View with images and charts Practical General Banking Functioning “Bank Asia Ltd” An Overview of The Principal Activities Of “Bank Asia Limited” 1.1 OVER VIEW OF BANK ASIA LIMITED: Bank Asia Limited (Ltd) has been launched by a group of successful entrepreneurs with recognized standing in the society. The paid up capital of the Bank is 1395 million. The management of the Bank consists of a team led by senior bankers with decades of experience in national and international markets. The senior management team is ably supported by a group of professionals many of whom have exposure in the international market. Bank Asia Limited is one of the third generation private commercial banks (PCBs), incorporated in Bangladesh on 28 September 1999 as a public limited company under the Companies Act 1994, and governed by the Banking Companies Act 1991. The Bank went for public issue of its shares on 23 September 2003 and its shares are listed with Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd. Bank Asia Limited acquired the business of Bank of Nova Scotia (incorporated in Canada), Dhaka, in the year 2001 and at the beginning of the year 2002, the Bank also acquired the Bangladesh operations of Muslim Commercial Bank Limited (MCBL), a bank incorporated in Pakistan, having two branches at Dhaka and Chittagong and one booth at Dhaka. In taking over the Bangladesh operations, all assets and certain specific liabilities of MCBL were taken over by Bank Asia Limited at book values. Within a short span of time Bank Asia Ltd has established itself as one of the fast growing local private banks. It has at present a network of Thirty three branches serving many of the leading corporate houses and is gradually moving towards retail banking. Another significant delivery channel is its own as well as shared ATM Network. Bank Asia has a network of 25 ATMs out of which 6 it owns. The other 19 ATMs are shared through ETN with eleven other banks. Since its humble beginning in 1999, it set milestone by acquiring the business operations of the Bank of Nova Scotia in Dhaka, first in the banking history of Bangladesh. It again repeated the performance by acquiring the Bangladesh operations of Muslim Commercial Bank Ltd. (MCB), a Pakistani bank. In the year 2003 the Bank again came to the limelight with oversubscription of the Initial Public Offering of the shares of the Bank, which was a record (55 times) in our capital market’s history and its shares commands respectable premium. The asset and liability growth has been remarkable. By Dec 2007 the total asset of the Bank grew to Tk 38436 million, increase of almost 26% comparing to 2006. As of Dec 2007 deposits increased to Tk 30004 million, an increase of 19% over that of 2006, and Loans & Advances reached Tk 28456 million, an increase of 28% over that of 2006. Bank Asia has been actively participating in the local money market as well as foreign currency market without exposing the Bank to vulnerable positions. The Bank’s investment in Treasury Bills and other securities went up noticeably opening up opportunities for enhancing income in the context of a regime of gradual interest rate decline. Bank Asia Ltd is maintaining its competitiveness by leveraging on its Online Banking Software and modern IT infrastructure. It is the pioneer amongst the local banks in
introducing innovative products like SMS banking, and under the ATM Network the Stelar Online Banking software enables direct linking of a client’s account, without the requirement for a separate account. 2.1 VISION STATEMENT OF BANK ASIA LIMITED: Bank Asia’s vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty. 2.2 MISSION STATEMENT OF BANK ASIA LIMITED: To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy. To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees. To become the most sought after bank in the country, rendering technology driven innovative services by our dedicated team of professionals. 2.3 CAPITAL STRUCTURE: Banks generally do their business with other’s fund, so Bank Asia Ltd is not in exception. Bank Asia Ltd uses 24% equity and 75% Debt source of capital. The capital structure is following: Table 2.1: Capital Structure of Bank Asia Ltd Particulars Percentage Total Shareholders’ Equity 24% Long term Debt (Fixed Deposit 1 year & above) 76% Total Capital 100% Source: Annual Report -2007 of Bank Asia Limited.
Capital Structure of Bank Asia Ltd Long term Debt (Fixed Deposit 1 year & above), 76%
Total Shareholders’ Equity, 24%
Shares Holding by Different Groups:
Most of the shares of Bank Asia Ltd are holding by the Sponsors, which is 51.88%. The second height holds by the General Public, which is 27.48%. The third height holds by Institutions, which is 16.98%. Others are holding by Non Resident Bangladeshis (2.09%), Investment Companies (1.19%) and Foreign Investments (0.38%). The information of the shares holding by different groups in 2007 is following: Table 2.2: Shareholding Structure of Bank Asia Ltd. Description Sponsors General Public Institutions Non Resident Bangladeshis Investment Companies Foreign Investments Total
No. of Members 22 6,295 270 22 61 2 6,672
Percentage of Share Holding 51.88% 27.48% 16.98% 2.09% 1.19% 0.38% 100%
Source: Annual Report -2007 of Bank Asia Limited. Percentage of Share Holding Foreign Investments, 0.38% General Public, 27.48%
Sponsors, 51.88% Non Resident Bangladeshis, 2.09%
Institutions, 16.98% Investment Companies, 1.19%
2.5 TRENDS OF BRANCHES EXPANSION: Bank Asia Ltd starts its journey not for very long. Till now it has only thirty three brunches. But Bank Asia Ltd had twenty nine brunches at end of year 2007. The Bank had a tendency to open new branches every year; they had an average 20 growth of expansion. So Bank Asia Ltd had a very good branch expansion rate. The expansion rate was 21% during 2003 to 2004, 12% during 2004 to 2005, 26% during 2005 to 2006 and 21% during 2006 to 2007.
The numbers of branches are given bellow: Table 2.3: Branches expansion of Bank Asia Ltd. Years 2003 2004 2005 2006 2007
Growth Rate Expansion 21% 12% 26% 21%
Number of Branches 14 17 19 24 29
of
Source: Annual Report -2007 of Bank Asia Limited. Number of Branches Per Year Of Bank Asia Ltd
35
Number of Branches
30 25 20 15 10 5 0 2003
2004
2005
2006
2007
Year
2.6 NUMBER OF EMPLOYEES: Bank Asia Ltd creates new employment every year by opening new branches and expanding their existing departments. Bank Asia Ltd has a very good Growth rate of Employees the growth rate is increasing dramatically. The growth rate was 21%, 20%, 30% and 35% for the year 2004, 2005, 2006 and 2007 respectively. The numbers of employees are given bellow: Table 2.4: Number of Employees of Bank Asia Ltd. Years 2003 2004 2005 2006 2007
Number Employees 273 331 397 515 693
of Growth Employees 21% 20% 30% 35%
rate
of
2.7 ORGANIZATIONAL HIERARCHY OF BANK ASIA LTD: Managing Director Deputy Managing Director Senior Executive Vice President Executive Vice President Senior Vice President Vice President First Vice President Assistant Vice President First Assistant Vice President Senior Executive Officer Executive Officer Senior Officer Officer Junior Officer Assistant Officer Banking Officer Trainee Officer 2.8 EMPLOYEE PRODUCTIVITY: The per employee Deposit, Loan & Advances and Non interest income were increased during 2003 to 2006. But during 2006 to 2007 per employee Deposit, Loan & Advances and Non interest income were decreased. It might happen because at that time the growth rate of employee was huge than other years. If we consider the per employee Operating Cost and Operating Profit were very much satisfactory. So we can assume that the productivity of employees is very good. The per employee productivity information are following:
Table 2.5: Employee Productivity of Bank Asia Ltd. Employee Productivity Years Deposit Per Employee Loans & Advances Per Employee Non-interest Income Per Employee Operating Cost Per Employee Operating Profit Per Employee
2003 38,210,00 0 30,000,00 0
2004 40,700,00 0 35,830,00 0
2005 46,600,00 0 45,010,00 0
2006 2007 49,110,00 0 46,950,000 43,210,00 0 44,530,000
1,019,849 941,211 1,530,000
1,129,545 877,504 1,990,000
1,294,406 918,320 2,020,000
1,325,353 1,001,938 2,080,000
1,298,089 1,063,008 2,460,000
Source: Annual Report -2007 of Bank Asia Limited. 2.9 PRODUCTS AND FEATURES: 2.9.1 SMS Banking Through SMS facility customers can access their account using their mobile phone from anywhere, anytime at their convenience to know the account position. SMS Push service When any amount is debited or credited from client’s account then within 5-10 seconds he/she will get a message. The message includes the beginning balance, the amount debited or credited and the last balance. This facility is only available for Grameen Phone and City cell subscribers. SMS Pull service Every registered Grameen Phone and City cell subscribers can check their account balance through this service. They can get a mini statement of last five transactions of their account. 2.9.2 Mobile Banking "THUMBPAY"...Banking under your thumb.... (For AKTEL) Bank Asia Limited is proudly announcing the launching of its (M-Banking Product) “THUMBPAY”. It allows customers to access their bank accounts from their Mobile Phone. This latest technology driven product is designed to cater for and facilitate real time banking transactions using a mobile phone. Currently available to AKTEL subscribers only. “THUMBPAY” will provide Account Balance Query, Prepaid or Postpaid mobile phone bill payment, Fund Transfer, Fund collection (Charity or Relief Fund) services through registered mobile phone. Customers need to fill up a registration form for “THUMBPAY” service. All branches of Bank Asia are ready to give this service to its valuable clients. Services available under "THUMBPAY" 1. Account Balance Query
2. Pre-paid Refill 3. Post paid bill Payment 4. Fund Transfer Service 5. Changing Password Mobile Banking for Grameen and City cell Subscribers Through SMS facility customers can access account using their mobile phone from anywhere, anytime at their convenience to know the account position. ďƒ˜ 2.9.3 Customized Loan Modern Banking is a result of evolutions driven by changing economic activities and lifestyles. Entering a new millennium, banking needs have become more diverse and exotic than ever before. Bank Asia Ltd. is a new entrant in the private banking scenario of Bangladesh with a promise to fulfil every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service by using the latest technology to make bankable proposals harvest maximum benefits for the customers, the shareholders and the society at large. It is an immense pleasure for Bank Asia to introduce Customized Loan to its customers as a unique Loans plan. Customized Loan (C.L.) If customers are in possession of BSP (Bangladesh Sanchay Patra) which will mature within the next 5 years but customers in dire need of funds now, Bank Asia Limited's Customized Loan (C. L.) can come to their rescue. All payment is merely the interest during the entire currency of loan, and repays the principal in one lump sum in the last month of maturity of loan. How much may get 80%- 100% of the face value of the instrument depending on the date of purchase. Repayment 12-48 Instalments. Interest Rate Most attractive and affordable rates. Security Bank Asia Limited will normally ask for security on the asset that's due to mature. All need to provide to the Bank is BSPs supported by some simple documents. ďƒ˜ 2.9.4 Bonus Savings Schemes Modern Banking is a result of evolutions driven by changing economic activities and lifestyles. Entering a new millennium, banking needs have become more diverse and exotic than ever before. Bank Asia Ltd. is a new entrant in the private banking scenario of Bangladesh with a promise to fulfil every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service by using the latest technology to make bankable proposals harvest maximum benefits for the customers, the shareholders and the society at large. It is an immense pleasure for Bank Asia to introduce Bonus Savings to its customers. Bonus Savings Scheme
Start savings with BONUS SAVINGS SCHEME for a brighter tomorrow. A savings scheme specially designed with future in mind. In these days of fast changing socio-economic environment a practical step would be to build up a strong and reliable financial base upon which can build. How does it work? A savings account held by subscribers with a minimum balance of Tk. 50,000.00 will attract not only the usual savings interest but a further 10% bonus on interest. Is there any hidden cost None what so ever and cheque book is also free of change. How long can you keep it? As long as wish 2.9.5 Poverty Alleviation: Bangladesh is a highly populated developing nation, where 80% of the people living in the rural areas engaged in agriculture sector directly or indirectly for their livelihood. But these people can’t engage themselves with development and production activities due to unavailability of capital. To help these people by engaging themselves in production oriented sector some NGO and Govt. organizations are working together. Beside them Bank Asia as a private commercial bank is highly dedicated to establish rural branches to empower the poor people. Objectives of the Scheme The objective is to help people by providing loan facilities to establish fisheries plant, Poultry firm, small and cottage industry, village transport and small engineering workshop as well as to establish computer training centre where electricity supply is available. It will help to create employment opportunities for the unemployed young people. Project area These lending facilities will be provided through the rural branches in different branch location. System for providing loan the program will run in the following way: ℵ Loans for personal who are promoter or investors. ℵ Loan distribution by making groups of worthless poor people. Loans for personal who are promoter or investors Under these system anyone having educational or past experience without any obligation or liability with other organization will be given maximum Tk. 1,00,000 loan. For these purpose he/she need to provide security against the loan facilities. Loan distribution by making groups of worthless poor people In primary situation these loan facilities will be provided through established NGO and later on Bank Asia will go for using its own manpower when this program will be expanded. Tenure for the Loan
Tenure will be minimum 1 year to maximum 3 years depending on the nature of the loan provided. Repayment procedure Loan will be repaid depending on the inflows from investment as well as from other source of income as weekly, monthly or quarterly basis. 2.9.6 ATM Service The Bank carries its banking activities through thirty three branches in the country. Bank Asia Ltd customers have access to 21 ATMs as a member of ETN. Under the ATM network the Stellar Online Banking Software enables direct linking of a client's account, without the requirement of a separate account. The Bank has already set up its own ATM machine at 6 corresponding branches and is also in the process of setting up its own ATM network at every focused point in the city with a view of providing retail banking services. 2.9.8 Credit Card ACCEPTANCE: Bank Asia Credit Card is accepted more than 3,500 merchant outlets around the country. Our wide range of merchants include hotels, restaurants, airlines, & travel agents, shopping malls and departmental stores, hospitals & diagnostic centres, jewellers, electronics & computer shops, leather goods mobiles & internet service providers, petrol pumps and many more. This number is increasing everyday to cater needs. CREDIT FACILITY: Bank Asia Credit Card offers free credit facility up-to 45 days & minimum 15 days without any interest, and can also pay 8.33% of billing amount or current dues every month and thus have the flexibility to plan payments. CASH ADVANCE: Bank Asia MasterCard gives facility to draw cash up to 50% of the credit limit against local MasterCard and can enjoy this facility by using any ATM’s across the country which shows ‘’MasterCard” logo Beside this customers can also withdraw cash from any of our branch. 2.9.9 Real time Online Banking : Bank Asia symbolizes modern banking with innovative services in Bangladesh. It has centralized Database with online ATM, SMS and Internet query service. Customers can use credit/debit card facility with ATM. For SMS service customers should have personal cellular phone with at least one account in Bank Asia. Through Internet Banking customers can access their account to view and print the balance and account statement for last 20 (twenty) transactions. The account holder can transfer their balance from one account to another account (but the accounts must be owned by the same owner). 2.9.10 Any Branch Banking Bank Asia allows its Account holder any Branch Banking through technological support. If a customer deposits money at any branch of Bank Asia then the amount is credited within a
moment. This same thing also can be done for the cash withdrawal by check. Because of any branch service the customer can do their balance query. 2.9.11 Loan Syndication Syndication loans represent a substantial portion of the commercial and industrial loan portfolios of large banks. A syndicated loan involves two or more banks contracting with a borrower, typically a large or middle market corporation, to provide funds at specified terms under the same credit facility. The average commercial syndicated credit is in excess of TK100 million. Syndicated credits differ from participation loans in that lenders in syndication participate jointly in the origination process, as opposed to one originator selling undivided participation interests to third parties. In a syndicated deal, each financial institution receives a pro rata share of the income based on the level of participation in the credit. Additionally, one or more lenders take on the role of lead or "agent" (co-agents in the case of more than one) of the credit and assume responsibility of administering the loan for the other lenders. The agent may retain varying percentages of the credit, which is commonly referred to as the “hold level.” Syndication Process There is four phases in loan syndication: Pre-Launch, Launch, Post-Launch, and Post-Closing. The syndicated market formed to meet basic needs of lenders and borrowers, specifically: Raising large amounts of money, Enabling geographic diversification, Satisfying relationship banking, Obtaining working capital quickly and efficiently, Spreading risk for large credits amongst banks, and Gaining attractive pricing advantages. Bank Asia is highly dedicated to provide best level of syndication loan facilities to encourage the industrialization of the country. In this regard Bank Asia Ltd is providing loan facilities to eligible entrepreneurs or promoters. 2.9.12 Corporate Banking Bangladesh economy is changing every day. Changes are more and more visible and sometimes it seems they are happening overnight. The economical challenges now a day’s require flexibility and adjustment capacity. To face the challenges and business opportunities Bank Asia delivers cash Management and Lending Solutions match for specific business and requests. Corporate Banking department manages relationship of multinationals and large corporate clients. In addition corporate banking is focused on providing creative financial solutions to
eligible corporate clients in manufacturing bottling and conglomerates. Total banking package covers all the needs of corporate customers. Efficient quality services are Bank Asia Ltd’s trademark. From its inception of operation, Bank Asia is dedicatedly providing corporate banking operations with eligible corporate clients. Types of loan facilities under corporate banking facilities are as follows: a)
Working capital financing requirements
1. Credit line 2. Invoice Finance 3. Trade finance 4. Overdraft facilities 5. Account facilities 6. Multi-product loan facility 7. Loans for cheques submitted for collection, for payment orders & discounting of promissory notes. 8. Loans for (pre) financing exports 9. Agricultural loans a)
Term loans 1. Commercial Mortgage 2. Fixed Rate Loans
b) c)
Equity Financing Structured Finance 1. Debt venture 2. Leveraged Finance 3. Project & export finance 4. Energy 5. Housing finance 6. Infrastructure 7. Mining and Metals 8. Syndications
d) Corporate & Institutional Services 1. 2. 3. 4. e) Trade services 1. Purchase 2. Guarantees
Credit Research 2. Long term Instruments Money markets operations Research
3. Letters of Credit Large Corporate Groups who wish to centralize the management of capital, who has a strong demand in real-time consistency between corporate financial information and Bank's account, who place importance in working efficiency and have installed financial software system. Lending solutions are customized to cover the financing gaps of the companies thus enabling them to have the necessary liquidity to manage daily operations or to complete their investment plans. 2.9.13 Locker Facilities Bank Asia Ltd brings a very user-friendly locker service that is a fine blend of security and confidentiality. At the same time for sheer convenience and further security the bank has also made arrangements for a well appointed rest room where customers can beautify their self, wear their jewellery before they step out for their appointment or they may also take their own time to go through their valuable documents in absolute discretion. Ideally located to suit Gulshan Branch, Dhaka MCB Banani Branch, Dhaka Uttara Branch, Dhaka Sylhet Main Branch, Sylhet MCB Sk. Mujib Roab branch, Chittagong CDA Avenue Branch, Chittagong Utmost Security Lockers are made by world famous Godrej Steel Company.Armed with agile guards round the clock. To optimize protection the bank has ensured strong, heat-resistant concrete and steel vaults. Anti-burglary alarm system. Highly advanced, ceiling backed smoke sensor device. Protection against Salt Peter and dampness. Service Hours The locker service is accessible on weekdays, i.e., Saturday through Thursday during working hours. Terms & Conditions Locker services require a nominal fee payable yearly. Customer friendly rules and regulations modified to suit the widest range of requirements. Charges Table 2.6: Charges of Locker Locker Size Large Medium Small
Yearly Charge(Tk) 2500 1800 1200
Source: www.bankasia-bd.com
Security Money(Refundable) 1500 1000 500
2.10 INTERNATIONAL TRADE & FOREIGN EXCHANGE: Bank Asia Ltd had inward remittance growth 55% against national growth of 20.0% in 2007. This year (2007), in association with BURO Bangladesh, a leading NGO (Non Government Organization), we have established arrangement with Western Union, a renowned multinational company with 300,000 agent locations across 200 countries and territories, with a view to handling real–time remittance transactions across the country through our existing twenty nine branches and more than hundred rural and semi urban branches of BURO Bangladesh. Besides, we have already established remittance arrangements with several companies operating abroad and transactions with those companies have been strong. The import of 2007 of Bank Asia Ltd was 2.8 times larger than 2003 and the export of 2007 was 3.5 times larger 2003. So the expansion of export was grater than the expansion in import. Following are the foreign exchange business information of Bank Asia Ltd: Table 2.7: Foreign Exchange Business of Bank Asia Ltd. Foreign Exchange Business Years Import Export Remittance (Inward) 14,556,110,00 2003 0 5,996,480,000 506,000,000 18,942,400,00 2004 0 7,103,500,000 2,441,000,000 26,352,300,00 13,963,700,00 2005 0 0 5,128,000,000 31,625,600,00 17,480,100,00 2006 0 0 7,462,100,000 39,218,700,00 20,417,300,00 2007 0 0 11,583,600,000 Source: Annual Report -2007 of Bank Asia Limited. Foreign Exchange Business of Bank Asia Ltd
45,000 40,000 35,000
Million Taka
30,000 25,000 20,000 15,000 10,000 5,000 0 2003
2004
2005
2006
Year Import
Export
Remittance (Inward)
2007
According to the graph the import business is increasing at increasing rate and the export business is increasing at a decreasing rate and the inward remittance is increasing at an increasing rate. 2.11 NUMBER OF FOREIGN CORRESPONDENTS OF BANK ASIA LTD: Bank Asia has established remittance arrangement with fourteen exchange companies covering all the major remittance locations of the world. These relationships are very strong and active. The Bank had correspondence relationships with 355 banks in 106 countries as of end 2007. Total confirmation lines now stands at USD 40.00 million with leading global Banks. The Bank has been using SWIFT communication system for foreign trade for the last couple of years and is connected to REUTERS which aids in properly managing our treasury operation. The growth rate of number of foreign correspondents is very satisfactory. It means that the expansion of foreign business of Bank Asia Ltd is excellent. After 2004 the growth rate was more than 60% up to 2007. Following are the numbers of foreign correspond: Table 2.8: Foreign Correspondents of Bank Asia Ltd. Years 2003 2004 2005 2006 2007
Number of Correspondents
Foreign Growth rate of Foreign Correspondents 206 285 28% 310 80% 332 70% 355 60%
Source: Annual Report -2007 of Bank Asia Limited. LITERATURE REVIEW 3.1 Import Purchasing goods made in another country. 3.2 Exporting Selling domestic made goods in another country. 3.3 Types of Exporting ▪ Exporting can be either direct or indirect. ▪ With direct exporting, company sells to a customer in another country. ▪ Indirect exporting usually means that the company sells a buyer in the home country Who in turns exports products? 3.4 Challenges of exports and imports Two major challenges: ▪Lack of information about overseas markets • Lack of proper financing.
3.4.1 Lack of information about overseas markets 3.4.1.1 Challenges for exporter • Who is exact buyer? • Who (customers) will like the product? • Which company will buy the product? • What would be the price of the product? 3.4.1.2 Challenges for importers • Who would be the exact seller? • Who will give the cheapest price? • What would be the quality of the product? 3.4.2 Lack of proper financing • Buyer gives order to exporter. • Exporter goes to manufacturer. • Manufacturer needs advance of payment. • For advance payment, exporter to bank for loan (or letter of credit for import raw materials). • Bank may provide the loan or not? So, the whole process is a financial challenge. 3.5 Export Financing The procedure of export financing may be • Letter of credit (LC) • Cash with order • Open account • Consignment 3.5.1 Letter of Credit (LC) • Letter of credit is a financial instrument open by importer. • LC can be opened in favour of exporter. It gives assurance that the importer is financially solvent. • Most of the LC is irrevocable. An irrevocable letter of credit means that once exporter has accepted the credit, the importer cannot alter it without any permission of exporter. 3.5.2 Cash with Order • The best possible terms for exporter are receiving cash in advance or with orders. • Pay order • Bank draft • A percentage of down payments against the total cost of item can be deposited before manufacturing begins. 3.5.3 Open Account • It is possible when there is a very good understanding between exporters and importer.
• The importer may pay the balance periodically or within a certain period of time after purchase. • Open account arrangements on monthly, quarterly and semi annually are most common. • Third world nations do not allow open accounts, as money fluctuation is very common in developing countries. 3.5.4 Consignment • The exporter is not paid until the goods are sold in the overseas market place. • Rarely used. • Much risky. 3.6 Preparing Goods for Foreign Shipment 3.6.1 Four major phases need to modify ◘ Engineering ◘ Production ◘ Packing ◘ Marking 3.6.1.1 Engineering: a) Electrical Standard Many foreign countries use different electrical standards. This standard includes - RPM (revolution per minute) - Voltage (11 OV or 220V) Exporter needs to change basic electronic standards in context of importer’s countries requirement. b) Reduction of Freight Charge • Shipping charges depend on weight and volume basis. • Weight of product cannot be changed. • Volume of product can be reduced which may reduce shipping cost. 3.6.1.2 Packing: • For packing, fibreboard with bursting force of less than 275 lbs/ sq. inch is not recommended. • Second hand box is not recommended for using. 3.6.1.3Marking • Allows shipper to identify cargo. • Marking to be waterproof. • To mention country of origin. ▪ Using international standards for hazardous materials 3.7 Export Documentation Several general types of documents are ◘ Commercial invoice ◘ Consular invoice ◘ Certificate of origin
◘ Inspection certificate ◘ Bills of lading ◘ Insurance certificate 3.7.1 Commercial invoice includes • Full address of exporter and importer • Date of order • Reference number • Mode of shipment ◦Ship ◦ Rail
◦ Highways ◦ Air
• Delivery and payment terms • Complete description of product Purposes of Commercial Invoice are • Commercial invoice is the final bill that allows importer about how to pay to exporter. • Commercial invoice is needed customs to impose tax. 3.7.2 Consular Invoice • Consular invoice is as same as commercial invoice • Basic data is same, but only format is different and it is official format 3.7.3 Certificates of Origin •Some countries need certificate of origin. • It can be done by a third party, i.e. Chamber of Commerce. 3.7.4 Inspection Certificate • Certifying to the quality, quantity and conformity of goods with respect to order. • Inspection certificate is done when goods are inspected. • Goods are inspected right before the goods are boarded on the ship. • Inspection certificate can be issued by shippers or by third party. 3.7.5 Bills of Lading • A certificate issued by shipping company that they have received the cargo. • According to the rules of International Chambers of Commerce, only bill of lading is accepted, when it is marked as “CLEAN ON BOARD”. • “CLEAN ON BOARD” means that shipping company has not changed the cargo in any manner. 3.7.6 Insurance Certificate • Insurance certificate has become a standard practice in international trade. • For CIF (Cost, Insurance and Freight), insurance cost by exporter. • For C&F (Cost and Freight), insurance cost by importer. • Importer can arrange “open cargo policy” to cover insurance for all the shipment for a specific period. Foreign Exchange
Foreign Exchange Foreign Exchange is a process, which is converted one national currency into and another and transferred money from one country to other countries. According to Mr. H.E. Evitt “Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country’s currency are converted into rights to wealth in terms of another country’s currency. It involved the investigation of the method by which the currency of one country is exchanged for that of another, the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchange are affected.” Foreign Exchange is the rate of exchange in the both countries currency. 4.1 Foreign Trade and Foreign Exchange International trade refers to trade between the residents of two different countries. Each country functions as a sovereign state with its set of regulations and currency. The difference in the national of the exporter and the importers presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising there form. Such important problems are: • • • •
Different countries have different monetary units. Restrictions imposed by countries on import and export goods. Restrictions imposed by nations on payment from and into other countries. Differences in legal practices in different countries.
4.2 Principles of Foreign Exchange The following principles are involved in foreign exchange • • •
The entire system The media used The monetary unit
4.3 Functions of Foreign Exchange The bank acts as a media for the system of foreign exchange policy. For this reason, the employee who related of the bank to foreign Exchange, especially foreign business should have knowledge of these following functions • • • • • • • • •
Rate of Exchange. How the rate of exchange works. Forward and spot rate. Methods of quoting exchange rates. Premium and discount. Risk of exchange rate. Causes of exchange rate. Convertibility. Exchange control.
• • • • • • • • •
Exchange Position. Intervention money. Foreign Exchange transaction. Foreign Exchange trading. Export and import letter of Credit. Non-commercial letter of trade. Financing of foreign trade. Nature and function of foreign exchange market. Rules and regulation used in foreign trade. Exchange arithmetic.
4.4 World Foreign Exchange Market The world Foreign Exchange Market is very big and getting bigger in everyday in tandem with growth of cross border trade and Investment. Within a space of only 50 years, world exports have recorded a phenomenal growth from $ 57.2 billion in 1950 to 5,431 billion in 1998. Simultaneously, turnover in the world foreign Exchange market has reached a staggering number of nearly $1500 billion per day. 4.5 Bangladesh Foreign Exchange Market & Exchange Control On the global scale, Bangladesh’s performance in the field of foreign trade and Foreign Exchange is very small, but the picture is getting better. In 1989-1999 the Annual exports receipts crossed 5 billion dollar while import payments reached 8 billion Dollars. Bangladesh workers worked abroad sent the equivalent of $1.7 billion in 1998-1999. In real terms, it is equivalent of $1.7 billion in Bangladesh from all kinds of donors. This growth in foreign trade and remittances has had its impact on the foreign Exchange market. The growing market reflects diversification of foreign exchange transactions aimed at financing customer’s needs, liquidating bank’s own position, risk management and profit caking through sale and purchase of currencies. One very important feature of foreign exchange business in Bangladesh is the Exchange control administered by Bangladesh Bank under the Foreign Exchange regulation Act, 1947. This act provides the sweeping power to Bangladesh Bank to make the rules and regulations, issues and instructions and oversee the operation of Foreign Exchange Business by Banks and other entities. Bangladesh Bank’s instructions, rules and regulations still govern the entire gamut of foreign Exchange transactions. So the stuff of the Bank carefully read the “Guideline for Foreign Exchange Transactions” issued by Bangladesh Bank and keep themselves abreast of changes made from time to time through foreign Exchange Circular and notification. 4.6 Determination of Exchange Rate in Bangladesh by the Commercial Bank Exchange rate is the price at which one country’s currencies can be converted into another’s. Exchange rate is determined by the bank in this law that “Buy Low, Sale High”. Exchange Risk is defined as the net potential gains or losses, which can be arise from exchange rate changes to the foreign exchange exposure of a Bank. 4.7 Different Types of Rate
Selling Rates • Cash The rate which is applied for selling cash dollar to the customer • BC (Selling) BC means Bills for collection. This rate is naturally used for opening L/C. BC selling naturally calculated in this way: Cost of Fund+ Administration Cost+ Margin (Cost of Capital) +TT/DD/Draft Handling Charges. • TT/OD Rate (Telegraphic Transfer/On Demand Rate). This rate is uses for selling TT, TC, Draft, etc. it is calculated in this way: Cost of Fund+ Administration Cost+ Cost of Capital (Margin) + TT/DD/Draft handling, charges. Buying Rate • Cash The rate which is applied for buying cash dollar to the customer • TT Clean TT rate is applied for buying foreign currency, bank draft, mail transfer or any other instrument. • OD Sight This rate is generally used for Export bill negotiation/foreign Document purchase. • OD Transfer Generally, 16days interest loaded. This rate is applied for buying TC/draft/any other instrument. The rate is depends largely on demand and supply. In the world of competition and liberalization, the survival and growth of business enterprise depends significantly, on how well they recognize and mange effectively the exchange risk and exposure. 4.8 Exchange Rate sheets At the beginning of each day, international Division of Corporate Office will transmit to the branches of the bank exchange rates are to be used for dealing with the customers. Changes in the rates can be made even during the day if there are significant changes in the exchange rate structure. Branches can consult the International Division if they wish to quote a special rate to prevent a particularly valuable existing or potential customer from going to the competitors. Foreign Exchange Services in “Bank Asia Limited.” 5. Foreign Exchange Services in “BANK ASIA Ltd” There are naturally 3 types of services provided by Bank Asia Ltd. They are Import Export Remittance 5.1 Some General Principles- Dealing in Foreign Exchange 5.1.1 Dealing in the Market
Dealing in the market involves buying and selling foreign currencies against taka or against other currencies on spot or forward basis. Bank Asia operate in the market chiefly to Replenish its Nostro accounts with overseas correspondents. Unload the excess position i.e. long position beyond the prescribed open position limit. Switch currencies for profit taking. To cover or hedge the risk associated with sale and purchase of currencies. The bank naturally finds the local interbank market quite attractive to meet its needs. For switching from one foreign currency to another, foreign correspondents normally found quoting competitive rates. 5.1.2 Dealing with the Clients in Bank Asia Limited Personalized services and professional efficiency of the dealing employee is the key elements in Bank Asia ltd. To built up a satisfied group of client. The employee constantly addresses the special needs of the customers. 5.1.3 Dealing with known Customers Bank normally deals with known customers having accounts with the branch or another branch of the bank. However the requirement of account relationship may be waived for release for foreign exchange for various kinds of travels and other miscellaneous remittances provided necessary papers are found to be prima facie genuine and sufficient. 5.1.4 Handling of Notes, Drafts, and TCs etc. The staff of Bank Asia familiarize with the techniques for verifying genuineness of the foreign exchange instruments presented by the clients. International Division equips the branches with descriptive literature and implements now used at the international level for detection of forgery and counterfeiting. 5.1.5 Verification of Reputation and credibility The bank carefully verify the antecedents and credibility of new customers approaching the bank for opening letter of credit, Financing exports and issue of guarantees or similar obligations. Bangladesh Bank’s Credit information Bureau, business associations and the previous bankers of the customers is the useful sources of information about potential clients. Sometimes discreet personal inquiries are proved fruitful. 5.1.6 Maintenance of Records The branch maintains the systematic records of transactions with the customers, preferably with hard discs with backups so that these can retrieve as and when necessary. 5.1.7 Compliance with Prevalent Laws and regulations The employees have enough knowledge with prevailing laws, regulations, customs, and practices with regard to several of transactions with customers. 5.1.8 Medical Treatment Abroad
All applications release for foreign exchange for travel abroad on health ground up to $10000 or equivalent released by the bank based on a recommendation of the medical board set up by the health Directorate and the cost estimate by the foreign medical institution. 5.1.9 Travel by Government/Semi Government Officials For officials or semi-official visits abroad by the officials of Govt. Autonomous/ semi autonomous institution etc. the branch release foreign exchange as per entitlement of various categories of officials fixed by the Ministry of Finance from time to time. In such cases, the applicant for foreign exchange required to submit the sanction letter and the competent authority’s orders/ notification/ Circular authorizing the traveler. 5.1.10 Participation in Seminars, Conferences etc. Foreign Exchange released only for the actual period of the seminar, workshop, and conference arranged by recognized International bodies, based on invitation letters received in favor of the applicants or their employers. Photocopy of the invitation letter and all other related documents are kept on record by the bank. 5.1.11 Release Foreign Exchange for Convertible Accounts Foreign Exchange only released to only for private individuals as well as officials of government, autonomous and semi-autonomous bodies for undertaking educational tours, attending seminars, workshops, etc. abroad by debit convertible accounts of foreign NGO’s and international bodies at their request. In the cases of officials of Government and autonomous/semi-autonomous bodies the application for release of foreign exchange are accompanied by the permission letter of the competent authority authorizing their proposed travel abroad. 5.1.12 Release of Foreign Exchange for Hajj The Government of Bangladesh announces each year the scale at which foreign exchange can be issued to intending pilgrims for performing Hajj. Release for Foreign exchange for this purpose can be made as per instructions issued for this purpose by Bangladesh Bank at the beginning of the Hajj season. 5.2Import Section The function of this section is mainly to deal with various components such as: Letter of credit Payment against document (PAD) Payment against trust receipt (PTR) Loan against imported merchandise (LIM). 5.2.1 Formalities for opening foreign currency (FC) account: The AD may without prior approval of the Bangladesh Bank open Foreign Currency (FC) account in the name of: 1. Bangladesh national residing abroad. 2. Foreign nationals residing abroad/in Bangladesh and also foreign firms. Registered abroad and operating in Bangladesh and abstract. 3. Foreign missions and their expatriate employees.
4. Resident of Bangladesh nationals working with the foreign/international organization operating in Bangladesh provided their salary in paid in foreign currency.
5.2.2 Papers Required: Application duly billed in and signed. Photograph (two copies) Passport photocopy Work permit from board investment (in case of foreign nationals).
Foreign exchange earned through business done or service rendered in Bangladesh cannot be put into these accounts. No payment in foreign currency (FC) may be made to any resident in Bangladesh out of the foreign currency (FC) account. All citizens of Bangladesh and other persons are residing to Bangladesh who became the owner of any foreign currency (FC). 5.2.3
Formalities for Cash Assistance:
Eligible Party: • The party, which is engaged making fabrics locally from, threads and used in the readymade garments, which are finally, exported abroad. • The party which are engaged making fabrics locally from, thread and to supply the fabrics to the manufacturers of readymade garments. Papers Required: 1. Application (as per format provided of Bangladesh bank). 2. Cash memo/delivery challan/letter of credit through which the party procure thread. Up to 3.00 (three) lack party can purchase thread by cash. Other cases thread will be procured by cheque/ draft/P.O. or L/C. 3. Delivery challan 4. Copy of L/C for providing fabrics to garments 5. Copy of commercial invoice /truck receipt /delivery challan 6. Copy of exporters L/C 7. PRC 8. Certified invoice 9. Certificate bill of lading or air way bill 10. Certified of back to back L/Cs open against master L/C. 5.2.4 Rate of Exchange: It means the price of one currency expressed in terms of another currency. Rate of exchange is the rate by which the relation among different foreign currencies is established in terms of local currency of that country. Value at which one countries currency can be converted into another’s country. In exercise of the power conferred by section three of exchange regulation ACT 1947, Bangladesh has issued license to certain bank to deal in foreign exchange is called authorized dealer.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
Spot rate: it is quoted for transaction where the foreign currency bought or sold is to be received or delivered immediately. The current rate of exchange quoted in the foreign exchange market. Forward rate: when a rate is applied to a future date it is called forward rate at which foreign exchange can be sold or bought for delivery at a future time. Cross rate: the rate of exchange quoted expressing the quotation for any two currencies in term of a third. SWAO: sport rate against forward purchased or a spot purchase against forward rate. Pence rate/direct quotation: rates are quoted in term’s foreign currency per one unit of foreign currency. Currency rate/indirect quotation: rates are quoted in terms of foreign currency per one unit of home currency. Buying rate: authorized dealer applies this at the time of purchasing/negotiation of export document and payment against TT.MT, check and drafts required from abroad. Selling rate: authorized dealer applies this at the time of lodgment of import documents, realization of LC margin from importer and other foreign exchanges transaction on overseas bank. Telquel rate: This is the rate when rate of foreign currency is quoted according to the since of the bill. Forward rate at a discount: when forward rate is higher than that of spot rate. Forward rate at a premium: when for ward rate is lower than that of spot rate.
5.2.5 Import Procedure: To import a person should be competent to be an ‘importer’ according to import an export control act 1950, the office of chief controller of import and export provides the registration (IRC) to the importer. After obtaining this person has to secure a letter of credit authorization from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs to open an LC he is also called opener or applicant of the credit. • Importers applications for LC limit margin: To have an import LC limit an importer submits an application to department of EXIM Bank. Furnishing the following information:
Full particulars of bank account. nature of business required amount of limit payment terms and condition goods to be imported offered security Repayment schedule.
Now if the officer things the application to open an LC is not fit, the following entries are given to realize the LC, charges postage and LC margin. • Presentation of the documents: The seller being satisfied with the terms and the condition of the credit proceeds to dispatch the required goods to the buyer and after that has to presents the documents evidencing dispatching of goods to negotiation bank. After receiving all the documents the negotiation bank when checks the documents against the credit. If the documents are found in order the
bank will pay and accept are negotiated to EXIM Bank checks the documents and the documents are stated below: Invoice Bill of lading Certificate of deposit Packing list Weight list Shipping advice Non negotiable copy of bill of lading Bill of exchange Per shipment inspection report Shipment certificate. Following paper required for new imported while opening on LC: The following papers are required when opening a new LC: Valid import registration certificate (IRC) Trade license TIN certificate VAT certificate Three (3) copies declaration by the importer that they have paid /submitted return of income tax of processing last year. Membership certificate of chamber of commerce industry. According to be maintained with the bank. Membership certificate BGMEA (in case of garment Ind.) Banded ware house license (in case of export oriented industry) LCA form Insurance cover note Pro forma invoice /indent. Application for opening of LC duly billed in and signed IMP form duly signed Memorandum articles of association of the company Certificate of incorporation with RJSC Certificate of board of directors. Resolution of commencement Resolution of board of directors Confidential report to be obtained from their previous bank Report/inquiry to be obtained from CIB of bank Credit reports to be obtained from correspondent bank, internationally reputed agency introspect to the supplier. LRA to be made in case of big liability. 5.2.6 Payment procedure of the import documents: This is the most sensitive tusk of import department. The officials have to be very much careful while making payment. This tusk constitutes the following: 1. 2.
Date of payment: Usually the payment is made within seven days after the documents have been received. If the payment is become deferred the negotiation bank may claim interest for making delay. Preparing sell memo: A sell is made at Bangladesh currency to the customer. As TT and OD is paid to the international department (I.D.) the deference between these two
3.
rates in exchange trading. Finally an inter branch exchange trading credit advice is sent to ID. Transmission of telex: A telex is transmitted to the correspondent bank insuring that payment is being made.
• Advising a LC: It is customary to advice a credit to the seller through an advising bank. Advising through a bank is a proof of apparent authenticity of the credit the beneficiary to whom it is addressed. Before forwarding /advising the credit to the seller under appropriate forwarding coverage the advising have to verify the signature of the opening bank and ensure that the terms and conditions of the credit are not violation of the existing exchange controlled regulation and other regulations. Relating to export. Very often advising bank receives request from issuing bank to add their confirmation while advising credit to the beneficiary. The advising can do it if there is prior arrangement between advising and issuing bank or if it feels that the issuing is a reputed a reliable institution and good enough to discharge its obligation. It is also seen that some times’ banks receive credit addressed to them containing the name of the beneficiary in the body of the credit. In such case the advising bank prepares fresh letter of credit to the beneficiary containing all the terms and conditions of the original credit and signature by themselves. • Amendment of LC: The buyer and seller the terms and conditions of a credit mutually before opening the same and the involved parties are expected to comply with the settle terms and conditions in course of performing their respective roles in the operations of a credit. But in real situation parties involve to a LC, particularly the seller and the buyer cannot always satisfy the terms and condition in full as expected the time of setting the terms and conditions due to some obvious and genuine reasons. The roll of establishing a credit might gate frustrated. So in order to avoid such situation the credit should be emendate. In case of revocable credit it can be amended and cancelled be the issuing bank at any moment and without prior notice to the beneficiary. But the case of the issuing banks confirming bank (if any) and the beneficiary. Partial expectance of amendment is not also effective without the agreement of all the above named parties. If a bank issues the services of another bank to give the credit advice to the beneficiary it missed also use the services of the same bank what any amendments must be completed and accurate. If unclear or incomplete instructions are even to emend a credit, the requested to act on such instructions will give preliminary notification to the beneficiary. 5.2.7
Import financing: Letter of Credit (LC) Facility LIM LTR
Letter of Credit (LC) Facilities: Bank in favor of exporter on behalf of the importer issue LC. LC is issued through import goods for trading and manufacturing process. LIM: Loan against import merchandise (LIM) is post import finance which is granted in favor of the importer to retire shipping documents against import of goods. This is generally repaid within thirty days.
LTR: Loan against trust receipt (LTR) is post import finance extended to the importer of goods. Importer issues a trust receipt favor of bank and takes possession of the goods markets and sells the products and repay within the stipulated period. Accounting Procedure After finalization of L/C, the following Accounting treatment –Now has to be posted in the liability register. 5.2.8 Contingent Liability Customer Liability on L/C-------------DR Bank Liability on L/C ---------------------------------------------- CR For Margin, VAT on Commission, postage, Stamp, and stationery Party A/C…........................................ DR Margin (10% on L/C value) …....................................... CR Commission (0.5% on L/C value) ….............................. CR VAT (15% on commission) …....................................... CR Postage (taka 500)…........................................................ CR Stamp (taka 150)…....................:…................................. CR Stationery and others (taka 575)…...................................CR 5.3
Export Section:
5.3.1 Export Procedure The export form Bangladesh is subject to export trade control exercise by the ministry of commerce through chief controller of export and imports (CCI & E) no exporter is allowed to a export any commodity permissible for export from Bangladesh unless he is registered with CCI & E and holds valid export registration certificate (ERC). The export registration certificate is required to be renewed every year. The export registration certificate (ERCO is to be incorporated on EXP forms and other documents connected with export). The formalities and procedure are enumerated as follows: Obtaining exports LC: To get export LC form exporter issued by the importer. Submission of export documents: Exporter has to submit all necessary documents to the collecting bank after shipping of goods. Checking of export documents: After getting the documents banker used to check the documents as per LC terms. Negotiation of export documents: If the bank accept the document and pay the value draft to the exporter and forward the document to issuing bank that is called a negotiation bank. If the bank does buy the LC then the bank normally act as collecting bank. Realization of proceeds: This is the period when the issuing bank has realized the payment. Reporting to the Bangladesh Bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment. Issue to proceeds realization certificate (PRC): Bank has to issue precede realization certificate of export LC to the supplier/exporter for getting cash assistance. Following papers to be obtained from the new export while they desire to make export through EXIM Bank:
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.
ERC Trade license Membership certificate from chamber /EPB Account to be maintained with bank Export LC contract EXP form to be certified TIN VAT Memorandum and article of association of the company Confident credit report to be obtained of the importer Registered partnership deed (In case of partnership concern).
The following are the documents normally involved at stage of shipment: EXP form Photocopy of the registration certificate Photocopy of the contract Photocopy of the LC Customs copy of ERF form for shipment of jute goods and EPC form of raw jute. Freight certificate from the bank incase payment of the fraught at the port of lading is involved Railway receipts, barge receipt or truck receipt Shipping instruction Insurance policy 5.3.2 Preparation of export documents: Bill of exchange or draft Bill of lading Invoice Insurance certificate Certificate of origin Inspection certificate Consular invoice Packing list Quality control certificate GSP certificate Photocopy sanitary certificate 5.3.3 Export Finance: Export cash credit (ECC) Packing credit (PC) Back to back credit facility (BTB) Foreign documentary bills purchase (FDBP) a) ECC: Export cash credit (ECC) is extended to the companies who are involved in exporting goods and services. Export cash credit (ECC) is provided to procure raw materials, packing list, wages, salary, utility etc. the quantum of export cash credit (ECC) is usually 75% of export LC. b) PC:
Packing credit (PC) is granted to export oriented industry usually garment industry to finance their expenses for utility, salary, wages etc. the quantum of packing credit is usually 10% to 155% of the value of the export LC. c) BTB: Back to back credit facility (BTB) is issued to import raw materials for export oriented industry usually of garments. The primary security of back to back credit (BTB) is export LC usually the quantum of BTB LC is 75% of the value of master LC. d) FDBP: Banks purchases exports bills to the working capital needs to the customer. 5.3.4 The documentary letter of credit (LC): The letter of credit is a credit compact where by the buyers bank on behalf of the buyer is committed to place and agreed amount if money at sellers disposal under some agreed terms and 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 UCPDC published by international chamber of commerce (1993) revision, publication no: 500 defines documentary credit. ‘Any agreement however named of described where by a bank (The insuring bank) acting at the request and on the instruction of the customer (The applicant) or on its own behalf’. • Parties to a letter of credit (LC): 1. Import /buyer/applicant 2. Export/seller/supplier 3. Issuing bank /operating bank 4. Advising bank/notifying bank 5. Confirming bank 6. Negotiating bank 7. Paying bank/reimbursing bank. • • • • • • •
Importer: The persons who request the issuing bank open a LC. Exporter: The party in whose favor LC is established Issuing bank: The opens issue LC. Advising bank: The bank advice for LC. Confirming bank: The bank, which acts confirmation to the credit. Negotiation bank: The bank, which negotiates the bill. Paying bank: The bank, which effects reimbursements.
All the instructions of the opening bank, advising may confirm negotiates the documents and also be the reimbursing bank under the credit. The reimbursing may be different and even may be located in the third country. Intermediary bank is usually the foreign correspondent of the importers bank through which the LC is advice to the suppliers if the intermediary of the importers bank simply advises/ notifies the LC to the exporter without any obligation on its part, it is called as advising bank. If it adds undertaking to honor the credit while advising the same to the beneficiary, it became the confirming bank.
• Different type letter of credit (LC): 1. Revocable credit 2. Irrevocable Credit 3. Confirmed Irrevocable Credit 4. Unconfirmed Credit 5. Transferable Credit 6. Non Transferable Credit 7. Restricted Letter of Credit 8. Open Credit 9. Documentary Credit 10. Clear Credit 11. Sight Letter of Credit 12. Usance Letter of Credit 13. Anticipatory Credit 14. Red Clause Credit 15. Green Clause Credit 16. Bank to Back Letter of Credit
• Documents required in letter of credit operation: Bill of exchange (Drawer, drawee and payee) Invoice Packing list Certificate of origin Inspection certificate Insurance Marine insurance policy
Three types of marine policy: 1) ICC (A): Covers maximum risk 2) ICC (B): Covers moderate risk 3) ICC (C): Covers minimum risk. • Back to Back Letter of Credit: A back to back letter of credit is a new credit. It is different from the original credit based on which the bank undertakes the risk under the back to back credit. In this case the banks security is the original credit. The original credit (selling credit) and the back to back credit (buying credit) are separate instruments independent of each other and in no way legally connected, although they both form part of the same business operation. The supplier ships goods to the importer or supplies goods to the exporter and presents document to the bank as is specified in the credit. It is intended that the exporter would substitute his one document and ships the goods to the importer, if necessary and present documents for negotiation under the original credit, his liability under the back to back credit would be adjusted out of these proceeds. The export L/C is marked lien and no margin is taken.
In Bank Asia, papers/documents required for submission for opening of back to back L/C: Master letter of credit Valid import registration certificate (IRC) & export registration Letter of credit application & LCA from duty filled in signed Perform invoice or indent
Insurance cover note with money receipt IMP form duty signed.
• Payments of back to back letter of credit: In case back to back as 60 days, 90 days, 120 days and 180 days of maturity period different payment is made. Payment is given after realizing export proceeds from the LC issuing bank. 5.4 Foreign Remittance: Foreign Nationals leaving Bangladesh permanently on expiry of employment contracts can transfer abroad their genuine savings from salaries/benefits clearly stated in the employment contracts approved by the Board of Investment (BOI). They shall be eligible to transfer abroad retirement benefits such as provident fund, pension, and gratuity as per the employment contracts. The Bank, without prior approval of Bangladesh bank, affects Remittances of those dues including sale proceeds of investment in government securities as per the instructions. But these instructions do not apply to Remittance of sale proceeds of households articles, real estate etc. 5.4.1 Application & supporting Documentation Application as per pro-forma at appendix 5/55 duly fulfilled in the applicant and his employer accompanied by 1. TM form by the applicant 2. A certificate from the employer showing: a) Net salary and allowance each year b) Provident fund and leave salary paid on retirement c) Bonus and other gratuitous payments for each yea r. d) Cost of passage, if any, for self and family is payable by the employer. 3. Bank's encashment certificate in support of receipt of funds, if any, from abroad 4. Bank certificate showing • Total amount of remittances made on account of family remittance and • Total amount of remittance made on account of leave salary In case the applicant’s period of stay exceeds 10 years, the bank's certificate should cover the period of last 10 years. 5. Clearance certificate in respect of income tax and other tax payable. 6. For remittance of pension/ provident fund /Gratuity on account of an employee retiring from a foreign owned or foreign controlled organization, a certificate signed by the employer organization and its nominated AD should be submitted. It should stated that the relevant pension fund/retirement fund out of which the retirement benefits are payable are maintained in Bangladesh and that no remittance towards contribution to any retirement fund maintained abroad had been made in respect of application. 5.4.2 Family remittance facility: 1. Foreign Nationals who are resident in Bangladesh and who have income in Bangladesh are permitted to make monthly remittances to the country of their domicile out of their current savings up to 50% of their net income to cover their commitments abroad. 2. This remittance facility is not available to foreign-born wives of Bangladesh nationals.
3. Salary on which remittance entitlement is calculated would exclude monetary value of various facilities, such as free house, transport, servants, boarding etc., as also cash payments towards conveyance, entertainment, house rent etc. The term net income would in this context signify gross income of the applicant less all compulsory deductions, which are of a fixed nature. Bonus or commission receivable by the foreign nationals cannot be added for calculating monthly entitlement in anticipation of the grant of bonus or commission. This can be included only after the net amount of bonus and commission has been actually paid by the employers. Remittance will be spread over the subsequent twelve months. 5.4.3 Family maintenance abroad by Residents Bangladesh Nationals Applications for remittance of moderate amounts of foreign exchange for maintains of family members (dependent parents, spouse, and children) living abroad may be forwarded by the bank to the Bangladesh bank for consideration and prior approval. The application should be supported by the certificate issued by the relevant Bangladesh embassy regarding residents of beneficiaries, extent of the income abroad along with the embassy recommendation as to the moderate requirements as to the moderate requirements for family maintain ace purpose. The certificate should also indicate the purpose for which the family members went abroad, reasons for continued residence there and probable period of stay abroad. 5.4.4 Out ward Remittance Outward remittances are those sent abroad in foreign exchange. These also include payments into convertible taka accounts or non-resident taka accounts of foreign banks maintained with banks in Bangladesh. The bank naturally exercises utmost care to see that foreign exchange sold to a client is used for the declared purpose. They also systematically maintain proper record so that these can be made available to Bangladesh bank as and when required. 5.4.5 Opening of Branches or subsidiary Companies abroad Bangladesh bank prior Approval is not required for opening offices and subsidiary companies abroad by a resident in Bangladesh. Bank Asia clients can open such this offices shall, through Bank Asia regularly submit periodical statement of accounts of these offices and subsidiaries companies abroad to the Foreign investment and inspection department of Bangladesh bank head office Dhaka. Remittance up to $30000 or equivalent may be made annually to meet current expenses of such offices opened abroad by a commercial or industrial concern. The bank examines the following papers before effecting remittances: 1. Approval letter of the competent authority of the country concerned for opening the office in that country. 2. Lease agreement relating to the premises. The bank verifies the renewed lease agreement (if applicable) and other related voucher. Performance Analysis of Foreign Exchange Services in “Bank Asia Limited.� Foreign Exchange Business of BANK ASIA: 1983 to 2007
Comparison of F. Ex. Business of the Bank 2006 vs. 2007
Growth is higher in 2007 Import: 42% Export: 30% Remittance: 56% Growth of import business from 2001-2007: Bank Asia Ltd. vs. National
Growth compared: Import: Country highest in 2006: 24.48% Bank Asia highest in 2005: 39.12% Growth of Export Business from 2001- 2007: Bank Asia vs. National position
Growth compared : Export : Country highest in 2006 : 34.00% Bank Asia highest in 2005 : 96.57% Remittance:
Country highest in 2006: 38.41% BANK ASIA highest in 2004: 382.41% Contribution of Bank Asia Ltd. to Country Import Business: (Figure in Million Tk.) Period
National
Growth
Bank Asia Ltd.
Growth
% of Bank Asia in national import
2003
606720
22.52%
14556.11
-
2.4%
2004
722440
19.07%
18942.40
30.13%
2.62%
2005
890220
23.22%
26352.30
39.12%
2.96%
2006
1108170
24.48%
31625.60
20.01%
2.85%
2007
1265130
14.16%
39218.70
24.00%
3.09%
Contribution of Bank Asia Ltd. to Country Export Business: (Figure in Million Tk.) Period
National
Growth
Bank Asia Ltd.
Growth
% of Bank Asia in national export
2003
361850
15.04%
5996.48
-
1.65%
2004
461530
27.54%
7103.5
18.46%
1.54%
2005
547550
18.63%
13963.7
96.57%
2.55%
2006
733720
34.00%
17480.1
28.18%
2.38%
2007
851890
16.10%
20417.3
16.80%
2.40%
Contribution of Bank Asia Ltd. to Country Remittance Business: (Figure in Million Tk.) Period
National
Growth
Bank Asia Ltd.
Growth
% of Bank Asia in national remittance
2003
184851
12.14%
506.00
-
0.273%
2004
212860
15.15%
2441.00
342.41%
1.15%
2005
273043
28.27%
5128.00
110.00%
1.88%
2006
377924
38.41%
7462.1
45.52%
1.97%
2007
452640
19.77%
11583.6
55.23%
2.56%
Position of Bank Asia Ltd. with other Banks in Import business: Top Banks in Import business in 2007
Position of Bank Asia with other Banks in Export Business:
Position of Bank Asia with other Banks in Remittance Business:
Problems Recommendation Conclusion Foreign Exchange and Foreign Trade Problems: REMITTANCE The followings are the problems: 1. All types of SWIFT messages are handled by a single Operator instead of authorized officials. 2. Swift operators are transferred/ changed without proper substitute. 3. PC Connect at Branches sometimes become inoperative due to inept handling by the operator. 4. Branches do not maintain security password properly. 5. Branches are not taking archive, backup of their message.
6. Branches do not log in timely to receive message from SWIFT server. 7. Some Branches do not send their message in standard formats. 8. Branches do not show their actual income from SWIFT in the statements. 9. There is negative Propagation against Islami Bank Bangladesh Limited. 10. Because of the volatility of the Foreign Exchange Market the remittance inflow has been affected substantially & encouraged remitters to send money through illegal channel. 11. Introduction of new Islamic Banks is another cause of loss. 12. BANK ASIA is facing stiff competition because third generation Bank is entering to the business. 13. Some Banks are marketing aggressively. 14. Due to non automation of all remittance services and logistics supports in some Branches customer services have not yet fulfilled the requirement of Exchange houses. 15. Unskilled manpower is another problem to achieve higher income in remittance. 16. Shortage of manpower. 17. Concentration of remittance operation through a single location. 18. No conduction of the proper market research. 19. Lack of innovation of foreign exchange products. 20. Absence of Client profile and planned steps to be taken. 21. Proper Marketing of the bank in foreign countries. 22. In some Branches mass marketing is being proven problematic to handle. 23. Absence of promotional effort to keep pace with the stiff competition. 24. The higher Exchange rate causes lose in more remittance. 25. Limited transaction to be made. 26. Handling a lot of inactive accounts with no transaction causes problem. . 27. Decrease/fall in foreign currency occurs in huge loss though it happens rarely. EXPORT AND IMPORT
1.
Chambers of Commerce may not permit the sub-section or any of the conditions to the L.C issuing bank. So the exporter may not export the goods to the importer. 2. Some profitable goods are prohibited. 3. Some rules and regulations of government work as barrier for the free flow of remittance, export and import of profitable goods. 4. Unholy intervention of the superior members of various sectors. 5. Some foreign buyers ask for discount showing the reason that quality of goods has not been maintained. 6. Rate is very much competitive. 7. Untimely shipment due to lack of backward linkage. 8. Labor problem causes huge problem for the bank. 9. Proprietors do not pay wages to the labor which results in dissatisfaction though they receive the investment from the bank. 10. WTO imposes unjust rules on the transaction system. 11. Uneasiness exists due to handling new IT system. 12. Discontinuity of same type of transaction which occurs in infrequency of work resulting in slow dynamics of work. 13. Delay payment in export. 14. Delay or cancelled shipment. 15. Bonded warehouse restricts the sale of export quality products in the local market rather delaying it to rot which protocol is not suitable for our economy. 16. Technical problems reduce the performance of the branch and extend the span of time resulting in loss (financial) and providing less service to both the bank and customers. 17. Environmental problem also causes slow pace. 18. Restrictions imposed for sometimes on new investment due to the sudden rise of assets of the Bank. 19. Weak monitoring squad for RMG sector. 20. Fall in product price in the market than the price at the time of order causes loss. Overall:
1. Rush of customer according to service capacity: Sometimes customer had to wait for a long to complete a simple job with bank. 2. Lack of alternative manpower in the place of absent expertise. 3. Due to transfer and new recruitment employee having lack of experience may become slow. The possibility of doing mistake may be high. 2. Lack of technological assistance that means necessary software or equipment may not always supply. 3. Lack of co-ordination among department. 4. Customer cannot identify their needs & assessment properly for lacking sufficient information & desk set up system within the bank. 5. It has lack of sufficient manpower according to their responsibility. 8. Most of employee doesn’t have any initial knowledge about banking. They come form other subjects than commerce. Recommendation It is not unexpected to have problems in any organization. There must be problems to operate an organization. But there must be remedies to follow. The following commendations can be suggested to solve the above mentioned problems: 1. Bank Asia should increase its manpower level. Additional and skilled manpower in the officer and staff level should be recruited in an urgent basis. 2. Efficient manpower should be recruited with having strong academic background of the related subjects. 3. ATM Booth should be established. 4. More equipment like Note Counting Machine, photocopier etc. should be brought. 5. Bank Asia should appoint a Customer Relation Officer at Branch level. 6. Specialized services to be undertaken to the customers. 7. Bank Asia should try to reduce their disbursement timing. 8. Arrangement of monthly /quarterly training courses /workshops for the selected by the authority in order to promote employee to their desired level. 9. More technological instruments should be brought for smooth working speed. 10. More furniture should be brought to the Branch, like chairs, cabinet etc.
11. To avoid the gathering of customers during the first hour of the working days, shift working system of the employees should be started. Shift- wise working may also reduce over work pressure on one’s own account. 12. Proper job appreciation should be done by providing performance based awards etc. 13. Marketing expertise should be recruited. 14. Bank Asia needs to increase the job satisfaction level of its employees by providing several performance based awards. 15. Enhancement of remuneration package should be competitive and attractive. 16. Employees should be properly learnt about the mission and vision of Islami Banking, thus will implement their job in that way. 17. The authority of Bank Asia should Conveyance pressure on Government bodies to run proper and sufficient application of Islamic Banking law in Bangladesh. 18. The Bank should arrange wide varieties of regular programs about Islamic Banking Function countrywide to remove the negative impression about Bank Asia. 19. Bank Asia should utilize "Internship Program" as one kind of promotion policy. To do so this Bank should provides facilities to the internees through proper placement and practical operations as well as job certainty to those who bring introduce themselves the best performers in doing their particulars. 20. Bank Asia should try to attend different types of target customer. 21. Maximum clients do not know about Bank Asia’s Foreign exchange policy. They should carry out more promotional activities to make clients aware about their offers. 22. It was observed that, Bank Asia is absent in various marketing activities like TV, Print Media, Bill Boards, and Sponsorships etc. Bank should advertise about itself so that it can attract more clients that will increase the business volume of the bank. References 1) Ahammed, Faisal, Course Module of Export Import Management (2007), pp: (3-21) 2) Sarkar, Latifur Rahman, A text book of foreign exchange. 3) Ahmed, Dr. Toufic, Bangladesh institute of bank Management (BIBM) 4) A manual of bank of Asia for Foreign Exchange departments. 5) Annual Report -2007, 2006,2005,2004,2003 of Bank Asia Limited. 6) Kotler P. Armstrong G (1997), Principle of Marketing, Seventh Edition, Prentice Hall, New Delhi. 7) Tull S. Donald (1998), Marketing Research, Measurement & Method, Sixth Edition, Prentice Hall, New Delhi. 8) Lesikar V. Raymond, Pettit D. John (1996), Business Communication, Theory and Practice, Sixth Edition, AITBS, India. 9) Kotler P (1999), Marketing Management, Analysis Planning Implementation and
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Control, Ninth Edition, Pretice- Hall, India. Cateora R. Philip, Graham. L. John (1999), International Marketing, Tenth Edition, McGraw- Hill, USA. Newstrom W. John (2000), Organization Behavior, Human Behavior at Work. Tenth Edition, Lata Mc Graw Hill, India. Stern W. Louis, El-Ambary Adel, Coughian T Anne (1996), Marketing Channels, Fifth Edition, Mc Graw Hill, USA. Rolnicki K (1998), Managing Channel of Distribution, The Marketing Executive’s Complete Guide, Forth Edition. Weihrich H. Koontz H (1996), Management, A Global Perspective, Tenth Edition, Mc Graw-Hill, USA. Website -http: // www.bankasia-bd.com