ports of shipment the Banks provide interim facilities by way of Packing Credit. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents.

Practically except for single transaction, most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a particular period. The drawings are required to be adjusted fully once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export documents.

4.3.7 Foreign documentary bill purchase (FDBP):

Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. PBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order.

For this purpose, PBL maintains a separate register named FDBP Register. This register contains the following information:

q  Date

q  Reference number (FDBP)

q  Name of the drawee

q   Name of the collecting bank

q   Conversion rate

q  Bill amount both in figure & in Taka.

q  Export form number

4.4 About Export Policy of United Commercial Bank Limited

The goods and service sold by Bangladesh to foreign households, businessmen and government are called Export. The export trade of the country is regulated by the imports and export Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exporters from Bangladesh are subject to export trade control exercised by the ministry of Commerce through Chief Controller of import and export. No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid export registration Certificate. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms and other documents connected with exports.

4.4.1 Type of Export:

Export must be done as under:

1. Export against L/C or firm contract
2. Export against advance payment
3. Export under consignment basis.

The formalities and procedure are enumerated as follows:

1. Obtaining exports L/C: To get export LC form exporter issued by the importer.
2. Submission of export documents: Exporter has to submit all necessary documents to the collecting bank after shipping of goods.
3. Checking of export documents: After getting the documents banker used to check the documents as per LC terms.
4. Negotiation of export documents: If the bank accepts the bank document and pay the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. If the bank does by the LC then the bank normally acts as collecting bank.
   1. Realization of proceeds: This is the period when the issuing bank has realized the payment.
   2. Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by monitoring latest payment.
   3. Issue to proceeds realization certificate (PRC): Bank has to issue proceed realization certificate of export LC to the supplier for getting cash assistance.

4.4.2 Export Operation:

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments, jute, jute made products, frozen shrimps, tea re the main goods that Bangladeshi exporter exports to foreign countries. Garment sector is the largest sector that’s exports lion share of the country’s export. Bangladesh exports most of its readymade garments product to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through UNITED COMMERCIAL BANK are readymade garments exporters. They open export L/C here to export their goods, which are open against the import L/Cs opened by their foreign importer.

 As an advising bank:

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the opening bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

 As Negotiating Bank:

It negotiates the bills and other shipping documents in favor of the exporter. That is, it collect the proceeds of the export bill from the drawee and credit the exporter account for the same. Collection proceeds from the export bill are deposited in the bank NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawee to encash it.

4.4.3 Back To Back L/C:

It is simply issues to the clients against an import L/C. Back To Back mechanism involves two separate L/Cs. One is master export L/C and another is Back to Back L/C. on the strength of master export L/C bank issued bank Back L/C. Back to Back L/C is commonly known as buying L/C. on the contrary, Master export L/C is known as selling L/C.

L/C number Formation:

When an L/C number are crated in that case the following items are arrange in a sequence. These are:

1. Specific code of Bangladesh bank.
2. Branch code
3. Year
4. Category
5. Serial number

Features of Back-To-Back L/C:

• An import L/C to procedure goods for further processing.
• It is opened based on export L/C.
• It is a kind of export finance.
• No margin is required to open back to back L/C.
• Application is registered with CCI &E.
• Application has bonded warehouse license.
• Usance  period will be up to 180 days.
• The import L/C is opened for 75% of the value of export L/C.
• Here L/C issued against the lien of export L/C.

Documents required for opening a Back-To Back L/C:

In united commercial bank, following papers/ documents are required for opening a back to back L/C-

1. Master L/C
2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC).
3. L/C Application and LCAF duly filled in and signed
4. Proforma Invoice or Indent
5. Insurance Cover Note with money receipt
6. IMP from duly signed
7. Textile permission
8. Valid Boned Warehouse License

Checklist of exports L/C:

Following defective points are usually found in master L/C. So, the bank officials so much carefully check these points. These are:

1. Name of the advising bank
2. Name of the transferring bank
3. From of document. Credit:

• Name of issuing bank
• Documentary credit No. and issuing date
• Date of shipment
• Expiry date and place

1. On account
2. Beneficiary / Favoring
3. Amount
4. Availability of credit
5. Partial shipment
6. Payment condition
7. Category
8. Description of goods:

• Item
• Total Quantity
• Unit price

1. B/L Clause
2. Reimbursement clause
3. UCPDC clause
4. Net FOB value.

4.4.4 Payment of back-to-back L/C:

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after utilizing export proceeds from the L/C issuing bank.

L/C under EDF:

• Exporter development fund is created by Bangladesh bank to give encourages to exporter in Bangladesh.
• Generally back –to- back L/C is that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh gives the fund to the bank to pay the price of imported goods in favor of the local purchaser of raw materials. When export proceeds come, first Bangladesh bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.

Negotiation of exports documents:

The most common method of financing exporters is negotiation of documents under L/C. it is a post shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods, the exporters submit the relative documents to the branch for negotiation. The documents are to submit within the period mentioned in the L/C, after approval of negotiation of the bill the full particulars of the documents are entered in to the foreign bill purchased register. The documents are sent to the L/C opening branch with a forwarding letter. The branch claim reimbursement from the issuing bank, giving clear instruction to credit the proceeds of the bill to the United Commercial Bank head office NOSTRO A/C maintained with the named correspondent bank abroad under telex intimation to the principal branch and head office.

4.4.5 Foreign documentary bills for collection (FDBC)

United commercial bank forwards the documents for collection due to the following reasons-

• If the documents have discrepancies
• If the exporter is a new client.

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment. UCB make regular follow up with the L/C opening bank in case of any delay in getting payment.

Settlement of Local Bills:

The settlement of local bills is done in the following ways-

1. The consumer submits the L/C to United Commercial Bank Ltd. Along with the documents to negotiate
2. United Commercial Bank Ltd. Official scrutinizes the documents to ensure the conformity with the term and conditions
3. The documents are then forwards to the L/C opening bank
4. The L/C issuing bank gives the acceptance and forwards an acceptance letter
5. Payment is given to the customer on either by collection basis or by purchasing the documents.

4.4.6 Foreign remittance:

  Foreign remittance is the transfer of foreign currency from one country to another country.  In another word, foreign remittance means, remittance in foreign currency that are received in and made out abroad.  Actually, foreign remittance is purchase and sale of freely convertible foreign currencies as permissible under exchange control regulations of the country.  Foreign remittance is very important for the country as valuable foreign exchange is involved in the transfer mechanism.  Foreign remittance takes place in two ways-

4.4.7 Foreign Process Remittance:

Fund transfer from one country to another country goes through a process which is known as remitting process.  Suppose a local bank has 200 domestic branches.  The bank has corresponding relationship with a foreign bank say-“X”, and maintaining “Nostro Account” in US $ with the bank.  Bangladeshi expatriates are sending foreign remittances to their local beneficiary, through that account.  Now, when the Bangladeshi expatriates through other banks of different countries remit the fund to their “Nostro Account” with “X”, then the local bank’s Head Office international division will receive telex message and the remittance section will record the advice and generate the advice letter to the respective branch of the bank.  The branch will first decode the test, verify signature and check the account number and name of the beneficiary.  After full satisfaction, the branches transfer the amount to the account of the beneficiary and intimate the beneficiary accordingly.  But some times the complexity arises, if the respective local bank has no branch where the beneficiary maintains his account.  Then the local bank has to take help of a third bank who has branch there.

Inward Remittance:

Remittance comes from foreign countries to our country is called inward remittance.  To the bankers or ADs inward remittance means purchase of foreign currency by authorized dealers.  Generally, inward remittances are received by draft, mail transfer, TT, purchase of foreign bills & travelers Cheque, export bills.  Basically, these are the formal channels of receiving inward remittance.  A local bank also receives indenting commission of local firm also comes under purview of inward remittance.

Outward Remittance:

Remittance from our country to foreign countries is called outward foreign remittance.  On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance.  The authorized dealers must utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released.  Out ward remittance may be made by appropriate method to the country to which remittance is authorized.  Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.

Outward remittance may be made for following purposes-  

• Travel
• Medical treatment
• Educational purpose
•  Attending seminar etc.
•  Balance amount of F.C account.
•  Profit of foreign companies.
•  Technical assistance
•  New exporters up to USD 6,000/- for business promotion
•  F.C. remittance can be made for fare, exhibition from export retention quota.

Outward remittance in favor of beneficiaries outside Bangladesh may be made in any of the following manners-

Formal Channel:

Fund transfer from one country to another country through official channels, i.e. banking channel, post office, and other private service channels, such as – Western money order, Neno money order etc.

Informal Channel:

Fund transfer from one country to another country through hand by hand or over telephone in an unofficial channel like as “Hundy”.  Haque (1992) comments, that remittance collected by informal “Hundi” rings operating in Middle East countries and UK are also used to finance illegal trade and transactions.

Islam (2000) observes that as informal channel is needed for illegal trade of goods, as well as gold and drugs into Bangladesh, and therefore, helping the ever-present problem of capital flight out of Bangladesh.

Criminals use informal channel for moving money abroad because of-

•  Dealing in arms & ammunition
•  Drug trafficking
•  Financing terrorist activities
•  Evasion of exchange regulations/ control
•  Evasion of taxation
•  Disguise or remove proceeds of threat/ fraud/ bribe.
•  Making blackmail payments
•  Paying random for kidnapper.

Findings from financial performance analysis

After analyzing the financial and overall performance of MBL, I have identified some sort of issues which are given in below:

ð      The Bank is too much centralized. For each and every work branch office has to get permission from the head office. The head office tightly controls each and every branch office. This dependency on head office causes slow down their activities.

ð      Interest rate on deposit is much higher than other banks, which increase their cost of fund and it diminish the opportunity to provide loan at a lower interest rate. It makes high demand on short term deposit and manages these liabilities with loan they might need to borrow from call money market.

ð      Mercantile Bank Limited has committed to their prospective customers to honor it’s of cheque with in 30 second after submission but unfortunately they are not able to fulfill this.

ð      MBL is 3^rd generation bank of our country. The liquidity level of the bank is fluctuating year to year and always below the standard limit.

ð      The bank’s operating cost to income ratio is increasing year by year which is not desirable.

ð      The bank’s net profit margin is decreasing yearly which indicates that the bank is run in a worst situation.

ð       The bank has financed on an average of above 93% of its total assets with debt in every year. So the bank should more emphasize on equity capital than the debt capital.

ð      PC bank is not comprehensive banking software. It is desirable that a more comprehensive banking should replace PC bank system.

Findings from foreign exchange operations analysis

General foreign exchange service portfolio:  Foreign Exchange operations mainly include L/C, Import and export procedures. As an Authorized Dealer, MBL, Main Branch is always committed to facilitate import of different goods into Bangladesh from the foreign countries. Import Section, which is under Foreign Exchange Department of the branch.

Different Means of Payment: The bank provide different means of payment for the importers and exporters whereas they prefer. The clients make their payment by Cash in advance, Open Account, Collection Method, Letter of credit

Concentrate on Export Incentives: The bank is currently concentrated on different types of export incentives to attract the actual and potential customers. They are Financial Incentives, General Incentives, and Other Incentives. Most of them are already implemented.

Growing fastest Correspondent Relationship: The number of foreign correspondents is 584 as of December 31, 2009. Efforts are being continued to further expand the Correspondent Relationship to facilitate Bank’s growing foreign trade transactions. The Bank is using SWIFT communication system for fast and accurate handling for foreign trade. The Bank is connected to REUTERS also for up-to-date information.

Recommendations of MBL:

Mercantile Bank Limited has been able to operate its all issues proficiently and more competently in the operations of foreign Exchange and other related perspective around the Bank. To improve the management culture and foreign exchange department’s performance in future, MBL should adopt some of the industry best practices currently. This are—-

ð       The bank should give close attention on its interest expense. This cost is rising over year to year. It has an affect on interest income. The bank should try to handle it on strictly and close monitoring system have been maintained.

ð       Amount of import and export was turn down last year but it is a concerning issue to have direct monitoring system. Foreign Exchange department’s main function is to handle export and import procedures and there is a direct relationship between amount of Export & Import and Exchange gain which is charged to customers on letter of credit and letter of guarantee are credited to income at the time of effecting the transactions. The direct monitoring and supervision process should develop where branch manager and head / in charge of the related department are hold responsible

ð       Total foreign remittance in a single year, in 2007 made a record high to the tune of BDT 3510.40 million. So the bank has deepened its step on the foreign soils further by establishing more and more remittance arrangements with overseas exchange companies where Bangladeshi expatriates are working.

Moreover for prompt & safe delivery of this hard earned money to their near and dear ones in every corner of the country, the bank can established agency arrangements with some big banks.

ð       Shortage of skilled human resource in foreign exchange department is a major problem In MBL. Vacancies should fill up with qualified and experienced personnel by offering attractive incentives. The bank should provide training facility for its existing employer for their betterment.

ð       The procedure related with Export and Import and other formalities of foreign Exchange is so lengthy that it would take more time to finalize one transaction. The bank and Foreign Exchange department should take initiative to trim down the official formalities as possible

ð       For proper documentation and keeping the record, it is essential to update Management Information System (MIS). But currently they have PC Bank 2000, which is not enough for the bank.

ð       .At present the ATM, debit card, credit card etc services are so much popular. So the bank should try to make this service available for each and every client.

Recommendations of UCBL:

• The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them more recent knowledge of international trade financing. With more professional base employees can better satisfy the customers. They should be taught about how to deal with problem customer and how to deal problematic situations.
• Margin and commission on L/C varies from customer to customer. A few customers are allowed to open L/C even with nil margin and fees commission. I think the bank should review the customer transaction behavior for a period of time and should develop a certain polity in this regard.
•  In many cases, the foreign banks want confirmation from other foreign banks with which this bank has correspondence. This proves the poor financial condition of our country. Bank should try to improve this situation.
• Over burden of work and ill defined assignment unable to employee to discharge their duties in cool manner.
• To ensure efficient and timely credit flow it is important to ensure effective work and output from all the subsections of credit department. Right now, there are four approval officers, four operation stuffs to assist them where there is only one MIS officer. This MIS officer has to do a lot of miscellaneous works along with giving loan in put to the database.
• New investment scheme should be introduced to meet customer demands. Other banks have high amount of investment schemes and services. New personal savings, future investment products should be launched to sty ahead of competition and better satisfy customer requirements.
• UCB is now facing image crisis problem. In stock market their share transaction stopped since 1 year. They do not call their AGM on time. The devaluation of their share price creates a negative impact on the people mind. So I think now very first they should solve this problem.

Conclusion

All Departments are important tool used in international trade. They provide security for both Customer and banker where conditions may be uncertain or there is little or no previous trading relationship between the parties. As a student before thesis I have learned about the corporate world through books and analysis. This program also taught me the differences between bookish and Analytical knowledge.

I have truly enjoyed my work from the learning and experience viewpoint. I am confident that this program at the selected banks will definitely help me to realize my further carrier in the job market.

United Commercial Bank Limited is a first generation bank. it is provide high quality financial service to contribute to the growth of GDP of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio economic development of the country. Already United Commercial Bank Limited makes a strong position through it varies activities. Its number of clients, amount of deposit and investment money increases day by day. This bank already has shown impressive performance in investment. The bank now should think to start new services and take different types of marketing strategy to get customer in this competition market of banking and also the overall performance of despite some Mercantile Bank Limited criticism is above the average of present banking industry. Solid revenue growth together with strict discipline on expenses and a culture of sound risk management have upgraded the Bank to a level of excellence. In its pursuit of excellence, the Bank constantly reviews its systems, policies, process and prices of its products and services in line with the changing market reality. Thus, MBL intends to pave the way for a new era in banking.