The management system of Prime Bank Limited as a private commercial bank as well as its formation, and its functional, operational, and financial aspects.
Executive Summary From the inception of the civilization the banking sector dominates the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth. To satisfy the demand as well as to improve the commercial banking service in our country, Prime Bank Limited, a scheduled bank, was incorporated to initiate its operation with the aim to play the vital role on the socio-economic development of the country. At present Prime Bank Limited (PBL) is one of the most top level private sector banks in our country in terms of quality services to the customers & value addition for the shareholders. It has given a successful year (2005) in terms of profit & turnover. The Bank solidified its position as one of the most successful financial institutions &
maintained satisfactory
growth across many of its business lines. The bank was able to make a net profit before tax of Tk.1, 200.00 million indicating a growth of 12.78% over the last year. This indicates that Prime Bank Limited is running ahead of the peak. Assigned to PBL for the purpose with an aim of discovering the intricacies of a profit oriented financial institution. Among the several departments have studied “Foreign Exchange Department”. While preparing this report it has been tried to reveal the insights of the foreign exchange banking system of the bank. Simultaneously efforts have been made to provide an in depth analysis on the Import Bills-- “L/C opening (cash), lodgment & retirement”-- in the light of the theoretical aspects. The report also focuses on the impact of the foreign exchange activities upon the clients. Finally it incorporates an evaluation of the different aspects of the export-import process in comparison to other competitor banks; and a few recommendations and suggestions were also prescribed based on the observation and findings.
Analysis on the findings is basically done to sort out the major aspects of the “Foreign Exchange Banking System” and to draw some significant inferences. At the same time for easier understanding of the report, supporting topics and terms are explained in the light of textbooks and regulatory guidelines. Utmost care has been given to explain all necessary aspects related to the subject matter for easier and quick understanding of the report.
1.1 Internship Topic: Overall operation of foreign exchange department of Prime Bank Limited, Elephant Road Branch comprising “ L/C opening (cash), lodgment & retirement and their impact to customer services.’’
1.2 Origin of the report:
Any academic course of study has a great value when it has practical application in real life. Only a lot of theoretical knowledge will be little important unless it is applicable in practical life. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more fruitful. This is why, Internship program is a pre-requisite for acquiring B.B.A Degree in University of Dhaka. The entire BBA program is divided into eight semesters. The internship program is executed in the last semester and it has got the same weight as other semesters in the evaluation process. As the classroom discussion alone cannot make a student perfect in handling the real business situation, therefore, it is an opportunity for the students to know about real life situation through this internship program. This program consists of three phases: •
Orientation to Organization: To accustom the internee with the structure, functions, and performance of the organization.
•
The Project Work: Pertaining to a particular problem matching with the internee’s capacity and organization’s requirement.
•
The Report writing: To epitomize the internee’s analysis, findings and achievements, in the proceeding one phase.
In this connection, was assigned to Prime Bank Ltd. Elephant Road Branch foreign exchange department for my practical orientation. The topic “L/C opening (cash), lodgment & retirement and their impact to customer services” was selected by the Human Resource Division of Prime Bank Limited and was approved by Dr. Md. Abu Saleh, Professor & Chairman, Department of Management Studies, University of Dhaka ., prepare this report under the supervision of Mr Thoufiqul Islam, Lecturer, Department of Management .Studies, University of Dhaka.
1.3 Objective of the report: General Objective:
The general objective of the report is to know about the management system of Prime Bank Limited as a private commercial bank as well as its formation, and its functional, operational, and financial aspects. Project Objective: •
To know about the functions of the Foreign Exchange Department especially the opening of L/C & the procedure of lodgment & retirement of import bills.
•
To acquaint me with the techniques, laws, principles and procedures adopted in financing foreign trade of Bangladesh.
•
To be familiar with day to day functioning and service offered by a commercial bank.
•
To determine the satisfaction level of clients with the present procedure.
•
Finally to identify problems and to provide some suggestions for the improvement of foreign exchange transaction & other services of Prime Bank Ltd.
1.4 Scope of the report: This report covers the details of Prime Bank’s practices about foreign exchange activities emphasizing “L/C opening (cash), lodgment & retirement and their impact to customer services”. This report consists of the writer’s observations and on the job experiences during the internship period in the Foreign Exchange Departments of Elephant Road Branch. This report emphasizes on the sequential activities involved
and used by Prime Bank Ltd for
foreign exchange transaction The report also focuses on the impact of the foreign exchange activities upon the clients. Finally it incorporates an evaluation of the different aspects of the export-import process in comparison to other competitor banks and recommends some measures to further strengthen its foreign exchange department.
1.5 Methodology: Data Collection: Both the primary and secondary form of information is used to make the report more meaningful and presentable. The details of these sources are given below:
Primary Sources: •
Major sources of information were discussions with the officers of Foreign Exchange Department specially Mr.Tanfiz Hossain Chowdhury (In-charge of Foreign Exchange Department), Mr. Md. Mamun Reza (Senior Executive Officer) and Ms.Shahnaz Akther (Senior Officer) of Prime Bank Limited, Elephant Road Branch.
•
Informal conversation with the clients.
•
Practical work exposure from the different desk of Foreign Exchange Department of the Branch.
Tools and Techniques for Analysis: •
SWOT Analysis for analysing the gathered information.
•
Many statistical tools like “Likert Scaling”,“Dichotomous Scaling” etc are used to analyze the data collected from various sources.
Secondary Sources: •
“Annual Report 2005” of Prime Bank Limited.
•
Foreign Exchange Manual.
•
UCPDC Articles, ICC Articles.
•
Periodicals published by Bangladesh Bank.
•
Various book, articles, compilations etc regarding Foreign Exchange Operations.
•
Various books of Business Communication.
Language: Abstract terminology and technical terms have been avoided as much as possible so that any person can realize the theme of the report. Layout: All necessary parts of conventional formal report have been followed. The readers are expected to get a different taste from this report.
1.6 Limitation: There were certain limitations regarding the study that is summarized below: •
The main hindrance behind preparing this report was time. The tenure of the Internship program is only three months. Since Foreign Exchange is a vast area, it is not possible to go through in depth within this short span of time.
•
Deficiencies in data required for the study.
•
Inaccurate or contradictory information.
•
Field practice varies with the standard practice that also created problem.
1.7 Report Preview This report is divided into mainly two segments. These are: •
Segment-A: The Organization Part of Prime Bank Limited.
•
Segment-B: The Project Part ““L/C opening (cash), lodgment & retirement and their impact to customer services”
Segment-A focuses on different services, management structure and practices, and financial conditions of Prime Bank Limited. The Project Part discusses foreign exchange
functions,
policy, strategy, export process, import process and its impact on the clients.
THE ORGANIZATION 2.1.Prime Bank Limited
The significance of financial intermediaries in the progress of the overall economy of country cannot be described in short. From the inception of the civilization the banking sector dominate the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth. In ancient time the importance of commercial banks after the ravage of the liberation war to develop a better economy was severally needed and it is needed now and will be required in future also. In time to time Government of Bangladesh agreed to permit the private commercial banking in the country. To satisfy the demand as well as to improve the commercial banking service in our country, The Prime Bank Limited is scheduled bank that was incorporated under the Companies Act 1994, initiated its operation on April 17, 1995 with target to play the vital role on the socioeconomic development of the country. It availed its registration as a banking company under
the Banking Company Act, 1993 from the Bangladesh Bank dated February 12, 1995. It started to make profit from the inception year. It was made possible for its management and the leadership of the first Managing Director, Mr. Lutfur Rahman Sharker, Ex-Governor, Bangladesh Bank. Aiming at offering commercial banking service to the customers’ door around the country, the Prime Bank Limited established 41 branches and a booth located at Dhaka Club, Dhaka all over Bangladesh upto this year. It carries out all the banking activities through its branches in Bangladesh. Out of the above, five branches of the bank are run under Islamic Shariah, the modus operandi of which is substantially different from other branches run on commercial conventional basis. The Bank is listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited as a Publicly Quoted Company for its general class of shares. This organization achieved customers’ confidence immediately after the establishment in domestic and international markets. The bank has been successful in positioning itself as progressive and dynamic financial institution in the country within this short time. It is now widely acclaimed by the business community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution. Thus within this short period of time, it has been able to create a unique image for itself and earned significant solution in the banking sector of the country as ‘a bank with a difference’. The emergence of the Prime bank Limited is an important event in the country’s financial sector at the inception of financial sector reform. The authorized capital of PBL is Tk. 4000 million and paid up capital of the same bank is Tk. 1400 million. The First Chairman of the Bank was Mr. Abdul Gani and the present Chairman is Mr. Quazi Saleemul Huq. Now the Managing Director of Prime Bank Limited is M. Shahjahan Bhuiyan. The bank has made a reasonable progress due to its visionary management people and its appropriate policy and implementation. The bank holds jointly the first position with Mutual Trust Bank in the CAMEL rating published by Bangladesh Bank.
2.2 About the bank Vision: “To
be the best Private Commercial Bank in Bangladesh in terms of
efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity” Mission: “To build prime Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure.Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels” Efforts are focused on:
Delivery of quality service in all areas of banking
activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to our customers. Strategic Priorities: To have sustained growth, broaden and improve range of products and
services.
The company believes that communication with, and feedbacks from its clients help it to achieve its goal of providing world-class products and services. Prime Bank has engaged a relationship officer for each individual customer to address the requirements of the customer. It also constantly monitors its standards, and strives to exceed clients’ expectations. About the Prime Bank
Vision
To be the most efficient Bank in terms of customer service, profitability and technology application.
Mission
Continuous improvement in Prime bank’s business policies and procedures. Cost reduction through integration of technology at all levels.
Efforts are Focused
On delivery of quality service in all areas of banking activities with the aim to add increased value to shareholders’ investment and offer highest possible benefits to Prime Bank’s customer.
Strategic Priorities
To have sustained growth, broaden and improve range of products and services
2.3. Corporate Information of Prime Bank Limited
Memorandum and Articles of Association signed by the Sponsors
05-02-1995
* Incorporation of the Company
12-02-1995
* Certificate of Commencement of Business
12-02-1995
* License issued by Bangladesh Bank
20-02-1995
* License issued for opening the first Branch, Motijheel Branch
08-04-1995
* Initial Public Offering IPO Prospectus
29-081999
- Subscription opened - Subscription closed
09-09-1999 22-09-1999
* Listed with Dhaka Stock Exchange Limited
27-03-2000
* Listed with Chittagong Stock Exchange Limited
15-11-1999
*Trading of Shares on Dhaka Stock Exchange Limited
29-03-2000
*Trading of Shares on Chittagong Stock Exchange Limited
29-03-2000
* Dividend declared in the 5th AGM (First after the IPO)
14-03-2000
* Registered as Merchant Banker With Securities & Exchange Commission
29-03-2001
* License issued from Bangladesh Bank as Primary Dealer
11-12-2003
* Registere as Depository Participant of CDBL
29-03-2004
* Trading of Shares started in Demat fo):
15-06-2004
* Completion of 11 years of service
17-04-2006
*Agreement with Temenos for Core Banking Software T24
30-06-2005
2.4. Organogram of PBL:
Managing Director (MD) Deputy Managing Director (DMD)
Senior Executive Vice President (SEVP) Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP)
Senior Assistant Vice President (SAVP)
Assistant Vice President (AVP)
First Assistant Vice President (FAVP)
Senior Executive Officer (SEO)
Executive Officer (EO)
Principal Officer (PO) Senior Officer (SO) Management Trainee Officer (MTO) Junior Officer (JO)
2.5. Management of Prime Bank Limited: As a fully licensed professional bank, prime Bank Limited is being managed by a highly professional and dedicated team with long
experience in banking. They constantly focus on understanding and anticipating customer needs. As the banking scenario undergoes changes so the bank and its responsibilities itself changed in the market condition. In the bank ,boards of directors are the sole authority to take decision about the affairs of the business. Now there are 14 directors in the management of the bank. All the directors have the good academic background and have huge experience in business. Qazi Saleemul Huq is the chairman of the bank. The board of directors holds meetings on a regular basis. There are different committees in the bank for the efficient management of the bank. All these committees meet on a regular basis for discussing various issues and proposals submitted for decisions. The committees are given below: •
Board of Directors
•
Policy committee: This committee deals with any policy matters related to the bank’s new products, new business development as well as any sort of policy related to Prime Bank Limited. It seats fortnightly.
•
Executive Committee: It seats weekly.
•
Credit committee
2.6. Departments of Prime Bank Limited: It would be very difficult to control the system effectively, if the jobs are not organized considering their interrelationship and are not allocated in a particular department. If the departments are not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Prime Bank Limited has done this work very well. There are
Human resource Department.
Financial and Administration Department.
Monitoring and Inspection Department.
Marketing.
Personal Relation Department.
Merchant Banking and Investment banking.
Treasury Division
International Division.
General Services Division.
Computer and Information Technology Department.
Credit Division.
Corporate Affairs Division.
Card division.
Board Audit Cell.
2.7.
Values Considered as Guiding Factors
All the activities and decisions of Prime Bank Limited are based on, and guided by, these values: •
Placing the interests of clients and customers first
•
A continuous quest for quality in everything the company does
•
Treating everyone with respect and dignity
•
Conduct that reflects the highest standards of integrity
•
Teamwork- from the smallest unit to the enterprise as a whole
•
Being good citizens in the communities, in which they live and work
2.8.
Products and Services
Prime Bank Limited launched several financial products and services since its inception. Among them are Contributory Savings Scheme, Monthly Benefit Deposit Scheme. All of these have received wide acceptance among the people. Depository Product: The bank Prime bank Limited is now offering the following depository products for mobilizing the savings of the general people.
Contributory Savings Scheme Monthly Benefit Scheme Special Deposit Scheme Education Savings Scheme Fixed Deposit Savings Deposit Account Short Term Deposit Account (STD) PBL – Insurance Fixed Deposit Scheme Prime Bank Money Scheme Multi Currency Account Foreign Currency Deposit Account Non – resident Taka Account Non- resident Foreign Currency Account (NFCD) Non – Resident Investors Account
Loan Product: Prime bank Limited is offering the following loan and advance to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are given below: Consumer Credit Scheme Lease Finance Small & Medium Enterprise Credit Scheme Hire Purchase House Building Finance Scheme (Corporate Client) Computer Software Financing Scheme Prime Bank Master Card Credit Card Prime Bank Visa Credit Card Working Capital Financing Import Financing Export Financing Industrial Financing
Customer Service: The Bank is committed to offer excellent customer service to remain ahead of competition. With the liberalization of banking & financial industry & increasing customer knowledge & sophistication competitive pricing of products is no longer sufficient in capturing large market share. New product development, know your client program & redesign of the
existing products were the strategies adopted by the Bank to serve the customer differently from the competitors. Keeping with the spirit of oneness on its 10 th anniversary clients get together programme were arranged at all the locations where the Bank operates. The message of the meeting was “customer needs and our focus”. The Bank introduced few deposits & lending products with attractive features. Some of the products were redesigned to have insurance coverage of the depositors. In order to provide adequate financial support to the senior citizen, the Bank has a Senior Citizen Scheme for the depositors. As per the scheme 0.50% more value is provided to the eligible savings & fixed depositors of the Bank. Customer service improvement program & related activities are continuously be developed, reviewed & implemented with the objective of providing excellent service to the customer. In order to give easy access to the products & to give best possible services at the doorstep of the existing & potential customers, the Bank introduced direct selling Services by recruiting highly trained & customer focused professionals. Special counters are usually opened to meet the service demand during heavy customer flow, especially during IPO offering, Bill collection, Eid holidays etc. Key to building meaningful customer relationship is to have well managed system to address and respond to all customers complain in timely manner. Complaint Cell at Head Office maintains all complains and feedback & provide timely resolution of such complain. New Product & Services:
The bank has its concentration for new product and services development for satisfying its customer and increasing its customer base. The bank firmly believes that technology based product and services will play significant role in the performance of the bank as people are getting more conscious about their service quality. They prefer now faster service with least cost. For delivering faster service, the bank has introduced diversified technical ways that are stated below –
Online Banking Services: The bank has set up Wide Area Network (WAN) across the country within its all branches to provide on-line branch banking facility to tits valued customers. The service named “PRIMELINE” has opened up several possibilities of
improved customer services. Under this facility client of one branch are able to do banking transaction at any other branch of the bank. The bank hosted its Web Site (www.prime-bank.com) to facilitate dissemination of information about the banking services and facilities of Prime Bank Limited all over the world.
SWIFT Services: Prime Bank Limited is one of the first few Bangladeshi Banks to obtain
membership of SWIFT (Society for Worldwide Inter-bank Telecommunication). SWIFT is a members’ owned cooperative which provide a first and accurate communication network for financial transactions such as Letter of Credit, Fund Transfer etc. By being a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5700 user institutions in 150 countries all over the world.
L/C Delivery Services
Locker Services
Merchant Banking Services
ATM Service
2.9. Principal Activities of Prime Bank Ltd: The principal activities of the Bank are banking and related businesses. The banking businesses include deposits taking, extending credit to corporate organization, retail and small & medium enterprises, trade financing, project financing, lease & hire purchase financing, issuance of local & international credit cards etc. The mode of banking included conventional & Islamic Banking. It also performs merchant banking function under the license issued by Securities & Exchange Commission, Dhaka, Bangladesh. 2.10.
Performance of the Bank
Profit and Operating Results
The Bank earned as operating profit Tk. 1200.83 million during 2005 after all provisions including the 1% general provision on unclassified Loans & Advances. The operating profit before provisions registered a growth of 32.65 percent during 2005. Profit before tax showed a growth of 12.78 percent.
Fig: Operating Profit and profit before tax
Deposit A strong deposit base is necessary for the success of a Bank. During the year 2005 the Bank mobilized a substantial amount of deposits from mid-level income group people under Deposit Savings Scheme. After critical handling the Bank mobilized total Deposit of Tk. 36022.61 million as at December 31,2005, thus recording an increase of 37. 45 % in comparison with Tk. 28069.24 million as at December 31, 2004,. The significant growth in deposit enabled the Bank to expand its business, performing assets and also had an impact on the profit position of the bank.
Fig: Deposit mix Advance The bank’s Loans & Advances portfolio also indicates an impressive growth. Total Loans and Advances amounted to Tk. 31916.11 million in 2005 against Tk. 23219.67 million in 2004 and the growth being 40.79%, Prime Bank’s credit portfolio is well diversified and covers a wide range of businesses and industries. The sectors financed include Manufacturing, Trading, Construction, Transport, Agriculture, Fishing & Forestry, Edible Oil, Pharmaceuticals, Information Technology, and Consumer Credit amongst others. Advances constitute the most significant indicator of the health of a Bank. The Bank has formulated its policy to give priority to SMEs (small and medium enterprises) and at the same time the Bank is financing large-scale enterprises through consortium of Banks. Prime Bank is committed to maintaining a very high quality of assets. Close monitoring and efficient asset management has resulted in minimal creation (1.57 %) of classified loans to total Loans and Advances.
Fig: Deposit and loans advances
Foreign Exchange Business International Trade constitutes the main stream of business activities of the bank. It offers a full range of trade finance and services namely, issue, advise and confirmation of Documentary Credit; arranging forward exchange coverage; pre -shipment and post-shipment finance; negotiation and purchase of export bills; discounting bill of exchange; collection of bills, inward and outward remittance etc. •
Import Business: The Bank established Letters of Credit amounting to Tk. 40303 million during 2005 showing a growth of 44.44% over the volume of Tk. 36747.00 million in the year 2004;
•
Export Business: The total export handled by the bank amounted to Tk.28,882 million for the year 2005compared to Tk. 19501.80 million for 2004
•
Foreign Correspondents: The number of foreign correspondents and agents of Prime Bank in 2005 stood at 517 covering most of the important business centers in different countries of the world. The Bank has maintained excellent relationship with leading international Banks and has successfully established credit lines with major Banks to support global Foreign Trade Business.
Investment Investment stood at Tk 3939.50 million at the end of 2005which was 3043.81.in the previous year.
2.11. Salient Features of the Bank •
Prime Bank is engaged in conventional commercial banking as well as Islamic banking based on Islamic Shariah Principles.
•
It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of the people for channel ling the same to the productive sectors of the economy.
•
For uplifting the standard of living of the limited income group of the population, the Bank has introduced Retail Credit Scheme by providing financial assistance in the form of loan to the consumers for procuring household durables.
•
The Bank is committed to maintaining continuous research and development to keep pace with modern banking.
•
The operations of the Bank are computer oriented to ensure prompt and efficient services to the customers.
•
The Bank has introduced camera surveillance system (CCTV) to strengthen the security services inside the Bank premises.
•
The bank has introduced customer relations management system to assess the needs of various customers and resolve any problem on the spot.
2.12 Correspondence Relationship The bank established correspondent relationships with a good number of foreign banks, namely CITI Bank N.A, American Express Bank, Bank of Tokyo, Standard Chartered Bank, Mashreq Bank and AB Bank Limited. The bank is maintaining foreign currency accounts in New York, Tokyo, Calcutta, London and many other important commercial hubs of the world. During this period the bank provided letter of credit facility on behalf of its valued customers using its correspondents as advising and reimbursing banks.
2.13Corporate Social Responsibility (CSR):
The Bank has taken strong
initiative to ensuring compliances and attaining greater social goals through good governance. Prime Bank Limited has always laid emphasis on its commitment to the society and seeks to reinvest parts of its profits for community welfare. Accordingly, Prime Bank Foundation had been formed in order to undertake social welfare related activities. The Foundation has made allocation to different areas of
poverty alleviation & primary health care programs for the low income groups. In the year 2005, the bank donated a sum of Tk.29 million to the Foundation. Khude Shilpir Khoje – an invitation to innovation programme for the younger generation was undertaken with the objectives to nurture & promote untapped talents within the youth in the school level and in order to open up the horizon of creative faculty in them. The theme of the programme was “Express your dreams in color”. The participants were students from class six to ten across the country. The successful youths were awarded prize money of different amounts. Convergence to best CSR practices is an ongoing process. Prime Bank is always committed to discharging its due social commitment & is specially concerned about the impact of the Bank’s financed projects on surrounding environment. An Environmental policy is being formulated in accordance with guidelines issued by the Government. As per the policy environmental impact will be considered at the time of credit & lending risks analysis. In order to provide adequate financial support to the senior citizen, the Bank has a Senior Citizen Scheme for the depositors. As per the scheme .50% more value is provided to the eligible savings & fixed depositors of the bank. The Bank as per agreement with Bangladesh Institute of Bank Management – the apex body of the training institute for the bankers sponsors the prize money given to the students securing 1st, 2nd , & 3rd position in the Masters of Bank Management examination of the institute. The Bank encourages the participation of graduates in the business processes of the bank through its internship programme. This initiative of the bank allows fresh & meritorious graduates from business schools & Universities to get on hand experience about the different process in banking. These experiences help them to plan their career path more effectively. Donation is given to educational institutions students. The Bank participated in major sponsorship programs in the area of sports such as Golf to popularize the same among the public. Support was given to various magazines and souvenir for encouraging the participation of the eminent writers of the country.
2.14 .Future Outlook: Bangladesh economy is expected to grow by 6.30% - 6.80% during the financial year 20052006 due to post flood harvest recovery of agricultural output, stable manufacturing growth supported by strong export demand of knit garments, robust service sector growth & steady flows of remittances. Due to high international prices of crude oil & continuing upward trend
in the prices of many other commodities, interest rates are on rising trend in global economy with associated increase in the inflationary expectation. Bangladesh Bank is alert to contain the inflationary pressure & tightened monetary measures are expected to continue for facilitating smooth credit flow to the productive pursuits only for targeted output growth. The rate of the country has already shown a rising trend due to the tightened monetary measures. Prime Bank Limited is well positioned to meet the challenges of 2006 and will continue to strive to innovate & capture opportunity for growth & value creation. The Bank will focus on its large customer base to generate more business from existing customers. This strategy is supported by wide spectrum of product & service delivery. The Bank will continue to harness the potential of retail, credit card, and SME & remittance market. However, continued pressure on interest margins, fees, and exchange earnings. & increased provision requirement for retail, Credit Card & SME will pose a challenge to the financial institutions during 2006. In its pursuit for growth, the Bank will always adhere to good corporate governance & practices & sound risk management policies & strict credit evaluation procedure. There is a growing realization that the micro finance can act as engine of sustainable growth. 2005 was a stepping stone for the Bank in micro financing & due to its strong commitment towards corporate social responsibility, the Bank will look for more avenues for participating in micro financing during coming days. The corporation of NGOs will be taken due to their already attained expertise in the field.
2.15. Performance at a glance A bank with a difference SL. No . 01 02 03 04 05 06 07 08
09 10 11 12 13 14 15
Particulars
Authorized Capital Paid – up Capital Reserve Fund Equity Fund Deposit Loans & Advances Investments Foreign Exchange Business Import Export Business Guarantee Operating Income Expenditure Operating Profit Net Profit Before Tax Fixed Assets Total Assets
(Taka in Million) 2001
2002
2003
2004
2005
1000.00 500.00 362.92 1258.26 13259.87 9074.94 1730.74 27614.20 13427.60 14186.60 2175.00 1100.14 344.05 756.09 705.09 174.27 15736.94
1000.00 600.00 448.93 1526.41 16481.60 12686.85 1996.23 31753.70 19564.00 12189.70 3659.30 1196.20 448.36 747.84 696.84 218.50 19358.93
1000.00 700.00 602.89 1781.86 20483.23 16492.22 2749.71 41930.80 25440.70 16490.10 4247.73 1593.69 592.28 1001.41 769.91 265.17 24249.13
1000.00 1000.00 815.89 2239.80 28069.24 23219.67 3083.81 56248.80 36747.00 19501.80 4085.15 1970.37 824.23 1146.14 1064.24 321.68 32361.62
4000.00 1400.00 1055.98 2808.00 36022.46 31916.11 3939.50 69185.00 40303.00 28882.00 5302.80 2406.43 886.09 1520.34 1200.83 372.12 41506.29
30% 1:5
20% 1:6
20% 3:7
2:5
16
Dividend: Cash Bonus
17 18 19 20 21 22 23
Book Value Per Share Tk. Earnings Per Share Tk. Market Value Per Share Tk. Number of Employees Number of Branches Number of Shareholders Number of Foreign Correspondents
221.65 96.60 409.50 613 26 1081 398
234.81 59.73 307.51 730 27 1727 422
233.12 37.55 374.25 777 30 1993 441
223.98 43.71 879.50 894 36 2620 501
1:4(Propo sed) 200.57 40.59 681.50 1024 41 4467 517
24
Capital Adequacy Ratio a) Tier-i b) Tier-ii
17.50% 16.21% 1.29%
12.43% 11.42% 1.01%
11.90% 10.85% 1.07%
10.74% 9.72% 1.02%
9.96% 8.80% 1.16%
25 26 27
Return on Assets Loans as % of Total Deposits Ratio of Classified Loans of Total Loans
3.38% 68% 1.13%
2.38% 77% 1.48%
1.72% 78% 1.98%
2.16% 81% 1.52%
1.54% 89% 0.96%
An Overview of Elephant Road Branch In April of 1997 Prime bank Limited has opened its 14 thbranch in the 136, Elephant Road at Dhaka. It has a total number of 32 employees and 6 to 7 office staffs ..Also the bank has a supervisor and two security guards. The workforce is very much co-operative both to each other and to the clients. Elephant Road Branch is one of the branches of the Prime Bank Limited that has authorization to deal with Foreign Exchange. As other authorized dealers, it is licensed by Bangladesh Bank to transact all types of foreign exchange business. While opened it was among the first 11 authorized dealers of Prime Bank. Now it can be counted among the best five operated branches of Prime Bank both in terms of profitability and operational efficiency.
3.1. Departments within Elephant Road Branch: This branch has four departments as the following. 1. General Banking (GB) Department 2. Credit Department 3. Cash Department & 4. Foreign Exchange Department Also the bank has a Computer section where one senior officer is responsible for maintaining PC banks and other day to day computer related activities. As his work is very much related with cash department, he works there. The bank also has an Accounts Department, which has only one employee. Is responsible for making salary statements, checking and maintaining vouchers and accounts, credit card management, etc.
3.2. ORGANIZATIONAL HIERARCHY of Elephant Road:
The following is the hierarchy of the Elephant Road Branch of Prime Bank. The Manager/EVP
VP/Deputy Manager
Credit In-Charge
A.V.P & Foreign Exchange In-Charge
GB In-Charge
Cash In-Charge
As any other commercial bank in Bangladesh, the manager is fully responsible for the activities of the bank and accountable for the day-to-day activities of his branch. Under him, the Vice President or Operational Manager is working. The VP supervises all the operations of each department. Especially the communication process with the Head office is maintained by him. The AVP holds the next position, which assists both the Manager and VP and responsible for overlooking his department that is Foreign Exchange Department. Then the other three departments have their in-charges, who supervise the activities of their respective departments.
• General Banking (GB) Department:
Some of the day-to-day activities of this department are the following. •
Account Opening
•
Issuance of Cheque
•
Receiving Cheques for Clearing, Transport, and Despatch
•
Issuance of TT {Telegraphic Transfer), PO (Pay Order), DD (Demand Draft),etc.
•
Opening and Maintaining of FDR, MBDR, and other Scheme Deposits
•
Fund Transfer
•
Closing and Transfer of Accounts
•
Maintaining the Locker of the Bank
•
Outward Clearing of IBC and OBC
•
Maintaining On-line Voucher
• Cash Department: This department is responsible for cash payment and receipt. The employees in this department are also liable for computer posting, passing cheques, PC Bank Management and accuracy of posting, balancing on-line accounts, etc.
• Credit Department: This department is responsible for the following jobs. • Meeting the requirements of existing and potential RCS customers • Meeting the requirements of Head Office and Customers of General Credit to cooperate with other departments for smooth operation
Preparing CIB and CL Statements
• Preparing Credit Proposal and Statement • Administration of Retail Credit
• Foreign Exchange Department: Foreign Exchange refers to the process or mechanism by which the currency of’ one country is converted into the currency of another country. Foreign exchange IS the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. The major duties and responsibilities of Foreign Exchange Department are the following. •
Facilitating Import and Export Trade
•
Providing Funded and Non-funded Credit Facility
•
Providing Non-commercial Remittance
•
Presentation and Submission of Statements (Daily, Weekly, Monthly, and Yearly)
•
Back-to-Back L/C opening, Acceptance, and Payment
•
Sight L/C Opening, Acceptance, and Payment
•
Taking Necessary actions in the cases like discrepancy, amendment, etc.
•
Maintaining Remittance Accounts, both inward and outward
Other than these main duties, this department also has to promote relationship banking to decide on margin and charges. Paying insurance company from party account in case of import L/C, communicating regularly to clients about their dues, balance and deadlines on LTR, LIM, etc. credit facilities, etc. are also important for the officers of this department.
In the end, it is essential to point out that the day-to-day activities of Foreign Exchange Department are depended on all of the four departments. The clients of this department take LTR, LIM, etc. facilities from Credit Department Then they have to have enough balances in the Cash department to be eligible to open a L/C. Finally, the General Banking Section is the one through which clients open their accounts; cheques, TT, Pay Order, DD, etc. are issued and received, and necessary documents are dispatched and received,
3.3. Performance Analysis of Elephant Road Branch: Branch-wise Performance based on Profit: The performance of Prime Bank Limited can be better analyzed if profitability of its branches and the whole bank is analyzed. Again if the profit per year of the most successful branches of Prime Bank (in terms of profit) is compared with that of the Elephant Road Branch, it would be more easier to understand its contribution to the whole. The following table' 8 shows the profit allocation of some of the branches of Prime Bank and the whole bank. Here the profit amounts are in Taka Lacs and rounded upto the 10th.
2000
2001
2002
2003
2004
2005
2250,12 600.24
3503.61
930.16
Monakhafi
2252.34 925.43 730.34 553.42
3014.40
458.12 500.38
2333.58 813.16 502.15 600.38
803.81 605.28
1191.42 1090.28 701.46
4000 1400 1500 1000
Agrabad
307.74
376.40
479.48
629,73
867.07
1000
Kawran bazar
362.41 6444.17
521.48
601.11
7515.67
8674.35
1003.41 11178.84
1130,38 14342.25
1000 177351
7916.31
8102.44
2.35
13650,66 25.80
16400
156.85
1085110 33.92
Year Motijneei Elephant Rd IBB, Dilkusha
All Branches Total Bank Growth (%)
3082.07 -
20.14
From 2000 to 2004, all the figures are 'actual data and the data of 2005 are the targeted figures. In 2001 the whole bank's performance was outstanding as the profit was one and half times than 2000. In this year, all of the branches have a higher profit than before. In the next year, though the growth of profit was not impressive, the bank had a TK. 2 crore Increment in its profit. The year 2003 was another year of high profit as all. The branches together increased profit by TK 25 crore. Then in 2004 the bank continued to have high growth in profit. In 2005, the bank hopes to have a higher profit though with a less growth. In
the analysis of the above table, it is also noticeable that the bank's performance depends greatly on the above six best performing branches. After the Motijheel branch that is the Head Office and the highest performer, Islami Banking Branch of Dilkusha has the next highest profitability. And Elephant Road branch is the third highest profit-growing branch of Prime Bank. The next competitor is probably the Kawranbazar branch, which had actually higher profit than ERB in 2003. Contribution of Elephant Road Branch to the Whole Bank Performance:
From the above data, the following table is constructed to analyze the contribution of Elephant Road Branch in the total performance of Prime Bank. The table above shows yearwise contribution of Elephant Road Branch to the whole performance of Prime Bank Limited is decreasing year by year. As the number of branches of Prime Bank Limited is decreasing every year, the contribution is becoming less. While the branch had contributed about onefifth of the profit among all branches in 2000, its contribution has decreased to less than onetenth in the last year (2005). But still the Elephant Road Branch is one of three highest performing banks of the bank and it affects the whole bank's performance. Operational Performance of Elephant Road Branch: For analyzing the performance of the Elephant Road Branch, each sector or service portfolio's performance of it should be analyzed. The following information shows the operational performance of Elephant Road Branch from 2000 to 2005 in TK, Lac (rounded). Particulars
2000
2001
2002
2003
2004
2005
6,056
8,317
8,504
11,975
14,276
18,024
5,323
5,605
4,688
9315
10,290
12,439
3,481
4,939
6,153
3,477.51
4,139.49
2,910.54
10,635
12,087
20,336
25,037
34,427
36,017
Export
8,981
12,589
19,196
18,018
22,721
24,095
Inward Remittance (Foreign)
237
765
1,985
5,034.46
2,763.45
2,343.53
Profit
600.24
813.16
925.43
930.16
1.191.42
1,204.09
Deposit Advance
Bank Guarantee Import
Analyzing the data above, it can be concluded that the import business worth the highest share in the profit of the branch that is more than TK. 360 crore. Again the export business is
about TK. 241 crore. The next and the highest growing segment of this branch is the depository services that has more than 25% growth from 2004. The services related to Loans and advances are also growing but at a very slow rate. But the two sectors that the bank must give- .more effort are the bank guarantee and the inward remittance. While the earnings from bank guarantee has been reduced in 2005 by about TK. 12.29 crore, earning from foreign remittances has been reduced by TK. 4.2 crore in the same year. Budget and Actual Performance of Elephant Road Branch The following information shows the sector-wise performance of Elephant Road Branch compared with the allocated budget in 2005 in TK Lac.
Particulars
Budget
Actual
Variance
Deposit
17,500.00
18,024.00
+524,00
Advance
15,000.00
12,439.00
-2,561.00 :
Bank Guarantee
5,000.00
2,910.54
-2,089.46
Import
40,000.00
36,017.00
-3,983.00
Export
25,000.00
24,095.00
-905.00
4,000.00
2,343.53
-1,656.47
1,200.00
1,204.09
+4.09
inward Remittance (Foreign) Profit
The branch had achieved the target as a whole in 2005. But if we analyze the sector-wise performance of the branch, the deposit is the only sector in which the branch had reached and exceeded the target by more than Taka 5 core. Other than depository performance, in the other sectors of operation the bank could not perform as expected .in 2005, the highest target loss was in the import business, where the variance is almost TK. 40 crore. Also the bank could not attract customers to take advances and loans enough to achieve target. Here target loss is above TK. 25 crore. Again target for bank guarantee was missed by about TK. 21 crore. In the performance of Foreign Exchange Department, the other two missed targets are in the sectors of Export and Inward Foreign Remittance. In total this department was expected to achieve target of TK. 790 crore and it could make only TK. 625 crore. Thus as a department, the foreign exchange department's performance had a negative variance of more than TK. 165 crore.
Overview of Foreign Exchange Department Before knowing the details of the topic, first of all it is necessary to know about the foreign trade, its relation to the L/C and then a short description of the “Foreign Exchange Department”
4.1 Foreign Trade: No country can produce all kinds of necessary goods within its own country, From this sense, mainly this is the origin of foreign trade. When two countries exchange goods or services between them we can called it foreign trade. Many writers define it in many ways. Some of them are given below“International trade is the transaction of goods and services between two or more countries” -Prot. C.P. Kridleberger “International trade is the exchange of goods across nation trade is the exchange of goods across nation al boundaries”. -Prof O.M. Amos “International trade is a trade among different countries or trade across political frontiers”. -V.M. Mittari. From the above definitions it is clear to us that Foreign Trade means transaction of goods and services among different countries. Now we have to know about the relation of L/C with the Foreign Trade. Before that it is necessary to have an idea about the Foreign Exchange.
Foreign Exchange: Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. The Exchanges of the currency of one country for that of another country. ---Donal.A.BAll So, we can say foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency.
The classification of Foreign Exchange Transaction of Bangladesh can be understood from the following diagram.
Foreign Exchange Transaction
Foreign Trade
Foreign Exchanges & Other Transactions
Import
Export
Import Trade Finance
Export Trade Finance
Foreign Remittance
F.C. A/C Opening
FDBP
IDBP
L/C
PAD
LIM/LTR/ CC(P)(H)
Back to Back L/C
Foreign Guarantee
Others
PG
APG
Bid Bond
Packing Credit
According to the diagram for classification, foreign trade is one part of foreign exchange transaction. In its import trade financing part, one way is L/C that is opening letter of credit. EDF/ ECC(P) (H)
With L/C, the other ways of financing are Payment against Document, Loan against Imported Merchandise, Loan Against Trust Receipt, Cash Credit (Pledge) and Cash Credit (Hypothecation). In the export financing, there are FDBP that is Foreign Documentary Bill Purchase, FDBP (Local) or IDBP (Inland Documentary Bill Purchase), Back to Back L/C that is opened against master export L/C, Packing credit and Export Development Fund (EDF). Among them, EDF is a facility provided by Bangladesh Bank. Except CC(Pledge), the others are discussed later.
4.2Significance of Foreign Exchange/Trade and the origin of L/C Foreign Trade plays an important role in the economic advancement of a nation. So the government of almost all developing countries concentrate very much on the import and export relations of foreign countries. In our
country , the foreign trade is controlled by
Bangladesh Bank under the Import and Export Control Act, 1950.Here any importer and exporter who is not registered with CCI &E is not allowed to import the goods in the country or export goods to other countries. While the foreign Exchange Business was becoming more complex and bounded by more rules and regulations, the L/C is one type of undertaking that could reduce the risk and legalize the contract between buyer and seller. And through the L/C , the contract between the importer and exporter is given a legal shape by the Authorized Dealer-the bank .As the banks are included in the process , the contract becomes more reliable for both the importer and exporter to both the parties. While through the L/C a reputed bank guarantees the payments for imported goods on the behalf of the importer, the exporter gets the security for payment .Therefore , the Letter of Credit constitutes one of the most important methods of foreign trade. All documentary credit covering
imports into Bangladesh are subjected to the provisions of UCPDC500 (Union
Customs and practices for documentary credit 1993 revision ICC Publication 500).
4.3 Operational Processes in Foreign Exchange Department: The functions of Foreign Exchange Department can be divided into three sections : 1) Import Section 2) Export Section, and 3) Foreign Remittance Section The following is a brief description of each of these sections.
1. Import Section : This section is divided into two divisions . One division looks after Sight L/C and
another one looks after Back to Back L/C. The Basic difference between
these two types of L/C are that sight L/C requires at sight payment that is for the imported items, the buyer should pay within three days of documents arrival. On the other hand, the issuance period for Back to Back credit can be from two months to one year. According to the guidelines for Foreign Exchange provided by the Bangladesh Bank, all L/Cs and similar undertakings covering imports into Bangladesh must be documentary L/Cs..The other details of import are described in the latter part of this report.
2. Export Section: The beneficiaries, who are the client of the export section of Elephant Road Branch, are RMG producers. Both in local and foreign basis, accessories, and fabrics etc, necessary raw materials are exported through the negotiation of this branch. All the procedures of exports are done through the Export Policy. a) Export Policy: Export policies formulated by the Ministry of Commerce, GOB provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime. b)Export Procedures: The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950.Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to incorporate on EXP forms and other papers connected with exports. The Export procedure follows the following steps: 1) Registration of Exporter 2) Securing the Order 3) Signing the Contract 4) Receiving Letter of Credit 5) Procuring the materials 6) Shipment of goods 7) Final Step is submission of the documents to the Bank for negotiation. c)Export Financing: Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operatio n. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract. •
Pre-shipment credit
•
Post-shipment credit
•
Pre-shipment Credit: Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. Before allowing such credit to the exporters the bank takes into
consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes •
Cash for local procurement and meeting related expenses.
•
Procuring and processing of goods for export.
•
Packing and transporting of goods for export.
•
Payment of insurance premium.
•
Inspection fees.
•
Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings: •
Export cash credit (Hypothecation)
•
Export cash credit (Pledge)
•
Export cash credit against trust receipt.
•
Packing credit.
•
Back to back letter of credit.
•
Credit against Red-clause letter of credit.
Export cash credit (Hypothecation): Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither the ownership nor the possession is passed to it. Export cash Credit (Pledge): Such Credit facility is allowed against pledge of exportable goods or raw materials. In this case the exporter surrenders the physical possession of the goods under banks effective control as security for payment of bank dues. In the event of failure of the exporter to honor his commitment, the bank can sell the pledged merchandise for recovery the advance. Export Cash Credit Against Trust Receipt: In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the exportable goods remain in the custody of the
exporter. He is required to execute a stamped export trust receipt in favor of the bank, he holds wherein a declaration is made that goods purchased with financial assistance of bank in trust for the bank.. This facility is allowed only to the first class party and collateral security is generally obtained in this case. Packing Credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and ship the goods. Generally for movement of goods from the hinterland areas to the ports of shipment the Banks provide interim facilities by way of Packing Credit.. Back to Back Letter of Credit (BTB): Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin. •
Post Shipment Credit: This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises as the exporter cannot afford to wait for a long time for without paying manufacturers/suppliers. Banks in our country extend post shipment credit to the exporters through: 1. Negotiation of documents under L/C; 2. Foreign Documentary Bill Purchase (FDBP): 3. Advances against Export Bills surrendered for collection;
Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods. A slight deviation of the documents from those specified in the L/C may rise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful, prompt, systematic and indifferent while scrutinizing the documents relating to the export.
Foreign Documentary Bill Purchased (FDBP):
Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. PBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order. For this purpose, PBL maintains a separate register named FDBP Register. This register contains the following information: # Date
# Reference number (FDBP)
# Name of the drawee
# Name of the collecting bank
# Conversion rate
# Bill amount both in figure & in Taka.
# Export form number
# Export L/C number
Advances against Export Bills surrendered for collection: Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property.
3. Foreign Remittance Section: The Foreign Exchange transactions of Bangladesh includes the foreign remittance. Foreign remittance means remittances in Foreign Currency that are received in and made out abroad. Also it can be stated that it is the purchase and sale of freely
convertible
foreign
currency as admissible under
Exchange Control
Regulations of the country. Again inward remittance is the purchase and out ward remittance is the sale of foreign currency. For purchase of foreign currency through Prime Bank Limited, an application must be made to a specific AD branch and Bangladesh Bank. The application form is called IMP form if the purpose is import payments or for other purposes, the TM Form is used such as request for foreign currency in case of dollar, T.C (Traveller Cheque) Foreign Demand Draft(F.D.D),Telegraphic Transfer(T.T),etc. If the bank is empowered to approve the application, it affects the sale of foreign exchange. And if the transaction requires prior
Approval from Bangladesh Bank, the T.M form is forwarded to Bangladesh bank. In Prime Bank, the mode of remittances are bank draft, mail transfer and taka remittances. Inward Remittances: Inward Remittances include the TT, FDD, purchase of bills and drafts under L/C, purchase of foreign currency, etc. But the most significant amount in the inward remittances of Prime Bank Limited is the remittances from wage earners. The bank maintains proper records of all inward remittances and
provides
particulars
as
required by
the Exchange Policy
Department of Bangladesh Bank in Returns. Outward Remittances: The outward remittances include M.T, Draft, sale of Foreign Exchange under L/C and against Import Bills, etc .To facilitate foreign exchange transaction , each bank maintains accounts with foreign banks in principal financial centers. Prime Bank also have NOSTRO Accounts for dollar payments and other currency accounts for payment in currencies like pound, yen, rupee , etc. The Bank has a list of foreign correspondents and arrangements with their agencies in Bangladesh When deciding which correspondent (reimbursing bank in case of import) is to be chosen for payment, the list is used. As I have seen in the Elephant Road Branch, everyday all of the agents offices send staffs or call by phone to know whether there is any PI( Payment Instruction) to send to the foreign correspondents. If there is a PI, it is sent through the agent on the very day of lodgment of import bills.
Overview of L/C 5.1 Definition Letter of Credit (L/C) can be defined as a ‘Credit Contract’ whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. The Uniform Customs & Practices for Documentary Credit {UCPDC) published by International Chamber of Commerce (1993) Revision; Publication No. 500 defines Documentary Credit: Any arrangement, however named or described, whereby a bank (the “Issuing bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on its own behalf. is to make a payment to or to the order of third party (the beneficiary) or is to accept and pay bills of exchange (Drafts) drawn by the Beneficiary, or authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Drafts).authorizes another bank to negotiate, against stipulated document(s), provided that the terms and conditions are complied with.
5.2Types of Letter of Credit: Documentary Credits may be either: 1. Revocable. 2. Irrevocable. 1. Revocable Credit: A revocable credit is a credit, which can be amended or cancelled by the issuing bank at any time without prior notice to the seller. 2. Irrevocable Credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. An irrevocable credit can be either confirmed or unconfirmed depending on the desire of the seller. This sort of credit is always preferred to revocable letter or credit. Sometimes, Letter of credits are marked as either ‘with recourse to drawer’ or ‘without recourse to drawer’.
Special Documentary Credit: 1.Sight Credit: The beneficiary receives the proceeds of the credit upon presentation of the documents in accordance with L/C terms. The negotiating bank is given a reasonable time, not exceeding seven banking days following the day of receipt of the documents to examine the documents. This occurs mainly when the nominated bank must obtain cover via several intermediaries. 2.Stand – by – Letter of Credit: A stand – by – Letter of Credit authorizes the beneficiary to draw on a bank in the event of the non –performance of another party, or on the non – payments of the funds that were expected to be received from another source or under other arrangement. It has the characteristics of a bank guarantee. 3. Acceptance Credit: Under an acceptance credit, the exporter draws a time draft either on the issuing or confirming bank or on another bank, depending on the credit terms. The payment date under an acceptance credit may be, for example, 90 days after the invoice date or the date of shipment evidenced by the transport document. When the documents are presented, the importer is asked to accept the draft. 4. Deferred Payment Credit: The credit with deferred payment differs from the credit with time draft only slightly in its effect on the beneficiary. The main difference is the absence of an accepted draft in the case of credit with deferred payment. On the other hand, a draft accompanies a credit with time draft. Upon presentation of the proper documents, the bank so authorized (the issuing or confirming bank) issues a written promise to make payment on the due date. Deferred payments are possible under confirmed and unconfirmed credits. From the standpoint of expenses, the credit with deferred payment can be more economical than the credit with time draft. 5. Negotiation Credit: A credit available by negotiation is either payable at sight or at a issuance, usually at the counters of the issuing bank. The L/C may authorize negotiation by any bank or may specify a particular bank (in both cases: the nominated bank) The beneficiary utilizes the credit by presentation of a draft (most often drawn on the issuing bank) accompanied by the stipulated documents, or of the stipulated documents alone, i.e. a draft is not a prerequisite (Article 9aiv of the UCP). The validity for presentation of the drafts / document expires at the counters of the issuing bank or, if so prescribed in the credit terms.
Unless a nominated bank has confirmed the credit, it is not obliged to negotiate drafts / documents thereby giving value to the beneficiary (Article 10c of the UCP). If the nominated bank does not affect payment, it does not negotiate the drafts / documents in the sense of Article 10b–ii of the UCP. Instead in such an event, it receives drafts /documents and forwards them to the issuing bank and will affect payment to the beneficiary only after receipt of cover from the issuing bank. 6. Credit with Advance Payment: This type of credit is rarely used in Bangladesh but it is discussed here to enrich the knowledge of the staff to the deal with any special situations. A special type of advance under a documentary credit is the so-called “red clause” credit. The red clause incorporates special privilege for the seller. It authorizes the nominated bank to advance a part of the credit amount to the seller for procurement of the merchandise. This type of credit has been used particularly in the Australian wool trade. 7. Revolving Credit: The revolving credit is one, which provides for restoring the credit to the original amount after it has been utilized. How many times it will be taking place must be specially mentioned in the credit. The revolving credit may be cumulative or non- – cumulative. Buyers often order more merchandise than they actually need in order to obtain a better price. However, the delivery of the goods is made in installments and the stipulated intervals. In such cases the seller can request that a revolving credit be issued which guarantees each part payment. The text for such a credit might read “amount of credit US$ 10000, revolving 5 times to maximum US$ 60000.” As soon as the first installment of US$ 10000 has been utilized, the credit automatically becomes valid for the next US$ 10000 until the maximum amount of US$ 60000 is reached. The so called ‘revolving” clause can be formulated in many ways to suit the needs of the buyers or the sellers. Revolving credit is Bangladesh can be opened only with the permission of Bangladesh Bank. 8. Transferable Credit :Under a transferable L /C, the beneficiary is permitted to transfer his rights in part or in full to one or more parties. It is typically used when the original beneficiary acts as the middleman between the actual supplier and the importer. In some cases, the seller is not the actual producer or manufacturer of the goods. In such case original beneficiary requests for a transferable credit. The issuing bank can transfer a credit only if it is expressly designated as “Transferable”. A transferable credit can be transferred once only.
Fractions of a transferable credit can be transferred separately, provided partial shipments are not prohibited. 9. Back to Back Credit: The back to back credit is a new credit opened on the basis of an original credit in favor of another beneficiary. Under to back to back concept, the seller as the beneficiary of the first credit offers it as “security” to the advising bank for the issuance of the second credit. The beneficiary of the back to back credit may be located inside or outside the original beneficiary’s country. 10. Anticipatory Credits: The anticipatory credits make provision for pre-shipment payment, to the beneficiary in anticipation of his effecting the shipment as per L / C conditions. 11. Documentary Credit: Documentary L/C calls for presentation of certain shipping documents evidencing shipment of goods with the Bill of Exchange (generally called draft) while claiming for payment for the shipment under the L/C. This enables the opening banker to have recourse to the imported goods in the event of default by the importer to retire the documents.
5.3.Parties to a Letter of Credit: There are a number of parties involved in a L/C and the rights & obligations of the different involved parties also differ from each other. The involved parties can be named below:
Importer / Buyer.
Opening / Issuing Bank.
Exporter / Seller / Beneficiary.
Advising / Notifying Bank.
Confirming Bank.
Negotiating Bank.
Paying / Reimbursing Bank.
Importer / Buyer: Importer / Buyer is the person who requests / instructs the opening bank to open a L/C. He is also called Opener or Applicant of the credit. Opening / Issuing Bank: It is the bank which opens / issues a L/C on behalf of the importer. It is also called the importer’s / buyer’s bank. Exporter / Seller / Beneficiary: Exporter / Seller/ Beneficiary is the party in whose favor the L/C is established. Advising / Notifying Bank: It is the bank through which the L/C is advised to the exporter. It is a bank situated in the exporting country and it may be a branch of the opening bank or a correspondent bank. It may also assume the role of confirming and/or negotiating bank depending upon the conditions of the credit. Confirming Bank: It is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. Negotiating Bank: It is the bank, which negotiates the bill and pays the amount to the beneficiary. It has to carefully scrutinize the documentary credit before negotiation in order to see whether the documents apparently are in order or not. The advising bank and the negotiating bank may or may not be one and the same. Sometimes it can also be the confirming bank. Paying or Reimbursing Bank: It is the bank or whom the bill will be drawn (as per conditions of the credit). It is nominated in the credit to make payments against stipulated documents complying with the terms of the credit. It may or may not be the issuing bank.
5.4. Operations of Documentary Letter of Credit: The following five major steps are involved in the operation of a documentary Letter of Credit: 1 .Issuing. 2. Advising. 3. Amendment (If necessary). 4. Presentation. 5. Settlement. 1. Issuing Letter of Credit: Before issuing L/C, the buyer and seller located in different countries, concludes a ‘sales contract’ providing for payment by documentary credit. As per requirement of the seller, the buyer then instructs the bank – the issuing bank – to issue a credit in favor of the seller (beneficiary). Instruction / Application for issuing a credit should be made by the buyer (importer) in the issuing bank’s standard form. The credit application, which contains the full details of the proposed credit, also serves as an agreement between the bank and the buyer. After being convinced about the ‘necessary conditions’ contained in the application form and ‘sufficient conditions’ to be fulfilled by the buyer for opening a credit the opening bank then proceeds for opening the credit to be addressed to the beneficiary. 2. Advising a Letter of Credit: Advising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature (s of the officer (s) of the opening bank and ensures that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulations relating to export. In such act of advising, the advising bank does not take any liability. 3. Amendment of Credit: Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. In case of revocable credit, It can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But in case of irrevocable credit it can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary.
4. Presentation of Documents: The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and if they are found as per credit requirements, either. Effects payment, or reimburses in the pre-agreed manner. 5. Settlement: Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit. a) Settlement by Payment: Here the seller presents the documents to the paying bank and the bank then scrutinizes the documents. If satisfied, the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then sends the documents to the issuing bank If the issuing bank is satisfied with the requirements, payment is obtained by the paying bank from the issuing bank. b)Settlement by Acceptance: Under this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drawn on the bank (where credit is available) at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then send the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre – agreed manner. c) Settlement by Negotiation: This settlement procedure starts with the submission of documents by the seller to the negotiating bank accompanied by a draft drawn on the buyer or any other drawee, at sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft. This bank, if other than the issuing bank, then sends the documents and the draft to the issuing bank. As usual, reimbursement will be obtained in the pre – agreed manner.
5.5 Import Procedures / Formalities (Steps Involved): •
Procurement of IRC from the concerned authority (Details of the procurement method have been furnished at Import Procedures Including Registration).
•
Signing purchase contract with the seller.
•
Requesting the concerned bank (importer’ bank / issuing bank) to open a L/C (irrevocable) on behalf of the importer favoring the exporter / seller / beneficiary.
•
The issuing bank opens / issues the L/C in accordance with the instruction / request of the importer and request another bank (advising bank) located in the seller’s / exporter’s country to advise the L/C to the beneficiary. The issuing bank may also request the advising bank to confirm the credit, if necessary.
•
The advising bank advises /informs the seller that the L/C has been issued.
•
As soon as he exporter /seller receives the L/C and is satisfied that he can meet the L/C’s terms and conditions, he is in a position to make shipment of the goods.
•
After making shipment of goods in favor of the importer, the exporter or seller submits the documents to the negotiating bank for negotiation.
•
The negotiating bank scrutinizes the documents and if found O. K. negotiates the documents and sends the said documents to the L/C issuing bank.
•
After receiving the documents the L/C issuing bank also examines the documents and if found o. k. makes payment to the negotiating bank.
•
The L/C opening bank then requests the importer to receive the documents on payments.
•
The importer after paying all dues receives the documents from the L/C issuing bank and then releases the imported goods from the port authority.
Import Procedures Including Registration: To carry on the business of import, the first thing one need is registration with the licensing authority of the area. To get this registration the interested person/ institution submits the application along with the following papers/documents directly to the Chief Controller of Imports and Exports or respective zonal offices of CCI & E. 1. Income tax Registration Certificates.
2.Nationality Certificate. 3.Certificate from Chamber of Commerce and Industry or Registered Trade Association. 4. Bank Solvency Certificate. 5. Copy of Trade License. and 6. Any other document if required by CCI & E. On receiving application the respective CCI & E offices will scrutinize the documents and conduct physical verification (if feel necessary) and issue Demand Notice to the prospective importers to furnish the following papers / documents through their nominated bank. •
Original Copy of Treasury Challan deposited as IRC fees.
•
Asset Certificate.
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Affidavit from 1st class Magistrate.
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Rent receipt.
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Two copy of passport size photograph.
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Partnership deed in case of Partnership Firms.
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Certificate of Registration, Memorandum, and Articles of Association in case of Limited Company.
The nominated bank of the applicant will scrutinize the papers /documents and verify the signature of the applicant. After securitization and verification, the nominated bank will forward the same to the respective CCI & E office with forwarding schedule in duplicate through bank’s representatives. The CCI & E office will acknowledge on duplicate copy of the forwarding schedule and return back the same to the bank representative. On being satisfied, after securitization of the documents, the respective zonal offices of CCI & E will issue import registration Certificate (IRC) to the applicants. Registration is not required for import of goods by Government departments, local authorities and statutory bodies, recognized educational institutions and hospitals. In addition, registration is not required for import of goods, which do not involve remittance of foreign exchange. Items like medicines, reading materials etc. can be imported without registration by the actual users within the monetary limits and subject to usual conditions as prescribed in the import policy order.
5.6 Letter of Credit Authorization Form (LCAF): Import into Bangladesh are made on the basis of Letter of Credit Authorization (LCAF) issued by the importer’s bank. It serves as proxy for Import License. It means that no separate Import License from the Import Trade Control authority is required. While issuing an LCA form or opening an L/C, the branch must ensure that the customer is known to the branch, has a place of business in Bangladesh and can be easily traced should an occasion arise in future. Normally, LCAF’s are not required to be registered with Bangladesh Bank. But if the bank opening a credit intends to buy foreign exchange from or with prior approval of Bangladesh Bank to specially finance the L/C it will be registered with their Registration Unit. Registration with Bangladesh Bank is also not required for imports under External Economic Aid, Loan/Credit unless otherwise specially mentioned by the Bangladesh Bank LCAF remains valid for remittances for one year subsequent to the month of registration (in case of registration with Bangladesh Bank). However, LCAF’s issued for import of capital machinery and spares will remain valid for remittances for 18 month subsequent to the month of issuance/registration with Bangladesh Bank. In case of import against allocation of the Govt. and import under foreign aid under which Bangladesh bank’s registration is not required. Bangladesh bank after recording the particulars of the LCAF shall send the LCAF and the relevant documents to the nominated bank to open the L/C which will send 3rd and 4th copy to the CCI&E, within 15 days.
5.7 Letter of Credit Application: Letter of Credit is the most important document for settlement of International transaction. For the
purpose of opening the credit, the importer is required to fill up and sign a stamped L/C application form. This form records the full details of the credit. The application should include, amongst other details, the following information: 1. The full name and address of the Beneficiary. 2. The full name and address of the opener. 3. Opener’s TIN is included. 4. Description of commodities /services. 5. The amount of documentary credit along with the currency code.
6.
The type of L/C-whether revocable or irrevocable, with the added information that the nominated bank is requested or authorized to add its confirmation to the documentary credit.
7. Incoterms are included i.e. FOB, CFR, CIF.
8. How the letter of credit is to be available- by sight payment, deferred payment, acceptance or negotiation. 9. The place where the goods are to be dispatched, taken in charge, or loaded on board, as the case may be, and the place of final destination or the port of discharge. 10. Details of document required. 11. Last date of shipment. 12. Last date of negotiation. 13. Name of Insurance Company and address. 14. Whether partshipments are allowed or prohibited. 15. Whether transshipment is allowed or prohibited 16. .Whether freight is to be prepaid or not. 17. How the documentary credits is to be advised, i.e. by Mail/Airmail, Telex/SWIFT. 5.8. Documents Required for New Importer while Opening of LC: An importer should follow the relevant import formalities while the importer tends to import goods into Bangladesh. A list of significant documents along with the LCA form, which are required for a new importer while opening of Letter of Credit, is given below: •
Account to be maintained with the bank.
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Valid Import Registration Certificate (IRC).
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Bonded warehouse license (in case of export oriented industry).
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Indent issued by indenting agent or pro-forma invoice issued by foreign supplier.
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Insurance cover note.
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Trade license.
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TIN Certificate.
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VAT Certificate.
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Declaration in triplicate regarding payment of Income Tax by the importer.
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Letter of Credit Authorization Form duly filled in and signed by the importer.
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One set of IMP form duly signed by the importer.
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Valid Membership Certificate from a registered Chamber of Commerce and
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Industry or Trade association.
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Membership Certificate from BGMEA, in case of Garments industry.
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Proof of payment of Renewal fees for the IRC.
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Certificate of incorporation with RJSC.
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Certificate of commencement.
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Resolution of Board of Directors.
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Any such documents as may be required as per Import Policy Order.
5.9. Terms Relating to Dates in the Credit: When a credit is valid “for one month”, “for six month”, etc., the period during which the credit is to run will be deemed to start on the date the credit is issued, unless otherwise stipulated (Article 42c of the UCP). In addition to expiry date, all credit calling for transport documents should be stipulate the time period in which the transport and other documents must be presented to the bank. If no such period is stipulated, banks will refuse documents presented to them later than 21 days after the date of shipment. In any event documents must be presented not later than the expiry date of the credit (Article 43a of the UCP).
If the expiry date and/or the last date for the presentation of documents fall on a non – banking day, banks may accept documents presented on the day bank is reopened (Article 44a of the UCP). If the validity period of the credit is extended, the latest date for shipment is not automatically prolonged but must be extended as well if needed (Article 44b of the UCP). Expressions such as “prompt”, “immediately”, “as soon as possible” and the like used in connection with the date of shipment should not be used. If they are used banks will disregard them (Article 46b of the UCP). The use of expression “on or about” in connection with shipment will be interpreted mean that the shipment is to be made within 5 days prior to the stipulated date or within 5 days after it, both the first day and last day being included (Article 46c of the UCP). If the words “To”, “Until”, “Till”, and “from” are used in connection with any date or period referring to shipment, it will be under stood that the date mentioned is included in the period
of time. If the word “after” is used, it will be understood that the date referred to is excluded from the period of time (Article 47a of the UCP). Such terms as the “first half of the month”, “beginning of the month” and so forth that do not refer to a specific date will be interpreted as follows .
First half of the month Second half of the month
From the 1st to and including the 15th of the month. From the 16th to and including the last day of the month.
Beginning of the month Middle of the month End of month
(Article 47c of the UCP) From the 1st and including the 10th of the month. From the 11th to and including the 20th of the month. From the 21st to and including the last day of the month. (Article 44b of the UCP)
5.10. Amendments to Letter of Credit: After issuance and advising of a Letter of Credit, it may be felt necessary to delete, add or alter some of the clauses of the credit. All these modifications are communicated to the Beneficiary through the same Advising bank of the credit. Such modifications to a credit are termed as ‘Amendment’ to a Letter of Credit. There may be some of the conditions in a Credit, which are not acceptable by the beneficiary. In that cases beneficiary contact applicant and request for amendment of the clauses. On receipt of such request applicant approaches his banker i.e. issuing bank with a written request for amendment to the Credit. The issuing bank scrutinizes the proposal for amendments and if the same are not in contravention with the Exchange Control Regulation and bank’s interest, the bank may process for amendment. There can be more than one amendment to a credit. All the amendments form an integral part of the original Credit. L/C amendments are to be communicated by Telex, SWIFT or mail. If there are more than one amendment to a Credit, all the amendment must bear the consecutive serial number so that the missing of any amendment can be identified by the advising bank to the beneficiary.
UCPDC 500 regarding amendment to a Credit:
Article 9 (d) i: Except as otherwise provided by Article 48, an irrevocable Credit can neither be amended nor cancelled without the agreement of the Issuing Bank, the Confirming Bank, if any, and the Beneficiary. Article 9 (d) ii: The Issuing bank shall be irrevocable bound by an amendment(s) issued by it from time to time of the issuance of such amendment(s). A Confirming Bank may extend its confirmation to an amendment and shall be irrevocable bound as of the time of its advice of the amendment. A Confirming Bank may, however, choose to advise an amendment to the beneficiary without extending its confirmation and if so, must inform the issuing bank and the beneficiary without delay.
Article 9 (d) iii: The terms of the original credit (or a credit incorporated previously accepted amendment(s) will remain in force for the beneficiary until the beneficiary communicates his acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of amendments).
If
the beneficiary fails to give such
notification, the tender of documents to the Nominated Bank or Issuing Bank that confirm to the Credit and to not yet accepted amendment(s), will be deemed to be notification of acceptance by the beneficiary of such amendment(s) and as of that moment the Credit will be amended.
Article 9 (d) iv: Partial acceptance of amendments contained in one and the same advice of amendment is not allowed and consequently will not be given any effect. Article 11 (b): If a bank uses the services of an Advising Bank to have the Credit advised to the beneficiary, it must also use the services of the same bank for advising an amendment(s).
What is to be done by the Issuing Bank before advising amendments: The Issuing Bank has to •
Obtain written application from the applicant of the credit duly signed and verified by the bank.
•
In case of increase of value, application for amendment is to be supported by revised Indent/ Pro forma Invoice evidencing consent of the beneficiary.
•
In case of extension of shipment period, it should be ensured that relative LCA is valid/revalidated/increased up to the period of proposed extension.
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Amendment on increases of Credit amount and extension of shipment periodboth the cases amendment of Insurance Cover Note also to be submitted.
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Proper recording and filling of amendment is to be maintained.
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Amendment charges (if on account of applicant) will be recovered and necessary voucher is to be passed.
The following clauses of L/C are generally amended: Increase/decrease value of L/C and Increase/decrease of quantity of goods. •
Extension of shipment/negotiation period.
•
Terms of delivery i.e. FOB, CFR, and CIF etc.
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Mode of shipment.
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Inspection clause.
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Name and address of the supplier.
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Name of the reimbursing bank.
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Name of the shipping line etc.
5.11. Cancellation of Letter of Credit: The buyer instructs his bank to open a credit in favor of a foreign seller in accordance with the agreement between the seller and the buyer. After opening of L/C, sometimes cancellations of original credit become necessary. A revocable credit may be cancelled at any time without providing prior notice to the beneficiary but an irrevocable credit constitutes a definite undertaking of the issuing bank such undertaking cannot be cancelled without the agreement of all parties, namely the L/C Issuing bank, Advising bank and the beneficiary. The importer requests the opening bank in writing for the cancellation of the original credit. At the request of the importer the opening bank will inform Advising bank to callback original credit from the beneficiary for cancellation. The L/C will be treated as cancelled only on receipt of confirmation from the Advising bank that the beneficiary has agreed to cancel the credit. The opening bank must recover cancellation charge from the account of the importer.
5.12. Import Finance: Before a Letter of Credit (L/C) is issued, it is necessary for the importer to obtain a limit from the bank for opening of L/C. For fixing L/C limit, the bank would require detailed information on the nature of the organization of the importer, the nature, quantity and value of the goods to be imported, amount of the L/C limit required, terms of payment, financial assistance required from the bank,
importer’s current liabilities with the bank as well as with other banks etc.
On being satisfied about the creditworthiness of the importer and his actual requirement, a limit for opening of L/C is sanctioned by the bank subject to an appropriate margin to be deposited by the importer at the time of opening L/C. When a letter of credit is established, the bank accepts a liability on behalf of his importer to make payment against the credit. In such case, the bank has to pass an entry in L/C liability ledger and also in the general ledger to show actual liability accepted on L/C. Then a liability voucher is to be passed. If shipment is effected by the supplier and shipping documents are submitted in terms of L/C it
becomes obligatory for the bank to honor its commitment to pay the import bills. Loan against Imported Merchandise (LIM): At the time of opening the L/C, the banks obtain from the importer an agreement on stamped paper which provides for financing and, if necessary, clearance and storage of goods by debiting importer’s account at his risk and responsibility. Importer may also request the bank on bank’s prescribed form for clearance of goods from the port when the consignment arrives. In most of the cases, banks extend credit facility to the importer for retirement and clearance of the consignment. In that case, the bank recovers further margin from the importer to cover the customs duty, sales tax or VAT etc. A definite repayment schedule is also given to the importer to take delivery of the goods from bank’s custody against payment. In case the importer does not come forward to retire the documents inspite of repeated reminders, it is in the interest of the credit issuing bank to take proper care of the goods and, on forced circumstances, clear the imported consignment on arrival of the same for fear of heavy demurrage at the port which adds to the burden of commitment.
In both the cases, whether the importer requests the bank for clearance of goods or fails for retirement of documents against payment, the liabilities under PAD or B/E is converted to “Loan against Imported Merchandise (LIM) account” and, the overdue interest from the date of accompanying Bill of Exchange or negotiation date to the date of transfer to LIM account is charged and incorporated to LIM liability. The advances against merchandise account is a loan account and only amounts for clearance charges, such as, customs duty, sales tax or VAT etc are allowed to be debited to LIM account. After clearance, consignments are stored in bank’s godown under its effective control waiting for taking delivery by the importer on full payment of bank’s liability. Normally part delivery is not allowed while on LIM account. When the delivery in part is desired by the importer, the LIM is
converted into Cash Credit account retaining proper margin and executing proper charge documents. The delivery is effected thereafter on obtaining pro rata payment till adjustment of the entire liability.
Documents: •
Demand Promissory Note
•
Letter of continuity
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Letter of agreement for opening L/C
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Letter of Lien
•
Letter of indemnity (in case of clearance of consignment)
•
Letter of guarantee
Loan against Trust Receipt (LTR): The bank allows the loan against Trust Receipt to first class parties only. For such loan, prior approval from Head Office must be obtained. In case of LTR import documents are delivered to the customer without payment. But it is granted against collateral or other securities in Prime Bank Limited. The period of Trust Receipt may be 30, 45, 60 or 90 days as allowed by Head Office. The loan is adjustable within the period. The customer holds the goods or their sale proceeds in trust for the bank till the loan is fully adjusted. The Trust Receipt is a document, which creates the bank’s lien on the goods held in Trust must be deposited in the bank by the borrower irrespective of the period of the Trust receipt. The following documents must be obtained before allowing LTR: •
Demand promissory note
•
Letter of agreement
•
General Letter of Trust Receipt with supplementary agreement
•
Personal guarantee of all Directors in case of Limited Company
•
Personal guarantee of all parties in case of Partnership firm.
Opening of Import L/C under Cash: Almost all imports into Bangladesh are subject to open an irrevocable documentary Letter of Credit. All documentary credits are subject to the provision of Uniform Customs and Practice for Documentary Credit 1993 edition, ICC Publication No. 500. The importer is required to apply for opening of LC in the prescribed printed LC application form available with Prime Bank Limited with TK. 150 (one hundred fifty taka) special adhesive stamp affixed on it.
6.1. Documents Required by PBL at the time of LC Opening: The importer should carefully fill in this form, keeping in view the terms of his contract with the foreign supplier or the supplier’s local agent and submit it to the bank duly signed and supported by: •
Letter of Credit application form dully filled in and signed by the importer.
•
Indent issued by indenting agent or pro-forma invoice issued by foreign supplier.
•
Marine Insurance cover note issued by an approved Insurance Company in Bangladesh, in favor of Prime Bank Limited, covering the usual marine risks.
•
Trade license.
•
TIN Certificate.
•
VAT Certificate.
•
Letter of Credit Authorization Form duly filled in and signed by the importer.
•
One set of IMP form duly signed by the importer.
•
Valid Membership Certificate from a registered Chamber of Commerce and Industry or Trade association.
•
Declaration in triplicate regarding payment of Income Tax.
•
Proof of payment of Renewal fees for the IRC.
•
Any such documents as may be required as per Import Policy Order.
In the Letter of Credit application form, the importer signs an agreement to the effect that, in consideration of the bank’s opening the credit he agrees: •
That the bank will have the pledge of document and goods covered by the credit.
•
To accept and/or pay on maturity the drafts, if any, drawn under the credit.
•
The Provisions of the Articles of the Uniform Customs and Practice for Documentary Credit 1993 edition, ICC Publication no. 500 shall govern the Letter of Credit unless otherwise specified by him in the application.
The customer’s agreement signifies his obligation to reimburse the bank for payment made under the Letter of Credit provided, of course, that such payments are made in accordance with the credit terms. It is for this agreement clause in the Letter of Credit application form that stamps are required to be affixed.
6.2. Scrutiny by the bank on receipts of L/C application: The following points should be scrutinized on receipts of L/C application from the importers: •
The signature of the importer is verified with the specimen available with Prime Bank Limited.
•
The items to be imported are covered by the International Trade Control (ITC) regulations and in accordance with Indent / Pro-forma invoice.
•
The indent bears the signature of the indenting agent as well as that of the importer.
•
The indenter’s IRC number and registration number with Bangladesh Bank have been quoted.
•
The imported items are not on the restricted list or banned list.
•
The sources of finance are in accordance with the import policy order.
•
The Marine Insurance Cover Note mentions the items to be imported, the port of shipment, the destination and the mode of shipment.
•
None of the clauses proposed to be incorporated in the LC contravenes the existing Exchange Control Regulations.
If the Letter of Credit application and supporting documents are in order, Prime Bank Limited approves the amount of margin on the basis of his past performance, his financial position, and market ability of the goods, the type of credit to be opened and the type of financing the importer needs after arrival of the goods. The Head Office (HO) sanctions the margin only after careful consideration to safeguard the interest of Prime Bank Limited. Once the preliminaries are completed, Prime Bank Limited opens the L/C in favor of the beneficiary through its correspondent bank in the supplier’s country. The way of reimbursement, available to the negotiating bank for the payments to be made under the L/C, should be clearly mentioned in the L/C. The reimbursement bank is empowered to honor the payment.
6.3. Accounting Procedure: The following Books of accounts are maintained at Prime Bank Limited in connection with opening of Letter of Credit under cash: •
L/C Opening Register (including margin and liability)
•
FCC Register
•
Lodgment Register
L/C opening commission is realized at the rate of 50 paisa per hundred taka for 1 st quarter and 30 paisa for each subsequent quarter. The contingent liability for tickets must be passed to the debit of customer’s liability for acceptance L/C and to the credit of banker’s liability for acceptance L/C at the time of opening of L/C.
6.4. Voucher Preparation: At the time of L/C opening, Prime Bank Limited prepares some vouchers for realization of the charges from their client’s account. Such asa) DR. Parties a/c … … … … TK. CR. I/A a/c Commission on L/C … … … … TK. I/A a/c Postage / Telex … … … … …
TK.
I/A a/c Miscellaneous … … … … … … TK. Stamp in hand … … … … … … … … TK. S/D a/c VAT on L/C … … … … … … TK. b) DR. Customer’s Liability a/c … … TK. CR. Banker’s Liability a/c … … … … TK. c) DR. Advance Tax
... … … … …TK.
CR. S/D a/c Income Tax on L/C Com. ....TK.
6.5. Transmission of L/C: If the L/C is to be advised as full Mail L/C, then after typing out the terms and condition and other particulars in the blank space of the Bank’s prescribed printed L/C transmission form in quadruplicate, it should be signed by two authorized officials of the L/C Department whose specimen signatures are available with the correspondents abroad. The original and duplicate copy of the signed L/C are sent to the correspondent abroad through registered Airmail / courier service for onward transmission of the original copy of L/C to the supplier and retaining the duplicate copy for record of the correspondents. Clear instructions with regard to negotiation of documents and the mode of reimbursement should be embodied in the L/C. Under the existing Exchange Control Regulations, L/C may provide for negotiation of documents for periods not exceeding 30 days after date of shipment.
If the correspondent bank is not the negotiating bank or if reimbursement would be arranged through a third bank (with whom a NOSTRO Account is maintained by the Head Office) 3 rd copy of the L/C should be sent to the reimbursing bank. The reimbursing bank honors the claim of the negotiating bank on the strength of the mailed copy of L/C by debit to NOSTRO Account maintained with them by the Head Office. In case where no account is maintained with the reimbursing bank, arrangement should be made with the Head Office to make payment to the reimbursing bank to enable it to honor claim of negotiating bank. The terms and conditions of L/C should be clearly stipulated to avoid confusion and ambiguity for strict compliance by the beneficiaries (supplier). Words and terms used in the underlying sale contract should also be used in the L/C although grammatically or semantically they might not be wholly correct. If the L/C is transmitted by telecommunication to the advising bank and if it is intended that the L/C will be operative on receipt of mail confirmation; the telex must state “Full details to follow� or similar words. Otherwise, the transmission will be deemed to be the operative credit instrument to be acted open by the advising bank. All document L/C covering imports into Bangladesh are subject to the Uniform Customs and Practices for Documentary Credit 1993 Edition-ICC Publication No. 500. It should be clearly mentioned in each L/C unless printed words to that effect already exist in the form.
Lodgment: 7.1. What is Lodgment?
Since foreign trade involves dealings in between the countries, the formalities attached there with multifarious and complicated. As a result, a large number of documents are used in this trade which are on the increase due to the growing complications introduced into the trade because of the imposition of different types of checks and control in different countries.
After opening the L/C, the next step would be to await shipment followed by negotiation of documents by a bank abroad. The beneficiary of the L/C (supplier), after effecting shipment of the goods as per terms of L/C, prepares necessary documents as required under the terms of L/C and present the drafts to the negotiating bank along with the supporting documents for negotiation. The negotiating bank negotiates the draft if the documents are found in order as per terms of the L/C and then makes payments to the beneficiary. The negotiating bank will reimburse itself either by debiting Prime Bank’s account, if any, maintained with them (the NOSTRO Account) or, if there is no account, will seek reimbursement from the reimbursing bank nominated in the L/C. Simultaneously, the bank will send documents to Prime Bank. The nature of documents to be sent by the negotiating bank will depend primarily on the terms of the L/C and the underlying sale contract between the seller and the buyer. After collection of the shipping documents from the negotiating bank, the same should be very carefully scrutinized to ensure that these have been drawn strictly as per the terms of the credit. The procedure of recording or marking entries in the books of the bank is technically known as “Lodgment”. Following steps are required for lodgment the document: •
Importer’s formal acceptance is required.
•
Conversation of foreign currency into Bangladesh currency by applying correct rate of exchange.
•
Entries in to the PAD register along with PAD number.
•
Entries in to L/C opening register by rounding the L/C No. with date.
•
Relative LCAF is to be endorsed showing the utilization of credit amount. The utilized amount also to be noted in L/C file.
•
IMP form duly signed by the importer is to be filled in properly.
•
Bill of Entry, B/L and invoice are sent together with a statement to Bangladesh Bank in time.
•
Safe keeping arrangement is made for documents.
•
Preparation of the related vouchers.
7.2. Documents called for under credit: Generally, however, the substantive documents that are normally asked for are the following: •
Commercial invoice
•
Draft or Bill of Exchange
•
Bill of lading or Airway Bill or other evidences of shipment (e.g. railway receipt, truck receipt etc)
•
Marine Insurance Policy
Other documents are called auxiliary documents and normally include one or more of the following: •
Packing list or Mills Specification
•
Consular Invoice
•
Certificate of Origin
•
Inspection or Survey Certificate
•
Quality Control Certificate
•
Phyto-sanitary Certificate
•
GSP Certificate
7.3. Scrutiny of Documents: Immediately on receipt of import documents from foreign correspondents, the branch shall scrutinize the documents immediately, but not later than 7 days from the date of receipt In this process, the bank would ensure whether the documents received from the negotiating bank are drawn strictly in conformity with the terms of the L/C and respond to the requirement of the underlying letter of credit in every respect. Examination of the documents generally includes the following points: •
Completeness of the documents
•
Consistency of the documents with each other
•
Compliance with Uniform Customs and Practices for Documentary Credits issued by the International Chamber Of Commerce, Paris.
7.4. Examination of Documents: Prime Bank Limited then proceeds to carefully look into the following main points of each of the documents keeping in view the terms of L/C: •
Bill of Exchange:
a) That the bills properly stamped. In case it is not stamped it must be immediately stamped with the requisite value and the cost should be debited to the importers account. Of course, if the charges to be borne by the exporter as per terms of the contract, he (importer) should mention it specifically at the time of opening the credit b) That the Bill of Exchange (Draft) has been properly drawn as well as signed by the beneficiary which is mentioned in the L/C in accordance with the L/C terms and sale contract. c) That the amount drawn does not exceed the amount available under the credit. d) That the amount in words is exactly equal to its amount in figures, and both the amounts indicate the currency, as stipulated in the L/C. e) That the Bill of Exchange is in order and endorsed properly to the order of PBL. f) That the tenor is in conformity with that stipulated in the L/C and is not dated earlier than the date of the L/C and not later than the date of the expiry thereof. g) That the draft is in good order (without erasures and properly endorsed).
•
Commercial Invoice:
a) That it is prepared in exporter’s own printed Invoice form. b) That the invoice has been correctly and properly drawn and signed by the beneficiary as per terms of L/C. c) That the merchandise is invoiced to the party on whose account the credit is opened. d) That the invoice does not include extraordinary expenses such as cable, storage, commission etc, unless specifically authorized in the terms of the letter of credit. e) That invoice specify quantity clearly, words like approximate, about, nearly must be avoided. The quality and quantity must correspond to that indicated in L/C.
f) That the description and the unit price of the goods correspond with that given in the credit and all calculations in the invoice are correct. g) That the Import License number mentioned in the letter of credit appears on the invoice and that the invoice is strictly in accordance with the Proforma invoice, if furnished with Letter of Credit advice. h) That required number of copies of Invoices as specified in the L/C has been presented. •
Bill of Lading:
a) That they are ‘Clean’ and of the class called for in the credit. b) That the bill of lading covers the merchandise described in the invoice, by description, quantity, marks and numbers. c) That the port of shipment, the port of destination, the date of shipment, the consignee, the party to be notified etc, are in agreement with those mentioned in the credit; (the date of the bills of lading is assumed to be the date of shipment). d) When ‘On Board’ shipment is required and such shipment is evidenced by an ‘On Board’ bill of lading, the bill of lading date will be taken as evidence that the shipment was effected on or before the date indicated on the bill of lading; if evidenced by ‘On Board’ endorsement, the endorsement date will be so taken. e) That where blank endorsed bills of lading are required, they are endorsed correctly by the party to whose order they are issued, normally the shipper. f) That the bills of lading are signed either by the Steamship Company or by their authorized agents. g) That the bills of lading contain evidence that the freight has been prepared if this required by the credit clauses to the effect that freight is payable by the shipper not being acceptable in lieu of ‘Freight Prepaid’ bills of Lading. h) That no clause appears on the bills of lading to the effect that freight is to be collected abroad, if the invoice includes freight charges. i) That no clause appears on the bills of lading stating the merchandise was received in other than good condition. Such clauses would make the bills of lading ‘Unclean’. j) That a full set of bills of lading is presented.
k) That the bills of lading don’t indicate merchandise shipped ‘On Dock’ unless insurance specifically covers this point and / or the import has agreed to it. l) That the dates on the bills of lading (or other documents) are not ‘Stale’ i.e. not dated in unreasonably long time prior to negotiation. •
Insurance Documents:
a) That the document is of the class stipulated in the credit. b) That the insurance covers the merchandise for the value stipulated in the letter of credit. c) That the insurance documents describe the merchandise covered and mention the name of the carrying steamer. In cases where ‘On Board’ bills of lading are not presented the following clause, or words of similar import must follow the name of the steamer “and/or following steamer”. d) That all risks stipulated in the credit are properly covered in the Insurance documents. When the Credit stipulates that “all risks” are to be covered, it is not sufficient that various risks are mentioned but a clause to the effect that “All risks” are covered is required. e) That the policy is in the joint names of the Bank and the importer. f) That the insurance document is properly countersigned by the party designated in the documents to perform such act. g) That the insurance document complies with the conditions of the letter of credit, is in negotiable form and that it is endorsed by the party to whom the loss is payable, unless the credit stipulates that the insurance must be issued-“ Loss payable to a specified party in the country of destination”. h) That the date appearing on the insurance document is not later than the date appearing on the bill of lading. i) That the insurance document covers transshipment when the bill of lading indicates that transshipment would take place. j) That the insurance claims are payable at the port of destination. k) That issuance certificate/ policy acknowledges the payment of the premium. l) Under Institute cargo Clause an insurance policy with all the risks attached to it is rendered invalid for the purposes of claims if shipment covered by the policy is not cleared from the Docks within a period of 30 days from the date of arrival of
the carrying steamer at the port of destination. It is, therefore, essential that proper care be taken to ensure that goods are cleared within 30 days from the date of arrival of the carrying steamer. •
Certificate of Origin:
a) That it is signed dated and properly titled. b) That it certifies the country of origin. If the credit stipulates the country of origin the certificate indicates. c) That the party stipulated in the credit issues it. If the credit does not stipulate, then a document issued by the beneficiary is acceptable. d) That the document relates to the invoiced goods. •
Consular Invoice:
a) That all originals are signed, dated and titled as stipulated by credit. b) That the documents relate to the invoiced goods. c) That evident changes, alterations and/or correct bear the stamp of the consulate. d) That it is issued by the party in the credit or appears to be signed or authenticated by the consulate. •
Other documents:
The shipping documents must be accompanied by the following additional papers if called for in the letter of credit and must confirm to the terms of L/C. a) Packing list. b) Weight list or certificate. c) Pre-shipment Inspection certificates. d) Quality Control Certificate etc. After the scrutiny there should follow a step-by-step process of lodgment as follows: •
Enter full particulars of the documents in the prescribed BLC Register allotting a consecutive serial number in the register.
•
Rubber stamp all the shipping documents with the BLC stamp and put the BLC serial number in each of the documents.
•
Convert the foreign currency amount of the bill and the foreign bank charges separately into Taka by applying the B.C selling rate ruling on
the date of lodgment. If any forward exchange was booked, the booked rate should be applied. •
Send an “Inter- Branch Credit Advice” (IBCA) to the Head Office along with a prescribed statement to provide them credit for the payment from their overseas account through PBL General Account.
•
The Head Office (International Division) on receipt of the IBCA and the statement will respond the entry by debit to branch account (through PBL General Account) and contra credit to Nostro Account of the negotiating bank abroad.
•
The contingent Liability entry must be reversed to the debit of Banker’s Liability for acceptance letter of credit and to the credit of Customer’s Liability for acceptance letter of credit at the time of Lodgment of documents.
7.5. Voucher preparation: At the time of Lodgment, PBL prepares the following vouchers: a) DR. PAD a/c $ @ BC selling … … … … TK. CR. PBL General a/c (HO ID) $ @ ready selling … TK. CR. I/A a/c Exchange Gain … … … … … … … … TK. b) DR. Sundry Deposit (Margin) … … … … TK. CR. PAD a/c … … … … … … … … … … … …
TK.
c) DR. PAD a/c … … … … … … … … … TK. CR. I/A a/c Interest on PAD … … … … … … … …TK.
Simultaneously, the L/C liability voucher should be reversed to the extent of document by passing the following vouchers: d) DR. Bankers Liability a/c … … … … … TK. CR. Customers Liability a/c … … … … … … … … TK. In case of Import Bill Lodgment for Back to Back L/C, PBL prepares the following vouchers:
a) DR. Parties a/c … … … … … … … … …TK. CR. I/A acceptance commission … … … … … … …TK. CR. I/A management fee … … … … … … … … … TK. CR. I/A postage / telex … … … … … … … … … …TK. b) DR. BTB L/C (Banker’s Liability) … … … TK. CR. BTB L/C (Customer’s Liability) … … … … … TK. c) DR. BTB Bills (Customer’s Liability) … … TK. CR. BTB Bills (Banker’s Liability) … … … … … …TK. After completion of lodgment, the bank will inform the importer for release their documents after full adjustment of liabilities
7.6. Discrepant documents: If the scrutiny of documents by negotiating bank abroad reveals any discrepancy, it will send a telex or fax to the branch inquiring whether they can make payment to the beneficiary in spite of the discrepancies. If the answer is negative, the negotiating bank will send the documents on collection basis to the branch that should check with the importer whether the documents are acceptable. After the importer i.e. applicant for the credit has given his consent, the documents will be released to him on payment or acceptance of the bill, as the case mat be. If, on the other hand, the importer refuses to accept the documents on account of discrepancies detected either by the correspondent bank or the branch, it should immediately advise the negotiating bank by cable, telex or fax for instructions with regard to disposal of the goods and the documents. The branch may allow remittance against discrepant document received directly by the importers after the goods have been cleared from the customs on the basis of the relative LCAF, the Exchange Control Copy of the customs bill of entry for consumption and customs certified invoice in the case of import by post, and the relative invoices.
7.7. List of common discrepancies: A list of common discrepancies is given below: •
Claused (unclean) Bill of Lading.
•
Charter-party Bill of Lading (Unless stipulated in the Letter of Credit).
•
‘On Board’ notation of in Bill of Lading undated unauthenticated.
•
Shipment effected from port other than that stipulated in the credit.
•
Goods shipped on deck (Unless stipulated in L/C).
•
Full set of bill of lading not presented.
•
Certificate of country of origin not provided.
•
Certificate notifying insurance company of shipment not presented.
•
Weighment certificate not presented.
•
Cuttings/alterations in documents not authenticated.
•
Documents inconsistent with each other.
•
Description of goods on invoice differs from that in the credit.
•
Weights differ between documents.
•
The amount shown in invoice and bill of exchange differ.
•
Shipping marks and numbers differ between documents.
•
Credit (L/C) amount exceeded.
•
Credit (L/C) expired.
•
Documents not presented in time/stale bill of lading.
•
Late shipment.
•
Short shipment.
•
Absence of documents called for in the credit.
•
Bill of Exchange drawn on a wrong party.
•
Bill of Exchange payable on an indeterminable date.
•
Bill of Exchange, Bill of Lading or Insurance documents are not endorsed correctly.
•
Absence of signatures, where required, on documents presented.
•
Bill of Lading does not evidence whether freight is paid or not.
•
Packing list not submitted.
•
Part shipment/transshipment effected not being covered by the L/C terms.
•
Notify party differs /not as per L/C stipulation.
•
Third party bill of lading /short from bill of lading submitted.
•
Inspection certificate not submitted.
•
Unit price not mentioned in invoice.
•
Description of documents on collection schedule differs with documents presented.
•
Fumigation/Health certificate (fit for human consumption) not submitted.
Forwarder’s cargo receipt not acceptable (Unless provided in the L/C).
Retirement 8.1. What is Retirement? Retirement means discharge of documents on receipt of full payment of the bills from the customers. The documents are released and necessary entries marked off. This process of agreement of import claims is technically known as
“Retirement of Bills.” Bank should
ensure that all payables have been recovered and that all formalities including Exchange Control requirements are complied with before retirement of documents. On receipt of intimation, the importer gives needed instructions with regard to retirement of bill. The importer may appeal the Bank to depart the bill by debit to his account. After adjustment of loan by making debit of the importer’s account, the shipping documents are handed over to the importer. Before releasing the import documents to the importer, the Bank should endorse on the invoices the amount, which they have remitted from Bangladesh. The Bank should also endorse the bill of exchange and the Bill of Lading to the order of the importer. In order to have the clearance of the consignment from the custom authority, the custom purpose copy of the LCA should be returned to the importer. The importer may demand for providing LIM facility if arranged earlier. In case where LIM facility is given to the importer, generally the Bank itself will manage for clearance of the goods on payment of import duty, sales tax and other charges and reserve the goods at the Bank’s godown subject to discharge on production of delivery order as per settlement. Occasionally documents are also handed over to the importer against trust receipt for clearance of the goods on the clear understanding that the importer will hold goods or sale proceeds thereof in trust with him at the disposal of the Bank till the entire lending is liquidated. All payments for imports into Bangladesh are necessary to be recorded to Bangladesh Bank on IMP form. The original copy of the IMP form duly certified by the Bank is submitted to the Bangladesh
Bank. The importer is required to produce Exchange Control copy of Customs Bill of Entry to the Bank within four months from the date of remittance. After proper checking, the Bill of entry is to be harmonized with the duplicate copy of the IMP form for investigation of the Bangladesh Bank. Then Prime bank Limited prepares the retirement vouchers to reflect the amount of cost and other charges from the importer, adjustment of margin and PAD account. There after the documents may be handed over to the importer against proper acknowledgement after certification and endorsement. Certificate of the Invoice amount: “Certified that the invoice amount is US$ … … … … equivalent to Bangladesh TK… … @ … … …
Manager
… per US$.”
Endorsement in the bill of exchange: Received Payment.
Manager
Endorsement in the Bill of Lading: “Please deliver to the order of M/S … … … (name of the importer is mentioned here) Manager
8.2. Voucher Preparation: The following vouchers are passed in the books of account at the time of retirement of documents: a)
DR. PAD account (for interest amount) … … … … … TK. CR. I/A account Interest on PAD … … … … … … TK.
b)
DR. Party’s account (including interest)… … … … …TK. CR. PAD account (including Interest) … … … … …TK.
In case of client apply for Post Import Finance: LIM/ LTR: a)
DR. PAD account (for interest amount) … … … … … TK. CR. I/A account Interest on PAD … … … … … … TK.
b)
DR. LIM /LTR account … … … … … … … … … …TK. CR. PAD account (including interest) … … … … …TK.
Analysis of the overall condition Of PBL's Foreign Exchange Dept In order to analyse the overall condition of PBL’s Foreign Exchange Dept of ERB, the whole discussion will be divided into two parts – 1. Financial Analysis. 2. Customer’s View
9.1. Financial Analysis 9.1.1. Performance of Foreign Exchange Transaction in PBL: The following table shows the performance o f Import, export and foreign remittance of the Prime Bank Limited from its inception to 2005.The figures in the tables are in TK. Million Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Import
30.7
237.1
236.6
622.3
887.5
1171
1342.8
1956.4
2544.1
3674.7
4030.30
Export
.8
54.2
177.7
448.8
673.1
1232
1418.7
1219
1649
1950.2
2888.20
Total
31.5
291.3
414.3
1071.1
1560.6
2403.
2761.5
3175.4
4193.1
5624.9
6918.50
As the above table suggests the foreign exchange business of the Bank
has grown
continuously the year of starting. The Bank has been successful to raise its import business by more than TK.3.6 billion in 11 years. Also it has raised its export business by about 1.95 billion. They
have contributed to the
increase in foreign exchange business by more than TK.5.6 billion. Though only in 1997,the import business has decreased a little from 1996, the bank was able to continue its import business growth from the next year. The same condition is true for that of the export in 2002.
The table below shows the growth in foreign exchange business from 96 to 2005 Year
Total Growth
96 828
97 42
98 159
99 46
2000 54
2001 15
2002 15
2003 32
2004 34
2005 36
Import Growth Export Growth
674 7037
(0.2) 228
163 153
43 50
32 83
15 15
46 (14)
30 35
44 18
48 20
From the first year of operation, both the import and export have a huge growth in 1997 as the year was only the second year of operations. Besides the performance of 1996, the total foreign exchange business has constant and comparatively the lowest growths in 2001 and 2002, the bank has been successful to increase the growth in 2003 and 2004.As the table shows it is really compliment able for a bank after 7 years of operations to have its business growth as much as 30% and more. According to the above table, the import growth rate continued to increase in 2005 but the export growth rate had decreased in this year. This may be because the slow rate of export growth in Bangladesh. But still the TK. 1.9 billion of export business by an individual local bank cannot be termed as low
The Performance of Foreign Exchange Department at a glance 9.1.2. Performance of Elephant Road Branch: Import Performance: The table below shows the number of L/C opened in a month and the amount of import L/C in TK. Lacs in the Elephant Road Branch by month Month
#
2001
#
2002
#
2003
#
2004
#
2005
Jan
42
513.78
77
1393.36
82
1352.99
147
6269.95
83
1290.67
Feb
47
700.71
49
101
1337.65
116
2568.20
92
4936.22
March
41
675.73
85
1062.78 1770.23
107
1776.23
175
3035.63
123
4223.27
April
63
1197.86
66
2292.44
112
2409.84
92
4566.82
89
1708.98
May
72
781.18
105
1552.65
121
1944.30
110
2801.39
109
1655.43
Jun
52
1114.81
76
2104.40
87
1414.31
131
2275.18
111
1375.43
July
48
702.39
73
1277.99
106
2615.17
97
3040.99
135
4913.58
Aug
77
1293.42
77
1766.94
115
2210.49
94
1067.58
128
2801.98
Sept
94
1272.47
87
2209.69
119
2164.89
82
1271.95
94
1539.34
Oct
66
1955.03
73
2188.20
113
2371.76
91
3890.33
101
3273.03
Nov
95
1404.04
90
1538.92
84
3051.68
93
1366.95
69
1711.75
Dec
59
1175.16
91
178.41
130
2388.27
87
2272.36
104
6588.36
Total
756
12786.58
949
20336.01
1277
25,037.5
1315
34427.33
1238
36017.76
Avg
63
1066
79
1695.00
106
2087.00
110
2869.00
103
300200
As the table shows, the total number of L/C opened was increasing by year up to 2004 but it has been reduced in 2005. On the other hand, the total amount of L/C has increased in 2005.As the value has increased, may be commission
from these L/Cs have also increased
slightly as they are taken in percentage of this value. The number of L/C opened per month on an average, too, has decreased in 2005 despite continuous growth up to 2004. Yearly Performance of Import Section: The following table shows that the number of import L/C opened from 2001 to 2005. Years
2001
2002
2003
2004
2005
Total
756
949
1277
1315
1238
Average
63
79
106
110
3002
Growth
--
25.6%
34.6%
3%
(5.9)%
The data shows that the number of L/C opened by the branch was increasing in 2002 and 2003 where the growth has decreased to 3% in 2004 and it had a negative growth in 2005 Comparison of Import performance with the whole Bank’s performance: The following table will help to compare the above two; Year
2001
2002
2003
2004
The Bank
134276
195640
254407
3,67,470
The Branch
12787
20336
25038
34,427
Contribution(%)
9.52
10.4
9.84
9.37
The contribution of Import L/C amount of Elephant Road Branch has been increased in 2002 to the performance of whole bank. But after 2002 this contribution has been decreasing in the following two years. On an average the contribution is about 9.8%. The percentage share shows that the better performance of import L/C in Elephant Road Branch is important for a better performance of Prime Bank Limited. Performance of Lodgment of Elephant Road Branch: The following table shows the number of L/C lodged in the months of 2003 to 2005 and the corresponding amount of lodgment in TK lac. from the calculation of the table, it is seen that the total number of lodgment is lower in 2004 than that of 2003.But the number of lodgments has increased in the last year. Again the amount of lodgment lacs has increased. Then the table shows that on an average, in a month, the amount of lodged bills has increased from the previous two years. The average number of lodgment has decreased very much in 2004 but it increased in 2005. Year
#
2003
#
2004
#
2005
Total Average
566 106
14899.62 2087
354 29.5
20036.4 1669.7
728 60.67
33,174.29 2764.52
Performance of Export Section of Elephant Road Branch: The table below shows the amount of export bills Created in TK lacs from 2001 to 2005. Year
2001
2002
2003
2004
2005
Total
7946.09
15054.68
13826.91
20726.45
24095.88
Growth%
---
89.5
(8.18)
49.9
16.26
Average
662.17
1254.89
1152.24
1727.20
2007.99
The export bills created has increased every year of operation other than a decrease in 2003 from the previous
year
as in the total and average figures in the table. In this year, the
negative growth was 8.18% from 2002.In the next year , the bill creation has increased sharply with about 50%growth. But in the last year, it has less growth in this amount with a higher average bills creation per month. The next table contains the figures of Export Bill Realized in Tk. Lacs
Year
2001
2002
2003
2004
2005
Total
6,653.99
16,327.65
12,820.67
21,866.49
22,442.05
Growth%
---
145.38
(21.18)
70.56
2.63
Average
554.50
1360.64
1068.39
1822.21
1870.17
Just like the data in export bills created , realized figures also had a negative growth in 2003. Though in 2004, the growth had recovered with a higher per month realization, the growth has been very slow in the last year. But in total and on an average, the export bill realization has increased in 2005. Performance Related With Foreign Remittance: Focus on Remittance Business: With the
aim of providing efficient and reliable remittance facility through banking
channel to Non-Resident Bangladeshi(NRBs), Prime Bank Limited has made a broad based remittance arrangement with 9 exchange houses in USA,UK, UAE , Saudi Arabia ,Oman .Continuous effort is being made to expand the network of new exchange companies operating in different parts of the world. to support the focused approach or increasing remittance, the Bank has established a centralized remittance center at its Head office which is technologically equipped and engaged to ensure fastest delivery of remittances received from the NRB s as well as meeting their queries . Focus on Foreign Correspondents:
The above graph presents the real picture of the Foreign Correspondents of the bank. It shows a positive sign of
Foreign Correspondents which is increasing day by day through
out the last five years Performance Analysis of Foreign Remittance of the Branch: The table below shows the amount of Inward Remittance Created in TK. lacs from 2001 to 2005 Year
2001
2002
2003
2004
2005
Total Growth% Average
765.05 -63.75
1985.61 159.54 165.47
3385.33 70.49 282.11
2763.45 (18.37) 230.29
2343.53 (15.2) 195.29
As the growth figures indicate from the last two years, the inward remittance by the branch is having a negative growth. Both the total and average figures are showing the same. From inward remittance of 2003, the remittance in 2005 is TK.1.04 crore less. If
this situation
continues, that may have a very bad affect on the remittance section of the whole bank. The table below shows the Outward Remittance in TK Lacs by the Elephant Road Branch of Prime Bank Limited. Year
2001
2002
2003
2004
2005
Total Growth% Average
1687.22 --140.60
1145.10 (32.13) 95.43
1649.13 44.02 137.43
1750.11 6.12 145.84
2072.88 18.44 172.74
The outward remittance by the branch has been increasing each year on an average and in total after a decline in 2002.In 2002, this remittance figure has shown a negative growth and in the year after that it continued growth in fluctuating rates. Though it is not a good sign for the economy as remittances are going out from the country, in the bank it is an indication that the income from outward remittance is increasing. The total condition of Remittances can be observed through the following table: Year
2001
2002
2003
2004
2005
Total
2452.27
3130.71
5034.46
4513.56
4416.41
Growth%
--
27.67
60.81
(10.35)
(2.15)
Average
204.36
260.89
419.54
376.13
368.03
From the total data it is found that the best condition is observed in the year of 2003, but after that the amounts are decreasing. Considering the declining performance of Foreign Remittance Section, the Bank should take steps to find out the reason behind it .Though we know that the economy of our country is not in a good condition for the increasing rate of dollar and also for increasing import, but a report, published in “Daily Prothom Alo “on 4th January, 2006 expressed that the Foreign Remittance of the country has increased in the last six months of the year 2005.
9.2. Customer’s View: To analyze the real condition of a bank, besides the financial data, it is necessary to assess the customer’s perception about it, as customer’s perception is a real indicator of the success of the Bank. With this end in view I have conducted a survey among the corporate clients of the bank. May be the observed perception does not present the exact situation but this surveyed data has helped me a lot to analyze the overall performance of the bank and specifically the performance of Foreign Exchange Department of the Branch .
9.2.1. About the survey: Place of the survey: Prime Bank Limited, Department of Foreign Exchange, Elephant Road Branch Time of the survey:
May—June.
Surveyed People: Corporate Clients of Foreign Exchange Department Objective: To know the real scenario of customer’s perception about the performance of the Foreign Exchange Department Limitation: find any serious problem for conducting this survey, but sometimes I felt that real answers were not exposed as the clients were interviewed by me in front of the officers of the bank. Questionnaire: The clients were faced with 10 questions (both open ended and close ended).This questionnaire is enclosed in the appendix.
9.2.2 Findings of the survey: The data gathered through the survey presents an interesting scenario. Mixed feelings of the
clients were found. Moreover an interesting
observation is that more or less all clients presented the same view.
The findings can be observed as follows: •
Quality of service: In the answer of this question ,it is noticeable that 90%mentioned”very good”,5% said “excellent” and rest of the people said “good”.
•
Attitudes to the charges of provided service: My third question was about the fees, commissions, and interest rates of Prime Bank .In the answer of this question, more or less the same answer is given. And that is “good”.
•
Service value provided by Prime Bank : 99.99% surveyed people are happy with the service in relation to the fees, commissions, and interest rates they pay for it.
•
Impression about the reputation of the Bank: 90% have said “very good”and10% said “excellent”.
•
Any problem which is frequently faced: Most of the clients had
said that no
significant problem was faced by them in PBL’s Foreign Exchange Dept. Some mentioned “The procedure of Sign Verification creates problems sometimes. •
Products and services which are not available in PBL: In answering this different people have said for different things. Among them the ATM facility, Cash Credit Facility these are mentionable.
•
Management Philosophy: Surveyed data presents that almost all clients are satisfied with the caring management of PBL’s Foreign Exchange Department.
•
Security System: 90% clients are happy with the present security system. The rest of the clients want more security measures.
•
Comparative
Assessment: More or less all the surveyed people have said that
PBL‘s Foreign Exchange Department provides better service than other banks. •
Attitude to the Clients: The clients were unanimous about the bank’s attitude toward them. Priority to customers is an excellent management philosophy of PBL.
•
Implementation of rules and regulation: 5% clients said that PBL implements regulation fully, but 15% have no comments about this,& the rest percentage of people have expressed that PBL implements most of the rules and regulations ,but some times it is bound to break the rules.
•
Required Time: In the answer of this question 100% clients have showed their full satisfaction about PBL. According to them PBL provides all service in time properly.
•
Suggestion—Some significant problems are identified from the survey. The surveyed peoples are requested to give their opinion about improving the service quality. In
response they have provided some excellent suggestions. Among these some are related only for Foreign Exchange Department and some are appropriate for whole banking. These are as follows: •
Cash Credit Facility: The bank does not provide the cash credit facility (Pledge).Through this bank can provide customers with good repayment at a lower interest rate based on the quality and marketability of the security offered.
•
Bank Guarantee and Inward Foreign Remittance: These are the only areas of the Elephant Road Branch that have negative growths. The management and concerned officers should plan properly and take immediate efforts to increase bank guarantee.
•
ATM facility: Till now PBL are not able to provide this facility to their customers, though they have been planning for a long period of time. As the closest competitors of Prime Bank like DBBL is providing this facility to the customers, it is of course one of its big weakness that they could not include ATM to the service portfolio.
•
Heavy Registers: In the Back to Back section, L/C liability and Bills Liability are created in the same register. This make the register very heavy, not only that it is a violation of rules also. So they should maintain different register for different purposes.
•
Disclosing Full Information Services and Charges. The bank should disclose the actual cost of borrowing or having other types of services and actual benefits to its customers. As the banking terms are not familiar to the clients, so they may be confused and misguided. So the bank should disclose all the information about any particular services clearly towards it customer.
•
Signature Verification: In the bank, all the signatures, either of the bank officer’s or the importers are verified manually. For this purpose the signature handbooks that are given by the head office are followed. Sometimes the needed sign are not present, and then it takes a long time. Again sometimes the officer may be misguided. So the bank should take effective steps to eradicate this problem. With the help of scanner as well as computerization, this type of hustle will be removed and the officers have to use less time in verification.
•
Seating arrangement for clients: In the rush period some customers face the scarcity of seating arrangement; some of them have to stand for a long time. So to provide better service to the customer PBL should improve their seating arrangements.
•
Workshop and Training Session for Clients: The bank can provide training and arrange workshop for the clients as they are able to get the service better.
From the above analysis it is observed that
more or less, most of the clients are satisfied
with the services of PBL and they never think to leave it .The clients wish that PBL will be able to fulfill all of its lacking as soon as possible
Comparison of Performances of A Commercial Bank & PBL In the beginning of new financial year (2006-2007), the Central Bank has published the result of CAMEL rating. In this assessment, Prime Bank Ltd and Mutual Trust Bank Limited have got the first place jointly. So it will be wise to compare the performance of PBL’s foreign Exchange Dept with that of Mutual Trust Bank Limited. The Panthapath Branch of Mutual Trust Bank Limited is an Authorized Dealer of Foreign Exchange. Therefore, it will be wise to compare its performances with that of the Prime Bank Limited of Elephant Road Branch.
10.1 Performance of Import Sections:
The following table compares the
Performance of import section of Elephant Road Branch, Mutual Trust Bank and Elephant Road Branch, Prime Bank Limited. The data shows that the total number of L/Cs opened in the year 2005 was higher in case of Mutual Trust Bank Limited but the amount or value was higher in Prime Bank. With a comparatively low tenure than Prime Bank, the performance of Mutual Trust is impressive. Mutual Trust Bank Ltd Prime Bank Ltd. Month
Number
Amount
Number
Amount
January
128
3,130.00
83
1,290.67
February
90
1,173.00
92
4,936.22
March
164
2,241.00
123
4,223.27
April
129
1,650.00
89
1,708.98
May
124
1,976.00
109
1,655.43
June
131
2,028.00
111
1,375.15
July
133
1,898.00
135
4,913.58
August
146
2,344.00
128
2,801.98
September
134
1,813.00
94
1,539.34
October
191
2,882.00
101
3,273.03
November
127
2,005.00
69
1,711.75
December
101
1,376.00
104
6,588.36
Total
1598
24,516.00
1.238J
36,017.76
Average
133.1667
2,043.00
103
3,002.00
10.2. Performance of Export Sections: The Mutual Trust Bank created more amount of export bills in 2005 than that of Prime Bank Ltd. Again on an average the export bills realized in the Mutual Trust Bank is about TK. 130 lacs more than that of the branch of Prime Bank in a month. Here the table in the next page shows the amount of Export Bills Created by the banks in 2005 in TK. Lacs (rounded). Mutual Trust Bank
Prime Bank
Amount in TK. Lacs
Amount in TK. Lacs
January
2,692
2,061.16
February
3,225
1,802.56
March
1,832
1,796.64
April
2,625
1,664.52
May
2,539
1,690.76
June
2,299
2,495.99
July
1,450
2,321.27
August
1,601
2,311,55
September
1,758
1,824.96
October
1,922
1,816.25
November
1,531
1,653.27
Month
December
2,178
2,656.95
Total
25,652.00
24,095.88
Average
2,137.67
2,007,991
10.3. Performance of Foreign Remittance Sections: The Elephant Road Branch does not deal with outward foreign remittance. So, the following is the comparison of the Inward Remittances between the branches of Mutual Trust and Prime Bank. Here the table shows the amount of Inward Remittance by the banks in 2005 in TK. Lacs (rounded)
Month
Mutual Trust Bank
Prime Bank
Amount in TK. Lacs
Amount in TK. Lacs
January
72
264.31
February
94
61.51
March
20
560.73
April
53
162.47
May
35
160.34
June
69
232.56
July
63
272.34
August
12
25.68
September
102
49.14
October
71
168.64
November
14
66.81
December
11
319.00
Total
616.00
2,343.53
Average
51.33
195.29
The total inward remittance of Elephant Road Branch is about 4 times of that by the branch of Mutual Trust Bank Limited. On an average, the Prime Bank deals with about TK. 1.44 crore inward remittances than the Mutual Trust Bank, as here only the inward remittances are compared, it the total remittances are compared by including the outward remittances by Prime Bank, the performance of Prime Bank may seem better. In the conclusion of the analysis, it needs to mention that as a bank in the same location, the Prime Bank Limited performs better in Import business than that of Mutual Trust Bank. But in case of Export business, the Elephant Road Branch, Mutual Trust Bank is more successful than the Prime Bank, Elephant Road Branch. Finally, the inward remittance section of Prime Bank performs much better than that of Mutual Trust Bank. --------------------------------------
Findings: On the basis of previous analysis and practical experience of 3 months internship program, the following findings are observed during the research period: 11.1 Letter
of Credits and its details
:
Letter of Credit is maintained by a wide variety of laws and regulations. As a result, the bankers’ are compelled to follow these rules and regulations and they don’t have any right to change any provisions. It satisfies the financing needs of the seller and the buyer by setting up the bank’s credit. L/C provides a specific transaction with an independent credit backing and a clear-cut promise of payment. Letter of Credit may allow the buyer to obtain a lower purchase price for the goods and longer payment terms than would open account terms or a collection. L/C reduces or eliminates the commercial credit risk because the bank, which issues an irrevocable documentary credit, assures payment. As a result, the seller doesn’t need to rely on the willingness and capacity of the buyer to make payment. Letter of Credit assures payment on the basis of documents alone, not on the goods or services to which it may refer.
11.2 About the Bank
:
Prime Bank Ltd. is following a conservative procedure for opening a LC. So conservatism is there to open L/C. Lack of promotional initiatives to expand the Foreign Exchange business. As Prime Bank Ltd. is not a foreign bank so they can not attract as much as clients for foreign trade. Because Clients prefer foreign bank for foreign transaction. Day by day new upcoming banks are coming with many new services which are a threat for the bank. So increased number of new bank creates sever competition in Foreign Exchange banking. Prime Bank Ltd. is not using advance and develop software. They are using only one software. Prime Bank Ltd. is doing their Office work, vouching, accountings manually. But other banks are using many developed techniques and software. Bangladesh is a developing country and its economic growth is not that much high. So slow growth of the economy is a very vital problem for a bank. From the previous years it has been observing that frequently the currency of Taka is devaluating and dollar currency is going very high. And devaluation of Taka is hampering import business and other sectors too. 11.3 Customer’s View
:
Most of the clients are satisfied with the management philosophy of the Bank. They deserves modern technology in baking service. Most of the clients treat the bank as their friend so they were not hesitating to say about the bad side of the service while they were interviewing by me. Clients specially the corporate clients are required to be trained through workshop and Training Session for the Clients
11.4 SWOT
Analysis of Prime Bank Limited
:
SWOT is an acronym for the internal strength and weakness of a firm and the environmental Opportunity and Threat facing that firm. So if we consider Prime Bank as a business firm and analyze the its strength, weakness, opportunity and threats the scenario will be as follows:
Strength
Energetic as well as smart team work. Good Management Cooperation with each other Usage of faster pc bank software Membership with SWIFT Good banker-customer relationship Strong Financial Position Online Banking Services Strong position in CAMEL rating. Huge business area. Excellent monitoring and supervision.
Lack of proper motivation, training and job rotation. Lack of experienced employees in junior level management. Lack of own ATM services. Tendency to leave the bank in quest of flexible environment.
Weakness
Expanded market Opportunity Threats
services of volume FCB’S (Phone Banking/Home Ban king) Different Growth of sales basis interest on deposit offered by HSBC Daily Change in political environment of newown PCB’s Entrance Launching ATM card services.
Recommendations: had the practical exposure in Prime Bank Ltd. for just twelve weeks, with my little experience in the bank in comparison with vast and complex banking system; it is not so easy to recommend some suggestion to enhance the performance level of the organization. have observed some shortcomings regarding operational and other aspects of their banking. On the basis of my observation would like to present the following recommendations.
1. Letter of Credit opening procedure and Margin requirement may be relaxed for prime customers, otherwise new and competitive banks will take the clients away by giving special facilities.
2. Sometimes found that a new customer that comes first time to open L/C, they found it difficult to do so. think this new customer should be given some advantage to open L/C. If they treated well, they may gradually become prime customer for PBL. 3. In case of Export L/Cs, sometimes customers insist to give their payments though their documents are found discrepant. In some cases, Bank has to give payment to these customers for different reasons. But it lessens the credibility of the Bank. think the Bank should be as stricter as possible about giving payments against discrepant documents without hurting the customers. 4. In many cases, the foreign banks want confirmations from other foreign banks with which this bank has correspondence. This proves the poor financial condition of our country. Banks should try to improve this situation. 5. To communicate with the Negotiating Bank, Advising Bank. Reimbursing Bank the branch uses SWIFT. As well as these media the Bank could use the E-mail, which is cheaper and faster than those media. 6. In the performance analysis of the bank, the cash to total assets ratio show a continuous decline from 2000.If this trend goes on, the bank can face liquidity problem .So it should raise its cash assets. 7. The bank should try to arrange more training programs for their officials. Quality training will help the officials to enrich them with more recent knowledge of International Trade Financing. 8. Bank can introduce more advanced MIS system to mobilize its day to day activities. It will help the employee to do their works more quickly and at the same time maintaining their quality of work. 9. During my internship program in Prime Bank Limited, found that the signature in the cheques are verified through manually. think the process of signature verification process should be automated by implementing computer technology by scanning all the signature of the clients so that the service will become smoother.
10. The manager needs to build up the value of jobs that service staff do, praise good work & give staff for their successes & foster a teamwork approach. 11. From the year of 2001, computerization of standard operating procedures (SOP) are in process. Of course this is a very lengthy process, and this procedure is related with all the 41 branches of the bank. So doing this job the officers can concerned manager should be careful enough other wise the up gradation may cause fear and confusion. 12. There are on line facilities available in Prime Bank Limited. But the internal problem is that it is not two-way as Standard Chartered Bank. The officers have to give extra time to issue On-line IBCA/IBDA to adjust the On-line Transaction. Intranet should be implemented to make the On-line service smooth. 13. The bank should established small library in all the branches so that the employee of the bank can gather theoretical knowledge easily whenever feel necessary. 14. The bank should be careful about the budget as it is found that there is a big gap between the targeted amount and achieved performance every year. So the officers should revise the budget atleast quarterly to have more feasibility and viability. 15. The management and the concerned officers should take effective steps to increase Bank Guarantee as well as the cash credit facility. 16. Since Prime Bank Limited is working as a leading bank in Bangladesh, the bank may arrange yearly awards to its valued clients of all branches to keep them loyal. Otherwise the competitors will take the opportunity to take them away from Prime Bank Limited.
Conclusion: The year 2005 was an extraordinary period for Bangladesh because of the challenges faced from the impact of devastating floods, the excessive price hike of crude oil & some other importable in the international market & termination of Multi Fiber Agreement. Despite the challenges, the year was another successful year for the banking industry in Bangladesh & the Bank was managed quite successfully. The year was concluded with a steady growth and the market share was retained in all areas of operation.
Prime Bank Limited is a strong and effective player in the financial system. It is a solid, forward-looking, modern local bank with a record of sound performance. It is a new generation bank. It is committed to provide high quality financial services /products to contribute to the growth of GDP of the industrialization, boosting up export, creating employment opportunity for the educated youth, rising standard of living of limited income group and overall sustainable socio-economic development of the country. The bank has the vision to be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management etc. it is now one of the top most profitable private sector commercial banks. The bank has the top most position among the “A� rated bank in CAMEL rating. The bank is maintaining a well-structured communication from top to bottom level. The work experience in Prime Bank Limited, Elephant Road Branch for the period of three months internship program was very interesting to me. All officers of this branch were cooperative and very nice to me .Job environment in Prime Bank Ltd., Elephant Road Branch is excellent. At the same time, the service which is provided by the officers of this branch to their clients is praiseworthy compare to other competitive private and foreign banks. As a concluding remark I want to say that the bank is able to attain a leading role with the 11 years success story but to remain unrivalled among new generation banks, the bank must face new challenges. I strongly wish the bank must make a positive attempt to be more outward looking in their goals and aware of what is happening. They must also emphasize on the domestic scenario more closely and analyze any certain trends and strategies of their competitors. The bank must accept any failures and think of them as an objective to pursue future goals instead of blaming such failures on other factors. and in this way I wish the Bank will be able to keep on playing its important roles in our economy. -------------- --------------------- ------------------
Bibliography 1. Annual Report ( 2005) of Prime Bank Limited. 2. Annual Report (1997- 2004) of Prime Bank Limited. 3. Guidelines for Foreign Exchange Transactions(Vol.1),Bangladesh Bank. 4. Import Policy Order (2003-2006),CCI& E ,Ministry of Commerce. 5. UCPDC-500 ,ICC publication , 1993 6. Handling of documentary Letter of Credit at Prime Bank Limited. 7. Bangladesh Bank Published Bank Statistics
8. The Bangladesh Banks( Nationalization) Order,1972. 9.
Statements of Affairs ( Daily) Prime Bank Limited, Elephant Road Branch
10. Lodgment and Retirement of import bills under documentary letter of Credit, Prime Bank Training Institution. Head Office Dhaka. 11. Interview with the Foreign Exchange In-charge of Prime Bank Limited, Elephant Road Branch. 12. Interview with the senior officers of Prime Bank Limited, Elephant Road Branch. 13. Interview with the clients of the Foreign Exchange Dept. 14. Statement of Branch – wise Target , profit Target Allocated for the Year 2005. 15. Statement for Foreign Exchange Transaction during the month, Foreign Exchange Department, Elephant Road Branch, Mutual Trust Bank Limited. 16. In 30 Commercial Banks Profit Increase by TK 550 Crore, The Daily Prothom Alo, January 3, 2006. 17. “Bangladesh Bank published the result of CAMEL rating”-The Daily Financial Express .July 01, 2006. 18. Sound Credit Management performance brings better result in CAMEL rating-The Exclusive Economic Weekly “INDUSTRY” .July 2, 2006 19. Ball.Donal.A.9thEdition.International Business. John E.Biernat. 20. Debnath.R.Mohon, September 2003. Bank and Legal Environment. Asok Ray Nandi, Nobajuga Prokashani. 21. Debnath.R.Mohon. February 2004.Business of Banking. Ana Debnath,Lotus Publishers. 22. Burnett Mary Joyce and Dollar Alta . Business English –A Communication Approach.” Allyn and Bacon ,Inc.1979.Pg:305-325 23. Lesikar Raymond V and Pettit John D. 6 thEdition’Business Communication-Theory and Application’ Laxman Chand Arya.Pg:397 24. www.prime-bank .com. 25. news.com,bd