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Foreign Exchange and Economic Development of Bangladesh MBL

CHAPTER 1 INTRODUCTION 1.1 Scope of the Report In today’s world only academic education does not make a student perfect to become competitive with the out side world. Internship is highly needed to gain idea, knowledge and experience. From this internship program students get the opportunity to learn about the real business world and organizational culture. I have also got this opportunity and I select banking sector to do this programme. Because of the banking sector plays a very important role in many developing countries. In Bangladesh banking sector has contributed and continues to contribute towards the development of socio-economic conditions. As a student of BBA to fulfill the requirement of this Degree, I was assigned to pursue Internship in MBL, Uttara Branch, Dhaka. The scope of the study is quite wider exploring the “Foreign Exchange Operation & Economic Development of Bangladesh. In my report I have highlighted the various steps of foreign exchange operation of the MBL.I have discussed abut the export, import, foreign remittance etc. Before that a brief overview of the MBL has been given to understand its operation and activities. So the scope of the report covers the comprehensive knowledge of the organization of the MBL.I have tried to analyze and evaluate of banking foreign trade performance based adequate information contained in documents and interviews of banking officers.

1.2 Objective of the Report The primary objective of the study is to obtain an understanding of the practical banking activities and relate them with theoretical knowledge that I gained through the theoretical training from the University. Besides this report has been composed to obtain the following objectives:


1. To fulfill the requirements of the internship program under BBA program. 2. To know about the MBL foreign exchange operation as a private commercial bank. 3. To get some idea about the international trade such as export, import, foreign remittance. 8. Recommending some guidelines to improve the effectiveness and effectiveness of Foreign Exchange services. 4. Determining the drawbacks of the existing Foreign Exchange system. 5. Evaluation of the present performance of the Bank regarding Foreign exchange 6. To get an overall idea of banking from banker’s point of view. 7. To review the techniques used by the bank to make it lucrative.

1.3 Methodology The data requires various types of information, past, and present policies, procedures etc both primary and secondary data available have been used in preparing this report. To collect the necessary and meaningful information, the following methods were applied. 1.3.1 SOURCE of Information: I have collected data from the two unique sources; one is primary sources and another is secondary sources.

Source of Data Primary Sources Face to face conversation with the respective officers and stuffs of the branch. Discussing with my supervisor and manager. Practical work experience in the different desk of the department of the branch. In-depth study of selected cases.

Secondary sources Annual Report of Mercantile Bank Ltd. Website of the Mercantile Bank Ltd. Several books and periodicals related to the banking sector. Various documentary file of Mercantile Bank Ltd. Prior research report.


1.4 Limitations of the Study: The objective of the study is to earn real life practical experience in banking system. It requires long time to acquire to the real experience. Time limitation is the main constrain in this respect. Further more for going to prepare this report I have faced the following problems that may be terms as the limitation of the study. 1.4.1 Time Constraint: It is something like impossible to cover the entire Foreign Exchange banking and performance phenomena exploiting a three months time period while an employee or an officer is awarded with one or two year probationary period to do his or her particular job. 1.4.2 Comparison Status: I have had no opportunity to compare the Foreign Exchange banking system of the Mercantile Bank Ltd. with that of other contemporary and common size banks. It was mainly because of the shortage of time and Internship nature. 1.4.3 Accessibility: Another limitation of the study is to access the internal records of the Bank. 1.4.4 Lack of Records: Insufficient books, publications, Facts and figures narrowed the scope of accurate analysis. If this limitation were not been there, than the report would have been more useful and attractive. 1.4.5 Lack of Information or Data: Adequate and in-depth well-organized literature was not available because a few researchers endeavored to work on such project in the past. Though the officials tried to assist, sometimes their working pressure couldn't give me proper assistance what I needed.

1.5 Rationale of the Study: With the growing competition among nationalized, foreign and private commercial banks as to how the banks operates it banking operation and how customer service can be made


attractive. Commercial or private banks are trying to evaluate their traditional banking service to a better standard, to meet the challenging needs. So they pay attention on better performance and existence. Under the above circumstances, it has become necessary for Mercantile Bank Limited, one of the private commercial banks, to focus its attention towards the improvement, who are actually executing the policies undertaken by the top management will have a chance to communicate their feelings and will have the feedback about their dealings from the customer

CHAPTER 2 AN OVERVIEW OF MERCANTILE BANK LIMITED (MBL,Uttara Branch) 2.1 Profile of the organization: At last the pangs of birth are now over and a new commercial bank, Mercantile Bank Limited is born today the 2nd June, 1999. Numerically it is no doubt just another commercial bank, one of the many now operating in Bangladesh, but the founders are committed to make it a little more different and a bit special qualitatively. This bank will have a new vision to fulfill and a new goal to achieve. It will try to teach new heights for realizing its dream. Mercantile Bank Limited, a bank for 21st century, is not a mere slogan. The bank has been manned with talented and brilliant personnel, equipped with most modern technology so as to make it most efficient to meet the challenges of 21st century. As regards the second slogan of the bank Efficiency is our strength is not mere pronouncement but a part of our belief that will inspire and guide us in our long and arduous journey ahead. The Mercantile Bank Limited (MBL) undertakes all types of banking transactions to support the development of trade and commerce in the country. There are 30 sponsors in Mercantile Bank

Limited and all of them are highly regarded for their entrepreneurial competence. The bank gives special emphasis on Export, Import, Trade Finance, Retail Credit and finance to women Entrepreneurs. To provide clientele services in respect of international trade it has been established wide correspondent banking relationship with local and foreign banks covering major trade and financial centers at home and abroad.


The Bank is managed and operated by a group of highly educated and professional team with diversified experience in finance and banking. The management of the bank constantly focuses on understanding and anticipating customers needs. The bank has already ranked at top of quality service providers and is known for its reputation. Now Mercantile Bank has emerged as a new commercial bank to provide efficient banking services with a view to improving the socio economic development of Bangladesh.

2.2 Vision of MBL: Vision would make finest corporate citizen and also to take the Bank as far as possible to all segments of population and accordingly it has designed its product line.

2.3 Mission of MBL: Mission of MBL will become most caring, focused for equitable growth based on diversified development of resources and nevertheless would remain healthy and gainfully profitable bank.

2.4 Objectives and goals of MBL: The aim of Mercantile Bank Limited is to become a leading Bank of the 3 rd generations by providing better service to the clients along with other quality operations in private banking sector. The bank has some mission to achieve the organizational goals. 2.4.1 Strategic objectives: To achieve positive Economic Value Added (EVA) each year by upgrading banking technology prudence in management and by applying high standard of business ethics through its established commitment and heritage. To be market leader in product innovation. To be one of the top three Financial Institution in Bangladesh in terms of cost efficiency. To be one of the top five Financial Institution in Bangladesh in term of market share in all significant market segments it serves. The objective of MBL is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the person of all level, to the businessman, industrialistspecially who are engaged in establishing large scale industries by self-inspiration. 2.4.2 Financial objective:


MBL, one of the renowned private banks is committed to continue its endeavor by rapidly increasing the investment of honorable shareholders into assets mainly achieve 20% return on shareholders equity or more, in average.

2.5 Core Value •

For the customers Providing with caring services by being innovative in the development of new Banking products and services.

For the shareholders Maximizing wealth of the Bank.

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

For the community Strengthening the corporate values and taking environment and social risk and reward in to account.

2.6 Corporate Information of MBL at a Glance Registered Name

: Mercantile Bank Limited

Corporate Slogan

: efficiency is our strength

Date of Incorporation

: 20th May, 1999

Inauguration of the first branch

: 2nd June, 1999

Head Office

: 61, Dilkusha Commercial Area, Dhaka-1000, Bangladesh Tel: 880-2-9559333, 01711-535960 Fax: 880-2-9561213


Telex:

642509

Official Logo

:

Chairman

: Al-Haj Mosharref Hossain

Managing Director

: Dewan Mujibur Rahman

Number of Branches

: 42

Number of Employees

: 1,115

No. of Foreign Correspondents

: 586

Authorized Capital Chairman’s Sect.

Paid up Capital

MBLID

: TK. 3,000 million Board Directors (Chairman,: TK. Vice1,798.68 Chairman, Members) million

Services provided

BJ

Board Division

: Deposit Scheme, Credit Facility and Foreign Public Relations Managing Director Exchange Services

MD’s Sect.

Banking operating system

: BothManaging conventional and Foreign Exchange Additional Director System Deputy Managing Directoronline Banking, UNIX : Member of SWIFT,

Technology used

based computer system E-mail Website Human Resource Division

: : www.mblbd.com Training Institute

SWIFT Marketing & Branch Division

:

mbl@bol-online.com Area Office

MBLBBDDH Chittagong

MIS

NB: Information as per last Annual Report 2008 Central Accounts Division

ICC (i) Audit (ii) Marketing

Recovery/Law Dept.

2.7 Organization structure of MBL (iii) Compliance Estt. Division

Branches

Debt. Collection Unit

MercantileTransport Bank Limited Pool

Share Dept.

Int’l Division

Operations

Treasury Div.

Correspondent Banking Dealing Room

Brokerage House

Returns/Report

Credit Addmn. (RM) Dept.

Treasury Admn.

Card Division

Credit Div.

IT Division

Operations LAN/WAN etc. Security Branches Support

Remitt. Dept.

Gen. Credit & Trade Finance Small Loan Unit Housing Loan Unit


Organization Structure of MBL

2.8 Management Mercantile Bank Limited has formulated a board of director and some different committee for the management of the organization like Board Committee, Executive Committee and Policy Committee. 2.8.1 Board of Directors The Board of Directors consists of 14 member elected from the sponsors of the Bank. The Board of Directors is the apex body of the Bank. Their duty to formulates policy guidelines, provides strategic planning and supervises business and performance of management and also accountable to the company and its shareholders. 2.8.2 Executive Committees Member of Executive Committee (9 person) are selected from of Directors. The executive committee according to its charter decides upon all routine and day-to-day operational matters beyond delegated power of management. The executive committee ensures the implementation of policies, approves credit and others business proposals as per approved policy of the Board. 2.8.3 Policy Committee All mater relating to the principles, policies, rules, and regulation, ethics etc. for operation and management of the Bank are recommended by the Committee to the Board of Directors. 2.8.4 Audit Committee Audit committee is formed with 3 members from board of directors. They review the Financial Statement and also discuss with external auditors, review the audit plan of


the Bank’s internal audit and inspection as well as internal audit report of Head Office and Branches.

2.9 MBL Uttara Branch Uttara Branch of Mercantile Bank Ltd is one of the most profit-oriented branch of MBL which started its operation at Uttara Model Town, Uttara on April 30, 2003 with the 18 efficient & responsible officers. Now the number of employees of Uttara Branch is 32.

2.9.1 Corporate structure of MBL, Uttara Branch: EVP & Branch In-Charge

AVP

FAVP

PO

Senior Executive Officer

Executive Officer

Assistant Officer


2.10 Functions of Mercantile Bank Limited: The first primary functions of Bank are to accept deposits from the public or savers group. The depository products are: •

Current Account

Savings Account

STD Account (short term deposit)

FDR (fixed deposit rate)

RFCD (resident foreign currency deposit)

NFCD (non-resident foreign currency deposit)

The total deposits held by the Banker are broadly classified as- Demand deposits and Time deposits. Banking business basically involves lending money. In fact the deposits are accepted for lending or investment. MBL also engage in foreign trade that is, handling of import business through opening Letters of Credit and handling of export business, Buy or Sale foreign currency etc. and the services provide by Bank are Q-Cash, Online Banking, Provide cheque amount within 30 seconds of submission. 2.10.1 Account Opening: Current account-Current account is purely a demand deposit account. It is running and active account which may be operated upon any number of times during a working day. Proprietorship & partnership Attested photocopy of trade license.


Two copies of passport size photographs of account holder. Attested photocopy of partnership deed.

Private Limited & Public Limited Company Attested photocopy of trade license. Two copies of passport size photographs of directors. Certified copies of Memorandum and Articles of Association. Certificate of Incorporation. Certificate of commencement of business. Resolution for opening account with the bank. Savings Account-A saving bank is meant for the people of the lower and middle classes who wish to save a part of their incomes to meet their future needs and intend to earn an income from their savings. For opening a saving account these documentations are required: Two copies of passport size photographs. Nominee’s one copy of passport size photographs. Introductory reference. Fixed Deposit Receipt (FDR) - These are the deposits which are made for a fixed period specified in advance. The bank does not maintain cash reserves against these deposits and therefore the bank offers higher rates of interest on such deposits. The longer is the period of deposit, the higher is the rate of interest. For opening a FDR these documentations are required: Two copies of passport size photographs. Nominee’s one copy of passport size photographs.


Short Term Deposit (STD) - It is also a time deposit account. The formalities of this account are similar to those required for opening current account. The only difference is that 7days notice is required for withdrawal of any sum and interest is paid. The rate of interest is 6%.

Other Deposit Schemes: Deposit Schemes provides an opportunity to the depositors/customers to deposit their savings for different time periods and different installments. Bank’s deposit schemes are listed below: 1. Family Maintenance Deposit (FMD). 2. Monthly Saving Scheme (MMS). 3. Pension and Family Support Deposit (PFSD). 4. Monthly Benefit Scheme. 5. Quarterly Benefit Deposit Scheme. 6. Double Benefit Deposit Scheme. 7. Special Saving Scheme. 8. Advance Benefit Deposit Scheme. Deposit is the main source of fund in every Bank. In MBL the total amount of deposit is BDT 49,342.49 million (BDT 39,348 million, 2007) in December 31, 2008. Where the total assets are was BDT 55928.72 million in December 31, 2008. Competitive interest rates, attractive deposit products, deposit mobilization effort the Bank and confidence responded by the customers on the Bank contributed to the notable growth in deposits. The Bank has deposited money from different deposit scheme. These are,


Deposit Mix

(BDT in million)

Types

Volume

%

Deposit Under Schemes

19,342.49

39.04

Fixed Deposits

17,501.42

35.33

Savings Deposits

3,020.87

6.10

Call Deposits

1,970.00

3.98

Current Deposits

1,446.19

2.92

Short Term Deposits

989.12

2.00

Others Deposits

5,268.27

10.63

Total

49,538.36

100

2.10.1.1 Local Remittance: For this service people especially businessman can transfer funds from one place to another place very quickly. These are follows:


Pay Order (PO) - Pay Order gives the payee the right to claim payment from the issuing bank. It can be en-cashed from issuing bank only. PO cannot be endorsed or crossed and so it is not negotiable instruments. Demand Draft (DD) – Demand Draft is an order of issuing bank on another branch of the same bank to pay specified sum of money to the payee on demand. It is generally issued when customer wants to remit money in any place, which is outside of clearing house area of issuing branch. It is a safe technique of transferring money from one place to another. Telegraphic Transfer or Telephonic Transfer (TT) – TT means that money is transferred to another place by telegraphic messages. The sender branch will request another branch to pay required money to the required payee on demand. Generally for such kind of transaction payee should have account with the paying bank. 2.10.2 Loans and Advances: We know very well that bank is nothing but financial intermediary and it takes deposit from surplus economic units and deploy the funds to deficit economic units through credit deployment, so the more recoverable credit is deployed the more profit is gained. In fact credit deployment process is being run under Advance Department. Depending on the requirements of the borrower, Banks lend money in the forms Loans, Overdraft, Cash credit, and Bills purchased & discounted. The total amount of Loans and Advances is BDT 41,993.95 (31 Dec. 2008) When Mercantile Bank Limited extends loan, it does not pay the amount in cash. Rather, the Bank credits the amount in the Bank account of the borrower and allows withdrawing the required amount by cheques. In this way, a Bank creates credit. Various types of Loans and Advances which are provided by the MBL given as follows: Consumer’s Credit Scheme (CCS) Small Loan Scheme (SLS) Lease Finance Doctor’s Credit Scheme


Rural Development Scheme Women Entrepreneur Development Scheme SME Financing Scheme Personal Loan Scheme Car Loan Scheme Home Loan Scheme Overseas Employment Loan Schemes Sector-wise Loans & Advances Mix (BDT in million)


Sector/Segments

Volume

%

Trade Finance

13,267.08

31.59

Export (RMG)

7,737.41

18.43

Food, Beverage, Edible Oil etc.

3,473.12

8.27

Housing

2,537.49

6.04

Engineering (Iron and steel/Electrical)

2,209.44

5.26

Contractor Finance

1,158.33

2.76

Textile (Linkage Industry)

967.97

2.31

Telecommunication

967.90

2.30

Pharmaceuticals

874.96

2.08

Agriculture

804.30

1.92

Hospital and Medical Services

502.27

1.20

Transportation

497.35

1.18

Others

6,996.33

16.66

Total

41,993.95

100

2.10.3 Foreign Exchange:


Foreign Exchange department is international department of the bank. It deals globally. It facilitates international trade through its various modes of services. It bridges between importers and exporters. If the branch is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country. For providing better service in foreign trade MBL established correspondent relationship with 102 of foreign Banks. Foreign Exchange department of MBL is divided into three sections: •

Import

Export

Foreign Remittance


2.10.4 Other Facilities: 2.10.4.1 Outward Bill for Collection (OBC): Cheques drawn on another Bank or a branch of MBL, which is situated outside the clearing house area. These bills are called OBC. The process of collection is described below:

If the bill is drawn on a branch of MBL –

Bills are sent to that branch through mail

Branch collects the bills and sends an IBCA

Depositor’s account is credited

The collection process if the bill is drawn on a branch of MBL •

If the bill is drawn on another Bank and there is a branch of MBL –

This branch sends the bills direct to the branch of MBL by OBC

Request them to send the process by IBCA and

The branch of MBL can collect the bills through clearing

The collection process if the bill is drawn on another Bank and there is a branch of MBL •

If the bill is drawn on another Bank but there is no branch of MBL -

The bill is directly sent to that Bank

By an OBC schedule, requested them to send a draft in favor Request them to send the process by IBCA and

That Bank sends a Demand Draft mentioning the Paying

Then the bill is collected through clearing house process

The collection process if the bill is drawn on another Bank but there is no branch of MBL 2.10.4.2 On line banking – On-line service provide by MBL is now available for all customers of the bank. On-line banking have so far activated with 42 branches. As a result, it


saves the time and efforts of the customers. They can easily deposit and withdraw money, transfer money from one place to another place by using On-line banking facility. 2.10.4.3 SMS Banking – SMS service is one of the most modern banking services. It is convenient, safe, low-cost, fast and available round the clock. MBL SMS Banking service offers the followings: Access to account balance. Last 3 transaction inquiry. Cheque leaf status inquiry. 2.10.4.4 ATM Booth and SME Service Centre – The bank serves the customers by providing ATM booth and SME service Centre facilities. A number of Booth and SME Service Centers have been unlocked at different commercially significant places of the country to serve the customers, to save their time, consequently, top make them free from hassle. 2.10.4.5 Card Facilities – With a view to give momentum to business by diversifying its products, the bank has launched VISA dual prepaid card along with the existing Credit and Debit cards. VISA Prepaid Hajj card has been introduced to provide facilities to the pilgrims for meeting everyday expenses in the Saudi Arabia. The bank offers these facilities 24 hours of a day and all the year around.

CHAPTER 3 INTERNSHIP POSITION AND DUTIES 3.1 Internship position and duties: Internship has provided me the opportunity to coordinate the theoretical knowledge that I have gathered in NUB with the practical field. It is my first experience to work in banking sector. Although three months is not a long period to learn the whole thing that usually occurs in an organization, but this internship program (16.11.09 to 15.01.2010) give me different types of experience. I tried my best to learn as much as I could. I have done my internship program in Mercantile Bank Limited (MBL, Uttara) My duties and experience from MBL are given below: 3.1.1 The General Banking Department


At first I was placed to the General Banking Department. The officers tried to give all the briefings about this division. Here I have spent most of my intern time duration. Task of this division are – voucher sorting, issuing cheque book, opening an account, issuing pay order, pay slip. In general banking department I learnt how quickly voucher is sorted, hoe to safeguard the vouchers for future use. I learnt how voucher cover can be made. How debit and credit balance is balanced. Furthermore I learnt which one is debit cheque and which one is credit cheque. My task was also to distinguish among GL and GB components. My duty was to send the outward voucher to different branches and receive the inward vouchers with their supplies from different branches, make a file for them and routine wise recording to the register book. My duty was also to open an account, to write a pay order, pay slip etc. 3.1.2 The Foreign Exchange Division The task of this division are opening L/C and Back to Back L/C, what are the requirements of opening L/C, advising and conforming of L/C etc.

CHAPTER 4 Foreign Exchange Management of MBL (Uttara Branch) Foreign Exchange department is international department of the bank. This international department

is responsible for assisting the authorized branches to deal in foreign trades, that is, import and export businesses on account of the customers of the bank by giving approval for transactions and controlling them at various stages. It deals with all correspondents of foreign banks having arrangement with the bank. Every year new agents are added. The larger the number of correspondents and the wider the coverage area, the richer will be the international connections of the bank. If the branch is authorized dealer in foreign exchange market it can remit foreign exchange from local country to foreign country. There are three main centers of trading, which handle the majority of all FX transactions—United Kingdom, United States, and Japan.


4.1 Factors are considered at time foreign trade payment: The following factors are usually taken into consideration while deciding about the terms of payment: •

Exporter’s knowledge of the buyer

Buyer’s financing standing

The degree of security of payment

Speed of remittance

Cost involved in receiving payment

Exchange rustications in the importing country

Competition faced by the seller.

4.2 Foreign Accounts of Banks: There are generally three types of inter-bank foreign accounts, which are showing in following figure:

Bangladesh

England Nostro Account

Mercantile Bank

Bank X

Vostro Account

Loro Account

Loro Account Standard Chartered Bank

Figure: Type of Foreign Correspondent Accounts


4.3 Payment mode of foreign trade: An export contract can be deemed to be successfully completed when the exporter gets paid for the goods shipped by him, how he has to negotiations between which is to be decided during earlier negotiations between the exporter and the importer. There are five methods of payment which involve varying degrees of risk for the exporter is as follows: 1. Payment in advance 2. Open account 3. Documentary collections 4. Shipment on consignment basis 5. Documentary credit under letter of credit

4.4 Documentary Credit/ Letter Of Credit: Documentary Credit or Letter of Credit is nothing but a letter of assurance of payment. This assurance of payment is made by the bank. It is a “Credit Contract” whereby the buyer’s bank is committed (on behalf of the buyers) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. •

Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the applicant) or on its own behalf.

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

Authorize another bank to effect such payment or to accept and pay such bills of exchange.

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

4.4.1 Types of Documentary of Credit:


Banks may issue several types of Documentary of credits. It is best for importers and exporters to meet with their banking officer to determine which type of credit best suits their needs. The most common types of letters of credits are: o Revocable Credit: A revocable credit is one where the issuing bank at liberty to revokes i.e. cancels the credit at any time. According to UCPDC, a revocable credit may amend or cancelled by the issuing bank at any moment and without prior notice to the beneficiary before shipment of consignment against the L/C. o Irrevocable Credit: An irrevocable credit is one, which cannot be revoked, amended or modified by the bank with the concurrence of the interested parties. This type of letter of credit is commonly used and preferred by the exporter or beneficiary because payment is always assured, provided the documents submitted comply with the terms of the letter of credit. Irrevocable letters of credit can be both confirmed and unconfirmed. o Add Confirmed Credit: When a third Bank provides guarantee to the beneficiary to make payment, if issuing Bank fail to make payment, the L/C is called confirmed L/C. In case of a confirmed L/C a third Bank adds their confirmation to the beneficiary, to make payment, in addition to that of issuing Bank. Confirmed L/C gives the beneficiary a double assurance of payment.

4.5 Different Parties Involved Foreign Exchange Transaction: •

Applicant: The party who applies to the opening (issuing) bank for the issuance of a letter of credit.

Issuing Bank (Opening Bank): The bank, which issues the letter of credit on behalf of the applicant

Beneficiary or exporter: The party in whose favor the letter of credit has been established. The beneficiary is the party who demands payment under the letter of credit.

Advising Bank: It is the bank in exporter’s country which is usually the foreign correspondent of importer’s bank through which the L/C is advised the suppliers.


Confirming Bank: A bank that at the request of the issuing bank, assures that drawings under the credit will be honored (provided the terms and conditions of the credit have been met).

Drawee Bank: The bank on which the drafts specified in the credit are drawn and from which payment is expected.

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

Paying Bank: The bank authorized in the letter of credit by the issuing bank to honor sight or deferred payments under the terms specified in the credit. (If this bank is the advising bank, it has no obligation to honor documents; however, if this is a confirming bank, it is obligated to pay against complying documents.)

Reimbursing Bank: it is the bank which would reimburse the negotiating bank after getting payment instructions from issuing bank.

Transferring Bank: A bank authorized by the issuing bank as specified in the credit that can transfer the issuing bank's documentary credit from one beneficiary to another at the request of the first beneficiary.

4.6 MBL Uttara Branch as an Authorized Dealer: The Bangladeshi banks provide foreign exchange services under, Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and Export Control Act, and 1950 is for Documentary Credits. MBL has also become a member of SWIFT (Society For Worldwide Inter Bank Financial Telecommunication) in 2000, which provides a fast, secured & accurate communication network for financial transactions such as letter of credit, fund transfer etc. As an authorized dealer under regulations of BB, MBL Uttara Branch provides the followings three type services under their foreign exchange department. •

Import Services

Export Services

Remittance Services


4.6.1 Import Section of MBL: As a authorized dealer the major import items financed by MBL, Uttara branch are capital machinery, Hot Roll Steel, electronic equipment, rice, wheat, seeds, palmolein, cement clinkers, dyes, chemicals, raw cotton, garments accessories, fabrics, cotton etc. To import, a person should be competent to be an ‘importer’. According to Import and Export (Control) Act, 1950, the officer of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He requests or instructs the opening bank to open an L/C. 4.6.1.1 Import procedures: 1. Registration with CCI&E a. For engaging in international trade, every trader must be first registered with the Chief Controller or Import and Export. b. By paying specified registration fees and submitting necessary papers to the CCI&E. the trader will get IRC (Import Registration Certificate). After obtaining IRC, the person is eligible to import. 2. Purchase Contract between importers and exporter: a. Now the importer has to contact with the seller outside the country to obtain the Performa invoice/indent, which describes goods. b. Indent is got through indenters a local agent of the sellers. c. After the importer accept the preformed invoice, he makes a purchase contract with the exporter declaring the terms and conditions of the import. d. Import procedure differs with different means of payment. In most cases import payment is made by the documentary letter of credit (L/C) in our country. 3. Collection of LCA form: Then the importer collects and Letter of Credit Authorization (LCA) from MBL Uttara Branch. 4. Opening a Letter of Credit (L/C) Bank provides guarantee to importer and exporter through Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by its


‘Letter of Credit’. The process of opening L/C regarding to import through MBL, Uttara branch are as following A. Interview of probable L/C opener: At first in case of import L/C opening opener must give an oral interview to the responsible officers of MBL. If the officers are satisfied with opener’s motive of import, type of import goods, quality of imported goods and marketability of goods than they will give approval to opener to further steps. B. Application for L/C limit: Before opening L/C, importer applies for L/C limit. To have an import L/C limit, an importer submits an application to the Department of MBL furnishing the following information,I. Nature of business. II. Required amount of limit. III. Payment terms and conditions. IV. Goods to be imported. V. Offered security. VI. Repayment schedule. VII. Full particulars of bank account maintained with MBL Uttara Branch. C. The L/C Application: After getting the importer applies to the bank to open a letter of credit on behalf of him with required papers. Documentary Credit Application Form: I. Tax Identification Number Certificate. II. VAT Registration Certificate. III. Membership Certificate of recognized Trade Association as per

IPO.

IV. Proforma Invoice: It states description of the goods including quantity, unit price etc. V. L/C Form: MBL provides a printed form for opening of L/C (MF-fx 13) to the importer. This form is known as Credit Application form. A special adhesive stamp is affixed on the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin in percentage.


VI. L/C authorization form (LCAF) duly signed by the importer. VII. The insurance cover note: The name of issuing company and the insurance number are to be mentioned on it. VIII. IMP form duly signed by the importer. IX. Forwarding for Pre-Shipment Inspection (PSI): Importer sends forwarding letter to exporter for Pre-Shipment Inspection. But all types of goods do not require PSI. 5. Time limit for opening L/C: L/C (s) shall be open within 180 days from the date of issuance of LCAF or from the date of registration of LCAF with Bangladesh Bank. 6. Terms of L/C: Full description of the goods along with quantity and unit price to be incorporated in the L/C and shall take all precautions to quote the correct H.S. Codes of the goods. Prices to be quoted on CER or FOB basis according to the P/Invoice or Indent. No import shall be made on CIF basis without prior approval from the Ministry of Commerce. All L/Cs should provide for payment to be made against full sets of on board (shipped) transport documents drawn and/or endorsed to cover by the credit to a destination in Bangladesh. All L/Cs must specify submission of signed invoices, certificates of origin & pre-shipment Inspection Certificate. L/Cs shall also incorporate any other documents, which are mandatory specified for those commodities in the IPO/Public Notices/Bangladesh Bank Circulars. It is not permissible to open import L/Cs in favor of beneficiaries or to use shipping carriers of the countries from which import into Bangladesh are banned by the competent authority. 7. Shipment Validity &Expiry: All L/Cs must specify shipment validity as per terms of the P/Invoice or indent or L/C application. However, shipment validity under any circumstances shall not exceed 9 (nine) months from the date of issuance of LCAF or registration LCAF with Bangladesh Bank excepting capital machinery and spare parts shipments of which shall be made within 17 (seventeen) months. All L/Cs must stipulate an expiry date and a place for presentation of documents for payment/acceptance.


8. Amendments: The branch may allow amendments to the L/C only upon requests of the L/C applicants that do not violate foreign exchange regulations and import control regulations. Necessary charges and or margin (where L/C value is increased by subsequent amendments) also to be realized or recovered from the customer before amending the L/Cs. 9. Transmission of L/C to Beneficiary through Advising Bank: In this step the transmission of L/C is done through tested telex or fax to advise the L/C by MBL to the advising bank. The advising bank verifies the authenticity of the L/C. MBL has corresponding relationship or arrangement throughout the world by which the L/C is advised. Actually the advising bank does not take and liability if otherwise not requested. 10. Presentation of the Documents: a. The seller being satisfied with the terms and the conditions of the credit makes shipment o the goods as per L/C terms. b. After making the shipment of the goods in favor of the importer the exporter submits the documents to the negotiating bank. c. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to MBL. d. MBL, Uttara Branch & bank received seal to be affixed on the forwarding schedule. e. MBL, Uttara Branch crossed the bill of exchange & transport documents immediately to protects loss or fraudulent. MBL checks the documents. The usual documents are, I. Bill of exchange. II. Invoice. III. Bill of lading or Airway bills IV. Certificate of origin. V. Packing list. VI. Weight list. VII. Shipping advice. VIII. Non-negotiable copy of bill of lading.


IX. Pre-shipment inspection report. X. Shipment certificate. 11.

Lodgment of Documents:

If the documents are found in order or the discrepancies in the document if any, are subsequently accepted by the applicant, the branch will record the particulars of the documents in the PAD Register (MB fx-05). 12. Retirement of Documents: MBL advise Importer about the date of lodgment of documents with full particulars of shipment to retire the documents against payment or to dispose the import documents as per prearrangement, if any. Subsequent reminders (MF fx-05) are also to be issued every week till retirement of the bill. Such bills will be considered and be reported as overdue if the importer fails to retire the documents within 21 days of arrival of the relative import consignments at the port of destination. 13. Endorsement of non negotiable copy documents: For clearance of cargo In the event of non-receipt of import documents relating to goods which have already reached the port, the customer may ask the bank to provide a shipping guarantee /NOC to enable them to clear the goods from the customers. The Shipping Guarantee may be given on the basis of a written undertaking from the clients. For customer assessment purpose At the request of the importer, branch may endorse Non-negotiable copy for custom assessment purpose. 14. Cancellation of L/Cs: An irrevocable L/C cannot be cancelled without the agreement of the beneficiary and the confirming bank, if any. The MBL, Uttara branch at the request of the importer may approach the L/C advising bank for cancellation of the L/C and such cancellation will only be effective upon consent of the beneficiary advised to the branch through the L/C advising bank. However, the MBL, Uttara


branch may cancel the L/C without the consent of the beneficiary. Advising bank and confirming bank, if any, if the L/C expires and the MBL, Uttara branch receives no shipping documents within 15 days of expiry of the L/C. The branch should send a massage to the concerned bank advising such cancellation and closure of L/C file due to expiry of the same. The MBL then cancels the Reimbursement Authorization, which has been provided to the Reimbursement Bank while opening the L/C. The branch will reverse L/C contra liabilities, refund margin and recover charges from the L/C applicant as per schedule of charges.

4.6.1.2 Import Financing by MBL Payment against Document (PAD): The MBL, Uttara branch starts PAD procedure after getting all documents from the exporter of importer as evidence of exporting goods. Documents required for PAD is mentioned below: •

Original (Non-negotiable) bill of Leading.

Commercial Invoice.

Certificate of Insurance.

Certificate of Origin.

Bill of exchange.

Pre-shipment Inspection Certificate.

Packing List.

Clean Report of Findings (CRF).

Loan against Trust Receipt (LTR): Under this LTR, Loan is allowed by MBL only to first class importers. Here only on the basis of trust without paying MBL anything or a partial amount, the importer takes the documents. Then importer is allowed 60-90 days time to make payment. Loan against Imported Merchandise (LIM): The imported goods come to the port the party may fall into financial crisis and requests MBL to clear the goods from the port making payment to the exporter. In this case the party later may take the goods partly or fully from MBL by making required payment (if he/she takes the goods time-to-time payment will be adjusted simultaneously).


4.6.2 Export section of MBL 4.6.2.1 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. MBL mainly handles export of readymade garments, jute goods, leather, plastic scrap, handicrafts etc. The followings process must be passed by an exporter to open a documentary credit in MBL, Uttara branch: (a) Registration of Exporters: As no exporter is allowed to export unless he holds valid Export Registration Certificate. So for obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents: •

Nationality and Assets Certificate;

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

Bank Certificate;

Income Tax Certificate;

Trade License etc.

(b) Securing the Order: After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent. In this purpose the exporter may get help from: •

License Officer;

Buyer’s Local Agent;

Export Promoting Organization;

Bangladesh Mission Abroad


Chamber of Commerce (local & foreign)

Trade Fair etc.

(c) Signing the Contract: After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. (d) Receiving Letter of Credit: After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment. The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit:

(1) The terms of the L/C are in conformity with those of the contract; (2) The L/C is an irrevocable one, preferably confirmed by the advising bank; (3) The L/C allows sufficient time for shipment and negotiation. (Here the regulatory framework is UCPDC-500, ICC publication) Terms and conditions should be stated in the contract clearly in case of other mode of payment: •

Cash in advance;

Open account;

Collection basis (Documentary/ Clean)

(Here the regulatory framework is URC-525, ICC publication) (e) Procuring the materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. (f) Obtaining export: After having the registration, the exporter applies to MBL with the trade license, ERC and the certificate from the concerned Government Organization to get EXP. If the bank is satisfied an EXP is issued to the exporter. (g) Endorsement on export: Before the export forms are lodged by the exporters with the customs/postal authorities they should get all the copies endorsed by MBL. Before shipment


exporter submits EXP form with commercial invoice. Then MBL’s officer checks it properly. If satisfied certifies the EXP. (h) Shipment of goods: Exporter make shipment according the terms and condition of L/C. (I) Presentation of export documents for negotiation: After shipment exporter submits the following documents to MBL for negotiation. •

Bill of exchange

Bill of lading

Invoice

Insurance policy/certificate

Inception certificate

Certificate of origin

Quality control certificate

L/C copy

G.S.P certificate

Pro forma invoice.

(j) Examination of documents: As the negotiating bank is giving the value before repatriation of the export proceeds it is advisable to scrutinize and examine each and every document with great care. Bank officers assigned for examining the export documents may sue a checklist for their convenience. (k) Negotiation of export bill: Negotiation stands for payment of value to the exporter against the documents stipulated in L/C. if the documents are in order, MBL purchases (negotiates) the same on the basis of banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP). If the bank is not satisfied with the documents submitted to MBL gives the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening bank for collection. This is known as Foreign Documentary Bill for Collection or (FDBC).

4.6.2.2 Export Financing by MBL: Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these


phases exporters need MBL provides different types of financial assistance depending on the nature of the export contract are as follows: •

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. MBL provides different type of Preshipment credit to its worthy customers An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings from MBL, but PC and BTB L/C is most common from of pre shipment of credit provided by MBL: a) Export cash credit (Hypothecation) b) Export cash credit (Pledge) c) Export cash credit against trust receipt. d) Packing credit: Packing Credit is essentially a short-term advance granted by MBL to

an exporter for assisting him to buy, process, manufacture, pack and ship the goods. The highest limit of providing PC to a first class exporter by MBL is 10% of total export value. Charge Documents for Packing Credit: Responsible officer of MBL should obtain the following charge documents duly stamped prior to disbursement: I.

Demand Promissory Note

II.

Letter of Arrangement

III.

Letter of Lien of Packing Credit (On special adhesive stamp)

IV.

Letter of Disbursement

V.

Packing Credit Letter

Additional Documents for P.C: (1)

Letter of Partnership along with Registered Partnership Deed in case of Partnership Accounts.


(2)

Resolution of the Board of Directors along with Memorandum & Articles of association in case of Accounts of Limited Companies. In case of Corporation, Resolution of the Board Meeting along with Charter is needed.

(3)

Personal Guarantee of all the Partners in case of Partnership Accounts and all the Directors in case of Limited Companies. e) Back to back letter of credit: When exporter falls short of raw materials 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, MBL gives facility to open BTB L/C up to highest 80% of lined export L/C. Documents Required for Opening a Back-to-back L/C: In MBL, Uttara Branch, following papers/ documents are required for opening a back-to-back L/C•

Master L/C

Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

L/C Application and LCAF duly filled in and signed

Proforma Invoice or Indent

Insurance Cover Note with money receipt

IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C – •

Textile Permission

Valid Bonded Warehouse License

Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items

In case the factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted.

A checklist to open back-to-back L/C is as follows – i) Applicant is registered with CCI&E and has bonded warehouse license; ii) The master L/C has adequate validity period and has no defective clause; iii) L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C;


iv) Usage Period will be up to 180 days. Payment of Back-to-Back L/C: Client gives the payment of the BTB L/C after receiving the payment from the importers. But in some cases, client sells the bills to the MBL. But if there is discrepancy, the MBL sends it for collection. In case of BTB L/C, MBL gives the payment to the beneficiary after receiving the payment from the L/C of the finished product (i.e. exporter). Bank gives the payment from DFCA (Deposit Foreign Currency Account) where Dollar is deposited in national rate. In MBL for BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate), which is 4% to 7%. A schedule named PI (Payment Instruction); Forwarding Schedule is prepared while making the payment to MBL’s foreign corresponding banks. PI is prepared when the payment of L/C is made and it contains the followings: i) Reference number of the beneficiary’s bank and date. ii) Beneficiary’s name. iii) Bill value. iv) Payment order number and date. 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. Before extending such credit, it is necessary for MBL to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. MBL provides following post shipment credit to the exporters through: a. Foreign Documentary Bill Purchase (FDBP) b. Advances against Export Bills surrendered for collection.


Appraisal of Documentary Credit in MBL: The sequence that are provided in open an export L/C up to its proceeds realization the following steps are generally passed in MBL, Uttara branch which are recorded in performance register are shown below: Open Export L/C PC

Open BTB L/C

BTB Accepted

BTB Payment

FDBP Accepted

Proceeds Realization

FC Held

Figure: Different stages of export L/C When customer open export L/C in MBL, Uttara branch then it provides export finance through packing credit (PC), the limit of PC is highest 10% of export L/C value is provided to customers by MBL. Generally export L/C holder have advantage of opening back-to-Back (BTB) L/C under its export L/C, in MBL customers can open BTB L/C up to 80% of their export L/C value. When BTB L/C documents is realized than MBL acknowledged the date and amount of payment for BTB Bills to its export L/C holder. The period of payment of BTB Bills is always kept longer than period of export value realization which helps to reduce risk of MBL. When export proceeds than documents is presented in MBL than foreign documents bills is presented for purchase (FDBP) as 10% is given as PC and 80% is for BTB L/C so the remaining percentage of L/C value is purchased by MBL. When proceeds is realized than 10% is taken for PC and 80% is used for BTB payment and remaining is deposited to foreign currency (FC) Held account. If customers only present foreign documents bills for collection than remaining portion of export value other than PC and BTB payment will be deposited to parties CD account.

4.6.3 Foreign remittance: Foreign remittance includes all sale and purchase of foreign currencies on account of Import, Export, Travel and other purposes. The basic function of this section are outward and inward remittance of foreign exchange from one country to another country. In the process of


providing this remittance service it sells and buys foreign currency. The conversion of one currency into another takes place in an agreed rate of exchange, in where the banker quotes, one for buying and another for selling. 4.6.3.1 Foreign Remittance Section of MBL: Foreign exchange department of MBL, Uttara branch are responsible to deal with outward and inward remittance other export and import only when remittance are in foreign currency. MBL has already made foreign remittance arrangement with UniCredito Italiano, Italy and ICICI bank Canada to expedite inward foreign remittances. MBL also has established Drawing Arrangement with United commercial Bank and Arab Bangladesh Bank for prompt delivery services of remittances to the beneficiaries located any corner of Bangladesh. Workings of this department: •

Overall supervision of Foreign Remit. Dept.

Foreign TT payments & Purchase of F. Drafts, preparations of F.B.P. (Foreign Bill Purchased).

Issuance of outward TT & FDD.

Issuance of proceed responding certificate (PRC).

Foreign Collection, Bangladesh Bank Clearing Check Collection, which comes from all branch of MBL.

Withdrawal from F.C. A/C.

Encashment of T.C. & Cash Dollar and Sterling Pound.

Deduction of Tax and VAT. On behalf of Bangladesh Bank.

Preparation of related statements including convertible Taka Accounts.

Preparation of IBCA & IBDA and Balancing of Collection and other special assignment as desired by Department in charge.

Balancing of Account Statements.

Compliance of audit & inspection.

Statement of all related works submitted to Bangladesh Bank.

All foreign remittance transactions are grouped into two broad categories of remittance i.e. Outward remittance & Inward remittance. As an AD MBL foreign exchange department focuses on these two sources of remittance:


4.6.3.1.1 Outward Remittance of MBL: The term “Outward remittances” include not only remittance i.e. sale of foreign currency by TT. MT, Drafts, Traveler’s cheque but also includes payment against imports into Bangladesh & Local currency credited to Non-resident Taka Accounts of Foreign Banks or Convertible Taka Account. The main three type of outward remittance find MBL are1. Private Remittance 2. Fiscal & Business Travel 3. Commercial Remittances Two forms are used for Outward Remittance of foreign Currency such as: •

IMP FORM- All outward remittance on account of Imports is done by form IMP. MBL, Uttara branch weekly informs Bangladesh Bank about outward remittance of import and it sends IMP FORM information in each month to BB.

T.M. FORM- For all other outward remittances form T.M. is used. MBL, Uttara branch provides all outward remittance information other than import through Travels & Miscellaneous (T.M) FORM to BB.

It is mentionable that FX transaction in MBL Uttara branch starts from2008 till then there is no outward remittance. 4.6.3.1.2 Inward remittance of MBL: The term” Inward Remittance” includes not only purchase of Foreign Currency by TT, MT, Drafts etc. but also purchases of bills, purchases of Traveler’s cheques. The main two sources of inward remittance are proceeds realized from export process and also a strong source Bangladeshi workers remittance from abroad. 1. Purchase of Currency Notes, Travelers cheques, Drafts etc 2. Dealing in Foreign Currency Notes & Coins. Two forms as prescribed by Bangladesh Bank are used for purchase of Foreign Currencies such as: •

EXP FORM- Remittances received against exports of goods from Bangladesh are done by form EXP. MBL; Uttara branch weekly informs Bangladesh Bank about


inward remittance of export and it sends EXP FORM information in each month to BB. MBL fill up two copy of EXP Form. •

FORM C- Inward remittances equivalent to US $2000/- and above are done by Form” C”. However, declaration in Form C is not required in case of remittances by Bangladesh Nationals working abroad. Utmost care should be taken while purchasing Currency Notes, Travelers cheque, Demand Draft & similar Instrument for protecting the bank from probable loss as well as safety of the Bank officials concerned. MBL, Uttara branch provides information about person who remits currency and relationship with the person to whom currency is remitted and reason for remitting currency to BB.

In case of reporting for export and import to Bangladesh Bank MBL, Uttara branch categories IMP FORM and EXP FORM into four categories according to currency and their characteristics those are as follows: • U.S Dollar- the documentary credit opened on US Dollar is reported to BB under this

category. • ACU Dollar- the export import related to India, Iran, Nepal, Pakistan, Sri Lanka,

Bhutan and Myanmar will be reported to BB at ACU Dollar. • EURO- the documentary credit opened with EURO exchange based countries are

reported under this category. • EPZ- the documentary credit opened related to EPZ industries are reported to BB

under this category.

CHAPTER 6 Analysis: Economic Development (In terms of Foreign Exchange) 6.1 Introduction A country maintains and develops trade relations with other countries because it gains by doing so. Commodities are imported because either they can not be produced in the country at all or can be produced at a very high cost. Import of such commodities by the country is, therefore, convenient and cheaper. In exchange for imports, the country has to export certain commodities which it can produce but which are not produced in some other countries, and


for the production of which its resources are well suited. Thus foreign trade is a source of considerable gain for a country. Bangladesh is not an exception to this. Because foreign trade is of vital importance to the economic development of Bangladesh. . In order to finance imports and also to reduce the country's dependence on foreign aid grants, the government, since liberation, has been trying to enhance foreign exchange earnings through planned and increased exports. In the field of commerce the main task of the government is to make Bangladesh economy strong and dynamic enabling it to face the challenges of rapidly changing world trade system. Nearly all sector contributed to the GDP growth, particularly significant were the growth of the export-oriented sectors, inflow of remittances and some service sectors like transport and communication. In that case foreign exchange operation of MBL plays an important role in the economic development of Bangladesh. Like-

6.1.1 In Case of Import: From the very beginning, the bank has embarked on extensive foreign exchange business with a view to facilitating international trade transactions of the country. The principal items are capital machineries, garments & accessories, rice, wheat, sugar, CDSO, hot roll steel, raw cotton, shops-breaking etc. Growth of MBL by conducting import: Particulars Import

2008 39.99 %

Yearly Import Growth (In %) 2007 2006 2005 -4.86 % 27.56 % 17.46 %

From the above table I see that there is up and down in the import position. Growth of MBL is hindered because of unsuitable economic condition in 2007 and in 2008 MBL recorded a significant growth of 39.99%. The expansion of import is responsible for the deterioration of the trade balance of MBL. To have a clear idea, the growth of MBL is presented below graphically:


Import Position 40.00% 35.00% 30.00% 25.00% 20.00% (Grow th in %) 15.00% 10.00% 5.00% 0.00% -5.00%

39.99% 27.56% 17.46% Yearly im port Grow th in %

-4.86%

2008

2007

2006

2005

(Year) Economic development of Bangladesh in terms of import of MBL: Yearly Import (BDT in million) 2008 2007 2006 56528.80 40380.10 42442.80

Particulars Import

2005 3371.90

Global recession fall in the price of commodities due to decrease in the production as a result importer imported less, in spite of that we can see a sudden increase in 2008 because of natural disaster such as Sidre and devastating cyclone, price hike of oil and other commodities in the world market. To have a clear idea a graph is shown to the below:

60000

56528.8

50000 40380.1

40000

42442.8 33271.9

(BDT In Million) 30000 Yearly import

20000 10000 0

2008

2007

2006

(Year)

2005


Mercantile Bank Limited has opted quality financing while facilitating import trade in2008. Import payment during FY08 amounted to US$21.60 billion (27.3%of GDP) compared to US$17.16 billion (25.1%of GDP) in FY07. This shows an upward trend in import cost. Though higher import than export is not good but some cases this position helps to the country’s development. Like by increasing the import MBL facilitate port facility, creating employment facility , by importing machineries, raw materials it can increase country’s production ultimately increase the export and thus it develop BD’s economy.

6.1.2 In Case of Export: Bangladesh has a very narrow export base. Readymade garments, frozen fish, jute, leather and tea are the five groups of items that account for four fifths of its export earnings. Currently, garments manufacturing is treated as the highest foreign exchange earning sector of the country. MBL is very much supportive in Export financing since its inception. As an outcome of its positive attitude, in export performance it is holding the top position among leading bank’s of new generation. The export items are: 1. 2. 3. 4. 5. 6.

Readymade garments Jute & jute goods Leather Tea Frozen foods Fish products etc.

Growth of MBL by conducting export: Particulars Export

Yearly Export (In Percentage) 2008 2007 2006 31.950 % -5.55 % 43.48 %

2005 38.46 %

MBL recorded 31.950% growth at the end of 2008 as against that of -5.55% at the end of 2007. From this I say that it gains by developing its export business. For the clearance a graph is given below:


Export Growth 50.00% 40.00% 30.00%

43.48% 31.95%

38.46%

(Export 20.00% Growth In % ) 10.00% 0.00% -10.00%

-5.55% 2008

2007

2006

2005

(Year)

From The above Chart we are seeing that the Yearly Export growths are increasing. So MBL are developing their export position and earning foreign currency and that increase the financial position of the MBL. Economic development of Bangladesh in terms of export of MBL: Particulars Export

Yearly Export Position (BDT in million) 2008 2007 2006 43108.50 32670.10 34592.10

2005 24108.57

As of the above graph I can say, in 2008 MBL brings a significant change to the overall economy of Bangladesh. Total Export of the bank increased to BDT 43108.50 million at the end of 2008 as against that of BDT 32670.10 million up to 2007 registering 31.950% growth.

To have a clear idea a graph is shown to the below:


50000 40000 (BDT In Million)

43108.5 32670.1 34592.1

30000

24108.57

20000 Yearly Export Position

10000 0

2008

2007

2006

2005

(Year)

Total export earnings during FY08 amounted to US$ 14.11 billion (17.8%of GDP) compared to US$ 12.18 billion (17.8%of GDP) in FY07. Among the exported items Readymade Garments (RMG) holds highest contribution (75% of total export earnings). Depend on the above chart and table it can be said that export business of MBL plays an important and positive role in the economy of Bangladesh. Because highest position of RMG indicates that it contribute a lot in terms of employment generation, women empowerment, improve health & nutrition, increased substantial export earnings etc which ultimately contribute to the development of the backward linkage industry of Bangladesh. Increase in export also refers that there is a huge demand for domestic product that has an impact on economy. The exporters can deposit a certain amount of their export earning in foreign currency under a retention quota in their foreign currency account. The amount of the retention (in terms of percentage) will be fixed by the government/Bangladesh Bank. This foreign currency can be used to fulfill real business needs like business trips abroad, participation in export fair or seminars in foreign countries, import of raw materials and spare parts and setting up office abroad. In these ways Foreign Exchange of MBL plays a crucial and positive role in the development of the economy of Bangladesh.

6.1.3 In Case of Remittance: Remittance is the single largest sector in terms of achieving net foreign exchange. This has been used in financing the import of capital goods and raw materials for industrial


development. Remittance also helps on the overall growth of MBL, which is shown in following table: Growth of MBL by conducting remittance business: Yearly Remittance (In Percentage) 2005 2006 2007 1.16 % 34.156 % 17.44 %

Particulars Remittance

2008 34.54 %

Despite the contraction of the overseas employment caused by the last few months of 2008, MBL achieved a significant growth in remittance business. From remittance business MBL achieved 34.54%growth in 2008 over 2007. To have a clear idea, the growth of MBL is presented below graphically:

(Remittance In %)

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

34.54%

34.16%

17.44% Yearly Remittance In %

1.16% 2008

2007

2006

2005

Year

Economic development of Bangladesh in terms of remittance of MBL: Particulars Remittance

Yearly Remittance (BDT in million) 2008 2007 2006 4722.90 3510.40 2989.10

2005 679.10

In 2008, the bank handled BDT 4722.90million of remittance business compared to that of BDT 3510.40 million in 2007 Graphical presentation of the table:


5000

4722.9

4000 (BDT In Million)

3510.4

3000

2989.1

2000

Yearly Remittance

1000

679.1

0 2008

2007

2006

2005

(Year)

From the above table and graph it can be said that remittance business of MBL stood in a good position that keep impact on the economic development of Bangladesh. As remittance helps to deduct poverty and income inequality, increase in per capita income, promotion of entrepreneurial activities, and strengthening of financial development in cashdependent countries the enlarge amount of foreign remittance of MBL thus help in the expansion of BD’s economy. MBL has deepened its step on the foreign soils further by establishing more and more remittance agreements with overseas exchange companies where Bangladeshi expatriates are working as a result BD can earn more and more foreign currencies to use it in the country’s development budget, to reduce the country’s dependency on foreign aid etc. Remittance of Bangladeshi nationals working abroad to US$ 7940million (10.01% of GDP) in FY08 as against that of US$ 5978 million (8.7% of GDP) in the preceding year. In this way foreign remittance of MBL acts as an important role to the economic development of Bangladesh. Another Contribution: The bank has made provision of BDT 665.80 million for corporate tax in 2008 against BDT 658.34 million in 2007. The bank has also contributed to the economy by generating employment of 1115 full time officials. In the intermediation process, the bank mobilized resources of BDT 49538.36 million from the surplus economic unit and deployed BDT 41993.95 million in 2008. The bank has made top most significant contribution to Readymade Garments sector by handling export Letters of Credit.


CHAPTER 7 Findings & Learning Points MBL provides the most efficient and need based services in every aspect of its business by being more innovative and professional. The need and expectation of the customers drive MBL to the development of new banking products and services. After working in the MBL Uttara Branch I have collected and gathered data, analyzed with my limited experience. From my limited experience I found that-

7.1 Findings•

Deposit is larger than advance.

MBL is popular for its deposit schemes. The number of clients for different deposit schemes is increasing day by day.

The officers are very friendly.

The delegation of authority or action in foreign exchange department is not well defined from top level so the officers under this department willingly fix their own course of action, which sometimes creates indiscipline and confusions in operating procedures of this department.

In case of different stage of performance of documentary credit MBL, Uttara branch sometimes faces some critical aspects such delay or lack of commitment in performing because of lack of appropriate coordination, which mostly creates dissatisfaction among the clients of this department.

In some cases MBL recording process is done on shortcut method i.e. for some internal transactions limited vouchers is passed. Such as no vouchers is passed for amendment in foreign exchange department of MBL.

All of the officers on this department of Uttara Branch are not having computer facilities, which are slowing down the activities of foreign exchange department and dissatisfied the customers. The most crucial is that vouchers are prepared and different persons do computer posting, which creates confusion and delay of operation. Another problem is that only some documents and recording procedures done by computer others are done manually.

Though this department provides SWIFT facilities but to maintain continuous relation with head office for foreign currency transfer related transaction it doesn’t have


technological support, as it doesn’t not having any computerized or technological network with head office its transactions become slower. •

The counter section is very congested.

7.2 Learning Points•

How to receive cheque.

Quickly sorting.

How to open deposit account.

How to give new cheque book.

How to issue a pay order.

How to write pay slip.

How to posting new account in the computer.

Which documents are needed for opening L/C

Procedures of export & import goods etc.

CHAPTER 8 Recommendations & conclusion Recommendation: •

High administrative control should be exercised in MBL Uttara branch and proper delegation of authority should be established so every officers of every department should be confined with their own responsibility and duty, which will bring fluency in operation.

The process opening documentary credit and steps followed by MBL to settlement of documentary credit should be liberalized as much as possible. If process is liberalized according to regulations it will be attract customers.

The procedures followed by MBL for open documentary credit upto settlement is lengthy and some cases are not as per committed. So the whole procedures should be integrated to provide more efficiency hat will increases satisfaction of the customers.


MBL have kept huge number of files regarding to export and import. As the huge volume of files is kept so its not all time possible for officers to keep proper format of those files so all officers of this department should try to reduce these irregularities.

Foreign exchange department of MBL branch should provide adequate computerized network facilities that will ultimately provide supports to all officers of this department and as well as improve quality of customer service by increasing swiftness of activity.

MBL should improve its technological support and communication network system by using different advance technological support system that are used in different competitive banks in Bangladesh. It should also establish high quality integrated computerized networking system for foreign exchange department as well as for all departments of MBL.

The number of human resources in foreign exchange department is really insufficient to give services to huge volume foreign exchange transactions. So, number of employee should be increased in this department.

Conclusion: It is a great pleasure for me to have practical experience in Mercantile Bamk Limited,Uttara Branch. Because without practical experience it could not be possible for me to compare the theory with practice. During internship program I have tried to observe all the desk of the MBL. . As a commercial bank of Bangladesh Mercantile Bank Limited is providing different services along with foreign exchange services. MBL is trying to establish is a stable position in competitive market and providing positive contribution to economy through different services as well as foreign exchange services. MBL foreign exchange department facilities not only induce export-import and private transactions but also help to encourage economic development of Bangladesh. The new mode of planned advance facilities that will be enforced in future by Mercantile Bank Limited for improving service quality. To summarize the whole situation, I would like to say that, this organization is giving a wonderful service to the people of our country and at the same time they are trying to educate our people about the world class banking procedures which is a very worthy step and we should cooperate with them in this matter for our own benefit. The Mercantile Bank Ltd to


manage the overall banking activities program and they will definitely progress with the modernization of business environment.

Exchange and Economic Development of Bangladesh MBL  

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