Foreign exchange operations of Mutual Trust Bank Limited
Chapter 1 Introduction
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Foreign exchange operations of Mutual Trust Bank Limited
1.1: Objectives of the study: The Prime objectives of the study are to gather practical knowledge regarding banking systems and operation. This practical orientation gives us a chance to coordinate the theoretical knowledge with the practical experience. The following are the objectives for this practical orientation in bank:
To overview of Mutual Trust Bank ltd. To get an overall idea about the Foreign exchange Business of MTB Limited. To examine the Performance Analysis of Mutual Trust Bank ltd To understand the real management situation and try to recommend for improving existing problems.
1.2: Methodology of the study: From my educational background I have learnt different methodology to collect data from different sources and analyze them. With the objective to make my report sound one, I have the opportunity to implicate my educational knowledge in practical field. I have collected data from many sources. Such as: 1.2.1: Sources of Data 1.2.1.2: Secondary Sources •
Annual report (2005, 2006& 2007) of MTB Ltd.
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Periodicals Published by Bangladesh Bank.
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Different publications regarding Banking functions and foreign exchange operation
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Internet will also be used as a theoretical source of information.
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Use of different theories to make the report more relevant.
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Printed Materials: This study is mostly dependent on the printed materials which may include the books, newspapers, magazines, journals, directories, annual reports, Bangladesh bank publications, MTB Ltd’s Annual Report etc
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Internet: Internet was another major secondary source that we have used to collect related information to conduct the study.
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Newspapers: We have collected some information from the various dailies and business articles.
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Foreign exchange operations of Mutual Trust Bank Limited
1.2.3: Data analysis and Interpretation: Both quantitative and qualitative analysis will be performed on the findings. The quantitative analysis will be done on the trend of export- import, growth pattern of export-import, pre and post facilities provided for easing the export-import operations. Qualitative analyses will be based on the macroeconomic variables and foreign exchange policy provided by Bangladesh bank, the central bank of Bangladesh. Different statistical tools will be used for the analysis of the findings.
1.3: Limitations of the study: To provide current information and to make the report read-worthy, support from various sources is essential. In spite of having my wholehearted effort, I could not collect some information required at the time of the study. So this study is not free from the following limitation:
Due to unavailability of latest annual report (Annual report 2008), I have to prepare the report on the basis of annual report 2007.As a result, analysis, presentation of data may not show the existing position/present condition of MTB Limited.
For the whole internship I had only 90 days, out of which I get 61 days because of late commencement of internship program, which were totally insufficient. So I faced time shortage extremely.
Lack of previous experience to prepare this type of report and it is totally new to me as an intern.
Foreign exchange division follows Uniform Customs and Practice for Documentary Credits (UCPDC), but within this short period, I was totally stunned to understand.
Learning all the banking functions within just two months was really difficult. Another limitation of this report is Bank’s policy of not disclosing some data and information for obvious reason, which could be very much helpful.
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Foreign exchange operations of Mutual Trust Bank Limited
Chapter 2 Overview of Mutual Trust Bank Limited
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Foreign exchange operations of Mutual Trust Bank Limited 2.1: Background of the bank Mutual Trust Bank Ltd. formed in 1972 as a scheduled bank with assets and liabilities of the Eastern Banking Corporation set up in East Pakistan on 28 January 1965. It started banking business 22 June 1965 and became a member of the Dhaka Clearing House on 17 September 1965. At the time of establishment, Eastern Banking Corporation had a paid up capital of Tk 1.42 million and deposit resources of about Tk 10 million. It was the only scheduled bank formed with capital raised entirely from the small income group of people of East Pakistan. Eastern Banking Corporation was nationalized under the Bangladesh Banks Nationalization Order 1972 and its name was changed to Mutual Trust Bank. At that time, the bank had 182 branches. The government retracted 95% of its share capital and allowed it to operate as a private bank. It was transformed into a limited company on 15 September 1983. On 31 December 2000, the authorized capital of the bank was Tk 200 million divided into 2 million ordinary shares of Tk 100 each. It’s issued and paid up capital was Tk 100 million, of which Tk 5 million is subscribed by the government. The bank is listed with both Dhaka and Chittagong Stock Exchanges. The volume of deposits at the bank in 1972 was Tk 4.43 million of which Tk 2.44 million comprised demand deposits. Prior to privatization in 1983, the deposits were Tk 21.81 million and their volume increased to Tk 24,730 million in December, 2000. Total loans and advances including bills purchased and discounted amounted to Tk 2.34 million in 1972 and Tk 22,307 million in December 2000. The interest rate offered by the bank on the savings deposits in both rural and urban areas is 7.25%, while the lending rates charged by it on different sectors varied between 10% and 16.5%, the lowest being charged on export credits. The broad economic areas in which the bank provided lending and the total outstanding amount of advances to those areas upto June 1999 were (a) agriculture and fisheries Tk 26 million, (b) small and cottage, large and medium sized industry Tk 4,675 million, (c) retail/wholesale trade and hotels and restaurants Tk 2,202 million, (d) transport/communication and storage Tk 169 million, (e) special credit programmers including alleviation Tk 134 million, real estate and business services Tk 5,523 million, and (g) others Tk 3,771 million. In December 2000, the total assets including off-balance sheet items of the bank were valued at Tk 31,296.5 million. The quality of assets was severely deteriorated due to accumulation of a huge amount of non-performing loans. The bank's classified loans amounted to Tk 7,372 million in December 2000. The bank's investments in government securities, TREASURY BILLs, debentures and shares and other approved securities were Tk 108.5 million in 1972 and Tk 2,564 million in 1999. Up to December 1999, its loans to the government amounted to Tk 50 million. In addition, the bank lent Tk 115 million in 1999 in poverty alleviation projects and Tk 129 million in a special project called Mutual Trust, the objective of which was to assist the customers with credit facility for buying consumer goods. In 2000, the total and net income of the bank was Tk 3,060 million and Tk 1,040 million respectively. The bank's net interest income increased during the period from 1992 to 2000. But the increase in operating expenses arrested the growth of its net income. Also, the
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Foreign exchange operations of Mutual Trust Bank Limited compulsory maintenance of provisions for classified loans from profit is responsible for slow growth of its net income. 2.2 Historical Background Mutual Trust Bank Ltd. (MTBL) was incorporated in Bangladesh as a banking company under the company acts 1913 and commenced operation on 22 June 1965. Numerically it is just another commercial bank, one of many now operating in Bangladesh, but the finders are committed to make it a little more different and a bit special qualitatively. This bank will have a new vision to fulfill and a new goal to achieve. It will try to reach new heights for realizing its dream. (MTBL), a bank for 21st century, it is not a mere slogan. The bank has been manned with talented and brilliant personnel, equipment with most modern technology so as to most efficient to meet the challenges of 21st century. As regards the second slogan of bank Efficiency is our strength is not a mere pronouncement but part of their belief, which will inspire and guide them in their long and arduous journey ahead. Deposit this bank-collected Tk. 22385.19 million till 31 December. This bank has been successfully operating operation and has been increasing rapidly and successfully. For the competitive interest rate and the operational activities causing a greatest role in its advance and Credit-mercantile bank is playing an important role while giving loan for the business small and medium enterprises. In the terms of credit mercantile bank has introduced new schemes mostly for the business people in Bangladesh. Different categories of loan been provided to the businessman. The total amount of loan been provided was 17669.29 till 2004 its main investing projects are business, garments, micro credit construction and others. Consumer credit scheme mercantile bank has been providing loan to medium and lowincome peoples. This policy has gained a great popularity among consumers. The total amount was 138.58 million, which is 0.78% of total credit till 31 December 2004. Micro credit-after starting its operation it has gains a huge support by the consumers mainly supported by consumers who are small entrepreneurs. The activities of this project are satisfactory. Table 1: Bank’s Capital Position Authorized capital (million taka) 2000
Paid up capital (million taka) 1247.40
Total reserve & surplus up to 2007(million taka) 1349.17
*The Bank is required to transfer 20 percent of its net profit before Tax to Capital Fund as per the Banking Companies Act 1991
2.3 Functions 57
Foreign exchange operations of Mutual Trust Bank Limited
The Bank offers Term Loans to industries especially to Small-Scale enterprise. Full fledged commercial banking Service including collection of deposit, short term trade finance, Working capital finance in processing an manufacturing units and facilitating international trade. Financing & Technical support to Small Scale Industries (SSI) in order to enable them to run their enterprises successfully. Micro Credit to the urban poor trough Linkage with NGOs with a view to facilitating their access to the formal financial market for the mobilization of resources. Financing in import and export business like other commercial Banks. General banking facility like Certificate of Deposits, Fixed Deposits Receipts, Savings account, Short Term Deposits, Foreign Currency Account etc are available here. 2.4 Corporate Strategy Financing establishment of Small units of industries and business and facilitate their growth. Small Balance sheet size composed of quality assets. Steady and sustainable growth. Investment in a cautions way. Adoption of new banking technology 2.5 Organizational Goal To employ funds for profitable purposes in various fields with special emphasis on small-scale industries. To undertake project promotion to identify profitable areas of investment. To search for newer avenues for investment and develop new products to suit such needs. To establish linkage with other institutions which are engaged in financing micro enterprises? 2.6 Lending Criteria 2.6.1 Entrepreneur Entrepreneur/Promoter has to be creditworthy and competent enough to run the proposed project efficiently. 2.6.2.1 Technical Viability
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Foreign exchange operations of Mutual Trust Bank Limited
Technical process proposed should preferably be a proven one. The project should be technically sound and environment friendly. Technology transfer in case of borrowed know how ought to be ensured. Building should be well planned and well constructed at a suitable location.
2.6.2.2 Commercial Viability Market prospect and potential for the product has to be fully assured at competitive prices. Marketing channels existing for the product should be accessible to the entrepreneurs. 2.6.2.3 Financial Viability There should be reasonable debt –equity ratio as determined by the Bank on individual case basis. Debt service coverage ratio should be at least 2.5 times at the optimum level of production. IRR should preferably be not less than 20 percent
2.6.2.4 Economic Viability The project should benefit the national economy by creating employment and increasing income. Savings/Earnings of foreign currency may give an additional dimension. 2.7 Organizational Structure The organization structure and corporate of Mutual Trust Bank Ltd. (MTBL) strongly reflect its determination to establish, uphold and gain a stronger footing as an organization which is customer-oriented and transparent in its management.
2.7.1 Board of Directors
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Foreign exchange operations of Mutual Trust Bank Limited
To achieve its organizational goals, the bank conducts its operation in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The management looks after the day-to-day operation of the bank.The Board of Directors consists of 21 members elected from the sponsors of the Bank. The Board of Directors is the apex body of the bank. 1. Mr. Syed Manzur Elahi. 2. Mr. Md. Hedayetullah. 3. Mr. Kh. Rashiduzzaman 4. Al-haj Syed Abul Hossain 5. Mr. Mohammed Abdur Rouf. 6. Mr. Md. Abdul Malek. 7. Mr. Rashed Ahmed Chowdhury. 8. Mrs. Yasmeen Haque. 9. CORRESPNDENT RELATIONSHIP The Bank has established correspondent relationship across the world with a number of foreign Banks namely Citibank N.A. The Bank of Tokyo Mitsubishi Ltd. Standard Chartered Bank Commonwealth Bank of Australia, Social Bank, Toronto Domination Bank, Unicredito Italiano, Wachovia Bank, N.A., Hutton National Bank, Hypo Vereinsbank, Bank Austria, Sumitomo Mitsui Banking Corp., ING Bank, United Bank of India, ICICI Bank etc. The number of foreign correspondents is 255 as of December 31, 2005. Efforts are being continued to further expand the correspondent relationship to facilitate Bank’s growing foreign trade transactions. Efforts are being continued to further expand the correspondent relationship to facilitate Bank’s growing foreign trade transactions.
2.7.2 Management The management of the bank is vastly on a Board of Directors, for overall supervision and directions on policy matters by the board. The power of general supervision and control of the affairs of the bank is exercise by the president and managing director of the bank who is the chief executive officer. Above all, the bank will be manned and managed by a galaxy of talented professionals proficient in their individual fields and dedicated to the cause of the bank.
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Foreign exchange operations of Mutual Trust Bank Limited Management Hierarchy:
Chairman Board of Director
Managing Director (MD)
Deputy Managing Director (DMD)
Executive Vice-President (EVP)
Senior Vice-President (SVP)
Vice-President (VP) Senior Assistant Vice-President (SAVP)
Assistant Vice-President (AVP ) Senior Principal Officer (SPO) Principal Officer (PO) Senior Officer (SO) Junior Officer
Assistant Officer
2.7.3 Board Committees
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Foreign exchange operations of Mutual Trust Bank Limited
The Board of Directors who also decides on the composition of each committee determines the responsibilities of each committee. The Board of Directors being at the highest level of organizational structure plays an important role on the policy formulation. The board of directors is not directly concerned with the day-to-day Operation of bank, at least in written. The board establishes the objectives and policies of the bank. The board has the authority to declare dividend, to approve the balance sheet etc. Chairman keeps board of directors informed, on the progress of the bank and implement the policies established. 2.7.4 Executive Committees All routine matter beyond delegated powers of management are decided upon by or routed through the Executive Committee, subject to ratification by the Board of Directors. 2.7.5 Policy Committee All mater relating to the principles, policies, rules, and regulation, ethics etc. for operation and management of the bank are recommended by the Committee to the Board of Directors. 2.7.6 Investment into the Future Excellence in banking operation depends largely on a well-equipped and efficient research and development division. Such activities require the investment of substantial money and set of highly qualified personnel with multidisciplinary background. Although it is not possible at this stage to undertake R&D activities similar to those of a bank in the developed countries, MTBL has established a core research and planning division comprising skilled persons from the very inception of the Bank. 2.7.7 Office Automation: Banking operations of the branches have been computerized to minimize cost and risk and to optimize benefits and increase overall efficiency for improved service. The Bank is capable of generating the relevant financial statements at the end of the day. The Bank has recently installed Reuters Screen for smooth operation of foreign currency dealings. The Bank has also hosted a web page of its own to take a place in the World Wide Web. On-line the Bank has introduced Banking is also to introduced ATM and Credit Card.
2.8 Resource & Capabilities
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Foreign exchange operations of Mutual Trust Bank Limited
MTBL is well prepared to and capable of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with best possible services.
2.8.1 Physical and Technological Resources A great deal of investment for devolving the physical resource base of the bank has been made. MTBL has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater the needs of industry and trade. At present, there are Thirty two conveniently located branches throughout Bangladesh. There are 11 branches in the capital city of Dhaka, 7 in Chittagong and one each in Narayangonj, Narshingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulivibazar, Barisal, Comilla, Gazipur, Sirajgonj and Dewanghat. Major features of these branches: Fully computerized accounts maintenance. Well-decorated and air-conditioned facilities. A fully operational computer network, which is currently being implemented. The work of LAN and WAN installation to facilitate fast communication between the branches and the head Office is in progress to facilitate any Branch Banking and ATM Services. Money counting machine for making cash transaction easy and prompt. Fifteen out of thirty two branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade.
2.8.2 Human Resources
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Foreign exchange operations of Mutual Trust Bank Limited
MTBL has a well-diversified pool of human resource, which is composed of personnel with high academic background. Also, there is a positive demographic characteristic. Most employees are comparatively young in age yet mature in experience. As at end 2007 the total employee strength was 721. The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The Bank, so far, has recruited four batches of entry-level management staff, all of whom have got excellent academic background. The number of employees has increased gradually to 523, 578, 601, 651, and 721 at the end of 2003, 2004, 2005, 2006, and 2007 respectively.
Table 4: Employee progress of Mutual Trust Bank Limited YEAR Number of Employees
2003 523
2004 578
2005 601
2006 651
2007 721
Figure 1: Employee position of Mutual Trust Bank Limited
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Foreign exchange operations of Mutual Trust Bank Limited 2.8.2.1: Recruitment The Bank follows a strict recruitment policy in order to ensure that only the best people are recruited. The bank, so far, has recruited four batches of entry-level management staff, all of who have got excellent academic Background.
2.8.2.2: Training Intensive training program, on a regular basis, is being imparted to employees of both management and non-management levels to meet the challenges in the banking industry and to help employees to adapt the changes and new working conditions. Human resource is the main driving force and quality human resources are the key sources for the success of today's banking business. Keeping this view in mind and recognizing the importance of training for professional excellence Mutual Trust Bank Limited has established its own training cell in 2005 with modern facilities. In 2007 the cell arranged 22 training courses and provided training to as many as 360 employees of the bank. To cater the needs of the employees and to keep pace with demand of the time it will continue to arrange regular training courses in the days ahead. The bank also sends its employees to BIBM and other local and foreign institutions with a view to sharpening their knowledge base. During the year 2007, a total of 379 employees of the Bank were provided with training in various fields. Out of them 16 employees participated in training courses held abroad.
2.8.3 Financial Resources Like any other financial intermediaries, Mutual Trust Bank Limited is no exception in performing its core function viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes. 2.8.3.1 Mobilization of Funds The main sources of fund for Mutual Trust Bank Limited are: 1) Deposit 2) Borrowing (1) Deposit: Deposit is the mainstay of Mutual Trust Bank Limited sources of fund. Following usual practices, it collects deposit through: • Current Deposit • Saving Deposit • Fixed Deposit • Others (Margin A/c, Retention quota A/c etc.)
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Foreign exchange operations of Mutual Trust Bank Limited
Figure 2: Deposits mix of Mutual Trust Bank Limited in 2007
(2) Borrowing for Development Finance: Apart from deposit Mutual Trust Bank Limited received funds from the following sources: • Bangladesh Bank. • Asian Development Bank. • KfW (Kreditanstalt fur Wieder-aufbau- Credit Institution for Reconstruction), a German Development Bank. All of these funding sources fund are for relatively longer period. Receiving the credit lines from ADB and KfW has been recognition of BASIC’s highly satisfactory performance. Table 5: Borrowing for Development Finance (Taka In million) Year 2004 2005 2006 Amount 839.61 937.52 830.06
2007 1385.81
2.8.3.2 Utilization of Funds Utilization of bank’s fund was more of less satisfactory during the year 2007. Given the difficult economic situation, the management of bank focused on the consolidation and quality of assert rather than in growth. The total assets of the Bank increased to Taka 38,773.91 million at end 2007 from Taka 29,417.09 million in the previous year. The growth rate was 31.81 percent. Deposit rose from Taka 31,947.98 million (82.40% of total liabilities) in 2007 to Taka 24,084.65 million (81.87% of Total liabilities) in 2006 showing a growth rate of 32.65 percent.
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Foreign exchange operations of Mutual Trust Bank Limited
2.8.3.2.1: Bank’s Assets During the year 2007, total assets of the bank increased by 31.81 percent to Taka 38,773.91 million from Taka 29,417.09 million in 2006.As expected for a bank, loans and advances comprised the largest share in the assets portfolio of the Bank constituting 57.51 percent. Balances with other banks and financial institutions and investment were the second and the third largest constituents being 17.89 percent and 13.67 percent of the assets portfolio respectively. Cash & money at call and short notice came next in size with 5.48 percent and 3.40 percent of the total assets portfolio.
Balance sheet of Mutual Trust Bank Limited as on December, 31, 2007 Mutual Trust Bank Limited Balance Sheet (Partial) As on 31.12.2007 Particulars Property and Assets Cash Balance with other Banks and financial institutions Money at call and short notice Investments Loans And Advances: Fixed Assets including premises: Other Assets: Deferred Tax Assets Non-Banking Assets Total assets
Amount (BDT) 2,125,018,037.00 6,937,531,606.00 1,320,000,000.00 5,303,391,104.00 22,263,349,608.00 196,107,160.00 579,144,820.00 49,363,500.00 38,773,905,835.00
% 5.48% 17.89% 3.40% 13.68% 57.51% 0.51% 1.49% 0.13% 0% 100%
Table 6: Balance sheet as on December, 31, 2007
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Foreign exchange operations of Mutual Trust Bank Limited 2.9 Performance of Bank The performance of Mutual Trust Bank Limited has been satisfactory since its inception in respect to all the measurement parameters, a good year for the Bank again. It performed fairly in 2007 in spite of severe competition in the banking sector of the country. The Board of Directors was happy with the overall performance of the Bank, particularly for maintaining quality of assets and improving shareholders value. During the year 2007, total assets of the Bank increased by 31.81 percent to BDT 38,773.91 million from BDT 29,417.09 million in 2006. As expected for a bank, loan and advances comprised the largest share in the assets portfolio of the Bank constituting 57.51 percent. Total deposits of the bank at the end of 2007 stood at Taka 31,947.98 million (82.40% of total liabilities) compared to taka 24,084.65 million (81.87% of total liabilities) in 2006. Performance and position of BASIC Bank Limited are shown in the next page. 2.9.1 Dividend In the year 2007 the Bank declared (1:20) bonus share amounting to BDT 62.37 million (6.237 core). And 5% cash dividend amounting to BDT 62.37 million (6.237 corer). All of these have gone to the sole shareholder, the Ministry of Finance.
2.10: The findings obtained from the study on of Mutual Trust Bank Limited (Overall) are follows: • • • • •
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As a state-owned scheduled bank, Mutual Trust Bank Ltd. is playing an important role toward the growth and economic development of Bangladesh. Mutual Trust Bank Limited is a blend of development and commercial banking functions. Cash reserve ratio (CRR) and statutory liquidity ratio (SLR) with Bangladesh bank have been maintained as per rule. At the end of the year 2009, Bank’s capitalization stood at 10.78% for Tier-I and 12.91% for total capital against the total risk weighted assets exceeding the required minimum level of 5% and 10% respectively. Thus the bank was able to maintain the confidence of investors and depositors while providing a lucrative return to the Government, the sole shareholder of the bank. One of the prime features/objectives of Mutual Trust Bank Limited is 50% of Loan able funds shall be invested in Small and Cottage industries Sector. During the year 2009, it has disbursed 60% loans to Small and medium industries (SMI) and 91% loans to Small and Medium enterprise (SME). Recovery rate of loans and advances is 97% which indicates sound performance of the bank management.
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Total assets of the bank increased by 31.81% to Taka 38,773.91 million from taka 29,417.09 million in 2008.
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Loans and advances comprised the largest share in the asset portfolio of the bank constituting 57.41%. 57
Foreign exchange operations of Mutual Trust Bank Limited •
Deposit rose from Taka 31,947.98 million (82.40% of total liabilities) in 2009 to Taka 24,084.65 million (81.87% of Total liabilities) in 2008 showing a growth rate of 32.65 percent.
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The total Loans and Advance of the Bank for the year 2009 was Tk. 22,263.35 against Tk. 19,000 million in 2008.
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The loan to deposits liabilities stood 69.69% in 2009 as against 78.89% in 2008.
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SMI/SSI loan and micro credit to total loan stood 56.73% in 2009 as against 53.43% in 2008.
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The Net Profit after tax and provision of the Bank for the year 2009 was Tk. 282.96 million as against Tk.554.14 million in 2008 which is Tk.271.18 million lower than the previous year. Mutual Trust Bank Ltd. Training cell provides training facilities to its medium and junior level officers of the bank and also provides executive development and internship program. Computers are being used in the Bank for day-to-day operation since its inception. Local area network (LAN) has been installed in the head office and all the Branches. A number of branches are also connected with each other, the head office and the Data Center through Wide Area Network (WAN). Already several branches have started online operation. The online system, which includes integrated core banking, trade finance, treasury and internet banking solutions along with ATM, POST etc., SWIFT interfaces, will allow the bank offer its customers new products and better services, paper-based works are still in existence. In order to measure corporate performance, the bank presents Economic Value Added (EVA) statement in its annual report every year which is an estimate of the amount by which earnings exceed or fall short of the required minimum return for shareholders or lenders at comparable risk. It is also the best measure of a firm’s intrinsic value and the best tool of aligning management and owner’s interest. At the end of year 2009, monetary value of EVA is Taka 132,615,352 as against Taka 280,931,657 in 2008 which is positive that adds value to the Bank. Mutual Trust Bank Limited provides value added statement in its annual reports which indicates how the value is created and distributed among different stakeholders of the bank.
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There are mainly three types of audit conducted in the Mutual Trust Bank Limited. They are as follows Internal Audit Bangladesh Bank Audit External Audit
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In order to indicate best corporate governance practices, Mutual Trust Bank provides following information in its Annual reports (A questionnaire is given as annexure-A) : Analysis reveals that 82% of the total respondents have positive (Yes) answers regarding the following issues: Details about the Board members 57
Foreign exchange operations of Mutual Trust Bank Limited
Responsibility of the Board. Authority and accountability of the board. Activities of the Board. Appointment and rotation of the Board members. Share Holdings by the Board members. Chairman’s statement Company prospect details Executive Directors Non-executive Directors Audit Committee Details about the Management Team Shareholder’s right and Control Relationship with the shareholder Maintenance of Corporate affairs division Voting Power of the Shareholder Notice of AGM in due time Agenda of the AGM Appointment of Auditors Internal Control System Compliance with different Legal Requirements Risk Perception Detail Activities of the Company CEO serves on no more than two additional Boards of other public Company. The CEO and Chairman duties are separated or a lead director Size of Board of Directors is at least six but not more than 15 members. Composition Committee is comprised solely of independent outside Directors. Shareholders vote on Directors selected to fill vacancies. Board Members are elected annually. Shareholders’ approval is required to change Board size. Shareholders have cumulative voting rights to elect Directors. Policy exists requiring outside directors to serve on no more than five additional boards. Shareholders are allowed to call special meetings. A majority vote is required to amend charter/by laws. Performance of the Board is reviewed regularly. A Board approved CEO succession plan is in place Board has outside advisors. Directors are required to submit their resignation upon a change in job status. Outside Directors meet without the CEO and disclose the number of times they meet. Directors term limits exist. Fairness of financial statements. Maintenance of proper books of accounts. Consistent application of accounting policies in preparation of financial statements.
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Observance of Bangladesh Accounting standards(BAS) Soundness and efficiency of Internal control. Ability to continue as a going concern. Significant deviations in operating results from last years. Presentation of key operating and financial data for at least last three years. Constitution of audit committee Audit committee consists of independent outside Directors. Qualification of the chairman of Audit committee. Corporate social Responsibility. Dividend declaration. Shareholders pattern. Number of Boards meeting held during the year’s attendance by each Director. Numbers of member Audit Committee. Appointment of independent Directors. Any other Matters.
Credit rating
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Chapter 3 Terms Used In Foreign Exchange Operations
Foreign exchange, like foreign trade, is a part of economic science. It deals with the means and methods by which rights to wealth in one country’s currency are converted into those of another country. By the same token, it covers the methods used for conversion, the forms in which such conversions take place and the causes which render this conversion necessary.
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Foreign exchange operations of Mutual Trust Bank Limited Foreign Exchange means exchange foreign currency between two countries. If we consider “Foreign Exchange” as a subject, then it means all kind of transactions related to foreign currency. In other words foreign exchange deals with foreign financial transactions.
Activities of Foreign Exchange: There are three kinds of foreign exchange transactions: • Import • Export • Remittance
3.1 Import: Under the import policy of Bangladesh the Importer has get the valid Import Registration Certificate (IRC) from the Chief Controller of Import & Export (CCI&E). 3.1.1 Letter of credit: Letter of credit means any arrangement whereby a Bank (the issuing Bank) is committed (on behalf of the buyer/applicant) to pay certain amount at the seller’s disposal under some agreed conditions. Types of documentary credit: Documentary credit may be of three types Recoverable credit Irrecoverable credit Add confirmed credit
3.1.2 Recoverable credit: This type of credit can be cancelled or amended at any time by the issuing Bank without prior notice to the seller. It is not in use.
3.1.3 Irrecoverable credit: This type of credit can’t be cancelled or amended by the issuing Bank without agreement of parties concerned thereto. All the credits issued in our country are of recoverable nature.
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Foreign exchange operations of Mutual Trust Bank Limited
3.1.4 Add confirmed credit: When a third Bank provides guarantee to the beneficiary to make payment, if issuing Bank fail to make payment, the L/C is called confirmed L/C. In case of a conformed L/C a third Bank adds their confirmation to the4 beneficiary, to make payment, in addition to that of issuing Bank. Confirmed L/C gives the beneficiary a double assurance of payment. 3.1.5 Special documentary letters of credit: The following five major steps are involved in the operation of a documentary letter of credit: Opening Advising Amendment Presentation Settlement 3.1.6 Import Financing: The post import finance extends the import credit in the following forms: PAD (Payment against documents) LTR (Loan against trust receipt) LIM (Loan against imported merchandise
3.2 Export: Under the export policy of Bangladesh, the exporter has to get the valid export registration certificate (ERC) from chief controller of export & import (CCI&E). The ERC is required to renew every year. The ERC number is to be incorporated on export Form & other paper connected with exports.
3.2.1 Receiving the letter of credit: After getting contract for sale, exporter should ask the buyer for L/C clearly starting terms & condition of export & payment.
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3.2.2 Procuring the materials: After knowing that the L/C has opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. If the exporter has to procure the raw materials from another supplier (local or abroad) he has to open Back-toBack L/C. 3.2.3 Back-to-Back L/C: Back-to-Back L/C is one type of L/C, which is opened against lien on a valid export L/C. It is opened for inland & abroad as well. Bank will supply the following papers/documents for opening a Back-to-Back L/C. L/C application form LCA form IMP form Charge document papers The above papers must be completed, filled & signed by the party thereto. The party will submit the entire filled document along with application in printed form of the designated Bank which is also an agreement between application & the Bank. 3.2.4 Export Financing: An export is who exports the goods to another customer whether in domestic country or in abroad. In exporting the stipulated goods he may require financing. So export financing may be required at two stages. • Pre shipment credit • Post shipment credit
3.2.4.1 Pre shipment credit: Pre shipment credit is the credit, which is given to finance the export activities of an exporter for the actual shipment of goods. The purpose of each credit is to meet the working
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Foreign exchange operations of Mutual Trust Bank Limited capital needs from the procuring of raw materials to the transportation of goods for the export the foreign country. Before sanctioning of that credit the Bank takes into consideration the credit worthiness, export performance of the exporter’s together worthiness all other information required for sanctioning the credit in accordance with the existing rules & regulations.
3.2.4.2 Post shipment credit: There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Bank may finance against export documents ensuring the following: Export documents comply with the credit terms Party’s past performance is satisfactory Any other security in case of exporting under contract
3.3 Foreign Remittance: Foreign remittance means remittance of foreign currencies from one place/person to another place/person. In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of Import Export, Travel and other purposes. However, especially foreign remittance means sale & purpose of foreign currencies for the purposes other than export and import. BASIC Bank Limited performs the remittance function with different countries. It maintains the foreign remittance in the following form: Foreign Demand Draft Inward Outward 3.3.1 Foreign Demand Draft (FDD): A foreign demand draft is a negotiable instrument issued by a Bank drawn on other Bank with another country the instruction to pay a certain amount to the beneficiary on demand. Remittance through demand draft may be inward or outward.
3.3.2 Inward Remittance:
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Foreign exchange operations of Mutual Trust Bank Limited Inward remittance refers to the extent where the bank makes payment to the client against foreign demand draft. Bank will make payment to the client by verifying the, test number, and signature of the authorized officer.
3.3.3 Outward Remittance: It refers to the extent where by the bank issues foreign demand draft. The bank charges TK.300 per Demand Draft. Two forms are used for Outward Remittance of foreign currency such as: IMP Form: All outward remittance on account of Imports is done by from IMP. TM Form: For all other outward remittance from TM is used.
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Foreign exchange operations of Mutual Trust Bank Limited
Chapter 4 Foreign Exchange Operations And Management Of Mutual Trust Bank Ltd.
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Foreign exchange operations of Mutual Trust Bank Limited
The foreign exchange has played a vital role in the last decade or so in guiding the purchase and Sale of goods, services and raw materials globally. Every country has certain natural advantages and disadvantages in producing certain commodities while they have some natural disadvantage 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 on 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 refers to some instruments used in international trade, such as bill of exchanges, drafts, travelers’ cheques and other means of international remittance. Thirdly, the term foreign exchange is also quite often referred to the balance is foreign currencies held by a country. In the fiscal year 20082009, Bangladesh economy was confronted with serious challenge, among others, the impact of divesting floods, the excessive price hike of oil, global financial crisis and some other importable in the international market, in addition to the termination of the multi fiber arrangement (MFA). To cope with these challenges, the government and the Bangladesh Bank adopted a series of policies to enhance the resilience of the economy, while maintaining macro economic stability. These polices significantly contributed toward maintaining real Growth Rate of Bank 5 percent in the fiscal year 2008-2009. Again, Foreign Exchange deals with the means & methods by which rights to wealth in one country's currency are converted into those of another currency. It is a part of economic science of foreign trade. By the same view, it covers the methods used for conversion, the forms in which such conversions take place and causes which render these conversions necessary. In Bangladesh, we have the unit of money is 'Taka' for domestic transaction; also have other obligations by exchanging foreign currencies. To meet-up the obligation that arise import of goods & services from other countries, other foreign necessity, that part of the economic science, which deals with the conversion of domestic currency into foreign currency for the purpose of setting international obligations, is called Foreign Exchange. There are three types of modes of foreign exchange market, which are as follows:
Export Finance Import Finance Foreign Remittance 57
Foreign exchange operations of Mutual Trust Bank Limited
Foreign trade finance: So far the bank has established correspondence relationships with as many as 22 foreign banks in order to facilitate foreign trade. The Bank handled total export business of Taka 16,794.96 million and import business of Taka 21,266.53 million in 2007. The Bank’s export and import business grew by 8.61 percent and 19.45 percent respectively. Major items of exports were ready made knit & woven garments, sweater, jute products, leather and leather goods, handicrafts etc. Items of import included mainly industrial raw materials, garments accessories, and capital machinery, raw cotton, electronic consumer goods, chemicals, tyres and tubes, reconditioned vehicles, bicycle spare parts, food items such as rice, wheat, garlic, onion, sugar, chilly and other essential commodities.
4.1.1: EXPORT FINANCE: In case of export business finance is perceived as one of the important elements. It is linked to nearly all the stages of conversion cycle- procurement of raw materials, processing of goods, packing storage, transportation to the port, shipment to the buyer, assembling of shipping documents & finally, collection of payments. The term Export Finance should therefore mean moneys needed by an exporting farm at each stage of the conversion cycles.
4.1.1.1: Export financing sectors of Mutual Trust Bank Limited: Export financing can play a vital role in the development process of Bangladesh. With earning on export we can meet our import bills. The export trade is always encouraged because the major portion of foreign exchange earning is derived from export. Because of shortage of adequate capital exporters have to come in contact with commercial bank and financial institution to get finance from them. BASIC bank Limited as a state-owned scheduled bank provides certain facilities to the exporters to boost up export earnings. The traditional & non-traditional sectors in which Mutual Trust Bank Limited provides export-financing facilities are as follows:
Ready Made Garments in all sorts. Jute manufactures Jute - raw & meshta Fish & Prawns. Hides, Skins & Leather. Tea Fertilizer etc.
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Foreign exchange operations of Mutual Trust Bank Limited
4.1.1.2: Export financing system of Mutual Trust Bank Limited: Bangladesh as a developing country depends mainly on foreign exchange earning for its development activities. The major portion of foreign exchange earnings is derived from export obviously, to boost export, government provide certain incentives to the exporters namely:
Export Financing Development Financing Export Credit Guarantee Scheme Export performance benefits Duty draw back Rebate on duty & tax Income tax rebate Insurance premium rebate Conditional cash subsidy to Garments Industry , vegetables, handicrafts etc
4.1.1.3: PRE-SHIPMENT & POST-SHIPMENT: In Mutual Trust Bank Limited export finance is required by the exports at two stages namely Pre-shipment & Post-shipment stages: 1.
Pre-shipment: It is required to purchase of raw materials, to meet cost of production, procurement of exportable goods, packing, transport, payment of insurance premium, inspection fee, freight charges, ware housing etc.
2.
Post-shipment: It is required by the exporters after actual shipment of goods in order to bridge the period between shipment of the goods and receipts of sales proceeds from abroad. An exporter owns resource may not be adequate to meet all such expenses. So he / she has to come in contact with commercial bank and financial institutions to get finance from them. As a state owned scheduled bank Mutual Trust Bank Limited provides credits to exporters at a consideration rate of interest as an export promotion measure as per government directive.
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Foreign exchange operations of Mutual Trust Bank Limited
4.1.1.4: PRE-SHIPMENT FINANCING OF FOREIGN EXCHANGE: The classes of pre-shipment financing extended to the exporters by the Mutual Trust Bank Limited are as follows: 4.1.1.4.1: Export Cash Credit - Pledge: This facility is allowed for a short period. Under this credit the exportable goods are kept under the effective control of bank either at exporter's goes down or bank own go down. In either of the cases, the bank engage full time security (chowkider) to observe over the goods & the movement the goods are done under the supervision of the bank who maintain its proper records through go down storage, challan, delivery order, go down register etc. 4.1.1.4.2: Export Cash Credit - Hypothecation: This advance is allowed for a short period or 3 to 6 months mainly to purchase raw materials or for procurement of exportable goods. So virtually the goods are kept under the control of the exporter but by creating charge on the goods at the time of disbursing credit. The bank has the right to take possession of the goods. The exporter will submit stock report to the bank usually on monthly basis & the bank will verify them.
Documents & Security to be obtained: Export registration certificates (ERC) Bank usually charge documents to be signed by exporter or his / her duly authorized agent.
Confirmed irrevocable export letter of credit or firm contract made by the buyer with the exporter. Insurance coverage Collateral securities. 4.1.1.4.3: Packing Credit: This facility is generally extended when the goods become ready for shipment for a very short period usually from the date of dispatch of the stock from the go down up to the date of actual shipment of the goods that is for the transit period of shipment for further purchase of raw materials or procurement of exportable goods by exporter. 4.1.1.4.4: Back to back letter of credit: Pre-shipment facilities are also credited in the form of back- to-back letter of credit. When the beneficiary of an export letter of credit is not the actual manufacturer or producer of
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Foreign exchange operations of Mutual Trust Bank Limited exportable goods mentioned in the relative export letter of credit as securities with his / her banker for procurement of exportable goods to enable him /her to execute the export letter of credit and such letter of credit is called inland back to back letter of credit.
Precautions used by Mutual Trust Bank Ltd to sanction pre-shipment credit: Before making lien on the original export letter of credit all the terms and conditions
should be scrutinized so that no detrimental clauses including violation of foreign exchange regulation and UPCDC terms are included there in. Expiry date of letter of credit should be properly recorded in the book and no drawing is to be allowed against expired letter of credit. The credit worthiness or solvency of the foreign buyer as well as the exporters must be ascertained before hand. In case of mortgage of properties as collateral securities, the bank by engaging lawyer together with valuation certificate from proper authority must scrutinize the relative documents. The exporter should arrange forward sale of foreign exchange loss at the time of negotiation of export documents. In case of packing credit, the export letter of credit and relative documents have to submit in, such a way that the bank may not face any problem in negotiation of shipping documents in due course. To dispatch goods for shipment to post under packing credit the bank must verify the shipping mark on the each packet or cartoon and the relative invoice.
4.1.1.5: POST-SHIPMENT FINANCING OF FOREIGN EXCHANGE: Post shipment financing refers to the credit facilities extended to the exporters by Mutual Trust Bank Limited after actual shipment of the goods against export documents. Mutual Trust Bank Limited generally finance the exporters at post shipment stage after verifying the credit worthiness and export performances of the exporters as well as the reputation and financial soundness of the foreign buyers provided the shipping documents are drawn strictly in accordance with letter of credit terms and in accordance with foreign exchange regulation in force.
Post shipment financing is extended to the exporters by the following terms: Negotiation of export documents under letter of credit. Purchase of askance bills drawn on D. A. basis. Providing loan against export bills tendered collection. Discounting of export bills. 57
Foreign exchange operations of Mutual Trust Bank Limited
A. Negotiation of export documents under letter of credit: Most important and widely used method of financing export at post-shipment stage is negotiation of export documents. After the shipment of the goods the exporter generally submits the following documents to the bank for negotiation: Bill of exchange. Bill of lading or air way bill. Commercial invoice - eight copies within these four original copies. Custom invoice of importer's country. Certificate of origin-original copy. Packing list - eight copies within these four original copies. Weight certificate. Declaration of shipment to the insurance company. Pre-shipment inspection certificate.(CFR-Clean Reports of Findings) Quality control certificate when required. Acknowledgement letter indicating received sample / approval letter. Frightful letter. Any other document if called for letter of credit.
B. Purchase of uses bills drawn on D.A. basis: Sometimes export letter of credit stipulates payment at 30 to 40 months; the period is called askance period. The bills drawn under this letter of credit is termed as askance bill. On presentation of documents foreign buyers give written acceptance on the bill of exchange to pay after the askance period. In dealing such documents the banker must take proper precaution to realize the proceeds in time.
C. Providing loan against export bills tendered for collection: Export bills are sending abroad generally by banks on collection basis in the following cases:
Export bills not drawn under letter of credit. Bills drawn under letter of credit but contains. Against the above collection documents bank may allow loans keeping substantial margin on the basis of banker customer relationship with the exporter. While handling such documents the banker must remain vigilant to refer the exporter proceed with a view to adjust the credit so extended.
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Foreign exchange operations of Mutual Trust Bank Limited
D. Discounting of export bills: When the export bills are not drawn under letter of credit or the goods send on consignment basis, the exporter may approach the bank for discounting the export bills on commission basis. Bank generally does not accept such proposal excepting on exceptional cases. If the exporters have very good credit worthiness and previous good export performance and foreign buyers have also good report & good reputation for past transaction.
4.1.1.6: Export Form: The customer, now issued by the authorized dealers, must declare all export of which the requirement of declaration of exchange control manual of Bangladesh Bank applies on the Export Forms. Disposal of Export Forms: Origin: From custom authority to Bangladesh Bank (ECD) after shipment goods. Duplicate: From negotiating bank to Bangladesh Bank after negotiation. Triplicate: From negotiating bank to Bangladesh Bank after realization of the proceeds of the export bill. Quadruplicate: Retained by the negotiating bank as office copy.
4.1.1.7: Export Development Fund: The main objective of creating an export development fund at the Bangladesh Bank is to assure a continued availability of foreign exchange to meet the import requirement of non-traditional manufactured items, this facility is available to the non-traditional exporters, particularly newer exporters, exporters diversify into higher value export and exporters diversify into new markets. An exporter identified above is eligible on the basis of the conditionally stated below: One must be an exporter of non-traditional manufacturing items. The value added of these products could be 20% except in the case of garments where it has to be 30% & above. The loan should be utilized in the case of importing raw materials for manufacturing the exportable products. The exporter must have an export letter of credit. One must create a back-to-back for importing raw materials. The period of loan is 180 days.
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Foreign exchange operations of Mutual Trust Bank Limited
4.1.1.8: Scrutiny of Export Document: After the shipment of goods the exporters submit export documents to authorized dealer for negotiation of the same. As bankers deal with documents only, not with commodity they are required to be very much careful about the genuineness and correctness of the documents evidencing shipment of the respective commodities. The bankers are to ascertain that the documents are strictly as per the terms of letter of credit. Before negotiation of the export bill, the bankers are to scrutinize and examine each & every document with great care. Negligence in the part of the bankers may result in non-repatriation or delay in realization of proceeds as incorrect documents may put the importers abroad into unnecessary troubles. The scrutiny procedure is as follows:
I.
Scrutiny of Draft or Draft of Exchange:
The draft should be drawn by the party indicated as the beneficiary of the credit i.e. the exporter; drawee must be in accordance with the terms of the credit. The tenor and amount of the draft be in conformity with the credit terms. The bill of exchange should be properly stamped if necessary with the requisite value and the cost must be recovered from the drawers unless it is provided otherwise in the letter of credit. The draft or bill must bear the correct date and must be drawn or endorsed to the order of the bank. The drawer's signature must be verified.
II.
Scrutiny of invoice:
The physical description of the goods i.e. price, quantity, quality, markings etc. in the invoice must correspond with the specifications in the credit. If the credit stipulates a consular invoice, the requisite invoice should be furnished.
All copies must be signed and certified as correct shipper. If the credit stipulate for any other particulars to be stated in the invoice these must complied with. It should not include charges such as postage; cable etc. unless specifically authorized under the credit.
III.
Scrutiny of shipping bill:
The bill of lading should be a full set clean on board ocean bill of lading, unless the credit stipulates otherwise. 'Received for shipment' bills of lading must not be accepted unless permitted by the credit. It must agree with the invoice as regards quantity and description of goods as well as in respect of ports of shipment and destination. 57
Foreign exchange operations of Mutual Trust Bank Limited
The bill of lading must also indicate where it is 'freight paid' (C & F, GIF) or freight payable at destination (FOB transaction). Transshipment and port shipment clauses in the shipping bill should be in accordance with credit terms and the provisions of the uniform custom and practice. Credit frequently stipulates for shipment not letter than a specified date. Bill of lading must be examined to ensure that these are dated not later than the date mentioned. Must be properly signed by or behalf of the carries, must be properly stamped and must be endorsed, expect when the relative credit stipulate for bill of lading to order of a named firm. Dock shipment not permitted unless specifically authorized and covers by insurance. Bill of lading must not be a stale one.
IV.
Scrutiny of Insurance: Where insurance is to be effected by the beneficiary for GIF consignment, the policy accompanying the documents should be examined to ensure:
That the insurance covers the merchandise for the value stipulated in the credit. That the document is of the class stipulated in the credit. That the insurance documents describe the merchandise covered and mention the name of the carrying steamer. In case where 'on board' bill of lading are not presented the following clause or words of similar indent must follow the name of the steamer' and / or 'following steamer'. That all risk stipulate in the credit is properly covered in the insurance documents. When the credit stipulates that 'all risk' are be covered, it is not sufficient that various risks are mentioned but a clause to the credit that 'all risk' are covered, is required. That the policy is in the name of the bank and the importer. That the party designed in the documents to perform such act properly countersigns the insurance document. That the insurance document complies with the conditions of the letter of credit is in negotiable form that it is endorsed by the party to when the loss payable, unless the credit stipulates that the insurance must be issued 'loss payable to a specified party in the country of destination'. That the date appearing on the insurance document is not later than the date appearing on the bill of lading. That the insurance document covers transshipment when the bill of lading indicates that transshipment would take place. That the insurance claims are payable at the port of destination, that insurance certificate / policy acknowledges the payment of the premium.
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Foreign exchange operations of Mutual Trust Bank Limited
V.
Scrutiny of other documents:
The other documents i.e. certificate of origin, packing list, weight / measurement certificate, inspection certificate, survey report, quality control certificate etc. should be issued or signed by the proper authorized and description of 'export - order' given in these documents not be in contradiction to the credit terms.
4.1.1.9: RISK OF EXPORT FINANCING: In the trade - there are so many risk factors involved. In banking sector - the bank face risk basically from loans & advances and foreign exchange. In this section I discuss the risk of Export Financing. While there are many advantages to exporting it is not without risk. In deed there are often factors present in international market, which make foreign exchange substantially more risky than domestic ones, including the credit risk of non-payment or non-acceptance of the merchandise by the buyer. For international sales, these risks are far more pronounced than they are domestically. For these reasons Mutual Trust Bank Limited also accompanied with elements of uncertainty some which are as follows:
I.
Commercial risk:
Insolvency of overseas buyer, which result in non-realization of export proceeds. Failure of the buyer to retire credit already accepted by him / her in case of askance bill within stipulated period. Willful negligence of the importer to accept of pay bill or to accept goods for no fault of the exporter.
II.
Political risk:
Sudden out break of war revolution or civil disobedience in buyer's country. Imposition of restrictions on remittance on any government action in the buyer's country which may block or delay payment. Imposition of trade embargo or blockade against any country. New import restriction on the buyer or cancellation of the license. Additional handling transport or insurance charges due to interruption or diversion of voyage, which cannot be recovered from buyer. Bankrupt or closure of a bank or stoppage of operation of a bank may hamper repatriation of exports proceeds of letters of credit opened by such a bank. Any other cause of loss occurring outside the exporter's country beyond the control of importer or exporter.
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Foreign exchange operations of Mutual Trust Bank Limited
III.
Informational risk: Often credit information on the importer is not available or at best sketchy because buyers and sellers live in different socio-economic & political environment. It is much harder to judge the financial strength, reputation, integrity of a buyer who is thousands of miles away and belongs to a different culture. Moreover, many importers may have good reputation in their own environment based on local value system; they may - never the less engage in some surprising business practices when judged by a different set of standard.
IV.
Pre-shipment export credit risk:
Pre-shipment export credit risk involves the following additional risks: There may be diversion of fund because of low interest rate. Uncertainties relating to non-availability of new materials may hamper processing of exportable products. The exporter may not be able to make shipment within the stipulated time due to power failure, strike, natural calamites etc. The materials under back-to-back letter of credit may not reach well in time to allow the exporter to process goods within the expiry date of original export letter of credit.
4.1.2: IMPORT FINANCE: All over the world there is no country, which can meet its requirements from its own sources. Some imports raw materials, some finished goods & some food products or other commodities. As it is in export & import are invariably conducted through commercial banks Mutual Trust Bank Limited is engaged to extend the facilities to the importers. After getting the completed registration, application for opening letter of credit is made through a bank where applicant has a current account. An importer is required to fill up import application form & letter of credit authorization form (LCAF) & importer has to deposit margin money to the bank from 5% to 40% of the import value, depending on the credibility of the importer. After the letter of credit is established the exporter after executing the export, submits the negotiable document through its bankers and in terms of exporter’s bank submit the documents to the corresponding bank of the importer's bank in the country. If the documents are found correctly fulfilling all the terms & conditions stipulated in the letter of credit the corresponding bank of import's bank will realize payment that will debited to the importer's account. In banking term this is known as PAD and the importer has to pay the PAD amount in 30 days with the bank interest rate. After 30 days when importer is unable to pay the PAD amount, he can take documents but the PAD turns into Loan against Trust Receipts (LTR)
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Foreign exchange operations of Mutual Trust Bank Limited
4. 2.1.1: Import financing sectors of Mutual Trust Bank Limited: Mutual Trust Bank Limited is one of the financers of import business in our country. In extend credit, grant and other facilities Mutual Trust Bank Limited finance to the following sectors: Machinery & transport equipment. Petroleum & petroleum products Textile, yarn, fabrics, article & related products Chemicals Bicycle parts Iron & steels Cereal & cereal preparations Dairy products & eggs Other including loans & grants.
4.2.1.2: Import financing system of Mutual Trust Bank Limited: Registration of import Income tax registration certificate Partnership deed in the cases of partnership concern Certificate of registration with the register of joint stock companies Articles & Memorandum of association in the case of limited companies. Nationality certificate & Bank certificate Ownership documents in place of business Trade license from the relevant authority. Survey clearance from the relevant authority Other documents prescribed in the import policy. 4.2.1.3: Import Registration Certificate (IRC): In case of import, IRC is the first necessity for the importer. The IRC is not required for import goods by government departments, Local authorities, statutory bodies, recognized educational institutes, Hospitals. In addition, registration is not required for import goods, which do not involved remittance of foreign exchange like -medicine, reading materials etc. can be imported without IRC by the users within monetary limit.
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Foreign exchange operations of Mutual Trust Bank Limited
Procedure for obtaining IRC: For IRC the interested person / firm's submit the application along with the following documents directly to the Chief controller of Import & Export respective zonal office (CCI&E): Income tax registration certificate. Nationality certificate. Certificate from chamber of commerce & industry registered trade association. Bank solvency certificate. . Copy of trade license. Any other document if required by CCI&E. On receiving application the respective CCI&E office will scrutinize the documents, conduct physical verification, and issue demand note to the prospective importers to furnish the following documents through their nominated bank: Original copy of treasury deposited as IRC fees. Assets certificate. Affidavit from 1s'class magistrate. Rent receipts. Two passport size photograph. Partnership deed in case of partnership firms. Certificate of registration Memorandum & Articles of association in case of limited company. After securitization and verification the nominated bank will forward the same to the respective CCI&E office with forwarding schedule in duplicate through banks representative. CCI & E then issues import registration certificate to the applicant.
4.2.1.4: IMPORT PROCEDURE: Imports & Exports (control) Act 1950 regulates the import & export trade of the country. There are a number of formalities, which on 'importer has to fulfill before import goods. The importer follows the following steps:
• The buyer & the seller conclude a sales contract provided for payment by documentary credit.
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Foreign exchange operations of Mutual Trust Bank Limited
• The buyer instructs his / her bank i.e. issuing bank to issue a credit in favor of the seller i.e. beneficiary.
• The issuing bank asks another bank usually in the country of the seller, the advice or confirms the credit.
• The advising or confirming bank informs the seller that the credit has been issued. • As soon as the seller receives the credit and is satisfied that he / she can meet its terms & conditions, he/she are in a position to load the goods & dispatch them.
• The seller then sends the documents evidencing the shipment to the bank where the credit is available i.e. the nominated bank. This may be the issuing bank, or the confirming bank, bank named in the credit as the paying, accepting or negotiating bank.
• The bank if other than the issuing bank, sends the documents to the issuing bank, • The issuing bank checks the documents and if they meet the credit requirement either Affect payment in accordance with the terms of the credit either to the seller if s/he has sent the documents directly to the issuing bank or to the bank that has made funds available to him/her in anticipation. Or Reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit.
• The bank checks the documents against the credit. If the documents meet the requirements of the credit, the bank then pay, accept or negotiate accordingly to terms of credit. In case of a credit available by negotiation, issuing bank or the confirming bank will negotiate with recourse; another bank including the advising bank has not confirmed the credit, which negotiates will with recourse.
• When the documents have been checked by the issuing bank and found to meet the credit requirements, they are released to the buyer upon payment of the amount due or upon other terms agreed between importer & the issuing bank.
• The buyer sends transport documents to the carrier who will then proceed to deliver the goods.
4.2.1.5: IMPORT SCRUTINY: The import bills consist of the following documents & the order of their scrutiny should be as below: Forwarding schedule of negotiating bank. Bill of exchange. Commercial Invoice (Before shipment). Bill of lading Insurance cover note
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Foreign exchange operations of Mutual Trust Bank Limited
Certificate of origin Packing List PSI Report (CRF- Clean Report of findings) Pro-forma Invoice (After shipment) Any other documents. Lodgment: a) Intimation should be given to the party in time. b) Conversion of foreign currency in to Bangladesh Currency. c) Entry in PAD (payment against document) register d) Entry in Letter of Credit opening register by rounding the letter of credit number with date. e) Scrutinize the shipping documents meticulously. f) Inform the importer to deposit balance amount of letter of credit and to release the necessary documents. g) Enter the shipping documents in inward foreign bills register.
4.2.1.6: Import Bills Retirement: a) Banker will prepare & pass retirement vouchers. b) Importer will deposit the claim amount. c) Certifying Invoices. d) Passing & prepare the vouchers. e) Entry in the register. f) Endorsement in the Bill of Exchange and Transport documents i.e. Bill of Lading; T.R. etc.
g) Accounting treatment of voucher passing: Party's A/C ..............................Dr. Margin on import A/C. ................Dr. PAD A/C…………………………….Cr. Interest & other charges A/C.................Cr.
h) At the end of the total procedure, taking the retirement of import bills or clearing certificate from the bank, the importer will clear the goods from the port through the clearing & forwarding agent.
i) On the other hand, completing the above all steps the issuing bank will prepare "foreign
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Foreign exchange operations of Mutual Trust Bank Limited exchange transaction schedule" and send one copy to international division of Head Office and another one copy to reconciliation.
4.2.1.7: RISK OF IMPORT FINANCING: In the trade - there are so many risk factors involved. In banking sector - the bank face risk basically from loans & advances and foreign exchange. In this section I discuss the risk of import financing. In international trade transaction takes place between buyers and sellers living in different socio-economic and political environments. There may be abrupt changes in socio-economic or political situation in the buyer's country or in the seller's country. Even the exchange value of currencies of the two countries had gone so much down that they were not acceptable or exchangeable in international market. More over the importer or the exporter may not be able to comply with the terms of credit for some reasons. Therefore, risk inherent in all credits. The bank has to consider following risk in financing the import procedure:-
(A) Commercial risk:
I. Violation of the requirement of letter of credit authorization or letter of credit: Shipment effected before authentication of the letter of credit authorization from by the nominated bank and registration with the Bangladesh bank, whenever necessary and before opening of letter of credit or after expiry of the validity of the letter of credit authorization or letter of credit shall be treated as import in contravention of this order. Letter of credit authorization obtained in the basis of false or incorrect particulars or by adopting any fraudulent means shall be treated as invalid and void.
II. Import against indent and Performa invoice: Letter of credit may be opened against and indent issued by a local registered indenter or against a Performa invoice issued by a foreign manufacturer or seller or supplier. (b)Political risk: In addition to the credit and commercial risk we have outlined, international transaction such as import financing take on the whole new dimensions of political risk. They are as follows:
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Foreign exchange operations of Mutual Trust Bank Limited
Sudden outbreak of war, revolution, coups or civil disobedience in the seller's country. Imposition of restriction on remittance. Imposition of trade embargo or blockade. New import restriction on the buyer or cancellation of the license. Additional handing transport or issuance charges due to interruption or diversion of voyage, which can't be recovered from the buyer.
(c)Informational risk: There may be informational risk inherent in import financing on the importer because of shortage of required information. So it is much harder to judge the financial strength, reputation and integrity of a seller or buyer who is thousands of miles away and belongs to a different culture.
4.2.1.8: DOCUMENTS USED IN FOREIGN EXCHANGE: Letter of Credit (L/C): It is the most important and commonly used in connection with foreign trade. Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity.
Bill of Exchange: A Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay on demand or on fixed or determinable future time a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. From the definition - we get the features of bill of exchange. In generally there are three parties like- Drawer: The person who prepare the bill; Drawee: The person who is ordered for the payment in future specified time; Payee: The person who is the amount of bill receiver as per the order of the drawer to the drawee.
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Foreign exchange operations of Mutual Trust Bank Limited
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 detail on the bill of lading should include: A description of the goods in general terms not inconsistent with that in the credit. Identifying marks & numbers (if any). The name of the carrying vessel. Evidence that the goods have been loaded on broad. The ports of shipment & discharge. The names of shipper, consignee and name & address of notifying party. The number of original bills of lading issued. The date of issuance. A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit.
Commercial invoice: A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally including the following information: Date Name & address of buyer & seller. Order or contract number, quantity & description of the goods, unit price and the total price. Weight of the goods, number of packages and shipping marks & number. Terms of delivery & payment. Shipment details.
Certificate of origin of goods: A certificate of origin is a signed statement providing evidence of the origin of the goods.
Inspection certificate:
57
Foreign exchange operations of Mutual Trust Bank Limited 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 letter of credit. The buyer who also indicates the type of inspection usually nominates the inspection company he /she wish the company to undertake.
Insurance policy or Certificate: The insurance certificate document must: • Be specified in the credit • Cover the risks specified in the credit. • Be consistent with the other documents in its identification of the voyage and description of the goods. • Unless otherwise specified in the credit: a) Be a document issued and / or signed by an insurance company or its agent, or by underwriters. b) Be dated on or before the date of shipment as evidenced by the shipping documents or establish that cover is effective at the latest from such date of shipment. c) Be for an amount at least equal to the GIF value of the goods and in the currency of the credit.
Pro-forma invoice or indent: Simply speaking, it is a Seller's quotation or agreement between seller & buyer. In this-the seller declared the rate, quantity, quality, manufacturing & other information about goods and that accepted by buyer. . Other Documents are: Packing list; Master's receipt.
1. DOCUMENTARY CREDIT: In simple terms a documentary credit is conditional bank undertaking of payment. Expressed more fully, it is written undertaking by a bank (Issuing Bank) given to the seller (Beneficiary) at the request and in accordance with the instructions of the buyer (applicant) to effect payment (i.e. by making a payment or by accepting or negotiating bills of exchange) up to a stated sum of money, within a prescribed time limit & against stipulated documents. These stipulated documents are likely to include those required those required for commercial invoice, certificate of origin, insurance policy or certificate and bill of lading or combined transport document.
57
Foreign exchange operations of Mutual Trust Bank Limited
There are various types of documentary credits. A revocable credit can be amended or cancelled at any time without prior warning or notification to the seller. An irrevocable credit can be amended or cancelled only with the agreement of all parties. As there are often two banks involved the issuing bank & the advising bank, the buyer can ask or an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit
There are four types of documentary credits according to payment methods: 1. Sight credit 2. Acceptance credit 3. Cash credit 4. Deferred payment credit
2. DOCUMENTARY LETTER OF CREDIT: The documentary Letter of Credit is an arrangement where by a bank (issuing bank) acting at the request of a customer (applicant of the Letter of Credit): a) To make payment to or to the order of other person (the beneficiary) or to pay accept or negotiate Bill of Exchange (Drafts) drawn by the beneficiary. b) Authorizes such payment to be made or such drafts to be paid, accepted or negotiated by another bank against stipulated documents, provided the terms & conditions of the Letter of Credit are complied with.
57
Foreign exchange operations of Mutual Trust Bank Limited
Procedure of documentary credit:
Seller
Advising / Confirming Bank
Issuing Bank
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Details of the diagram: a) The buyer & the seller conclude a sales contract providing for payment by documentary credit. b) The buyer instructs his / her bank i.e. issuing bank to issue a credit in favor of the seller i.e. beneficiary. c) The issuing bank asks another bank, usually in the country of the seller, to advice or confirms the credit. d) The advising or confirming bank informs the seller that the credit has been issued. e) As earl as possible the seller receives the credit & is satisfied that he / she can meet its terms and conditions, he / she is in a position to load the goods and dispatch them. f) The seller then sends the documents evidencing the shipment to the bank where the credit is available in bank. This may be the issuing bank, or the confirming bank, or any bank named in the credit as the paying, accepting or negotiating bank, or it may be the advising bank or any bank willing to negotiate under the credit. g) The bank checks the documents against the credit. If the documents met the requirements of the credit, the bank will pay, accept, or negotiate according to the terms of the credit. In case of a credit available by negotiation, the issuing bank or the confirming bank will negotiate without recourse. Any other bank including the advising bank if it has not confirmed the credit, may negotiate, same for payment. h) The bank if other than the issuing bank sends the documents to the issuing bank i) The issuing bank checks the documents and if they meet the credit requirements, either ďƒ˜ Effects payment in according with the terms of the credit, either to the seller if he / she have sent the documents directly to the issuing bank or to the bank that has made funds available to him in anticipation. Or ďƒ˜ Reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit. j) When the documents have been checked by the issuing bank and found to meet the credit requirements, they are released to the buyer upon payment of the amount due, or upon other terms agreed between him / her & the issuing bank. k) The buyer sends the transport document to the carrier who will then proceed to deliver the goods.
4.2.1.9: LETTER OF CREDIT (L/C): Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity.
4.2.1.9.1: Parties of Letter of Credit transaction:
Issuing Bank: It is the buyer's bank. The bank that agrees to the request of the applicant and issues its letter of credit in terms of the instructions of the applicant.
Advising Bank: It is the seller's or beneficiary's Bank. The bank usually situated in the seller's or beneficiary's country (most of the time with which there exists corresponding relationship with the buyer or issuing bank), request to advice the credit to the beneficiary.
Confirming Bank: Sometimes issuing bank request advising bank or another bank to add confirmation to the letter of credit. When that bank do this then such bank is called confirming bank. So advising bank can be act as confirming bank.
Reimbursing Bank: This is the bank that is nominated by the issuing bank to pay (it is also known as paying bank) or to accept drafts. It can be situated in another country. In this connection it is to say that American Express Bank & HSBC act as reimbursing bank in case of Mutual Trust Bank Limited. The account, which maintains Mutual Trust Bank Limited.with HSBC & American Express Bank, is called "Nostro Account" and in rivers the account, which is maintained by HSBC & American Express Bank with Mutual Trust Bank Limited is called "Vostro Account"
Negotiating Bank: The bank, which makes payment to the exporter after scrutiny, the documents submitted by the exporter with the original letter of credit then it is called Negotiating Bank.
Nominated Bank: The bank that is nominated by the issuing bank to pay (nominated bank is known as paying bank) or to accept drafts (nominated bank is known as accepting bank) or to negotiate (nominated bank is known as negotiating bank). Usually the advising bank is request & authorized to be the nominated bank unless the credit allows negotiation by any bank. Seller: Beneficiary of the letter of credit is seller.
4.2.1.9.2: Classification of Letter of Credit or Basic forms of documentary letter of credit: The letter of credit can be either revocable or irrevocable. It needs to be clearly indicated whether the letter of credit Revocable or Irrevocable. When there is no indication then the letter of credit will be deemed to be a revocable L.C. The details are as follows: Revocable letter of credit: A revocable credit is one, which can be amended or cancelled by the issuing bank. At any moment without "prior notice" to the beneficiary. So this is clear that revocable credit can be revoked any time without prior notice. Irrevocable letter of credit: An irrevocable credit is one, which cannot be cancelled or amendment able any time without the consent of each party. Through this letter of credit the issuing bank gives a definite, absolute and irrevocable undertaking to honor its obligations, provided the beneficiary complies with all the terms & conditions of the credit. Government letter of credit: That letter of credits, which are done by the Defense Ministry and other Ministries of the government. Master or mother letter of credit: The L.C. which come from out side the country to the exporter from importer that is mother or master letter of credit. Other classes of letter of credit: Revolving letter of credit: When the L.C. is used again & again in same amount for a specific period of time that is called revolving letter of credit. Transferable letter of credit: Exporter can transfer his / her right of letter of credit in full or partly to a third party. In generally, the exporter is not the supplier but act as a middleman with in the supplier & importer. Back-to-Back latter of credit: The letter of credit, which done by the security of mother letter of credit.
Clean or open letter of credit: The letter of credit, which provides assurance of payment bill of exchange without submission, of any export documents that is called clean letter of credit. Confirmed letter of credit: When the Irrevocable letter of credit issued by issuing bank to the exporter as assurance of the L.C., then as per advice or documents the authorized representative or representative bank's provide assurance or payment guarantee that is confirmed letter of credit. At sight letter of credit: That letter of credit which expires ninety days i.e. with in this period the documents must be sending to the negotiating bank. Deferred payment letter of credit: That letter of credit which expires one hundred & eighty days i.e. with in this period the documents must be send to the negotiating bank. Contract letter of credit. Refinance Letter of Credit. Marginal Letter of Credit. Traveler's Letter of Credit.
4.2.1.9.3: Classification of Letter of credit as per function: A) L/C under cash B) Back to back L/C
LETTER OF CREDIT IN CASH: Introduction: After getting back the LCA (Letter of Credit Authorization) Form duly registered by Bangladesh Bank, Mutual Trust Bank Limited Foreign exchange Section Branch as letter of credit opening bank can open letter of credit at the request & on the instruction of the importer.
Justification for fitness of letter of credit opening: Application from importer. Bio-data of the applicant. Current account opened by the applicant in the branch. Supplier's acceptance & rate of goods. Is it a banned item or not? Contract on prescribed form of bank (stamp TK. 150). Performa invoice from supplier.
Steps in letter of credit opening: On receiving the documents or papers from the importer the letter of credit opening bank is to perform the following functions in connection with opening the letter of credit: A. To scrutinize the documents thoroughly and to consult with import policy, Bangladesh Bank & International Division's circular. B. To prepare an "offering sheet". This offering sheet is nothing but a prescribed office note on which the branch manager will sanction the margin to be obtained from the importer. C. Commission against opening of the L/C is determined on the basis of tenure of the L/C i.e. for how long the bank is going to take the liability on behalf of the importer D. If the L/C transmitted through SWFIT/TELEX the related charges should be picked up from the respective charges schedule. E. Exchange rates for the respective currency should be picked up automatically form the treasury module. F. Margin is the amount and the percentage of the total L/c value that the applicant has agreed to provide before opening of L/C as his equity participation. The margin should be in local currency. G. If there is any FCC on applicant account which should be deducted as per charges schedule. H. To make entry in "letter of credit opening register". I. Accounting treatment to prepare vouchers in prescribed forms: J. For creating contingent liability Customer’s Liability A/c…………………………………….Dr Banker’s Liability A/c………………………………..Cr K. Margin Voucher Client’s A/C…………………………………………Dr. Commission on LC value …………………………...Cr VAT on L/C commission @15%...................................Cr. F.C.C Charge………………………………………...Cr Recovery SWIFT (For L/C)………………………….Cr Recovery SWIFT (For R/A)…………………………Cr Stock of Stamp………………………………………Cr Miscellaneous (For LCA)……………………………Cr H. To dispatch the letter of credit as follows: First & second copy - Advising Bank, which in turn forward The original copy to the exporter Third copy - Reimbursing Bank. Fourth & Fifth copy—Importer Sixth copy—C.C.I. & E. Seventh to Ninth copy—Letter of credit opening bank's copy.
Required documents for letter of credit opening: Proposal letter (in proposal letter it must be mentioned that - price of goods, CCI & E
registration, pass book number, LCA form dully filled in signed & sealed, Import form full set, insurance policy & addendum, P.I. number). Application and agreement for irrevocable LC with adhesive stamp of TK.150. Import license HS. Code. TIN. VAT registration. Indenting certificate. Performa invoice - two copies (with in this it indicate - Performa bill no. & date, item, particulars, quality, quantity, rate, and amount of goods, total invoice value (E &O.E.) LCA (Letter of Credit Authorization) form for industrial consumer - four copies. (With in this - IRC number, total amount) Signature of Director of the firm and manager of Mutual Trust Bank Ltd. IMP form - Four copies (by this the declaration of the firm's directors) Money receipts of insurance policy. After preparing the procedure the bank provide offer in prescribed "offering sheet". Approval certificate of Bangladesh Bank on behalf of the importer.
Particulars involved in offering sheet: Name of the party, Sanctioned limit, Facility applied for letter of credit (amount & previous outstanding). Forward exchange Foreign bills purchased. Guarantees. Trust receipts. Clean packing credits. Advance against imported goods. Goods particulars Import license Margin already at credit. Margin to be obtained. Guaranteed by. Balance of current account. Average Balance of bank account. Net worth of the firm. Customs duty. Country of export. Other conditions.
Vouchers issued when the offer letter accepted by the bank: ďƒź Margin voucher. ďƒź Liability voucher.
Procedure for letter of credit opening: After completion of the previous particulars, then the party take money and bank give letter of credit to the party by checking the declared particulars of the party. Then one copy sends to the Beneficiary / Negotiating bank. The beneficiary bank sends the document to exporter. The exporter & Beneficiary bank for shipment the goods. Then the beneficiary bank sends back to the letter of credit opening bank. The LC opening bank scrutinizes the documents and sends to the importer. When the importer accepts the documents then LC opening bank do lodgment (it is the payment procedure in lodgment voucher). Then the accounting treatment is: PAD account ..................... .....Dr. Exchange account ............... .....Cr. Mutual Trust Bank Ltd General A 1C... ... .....Cr. Then the importer apply for endorsement as well as retirement. For retirement accounting treatment in retirement voucher is: Importer or party's account. ........... .Dr. Marginal account... ................... ....Dr PAD account...... ..................... ...Cr. P&T charges account... .................. Cr. Cost of stationary account... ........... ...Cr. Interest account. .......................... .Cr. Then the opening liability reversed by credit in liability voucher (FEF - 20 internal vouchers). Then the documents endorsed by the LC opening bank and send to the importer. The party goes for customs clearing. After clearing the importer submit the customs "Bill of entry" certificate with in four months to the LC opening bank. The LC opening bank matching the documents and report to the Bangladesh Bank within the month of retirement of LC. Then the letter of credit is fully closed.
4.3.1: FOREIGN REMITTANCE Remittance is the sending of money etc. to a distance. Foreign remittance is the sums of foreign currency to a distance from one place another place i.e. country to country. The person who is the receiver of the remittance is remittee. The person who is the sender of the remittance is remitter or remiitor. There are two types of foreign remittance, which are as below:
Foreign inward remittance Foreign outward remittance
4.3.1.1: Foreign Inward Remittances: The remittance of freely convertible foreign currencies which Mutual Trust Bank Limited Foreign Exchange Section is receiving from abroad against which the authorized dealers making payment in local currency to the beneficiaries may be termed as foreign inward remittance.
4.3.1.1.1: Mode of inward remittances: The term inward remittances includes not only remittances by TT., MT., Drafts etc. but also purchases of bills, purchases of drafts under travelers letter of credit and purchases of travelers cheques. Foreign currency notes against which payment is made to the beneficiary also a part of inward remittances. Thus the following are the Mode of inward remittances:
TT: Telegraphic Transfer. MT.: Mail Transfer. FD: Foreign Drafts. TC: Travelers Cheque. Foreign currency notes. 4.3.1.1.2: Purpose of inward remittance: The purpose of remittance is of various reasons. Such as: For family maintenance. Realization of exports proceeds. Gift. Donation. Export brokers commission.
4.3.1.1.3: About” Form-C": The authorized dealer should obtain 'Form - C' from the beneficiary to know the purpose of the remittances in all cases and they are to submit the "Form - C' to Bangladesh Bank along with the monthly returns where the proceeds of the remittances is TK. 5000/= & above. 'Form - C' is a prescribed declaration form & this 'Form -C' is to be filled up and signed by the beneficiary himself. 4.3.1.1.4: Payment procedures of FD. MT. & PO. Drawn on Mutual Trust Bank Ltd: The above investments that are drawn on Mutual Trust Bank Limited. Foreign Exchange Corporate Branch may be paid on the spot before making payment the following procedures to be observed by the authorized dealer:
To obtain Form-C. To verify the signatures of the instrument. To convert the foreign currency into Bangladesh TK. with O.D. (On Demand Transfer) Buying rate prevailing on the date. To make entry in TTs, drafts & Mails received register. To prepare FET schedule and to send first five copies of FET along with vouchers to international division, Head Office, Dhaka.
Payment procedure of T.T.: → To verify the 'test number'. → To inform the beneficiary for submission of "Form - C". → To confirm from issuing bank or reimbursing bank. → To covert of foreign currency into Bangladesh currency with T.T. → To make entry in T.T.s, drafts, M.T.s, received registration. → To prepare vouchers. → To prepare FET schedule.
Purchase of Drafts & Cheques: Authorized dealer may purchase drafts & cheques which are not drawing on Mutual Trust Bank Limited.at the request of the beneficiary. Procedures of purchase are as below: √ To obtain an application or undertaking from the beneficiary with 'Form – C’ √ To verify the signature of the drafts (if possible). √ To make entry in the register for drafts & T.C. purchased. √ To convert foreign currency into Bangladesh currency. √ To prepare voucher. √ To prepare FET schedule. √ To send the instrument for collection.
Collection procedure of drafts & cheques:
To make entry in foreign Bills Collection Register. To prepare forwarding schedule in quadruplicate. To prepare vouchers on realization of proceeds i.e. on receipt of advice from the collecting bank.
Payment of traveler's cheque (TC):
To checkup the custom declaration (if any). To consult with purchase agreement (if any). To obtain signature on TC and to verify the same with the previous signature of the beneficiary of the TC. To make entry in register for TC & drafts purchased. To convert foreign currency into Bangladesh currency. To prepare FET schedule. To send the TC for collection. To prepare the vouchers.
Payment of foreign currency notes:
To check the custom declaration (if any). To made entry in (kateha) raw register. To convert foreign currency into Bangladesh currency. To prepare vouchers. No FET schedule is required to be prepared & sent to head office because in this case there is no transaction with head office.
4.3.1.1.5: Cancellation of inward remittance: In the event of any inward remittance which has already been reported to the Bangladesh Bank being subsequently cancelled, either in full or in part because of non-availability of beneficiary. Authorized dealers must report the cancellation of the inward remittance as an outward remittance of "Form-T/M". Required documents are: ♦ ♦ ♦ ♦
The date of return in which the inward remittance was reported. The name & address of the beneficiary. The amount of the purchase as effected. Reasons for cancellation.
Reporting to Bangladesh Bank: On the last working day of each month the transaction during the month to be reported to Bangladesh Bank through the following schedule: Schedule -J-l / 0-3 for TK. 5000 & above. Inward remittance voucher-1/04 for below TK. 5000.
4.3.1.2: FOREIGN OUTWARD REMITTANCES: The remittance in foreign currency which is being made from our country to abroad is known as foreign outward remittance.
4.3.1.2.1: Mode of outward remittance: Thus the following are the Mode of outward remittances:
TT. Telegraphic Transfer. MT: Mail Transfer. FD: Foreign Drafts. PO: Payment Order TC: Travelers Cheque. Foreign currency notes. 4.3.1.2.2: Approval of Bangladesh Bank: Bangladesh Bank provides permission or approval for outward remittances to the applicants who are to lodge an application for the purpose on the following prescribed forms with an authorized dealer who forwarded the same to Bangladesh Bank for approval:
The IMP form (cover remittances for imports). Form T/M (Traveling & Miscellaneous). 4.3.1.2.3: Issuance procedure of FD, MT. & TT.
To prepare the instrument. To make entry in DD, MT, TT issued register. To prepare draft advice in duplicate one for drawee bank & one for reimbursing bank. To make entry in draft advice dispatched register.
To send reimbursement authority in case of MT & TT. T o prepare FET schedule. 4.3.1.2.4: Issuance procedures of traveler cheque:
To verify the approved T / M form or Bangladesh Bank permit. To issue TC by obtaining signature of the purchaser on the TC. To endorse in the passport. To prepare FET schedule. To make entry in the travelers cheque issue register. The TC issuing slip of the issued TC to be sent to that bank (whose TC issued) With reimbursement instruction.
4.3.1.2.5: Issuance procedure of foreign currency notes: To verify the approved T.M form or Bangladesh Bank permit. To issue foreign currency notes by endorsing in the passport. Voucher preparing with accounting treatment: Party's account.......................................Dr. Foreign Currency Notes on Hand A/C Cr. 4.3.1.2.6: Facilities for wages Earners:
Bangladeshi national/Bangladesh origin dual citizen working abroad may open Foreign Currency account (F.C. A/C) in US Dollar and Pound Sterling without initial deposit.
Nominee can operate the account Interest is paid on F.C. A/C Balance in F.C. A/C can be utilized for import of goods Balance available in the F.C. account may wholly or partially be sent abroad. Foreign currency brought in by Wage Earners can be deposited in the F.C. A/C Wage earners Development Bond in Taka can be purchased from the balance of F.C. A/C Non-Resident Foreign Currency A/C (NFCD A/C) can also be opened by Wage Earners. F.C. A/C & NFCD A/C may be maintained as long as the account holder desires.
ď ą These accounts can be opened from abroad on submission of required papers duly attested by our Embassy/ Branch/ Representative office abroad.
4.3.1.2.7: Monthly statement to Bangladesh Bank: On the last working day of each month, the transactions of outward remittance during the month are reported to Bangladesh Bank.
4.4.1: FOREIGN EXCHANGE BUSINESS POSITION: Export & import business of Mutual Trust Bank Limited:
Mutual Trust Bank's expertise in International Banking has a record of in-house growth over more than one decade. With limited network of branches at home and also a few correspondent banks worldwide it is handling the export-import business including homebound remittances. The following graph shows year-wise export-import business of Mutual Trust Bank Limited. Though both export and import are increasing day-by-day, imports exceed exports which ultimately drastically hit the country’s negative Balance of Trade.
Figure 10: Export & Import position
4.4.1.1: Performance of Foreign exchange business of Mutual Trust Bank Limited
The following table shows year-wise performance of foreign exchange operations consisting item-wised income generating avenues. All the figures show positive growth which generally signals foreign exchange business as a profitable business in Bangladesh. Within all the income avenues, income from exchange gain shows highest figure in taka value. Growth rate here was 48.92%. Income from Letter of Credit and Letter of Guarantee were the second and the third largest among the income avenues respectively. Table 9: Income from foreign exchange business of Mutual Trust Bank limited Particulars Foreign bill Purchased Local bill Purchased Remittance Letter of Guarantee Letter of Credit Bills for Collection Acceptance Export bill Miscellaneous(includes commission on sale of PSP,TC (A) Total (B) Exchange gain (Profit on exchange trading) Total (A)+(B)
2006 460,581 3,833,860 7,730,748 14,160,897 66,555,289 2,846,448 5,195,369 442,527
2007 360,461 4,485,557 7,702,293 21,397,445 75,284,688 4,078,047 7,048,898 538,912
2008 654,329 8,646,784 7,968,002 23,360,370 96,433,989 8,747,327 8,747,327 599,694
1,353,563
2,387,148
3,312,449
2009 628,965 9,041,451 8,280,081 39,869,621 106,869,561 10,792,897 10,792,897 570,41 5 6,491,052
102,579,282 129,977,023
123,283,450 114,610,826
157,649,764 149,640,436
191,235,959 222,845,221
232,556,305
237,894,276
307,290,200
414,081,179
4.5: Foreign Exchange risk management Foreign exchange risk is defined as the potential change in earnings arising in market prices. The market directly affects each country’s bond, equities, private property, manufacturing, and all assets that are available to foreign investors. Foreign exchange rate also play a vital role in determining who finances government deficits, which buys equities in companies and literally affects and influences the economic scenario. Due to high risk market the role of treasury operations is crucial. As per Bangladesh Bank’s guidelines the bank has segregated the Front and back office of treasury operations. Front office independently conducts the transactions and the Back office is responsible for verification of the deals and passing of their entries in the books of accounts. All NOSTRO accounts are reconciled on monthly basis and all foreign exchange transactions are revalued at market to market rate as determined by Bangladesh Bank.
4.6: Foreign currencies translation: Foreign currencies translations are converted into equivalent taka using the ruling exchange rate on the date of transactions. Foreign currencies balances held in US dollar at the year end are translated into taka currency at the weighted average rate of inter bank market as determined by Bangladesh Bank. Balances held in foreign currencies other than US dollar are converted into mid value of the selling and buying rate of the last transaction date of the year of the bank.
Chapter 6 Performance analysis Of Mutual Trust Bank
6.1. Profit comparison between whole banks with Banani branch:
Position as on 2009
Position as on 2008
Position as on 2007
Position as on 2006
MTBL.
549,860,000
282,965,086
554,138,494
285,494,792
Banani Branch
12,103,647
81,086,668
73,757,726
28,986,643
Year
Ratio Analysis of Mutual Trust Bank Limited:
Ratio analysis is very much for every business. Because by calculating ratio analysis we can understand the business position, business strength and weakness. By knowing this information, management can takes its necessary seeps to organize their goal. Now we will analysis Basic Bank Limited ratio according to ‘Du Point Analysis’. We use last three years data for ratio analysis.
Profitability Ratio: Profitability refers to the ability of a firm to generate revenues in excess of expenses. When making compression across firms it is useful to control for different in their resource base. There are some basic formulas for profitability ratio.
ďƒ˜
Return on Assets Ratio for the year of 2005,2006,2007,2008, and 2009: (Calculation by million Taka) Return on Assets ratio (2009) = Net income/Total assets = 808.14/38773.91 = 0.021 Return on Assets ratio (2008) = Net income/Total assets = 1011.62/29417.09 = 0.034 Return on Assets ratio (2007) = Net income/Total assets = 628.44/27136.37 = 0.023 Return on Assets ratio (2006) = Net income/Total assets = 527.22/19436.57 = 0.023
Return on Assets ratio (2005) = Net income/Total assets = 553.67/14766.32 = 0.037 Decision: In the year of 2005 MTBL Return on Assets ratio was 0.037; in 2006 Return on Assets ratio has been decreased. It was 0.027. After that in 2007 it has decreased again the rate was 0.023.In 2008 it again increased the rate was 0.034.Finally in 2009 has also decreased which rate was 0.021.
ďƒ˜ Return on Equity for year of in 2005, 2006 , 2007,2008 and 2009:
(Calculation by million Taka) Return on Equity (2009) = Net income /Share holders equity = 808.14/2596.58 = 0.311 Return on Equity (2008) = Net income /Share holders equity = 1011.62/2239.00 = 0.452 Return on Equity (2007) = Net income /Share holders equity = 628.44/1726.14 = 0.364 Return on Equity (2006) = Net income /Share holders equity = 527.22/1491.23 = 0.354 Return on Equity (2005) = Net income /Share holders equity = 553.67/1249.29 = 0.443
Decision: Like return on assets the return on equity in 2005 of MTBL it was 0.443.In 2006 has been decreased but in 2007 it was increasing. In 2008 it was 0.452 and in 2009 it decreased to 0.311.
ďƒ˜ Current Ratio for year of in 2006 , 2007,2008 and 2009: (Calculation by million Taka) Current Ratio (2009) = Current Assets/Current Liability = 10382.55/4543.77 = 2.285 Current Ratio (2008) = Current Assets/Current Liability
= 6464.24/3439.77 = 1.88 Current Ratio (2007) = Current Assets/Current Liability = 6830.77/3007.88 = 2.27 Current Ratio (2006) = Current Assets/Current Liability = 4880.86/2639.86 = 1.85 Decision: In the year of 2006 MTBL Current Ratio was 1.85; in 2007 Current Ratio has been increased. It was 2.27. After that in 2008 it has decreased again the rate was 1.88.In 2009 it again increased the rate was 2.285.
ďƒ˜ Debt. To total assets for year of in 2006 , 2007,2008 and 2009: (Calculation by million Taka) Debt to total assets (2009) = Total Debt/Total Assets = 1385.81/38773.91 = 0.036 Debt to total assets (2008) = Total Debt/Total Assets = 830.06/29417.09 = 0.028 Debt to total assets (2007) = Total Debt/Total Assets = 937.51/27136.37 = 0.035 Debt to total assets (2006) = Total Debt/Total Assets = 839.61/19436.57 = 0.043 Debt to total assets (2005) = Total Debt/Total Assets
= 690.95/14766.32 = 0.047 Decision: In the year of 2003 MTBL Debt to total assets ratio was 0.047; in 2004 Debt to total assets ratio has been decreased. It was 0.043. After that in 2005 & 2006 it has also decreased again the rate was 0.035 & 0.028. Finally in 2007 has increased which rate was 0.036.
6.2. Qualitative analysis (SWOT): COMPARATIVE ANALYSIS WITH OTHER BANKS: The organizational structure of Mutual Trust Bank is very different from other banks operating in Bangladesh. Not only is that, in terms of services provided by the banks to some extent different from other bank. As we have state earlier that, this bank is the only government bank which is established for the betterment of the small-scale business enterprises. So no direct comparison can be made in credit policy and practices. However, we can compare them by analyzing the efficiency in credit management. In that, we will segregate the banks operating in Bangladesh into four types: (1) Nationalized Commercial banks (2) Specialized Banks (3) Local private Bank (4) Foreign Banks. Then we will analyze and compare Mutual Trust Bank with the credit management efficiency of those banks.
(1) Nationalized Commercial Banks:
In Bangladesh, the credit management of Nationalized Commercial Banks is most debated issue. Almost 85% of the total classified loan belongs to the nationalized commercial banks. Before 1991 no steps has been taken to reduce this rate. Mutual Trust Bank Ltd is also Nationalized Bank but due to its effective management and time tested credit supervision and due to its modern organizational structure it becomes able to reduce its classification rate well below to those Nationalized Commercial Banks. Being a specialized bank it does not have huge services to offer A comparative analysis are given to Appendix 2 to indicate how efficiently Mutual Trust Bank are operating relative to other Nationalized Commercial Banks. When we have talked with the Directors of Nationalized Commercial banks they have informed us that, one major problem: 1. CBA of the respective government banks. It becomes impossible to initiate any strong policy to wipe out inefficiency of the nationalized banks. 2. The salary structure of the Nationalized Commercial Banks is become less inspired for collecting the classified loans. In Mutual Trust Bank, there is no CBA or any kind of employee organization so it becomes possible to take any action against inefficiency. Moreover, the salary structure of Mutual Trust is well above of any nationalized banks so employees get inspired to work for the betterment of the bank.
(2) Specialized Commercial Banks: In Bangladesh there are four specialized commercial banks (except Mutual Trust) named: Bangladesh Krishi Bank, Bangladesh Krishi Unnayan Bank, and Bangladesh Shilpa Rin Sangstha. These banks are providing subsidies and other improvement facilities for poverty alleviation, industrialization and agricultural development. The rate of classification of Bangladesh Krishi Bank is 35%, Bangladesh Shilpa Bank 29% and Bangladesh Shilpa Rin Sangstha 21%. It shows that, from classification of loans point of view these banks are less efficient than Mutual Trust.
(3) Local private commercial banks: In sense, they are modern in their nature and activity. These banks gain knowledge and lessons from those banks. If we focus on the credit management techniques of these banks, we can find that, literally they are great. However, from our point of view it is difficult to comment or compare these banks with Mutual Trust Bank. Because the effectiveness of the credit policy can only be judged after 6 or 7 years. However, so far they are doing well than the Mutual Trust Bank. (4) Foreign Commercial Banks: There are 9 foreign commercial banks operating in Bangladesh. Among them two banks, named Standard Chartered Grind lays Bank and Hong Kong Shanghai Banking Corporation are providing excellent services to its client. The have introduced modern credit management techniques to select the best client. They have global credit appraisal system that ensures low classification rate. In every aspect, their credit policy and practices are superior to that of Mutual Trust Bank. Foreign commercial banks monitoring and supervision technique is superior to Mutual Trust Bank. The reason of this efficiency is that, the performance evaluation of the manager of the foreign commercial banks depends largely on this. Moreover, because of selective sector selection it becomes more possible. Not only that, because of modern technology and excellent recruitment procedure it becomes possible for them to have competitive efficiency. It is specified the relative strength of Mutual Trust’s relative to Nationalized Commercial banks, Private commercial banks, specialized commercial banks and foreign commercial banks.
6.3. Quantitative (Ratio and Risk of Net Income):
Ratio Analysis of Mutual Trust Bank Limited: Ratio analysis is very much for every business. Because by calculating ratio analysis we can understand the business position, business strength and weakness. By knowing this information, management can takes its necessary seeps to organize their goal. Now we will analysis Basic Bank Limited ratio according to ‘Du Point Analysis’. We use last three years data for ratio analysis. Profitability Ratio: Profitability refers to the ability of a firm to generate revenues in excess of expenses. When making compression across firms it is useful to control for different in their resource base. There are some basic formulas for profitability ratio.
ďƒ˜
Return on Assets Ratio for the year of 2005,2006,2007,2008, and 2009: (Calculation by million Taka) Return on Assets ratio (2009) = Net income/Total assets = 808.14/38773.91 = 0.021 Return on Assets ratio (2008) = Net income/Total assets = 1011.62/29417.09 = 0.034 Return on Assets ratio (2007) = Net income/Total assets = 628.44/27136.37 = 0.023 Return on Assets ratio (2006) = Net income/Total assets = 527.22/19436.57 = 0.023
Return on Assets ratio (2005) = Net income/Total assets
= 553.67/14766.32 = 0.037 Decision: In the year of 2005 MTBL Return on Assets ratio was 0.037; in 2006 Return on Assets ratio has been decreased. It was 0.027. After that in 2007 it has decreased again the rate was 0.023.In 2008 it again increased the rate was 0.034.Finally in 2009 has also decreased which rate was 0.021.
ďƒ˜ Return on Equity for year of in 2005, 2006 , 2007,2008 and 2009: (Calculation by million Taka) Return on Equity (2009) = Net income /Share holders equity = 808.14/2596.58 = 0.311 Return on Equity (2008) = Net income /Share holders equity = 1011.62/2239.00 = 0.452 Return on Equity (2007) = Net income /Share holders equity = 628.44/1726.14 = 0.364 Return on Equity (2006) = Net income /Share holders equity = 527.22/1491.23 = 0.354 Return on Equity (2005) = Net income /Share holders equity = 553.67/1249.29 = 0.443
Decision: Like return on assets the return on equity in 2005 of MTBL it was 0.443.In 2006 has been decreased but in 2007 it was increasing. In 2008 it was 0.452 and in 2009 it decreased to 0.311.
ďƒ˜ Current Ratio for year of in 2006 , 2007,2008 and 2009: (Calculation by million Taka) Current Ratio (2009) = Current Assets/Current Liability = 10382.55/4543.77 = 2.285 Current Ratio (2008) = Current Assets/Current Liability = 6464.24/3439.77 = 1.88 Current Ratio (2007) = Current Assets/Current Liability = 6830.77/3007.88 = 2.27 Current Ratio (2006) = Current Assets/Current Liability = 4880.86/2639.86 = 1.85 Decision: In the year of 2006 MTBL Current Ratio was 1.85; in 2007 Current Ratio has been increased. It was 2.27. After that in 2008 it has decreased again the rate was 1.88.In 2009 it again increased the rate was 2.285.
ďƒ˜ Debt. To total assets for year of in 2006 , 2007,2008 and 2009: (Calculation by million Taka) Debt to total assets (2009) = Total Debt/Total Assets = 1385.81/38773.91 = 0.036 Debt to total assets (2008) = Total Debt/Total Assets = 830.06/29417.09 = 0.028 Debt to total assets (2007) = Total Debt/Total Assets = 937.51/27136.37 = 0.035 Debt to total assets (2006) = Total Debt/Total Assets = 839.61/19436.57 = 0.043 Debt to total assets (2005) = Total Debt/Total Assets = 690.95/14766.32 = 0.047
Decision: In the year of 2003 MTBL Debt to total assets ratio was 0.047; in 2004 Debt to total assets ratio has been decreased. It was 0.043. After that in 2005 & 2006 it has also decreased again the rate was 0.035 & 0.028. Finally in 2007 has increased which rate was 0.036.
Chapter 7 Findings of the study
7.1: The findings obtained from the study on Foreign Exchange Business of Mutual Trust Bank Limited are follows: • There are three types of modes of foreign exchange market, which are: Export Finance, Import Finance & Foreign Remittance. Foreign Exchange section of Mutual Trust Bank Limited Branch does import operations out of above-mentioned foreign exchange activities vastly. • With limited network of branches at home, volume of export-import business including homebound remittances is increased day-by-day. The Bank’s financing of import business increased from taka 17,804 million in 2008 to Taka 21,266.5 million in 2009 registering growth of 19.45 percent. On the other hand, bank’s export finance increased to Taka 16,795 million in 2009 compared to Taka 15,464 million in 2008- a growth of 8.61%. During first half of FY08, exports, import payments and remittances receipts increased by 4.43% to US$6,495.92 million, 15.90% to US$9,599.80 million and 26.24% toUS$4,827.31 million against US$6,220.61 million, US$8,282.50 million, and US$3,824.04 million respectively during the same period of the previous year. Total official foreign aid disbursement increased by 3.6% to USD 1,625.0 million in FY07 from USD 1,568.0 million received in FY06. • Besides, SWIFT is being used in the AD Branches and the head office of the bank for trade finance-related operations like documentary credit, documentary collections, fund transfer, guarantee, etc. with optimum security. • Reuter’s services are being used at the head office for offering the best exchange rates to its customers as well as for other treasury functions. • For Bangladesh Bank’s exchange control purpose, online L/C monitoring systems is performed daily by inputting details of L/C information with the following Applicant name & address Beneficiary’s name & address Foreign currency amount Date of issue of L/C Date of expiry and place of L/C H.S code (Harmonized system code) Description of goods (Quantity, per unit price, total amount) Letter of Credit Authorization form (LCAF) number and date Origin of the goods Name of the Pre Shipment Inspection (PSI) company
• The liquidity & profitability condition of this branch is standard. • It is a leading bank of Bangladesh but it has limited marketing strategy in its management policy. It is a leader in call money market in Bangladesh as well. • Most of the employees are loyal to the organization, so they are focused on the customer satisfaction, where customers are the life of the banks.
Chapter 8 Recommendations and Conclusion
Recommendations: Banking is a service-oriented marketing. Its business profit depends on its service quality. That’s why the authority always should be aware about their service quality. To provide quality service to the customer it is necessary to have a trained team of an organization or an institution. For this reason the bank should recruit more fresh, bright and energetic persons such as BBA, BBA, and BBM etc.The bank has a provision for internship program, but it is not well organized. Although the officials are very careful and cooperative with the interns, the authority should be more structured. If they can properly make them trained it will be very fruitful to recruit them. Because they learn overall banking in the internship period, so in the beginning of the job they can work as experienced persons. It is also very important that they should give an honorarium to the intern. Bank should offer more facilities to the customers such as credit card, visa card, ATM machine etc. While the other bank is launching “Consumer Credit Scheme” Mercantile bank is failing to launch this king of scheme. The management can undertake such sort of schemes and earn more profit. As soon as possible the bank should start more branches in Dhaka city as well as the other cities of the country. Now a day’s world is going very fast. Now most of the banks open online customer service system. So in order to compete in the world market they should adopt online banking system. The bank should take attempt to enter into the share market by issuing ran shares to capitalize more money and invest thereafter by expanding the number of branches around the city. One of the business strategies is promotion. Successful business depends how they can promote their products or services to the customer. In this connection to improve the business status bank should introduce more promotional programs. The recruitment process of the bank is very lengthy and expensive. The bank should the cost and select the employee by restructuring the lengthy process. In general banking department it is necessary to implement modern banking process instead of traditional system. It should be more computerized. In addition with the present services they should include more services. It is badly needed to provide more services to the customer in order to compete in the market. Data Base Networking is the most modern technology to transfer data from branch to branch or branch to head oppose and vice versa. So they must use this technology in Information Technology (IT) Department of the bank. As the clients are not in favor of introducing system, if possible the rule of introducing to open an account should be changed. Because many people face in problem to arrange an introducer in the time of opening accounts. The loan sanction process should be easier that the clients can feel convenient to take loan from the bank. To make exchange process more prompt the authority should use modern communication system such as e-mail, fax, win fax, Internet etc. Foreign exchange department should be fully computerized that the exchange process would be convenient for both the bankers and the clients. I recommend the HR practices should be properly implemented. HR department should be more aware of employee’s satisfaction and dissatisfaction. The decision makers should take recourse based strategy. They should mobilize their best resources in the right way in order to achieve goals. They should always concentrate on full customer service and
satisfaction. They always try to keep the motivated skilled employee in the organization. I highly recommend there should be1) Determining training needs according to-the first step in a successful training programmer is finding out the people to be trained and the type of training they need. I) what are the organizations goals ii) What tasks must be performed to achieve these goals iii) What behavior is necessary for each job incumbents to complete his? Or her assigned tasks. iv) What deficiencies any do incumbents have in the skills knowledge or attitudes required to perform the necessary behaviors. v) And a method of training need assessment should be done in such a way-in the different levels those are Organizational level— -comparison of the achievement with the goals and objectives of the organization -analysis of manpower inventory -analysis of skill inventory -examinations of complaints -analysis of organizations climate indices namely labor management data. -In the occupational level -job analysis -work sampling -analysis of equipment -analysis of operation procedure-review of reports records research pMTBLication and other literature. Individual level; i) Interview ii) Questionnaire iii) Checklist IV) Counseling v) Surveys vi) Dairies vii) Reportage grid vii) Case study viii) Assessment centre ix) In basket analysis x) Informal talks 2) proper appraisal-there are basically three purposes to which performance appraisal can be put-a) it cab be used as a basis for forward allocation decisions as to who get salary increase promotions and other benefits, b) it can be verified the Aries where development is needed, c) the performance appraisal can be used as a criterion against which selection device and development programmers are validated.
3) Job rotation-job rotation will give motivation to the employees. It is a systematically moving employee from one job to another. 4) Membership based rewards-it will make them more effective and motivate them to work as a team 5) Training evaluation-after each training programmed, if it has been evaluated then it will give a clear idea whether the training programmer was effective or not. 6) Autonomy given to the employees who are working in this department. The whole department should be fully computerized. If there are any limitations in the working process it should be removed. There should be enough manpower in the department to support the employees. The input output ratio should be fair enough it will never cause the dissatisfaction to the employees. In the branch mostly in the foreign exchange department, there should be a on the job training it will make them immediately more productive. I highly recommended the bank management should implement the Hertzberg’s motivation hygiene theory this theory will give the employees more satisfaction and they will able to increase their job Satisfaction and skill as well. The employees of the branch and the foreign exchange peoples are effective enough but I also recommend that here should be the HR division to recruit such personality types of employees that proper matching between individual to specific job. - There should be proper job enrichment - Job rotation - Flex time -The input output ratio should be perfect.
Conclusion From the practical implementation of customer dealing procedure during the whole period of my practical orientation in Mutual Trust Bank Limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level computerized transaction is necessary condition but not the sufficient condition. For proper functioning of the banking systems, corporate governance is desired at highest level. Reviewing the report and from the experience of the two months with the bank under internship program, I can say that Mutual Trust Bank Limited is a potential and promising bank in the banking sector in Bangladesh. As desired, its functions and activities in the economy are being aligned with the objectives set by the Government of Bangladesh since its inception. After getting Authorized Dealer’s license from the authority of Government of Bangladesh, Mutual Trust Bank Limited finds foreign exchange business as a profitable and challenging business. Though, income from loans and advance shows the highest amount/percentage of total income, some loans and advances are indirectly created from foreign exchange section, such as PAD, LTR, LIM, Local Documentary Bills Purchased (LDBP), Foreign Documentary bills Purchased (FDBP) which shows high level of income generating avenues from Mutual Trust Bank Limited. The effective and efficient Foreign Exchange Business of the Bank helps in the continuous growth and progress of national economy. Through the foreign exchange operations and all other banking activities, Mutual Trust Bank Limited is, no doubt, playing a vital role not only in the micro economic sector but also in macro economic sector of Bangladesh. We hope, the successful walkway of Mutual Trust Bank Limited will remain continuous for a long time and become an example in the banking sector in our country.
REFERENCES •
Ali Syed Ashraf,”Foreign Exchange & Risk Management”, First Mowla Brothers Edition, May 2005,Mowla Brothers,Dhaka.
• A Dictionary of Business (2003), 3nd edition, Oxford University Press. • • • • •
Annual Report of Mutual Trust Bank Limited(Published-2009) Annual Report of Mutual Trust Bank Limited(Published-2008 Annual Report of Mutual Trust Bank Limited(Published-2007) Annual Report of Mutual Trust Bank Limited(Published-2006) Annual Report of Mutual Trust Bank Limited(Published-2005)
•
Hossain ,Dewan Mahboob & Khan ,Arifur Rahman (2006),” Disclosure on Corporate Governance Issues in Bangladesh: A survey of the Annual Reports” The Bangladesh Accountant,January-March,2006,pp 95-99
• • • • • • • •
Guidelines for foreign exchange transaction of Bangladesh Bank (Volume 1 & 2). Monthly Statement of Mutual Trust Bank Limited, December, 2008 Various Official Records of Mutual Trust Bank Limited. The Daily Prothom Alo-January 14, 2009. Foreign Exchange and Financing of Foreign trade Import Policy’2006-2009 Export Policy’2006-2009 Export-Import (Control) Act’1950
• Monthly Business review published by IDLC finance Ltd. Vol. 4 Issue 12, December 2008.
• http://www.mtblbankbd.com • http://www.bangladeshbank.com • http://www.idlc.com
• Consultation with the Following Persons o Mohammad Al-Amin (Manager) o Md. Jalal Uddin (Deputy Manager) o Tanvir Shahajada (Assistant Manager) o Md. Nazmus Sakeeb (Assistant Manager)
o Md. Rafayeth Ullah Chowdhary (Officer) o Shaanjida Ahsan (Assistant Officer) o Md. Masud Rana
ANEXTURE
Annexure-A The commodities which required mandatory PSI are set by the circulars issued by the customs. There are at present four zones to conduct the PSI over the world for Bangladesh. These are following. Table 9: SL no. (1) 01 02 03 04
Name of PSI Agency (2) SGS Society General Surveillance S.A Switzerland. Bureau Veritas (BIVAC) International S.A, France OMIC Overseas Merchandise Inspection Co. Ltd, Japan Intertek International Limited, UK
Block (3) A and C B D E
Block-wise name of the countries: Block A: India Block B: China, Thailand, Korea (N & S), Philippines, Cambodia. Block C: Pakistan, Nepal, Bhutan, Sri Lanka, Maldives, Myanmar, Afghanistan, Indonesia, Malaysia, Singapore, Iraq, Iran, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, U.A.E., Egypt, Ethiopia, Nigeria, Kenya, Ghana, Bahrain, Uzbekistan, Azerbaijan, Tajikistan, Tunisia, Morocco, Sudan, Algeria, Libya, Yemen, Turkmenistan, Brunei, Tanzania, Albania. Block D: Japan, Hong Kong, Vietnam, Taiwan, Australia, New Zealand, Solomon Islands, Fiji, Kiribati, Vanuatu, Papua N. G. Block E: Canada, U.S.A., South Africa, Seychelles, Zimbabwe, Norway, Turkey, UK, Italy, Netherlands, Belgium, Switzerland, Germany, Denmark, Spain, France, Ireland, Sweden,
Other European Countries, Czech Republic, Estonia, Lithuania, Latvia, Poland, Romania, Russia, Slovenia, Ukraine, Argentina, Brazil, Chile, Mexico, Peru, Uruguay, Venezuela, and countries, rest of the world which is/are not included in the other Blocks.
Annexure-B Documents are submitted to the customs by importer/ C& F agents (Attached in the next page):
Bill of exchange Commercial invoice PSI Report (CFR- Clean Report of findings) Packing List Certificate of origin Bill of lading Pro-forma invoice Insurance cover note LCAF (For custom purpose copy)
Annexure-C I have presented an organ gram and cash flow statement of the Mutual Trust Bank.
Amount in Tk.Crore
14 12
4. Comparative Situation Total deposit & Advance in UBL, Banani Branch,2008
10 8 6 4
30 25 20
2 Amount in 15 TK. Crore 0
Total Deposite Total Advance
10
July
Augus t
5 0
Septem ber
M onth
July
September Month
October
Time Deposit Dmand Deposit
3. L/C Open in MTBL, Banani Branch,2008
75
October
56
September
43
August
54
July
Earnings from deployment of fund 300 250 200 tk. in crore 150 100 50 0
Return on Deployment of fund(%)
2000
2001
2002
year
2003
% increase of Dep. Of fund
August July October
Ot he rC
Various Advance
CC S
Ov er dr af t re dit Sc he m e
CC H
Se cu rit y
PA D
September
LT R
(G en .)
10 9 8 7 6 5 4 3 2 1 0
Lo an
Amount in Tk.Crore
Various Advance Position in UBL, Malibagh Branch.
Annexure-D MTBL Seven years at a glance (Tk. In Million) Results for 2000 the year Authorized capital Paid up capital Total Assets Deposit Loans & Advances Import Export Working capital Branches Manpower
2004
2005
2006
2007
2008
2009
800
800
800
1200
1200
1200
1200
245
245
276.85
319.765
639.53
799.41
999.27
3411.45 3104.63 871.46
9364.50 8896.20 3912.97
13078.93 12234.70 6707.42
16383.17 15150.42 8896.19
18324.73 16285.19 10775.95
24089.09 22385.19 17669.29
28890.48 25727.43 21857.05
2096.20 1011 11.47
9219.50 6558.40 192.13
12268 10457.50 404.16
15112.50 11377.30 461.24
20380.80 15250.60 575.32
28325.20 17411 821.76
33271.90 24108.57 1051.73
4 168
10 219
14 305
15 363
20 892
25 588
28 663