1.1. Introduction: Bank is a financial institution. The economy is mostly depended on the bank since the bank facilitates the economic and financial transactions. Every industry large, medium & small is absorbing the facilities provided by the bank relating to its production to export and also to import the materials. The Bank will put reliance on market forces and provide increased inducement to savers to mobilize savings and hold fast to profitability potential to allocate funds to the users of such sectors of trade, commerce and industries as may be consistent with the socioeconomic objectives of the nation. Bank is a financial intermediary whose prime function is to move scarce resources in the form of credit from savers to those who borrow for consumption and investment. In a modern society, banks are very much important to the economy because of their ability to create money. Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Since 1990, Bangladesh government has taken a lot of financial sector reforming measures for making financial sector as well as banking sector more sound and transparent, a formulation and implementation of this reform activities have also been participated by different international organization like World Bank, IMF etc. The government of Bangladesh has been pursuing a liberal policy to attract foreign exchange business because foreign exchange business is considered as a key to economic development. Countries like Bangladesh are mostly depended on import of raw materials to export quality goods.
1.3. Objective of the Report In this report the objective is basically to find out all sorts of practical dealings that are conducted in case of handling various type of banking activities in each department, specially foreign exchange department, the theoretical aspects, that is what should be the procedures and requirements maintained from first to last, and actual practices as well as the ultimate gain for the bank in conducting financial activities are mainly discussed. So the purpose and objective of this report can be summarized as follows. •
To depict the Trade service operations and its impact in the economic development of Bangladesh from the perspective of AB Bank Ltd.
•
To know deeply about Import, Export and remittance.
•
To identify the role of Trade service operations.
•
To identify some problem in foreign operation.
•
To identify the factors that must be considered and analyzed in determining Export and Import policy and procedure.
•
To apprise Remittance Service with special emphasis on Remittance department.
•
To analyze the Foreign Exchange performance of AB Bank Ltd.
•
To identify the problems with Foreign Exchange system and suggested measures.
•
To state practical Knowledge gathered in the customer service department about account opening and others.
•
To state practical knowledge about credit appraisal system and credit management
1.4. Scope of the Study: The report is highlighting the major functional area of foreign exchange department and procedure of import, export and remittance. 1.5. Methodology: Methodology of the study includes direct observations, face-to-face conversation with the employees of different desk, study of files, circular and practical deskwork. In conducting this report basically, there have been two types of data and information used. The name of those two types and their sources to reveal the information for preparing this report has been showed in a flow chart.
EXECUTIVE SUMMARY As a requirement of BBA program from Department of Finance, Stamford University Bangladesh, I have completed my internship from AB Bank Limited, Motijheel Branch. I have prepared my report with the objective of finding out how the branch complies with the Bangladesh Bank’s Foreign Exchange guide line in their policy, process and procedures. I have also analyzed the export, import, remittance (inward and outward) situation of the branch. Some limitations such as time constrain and unavailability of data is faced during this study. AB Bank Limited is the first private sector bank in Bangladesh. At present the Bank operating its business by 79 branches. The Bank is now providing online banking service to its customers to have their better services. This report “PROCEDURE OF FOREIGN TRADE FINANCE OF AB BANK LTD. is prepared based on the foreign exchange operation of the AB Bank Limited. There are Seven (7) chapters in this report. In Chapter 1-Introduction: origin of the report, scope and objective of the study, methodology and limitation are also discussed here. In Chapter 2: this chapter includes Organization in focus such as history, organizational and capital structure, Organizational hierarchy, Change of name and logo, Rating report, Product and services, Five years performance and key financial indicators, Retail Banking, SME business, International trade. In Chapter 3: The overall Trade Financing is describing here. Foreign Exchange department has three sub-sections. One is foreign remittance section, another is import section and the third one is export section. Foreign remittance includes all sale and purchase of foreign currencies on account of Import, Export, Travel and other purposes. However, specifically foreign remittance means sale & purchase of foreign currencies for the purposes other than export and import. All foreign remittance transactions are grouped into two broad categories- Outward remittance & Inward remittance. in import section, import mechanism, source of finance, import procedure, procedures of opening L/C to import etc are discussed. In export section, export policy, export incentives, export procedures, export financing, Back to Back Letter of Credit etc are discussed. In Chapter 4: The Trade Financing by AB Bank Ltd like Inward & Outward Remittance, export & its procedure, Back to Back L/C, Import & its procedure , Lodgment
& Retirement of
Document etc. is described here. In Chapter 5: SWOT analysis of ABBL, Financial ratio analysis and Performance overview. In Chapter 6: At the last section of the report includes Ending part- conclusion, findings, & recommendation are highlighted. In Chapter 7: Last but not the least in this chapter highlights Bibliography and Appendix part.
Analyzing the performance and operations of the AB Bank Limited I have found that the AB Bank Limited has continued its growth. The profit of the bank has growth significantly. The deposit growth concludes the customer satisfaction and their loyalty toward the operation and service of the AB Bank Limited which turned out as a leading private commercial bank of the countryBangladesh. As a proud internee of this bank, I am very much pleased to work in such a reputed organization like AB Bank Limited- “To be the trend setter for innovative banking with excellence and perfection.”
Data & Information
Primary Sources • • • • • •
Bangladesh Bank’s Circular Govt. Act and Order Annual Report Of ABBL AB Bank Operational Manual AB Bank Website Different guidelines of Head Office, ABBL
Secondary Sources • •
• • •
Interview of the employees Relevant books, Research papers, Newspapers and Journals. Personal observation Working experience as an internee. Internet and Study of selected reports.
1.6. Limitation of the Study: A wholehearted effort was applied to conduct the project paper and to bring a reliable and fruitful result. In spite of having the wholehearted effort, there exist some limitations, which acted as a barrier to conduct the conduct the project paper. As the report is prepared in a short span of time, it could not be made comprehensive and conclusive. Moreover, the accuracy of the report is largely depended upon the information obtained from the relevant sources. Greater emphasis was given to collect information from informal sources like discussion with clients and our officials, which may appear to be an inherent limitation of the study.
The limitations are: •
Sufficient data for prepare a report is not available.
•
The employees of the bank are so much busy so they cannot provide me to give information about the foreign exchange such as import, export etc.
•
As it’s a vast area of business that demands on hand experience for an in depth analysis.
•
Another limitation was the sensitivity of the data. As it is a highly competitive market, in some cases management were reluctant to give some specific data.
•
Limitations of bank’s policy of not disclosing some data and information for obvious reasons, which could be very much useful. For the sake of confidentiality of the organization, employees did not disclose much information.
•
Lack of comprehension of the respondents was the major problem that created many confusions regarding verification of conceptual question
•
Confidentiality of data was another important barrier that was confronted during the conduct of this study. All the concerned personnel of the bank have not been interviewed.
AB Bank Limited is one of the fasted growing banks among all the commercial banks in Bangladesh. ABBL bears a unique history of its own. The aim of the company was to mobilize resources from within and invest them in such way so as to develop country’s industrial and Trade Sector and playing a catalyst role in the formation of capital market as well. Its membership with the bourse helped the company to a great extent in this regard. AB Bank Limited, the first private sector bank was incorporated in Bangladesh on 31st December 1981 as Arab Bangladesh Bank Limited and started its operation with effect from April 12, 1982. AB Bank is known as one of leading bank of the country since its commencement 28 years ago. It continues to remain updated with the latest products and services, considering consumer and client perspectives. AB Bank has thus been able to keep their consumer’s and client’s trust while upholding their reliability, across time. During the last 28 years, AB Bank Limited has opened 77 Branches in different Business Centers of the country, one foreign Branch in Mumbai, India and also established a wholly owned Subsidiary Finance Company in Hong Kong in the name of AB International Finance Limited. To facilitate cross border trade and payment related services, the Bank has correspondent relationship with over 220 international banks of repute across 58 countries of the World.
In spite of adverse market conditions, AB Bank Limited which turned 28 this year, concluded the 2009 financial year with good results. AB attained highest ever profitability in the history of the Bank’s 28 years of existence. The Banks consolidated profit after taxes amounted to Taka 336.20 crore which is 46.11% higher than that of 2008. The asset base of AB stood at taka 10691.20 crore (growth of 27 percent) while total capital crossed the threshold and reached the level of taka 1079.0 crore at the year end 2.2 Organizational Structure of ABBL. AB Bank Ltd. (ABBL) was incorporated on 31st December 1981, under the company’s act1913 as a pioneer commercial bank in the private sector in Bangladesh with its Head Office in Dhaka. The bank started functioning from 12th April 1982 with the approval of Bangladesh Bank under the guidelines, rules and regulations given for scheduled commercial banks operating in Bangladesh. It was initially a joint venture commercial bank between Bangladeshi sponsors and Dubai Bank Ltd. Dubai (U.A.E.) having respective share holdings as under: Bangladesh Sponsors
20%
Bangladeshi General Public
15%
Bangladesh Government
05%
Dubai Bank Ltd.
60%
Table 1: Organizational Structure of AB Bank Ltd
Subsequently, the Union Bank of Middle East Ltd. inherited the shares of Dubai Bank Ltd. in 1986 and continued as its shareholder till early 1987, when they decided to offload their investment in Bangladesh. As per provisions of the bank Articles of Associations, with the approval of Bangladesh Bank and the controller of Capital issue Government of Bangladesh, the shares (60%) held by the Union Bank of Middle East (UBME), were purchase by the Bangladeshi Sponsored Directors, raising total shares of holding to 80% of total share capital. However, as desired by the government of Bangladesh the sponsors. Directors, who acquired the 60% shareholdings of Union Bank of Middle East (UBME), unclosed 50% of share, purchased by them from UBME to the general public of Bangladesh raising the public share holdings to the 45% of total share capital of the bank. The Objective of the bank is to undertake all kinds of banking and foreign exchange business in Bangladesh as well as abroad through its brandies/correspondents.
2.3 Capital Structure of ABBL. The authorized capital of AB Bank Ltd. is taka 600.00 crore divided into 6.00 crore ordinary shares of taka 100 each, from the existing Tk. 300.00 crore on 05 march, 2009. The total paid up capital rose to taka 2564.00 million at the end of 2009. At present the composition of the existing shareholders of the bank is as under: Bangladeshi sponsors/ Directors
50%
Bangladeshi General Public
49.43%
Govt. of Bangladesh
0.57%
Table 2: Capital Structure of ABBL
2.4 Change of Name and Logo of ABBL. Arab Bangladesh Bank Ltd. was incorporated on 31st December 1981, under the company’s act 1913. The bank started functioning from 12th April 1982. It is the first private bank in Bangladesh. Motijheel Branch is the corporate branch of this bank. The branch has enjoyed its 28th anniversary during this year. Arab Bangladesh Bank Ltd. Changed its name to AB Bank Limited (ABBL) with effect from 14 November 2007 vides Bangladesh Bank BRPD Circular Letter No-10 dated 22 November 2007. Prior to that Shareholder of the Bank approved the change of name in the Extra-Ordinary General Meeting held on 4 September 2007. Effective 1 January 2008, ABBL changed its Logo as well.
Previous Name & Logo
New Name & Logo
Arab Bangladesh Bank Ltd.
AB Bank Ltd
Table: Name & Logo of ABBL
2.5 Corporate Information of ABBL. Legal Form: A public limited company incorporated on 31st December, 1981 under the Companies Act, 1913 and listed in the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd.
Commencement of Business 27th February 1982 Registered Office BCIC Bhaban, 30-31, Dilkusha C/A Dhaka 1000, Bangladesh. Tel: +88-02-9560312 Fax: +88-02-9564122, 23 SWIFT: ABBLBDDH E-mail: info@abbank.com.bd Web: HYPERLINK "http://www.abbank.com.bd" www.abbank.com.bd Name of the Branch where completed the Internship Program. AB Bank Ltd. Corporate Office Motijheel, Dhaka-1000, Bangladesh.
Objective “To exceed customer expectations through innovative financial products & services and establish a strong presence to recognize shareholders' expectations and optimize their rewards through dedicated workforce.� Vision Statement "To be the trendsetter for innovative banking with excellence & perfection" Mission Statement "To be the best performing bank in the country"
2.6ORGANIZATIONAL HIERERCHY OF ABBL:
MANAGING DIRECTOR SENIOR EXE. VICE PRESIDENT EXECUTIVE VICE PRESIDENT
SENIOR VICE PRESIDENT VICE PRESIDENT SENIOR ASST. VICE PRESIDENT ASSTT. VICE PRESIDENT SR. PRINCIPAL OFFICER
PRINCIPAL OFFICER SENIOR OFFICER
OFFICER 2.7 Rating Report ON ABBL: AB Bank Limited was rate by Credit Rating Agency of Bangladesh Limited (CRAB). CRAB has affirmed AA3 rating in the long term and ST-1 rating in the short term of AB Bank Limited based on Audited Financials of 31 December 2009 and other relevant information.
The summery of their ratings is given below:
Entity Rating June 2009
Long Term
AA3 Short Term
ST-1 Date of Rating
Entity Rating December 2009 Long Term
AA3 Short Term
ST-1
Definition
Commercial Bank rated AA3 in the long term belongs to “Very Strong Capacity & Very High Quality” cohort. Bank has very strong capacity to meet its financial commitments. Bank is judged to be of high quality and is subject to low credit risk.
Commercial Bank rated ST-1 in the short term is considered to have highest capacity for timely payments of obligations. Bank is characterized with excellent position in terms of liquidity, internal fund generation and access to alternative sources of funds.
15th June, 2010
Rating Report of AB Bank (Source: AB Bank Annual Report 2009)
RATIONALE Credit Rating Agency of Bangladesh Limited (CRAB) has assigned “AA3” (pronounced Double A Three) rating in the Long Term and “ST-1” rating in the Short Term to the AB Bank Limited (ABBL). The present ratings of ABBL based on audited financial statements up to 31 December 2009 and other relevant information. The rating takes into account both qualitative and quantitative indicators. Qualitative indicators considered include parameters such as corporate governance practice, effective asset-liability management, good franchise value, experienced top level management, diversified product line, risk management practice, standard IT infrastructure of the Bank etc. However, the ratings are constrained by moderate asset quality of the Bank. The quantitative analysis concentrated in financial positions like sound profitability level, adequate capital adequacy, good liquidity position, moderate market share etc. However, the rating has concern about increase of bank’s non-performing assets, dependency on high cost fixed deposits, average loan to deposit ratio etc. Commercial bank
rated AA3 in the long term is adjudged to be very strong bank, characterized by good financials, healthy and sustainable franchises, and a first rate operating environment. This level of rating indicates very strong capacity for timely payment of financial commitments, with low likeliness to be adversely affected by Foreseeable events. Bank rated ST-1 in the short term is characterized by very satisfactory position in term of liquidity, internal fund generation, and access to alternative sources of funds. 2.8 Products and Services Of ABBL:
BUSINESS BANKING
• Term Loan • R Trade Finance ETAIL PRODUCTS •• Trust Receipt Personal LoanFacility (Unsecured) •• Working Capital Financing Personal Loan (Secured) •• Bill Discounting Home and Office Renovation • Letter Loan of Guarantee •• Loan Syndication Education Loan & Structured • Auto Loan Finance • Easy Loan for Executive • Gold grace • Credit Card • Debit Card
• • • • • • • •
•
DEPOSIT ACCOUNTS Saving Account Current Account Short Term Deposit Fixed Term Deposit Foreign Currency Account NFCD RFCD School
ABBL FOUNDATION Brokerage Service
SERVICE PRODUCTS
• 24 Hour ATM access • Online Banking 2.9 FIVE YEARS AT A GLANCE: • Western Union 2.9 FIVE YEARS AT A GLANCE: • SWIFT
TREASURY & FOREIGN EXCHANGE PRODUCT Money Market: • Overnight (Call) • Repo • SWAP ISLAMI BANKING • Term Deposit Product: • Current ReverseDeposit Repo • Al-Wadia FX Market: • Mudaraba Term Deposit • Spot Deposit • Mudaraba Saving • Shot Forward • Mudaraba Notice Deposit • Mudaraba Pension Deposit Scheme • Mudaraba Quarterly Profit Paying Scheme • Mudaraba Probable Millionaire Scheme • Mudaraba Hajj Deposit Scheme Investment Product: • Bai-Murabha • Bai-Muajjal • Hire-Purchase under Shirkatul Melk(HPSM)
SMALL & MEDIUM ENTERPRISE (SME) LOAN • • • • • • •
Choto Puji Rin Proshar Digun Uddog Goti Awparajita Sati
Figure in Million Taka
Particulars
2005
2006
2007
2008
2009
Operating Profit (PBP & T)
755.03
710.69
3325.29
4298.39
5802.35
407.45
532.19
2817.99
3600.62
5270.61
162.45
532.19
1903.49
2300.62
3417.19
Authorized Capital
8000
2000
2000
3000
6000
Paid-up Capital
520
572
743
2230
2564
Statutory & Other Reserves
650
773
1357
2066
3101
1526.88
2582.76
4511.59
6722.51
10086.52
27361.44
42077.00
53375.35
68560.47
83082.63
21384.63
31289.25
40915.35
56708.77
72063.26
Investments
4061
6281
8885
11396
16369
Fixed Assets
370
1148
2381
2445
2441
33065.40
47989.34
63549.86
84053.61
106912.31
Import Business
23151
42860
48441
70041
65956
Export Business
12595
17876
20677
28937
30640
No. of Branches
67
68
71
72
77
No. of Employees
1525
1590
1725
1804
1952
Net Operating Profit (PBT) Profit after Tax (PAT)
Shareholders’ Equity Deposits Loans & Advances
Total Assets
KEY PERFORMANCE INDICATORS
Particulars
2005
2006
2007
2008
2009
31.26
93.08
256.10
103.18
131.13
Price Earnings Ratio (Times)
57.41
43.02
34.50
9.16
8.97
Book Value per Share (Tk.)
269.62
240.96
251.22
293.76
451.74
10.64
20.61
42.19
40.96
40.01
00.50
01.11
03.41
3.12
3.52
09.17
09.23
10.75
12.84
13.78
08.21
04.02
04.31
2.99
2.75
78.16
74.36
76.66
82.71
84.32
59.19
62.58
67.12
72.60
76.79
Earnings per Share (Taka)
Return on Equity-ROE (%) Return on Assets-ROA (%) Capital Adequacy Ratio NPL as % of Advances Advance Deposit Ratio (%) Assets Utilization Ratio (%) 2.10 PROFITABILITY:
Key business areas registered growth, which was reflected in the bottom line growth of over 30 percent in Net Operating Profit. AB bank was also able to off-set “un-reconciled entries” worth Tk.95.07 crore which would definitely contribute towards consolidation of financial health of the institution besides bringing in transparency in deliverables in the future. Bank could also add significantly towards shareholders value addition as the Earnings per Share (EPS) stood at Tk.131.13 the year-end which is three times over the last year’s figure at the same cut-off date. Return on Assets (ROA) at 3.52 percent Return on Equity (ROE) at 40.01 percent and Asset Utilization Ratio at 76.79 percent underlines the magnitude of ABBL performance for the year 2009 In 2009 ABBL diluted some of its investment portfolio thereby generating capital gain worth Tk.76.09 crore signifying the role and prospects of Portfolio / Investment Banking wing towards meeting Bank’s strategic needs.
2.11 RETAIL BANKING: AB Bank started its retail banking operations in the year 1997 (re-launched in the year 2002) with the setting up of the Consumer Credit Division. Consumer banking in AB Bank is high volume personal banking and exclusive service to high net worth individuals, professionals, businessmen among others. Over the years, this particular Division identified and explored the various avenues of customer lending and developed several products suiting to the need of the prevailing market. Today AB Bank’s clientele base comprises over 6700 customers having a portfolio size worth Tk.325.00 crore approximately. In the year 2009 consumer credit experienced nearly 26 percent growth over last year and contributed to the bottom line of the Bank. CONSUMER CREDIT PRODUCTS - Personal Loan – Secured / Unsecured
- Auto Loan
- Personal Overdraft – Secured
- Easy Loan for Executives
- Jewelry Loan (Gold Grace)
- House / Office Furnishing &
- Education Loan
- Renovation Loan
- Home Loan 2.12 SME BUSINESS: Small and Medium Enterprise has emerged as the cornerstone on economic development of Bangladesh in terms of job creation, income generation, and development of forward and backward industrial linkage besides catering to the local demand mitigation. AB Bank has always been a SME focused institution as nearly 64 percent of the Loan portfolio are liked to this particular Business segment. AB is actively present in the following segment of SME Sector – Agri-Machinery, Animal Feed, Poultry, Dairy Products, Clinics & Hospitals, Electric Appliances, Fruit Preservation, and Garment Accessories etc. The core strength of AB in this segment is its widening reach and online Banking throughout. Judging the potentialities of the Sector a separate SME Business Unit is being shaped to director banking services at the door step of SME customers. 2.13 INTERNATIONAL TRADE:
International Trade is an important component of foreign exchange business of the Bank. In 2006, this particular wing of the Bank registered remarkable growth through strengthening the trade finance areas and providing value added services in this area. 2.13.1 IMPORT BUSINESS: Import business kept the growth momentum and reaped business worth Tk.65,956 crore at 2009 registering little decrease but at the end of the year it increased business level. Major import finance were in the areas of capital machinery, industrial raw materials like edible oil, crude edible oil, textiles, fabrics, milk powder, scrap vessels etc. Import
70041 65956
48441 42860
23151
2.13.2 EXPORT BUSINESS: Export business registered growth in 2009. Total Export business volume reached Tk.30640 crore showing an increase over the previous year. Concentrations of export business were in the area of readymade garments, frozen fish and other products. 12595
Export
35000 30000 25000 20000 15000 10000
12595 ‌
2.13.3
5000
REMITTANCE
0 2005
2006
2007
2008
2009
BUSINESS:
Remittance business reached US$260 million registering growth over 2009. Bank has drawing arrangements with the Exchange Houses situated at important locations of the globe depending on the concentration of the expatriate Bangladeshis. AB Bank is exploring Remittance possibility of expanding its network to augment the flow of inward remittance business
through dedicated personalized services to beneficiaries. 260
86 55
63
36
2004
2005
3.1 Export Section:
2006
2007
2008
Foreign exchange department is international department of the bank. It deals with globally and facilitates international trade through its various modes of services. It deals with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. These banks are known as authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. This is why this department is called foreign exchange department. Some national and international laws regulate functions of this department. Among these, Foreign exchange Act, 1947 is for dealing in foreign exchange business, and import and export control Act, 1950 is for documentary credits. Governments’ import & export policy is another important factor for import and export operation of banks. Also UCPDC 600 and URC 522 both of them are very important guideline.
Creation of wealth in any country depends on the expansion of production and increasing participation in international trade. By increasing production in the export sector we can improve the employment level of such a highly populated country like Bangladesh, Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country's export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through ABBL are readymade garments exporters, They open export L/Cs here to export their goods, which they open against the import L/C opened by their foreign importers. Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter. 3.1.1Export policy: Export policies formulated by the Ministry of Commerce, GOB provide the overall guideline incentives for promotion of exports in Bangladesh. Export policies also set out commoditywise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime. The export-oriented private sector, through their representative bodies and chambers a consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government. 3.1.2 Export Incentives: A. Financial Incentives:
Restructuring of Export Credit Guarantee Scheme
Convertibility of Taka in current account;
Exporters can deposit 40% of FOB value of their export earnings in own account in dollar and pound sterling;
Export Development Fund;
Expansion of export credit period from 180 days to 270 days;
50% tax rebate on export earnings;
Duty draw back;
Bonded warehouse facilities to 100% export oriented firms
Duty free import of capital equipment for 100%export oriented firms
B.
General incentives:
National Export Trophy to successful exporters
Training course on external trade;
Arrangement of international trade fairs, commodity-based exhibitions in the country and participation in foreign trade fairs.
C. Other incentives: •
Assistance in improvement of quality and packaging of exportable items;
•
Simplification of exports procedures.
3.1.3 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. • Registration of Exporters: For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Raishahi/ Mymensingh/ Sylhet/ Comilla/ Badshal/ 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.
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
•
Buyers Local Agent
•
Export Promoting Organization
•
Bangladesh Mission Abroad
•
Chamber of Commerce (local & foreign)
•
Trade Fair etc
•
Signing the Contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. •
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-. •
The terms of the L/C are in conformity with those of the contract"
•
The L/C is an irrevocable one, preferably confirmed by the advising bank;
•
The L/C allows sufficient time for shipment and negotiation.
(Here the regulatory framework is UCPDC-600, 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-522, ICC publication •
Procuring the Materials:
After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. •
Shipment Of Goods:
Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time. Documents for shipment: i.
EXP form,
ii.
ERC (valid),
iii.
L/C copy,
iv.
Customer Duty Certificate,
v.
Shipping Instruction,
vi.
Transport Documents,
vii.
Insurance Documents,
viii.
Invoice
ix.
Other Documents,
x.
Bills of Exchange (if required) Certificate of Origin,
xi.
Inspection Certificate Quality Control Certificate,
xii.
G.S.P. Certificate,
xiii.
Phyto-sanitary Certificate.
• Final Step: Submission of the documents to the bank for negotiation. 3.1.4 Procedure of collection of Export bill:
3.1.5 Export Financing: Financing exports constitutes an important part of a bank's activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract. •
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. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations.
Pre-shipment credit is given for the following
purposes•
Cash for local procurement and meeting related expenses.
•
Procuring and processing of goods for export.
•
Packing and transporting of goods for export.
•
Payment of insurance premium.
•
Inspection fees.
•
Freight charges etc.
An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings-. •
Export cash credit (Hypothecation)
•
Export cash credit (Pledge)
•
Export cash credit against trust receipt.
•
Packing credit.
•
Back to back letter of credit.
•
Credit against Red-clause letter of credit.
Export cash credit (Hypothecation): Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. As the bank has got no security in this case, except charge documents and lien on exports UC or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither r the ownership nor the possession is passed to it. Export cash Credit (Pledge): Such Credit facility is allowed against pledge of exportable goods or raw materials. In this case cash credit facility are extended against pledge of goods to be stored in the god own under bank's control by signing letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods under banks effective control as security for payment of bank. In the event of failure of the exporter to honor his commitment, the bank can sell the pledged merchandise for recovery the advance. Export Cash Credit against Trust Receipt: In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the Exportable goods remain in the custody of the exporter. It is required to execute a stamped export trust receipt in favor of the bank, he holds wherein a declaration is made that goods purchas4ed with financial assistance of bank in trust for the bank. This type of credit is granted when the exporter wants to utilize the credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank's custody. This facility is allowed only to the first class party and collateral security is generally obtained in this case.
Packing Credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and shipment of the goods. Generally for movement of goods from the hinterland areas to the pots of shipment the Banks provide interim facilities by way of packing credit. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Practically except for single transaction, most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a particular period. The drawings are required to be adjusted fully once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export documents. Charge Documents for P.C. Banker should obtain the following charge documents duly stamped prior to disbursement: •
Demand Promissory Note
•
Letter of Arrangement
•
Letter of Lien of Packing Credit (On special adhesive stamp)
•
Letter of Disbursement
•
Packing Credit Letter
Additional Document for P.C. •
Letter of Partnership along with Registered Partnership Deed in case of Partnership Accounts.
•
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.
•
Personal Guarantee of all the Partners in case of Partnership Accounts and a=of all the Directors in case of Limited Companies.
•
An undertaking from the Directors of the Public Limited Company to obtain prior clearance from the Bank before declaring any intend/final dividend.
Back to Back Letter of Credit (BTB): Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because of some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, ABBL keeps no margin. Sometimes there is provision in the export UC that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened. Payment of Back to Back LC: 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 ABBL. But if there is discrepancy, the ABBL sends it for collection. In case of BTB L/C, ABBL gives the payment to the beneficiary after receiving the payment from the UC of the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate. For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 3% to 5%. A schedule named Payment Order; Forwarding Schedule is prepared while making the payment. This schedule is prepared when the payment of UC is made. This schedule contains the followings:
•
Reference number of the beneficiary's bank and date.
•
Beneficiary's name.
•
Bill value.
•
Payment order number and date.
•
Equivalent amount in Taka.
Advance against Red-clause Letter of Credit: Under Red clause letter of credit, the opening bank authorizes the Advising Bank/Negotiating Bank to make advance to the beneficiary prior to shipment to enable him to procure and store the exportable goods in anticipation of his effecting the shipment and submitting a bill under the L/C. as the clause containing such authority is printed in red ink, the L/C is called Red clause and Green clause respectively. Though it is not prohibited, yet very rare in Bangladesh. Post Shipment Credit: This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises as the exporter cannot afford to wait for a long time for without paying manufacturers/suppliers. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through-. •
Negotiation of documents under L/C
•
Foreign Documentary Bill Purchase (FDBC)
•
Advances against Export Bills surrendered for collection;
Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods; a slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful prompt, systematic and indifferent while scrutinizing the documents relating to the export.
Foreign Documentary Bill Purchase (FDBC): Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. ABBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order. For this purpose, ABBL maintains a separate register named FDBC Register. This register contains the following information: •
Date
•
Reference number (FDBC)
•
Name of the drawer
•
Name of the collecting bank
•
Conversion rate
•
Bill amount both in figure & in Taka.
•
Export form number
•
Export L/C number
Advances against Export Bills surrendered for collection: Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. The bank generally negotiates bills drawn under L/C, without any discrepancy in the documents, and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property. 3.1.6 Export Documents Checking: General verification: -
•
L/C restricted or not.
•
Exporter submitted documents before expiry date of the credit.
•
Shortage of documents etc.
Particular verification: •
Each and every document should be verified with the L/C.
3.2 Import Section: Imports of goods into Bangladesh is regulated by the ministry of commerce and industry in terms of the Import and Export (Control) Act, 1950, with import policy orders issued by annually, and Public Notices issued from time to time by the office of the Chief Controller of Import and Export (CCI & E). Through the process of import some vital but which are inadequate in our country products are imported to meet the local needs of the people. 3.2.1 Import Mechanism 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. His requests o instructs the opening bank to open an L/C. Import may be allowed under the following sources of finance: (a) Cashi. Cash foreign exchange (balance of the foreign exchange reserve of Bangladesh Bank; ii. Foreign currency accounts maintained by Bangladeshi National working/living abroad. (b)
External economic aid.
(c)
Commodity exchange.
Procedures:An importer is required to have the following to import through ABBLi.
Applicant has to apply for opening LC by a prescribed form.
ii.
Applicant has to submit the Letter of Intent or Letter of Proforma Invoice. Letter of Intent: Many sellers have their agent in seller’s country. If the contract of buying is made between the buyers and the agent of the sellers then Letter of Intent is required. Letter of Performances Invoice: If the contract is made directly between the buyer and the sellers then Letter of Performances Invoice is needed.
iii.
Applicant has to submit IRC (Inventors Registration Certificate). certificate being renewed every year.
It is a
This certificate is necessary if the
contract is made between the buyers and the agents of the sellers. IRC is of two types - COM and IND. COM is given for commerce purpose and IND is given for industrial purpose. iv.
Applicant has to submit LCAF (Letter of Credit Authorization Form).
v.
Applicant has to submit insurance document.
vi.
Applicant has to prepare FORM-IMP.
vii.
Recently, there has been made a provision to give a certificate named TIN (Tax Payers
Identification Number).Taxation department issues this
certificate. viii.
Then after proper scrutiny bank will open an L/C. While opening L/C, importer must keep certain percentage of the document value in the bank as margin.
3.2.2 Procedure to Open an L/C:To open an L/C, the requirements of an importer are: •
He must have an account in ABBL.
•
He must have Importers Registration Certificate (IRC).
•
Report on past performance with other bank. ABBL collects this report from Bangladesh Bank.
•
CIB (Credit Information Bureau) report from Bangladesh Bank.
•
A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit.
•
If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one crore.
3.2.3 Letter of Credit: Foreign trade can be easily defined as a business activity, which crosses national boundaries. These may be between parties or government ones. Trade among nations is a common occurrence and normally benefits both the exporters and importers. Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economically profitable for the country to specialize in production of that commodity in which the producer country has the grater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc. These trades among various countries calls for lose linkage between the parties dealing in trade. The banks, which provide such transactions, are referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. And this flow of goods and payment are done through letter of credit (LC). • Letter of Credit: Letter of credit (L/C) can be defined as a "Credit Contract" whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. The Uniform Customs & Practices for Documentary Credit (UCPDC) published by international Chamber of Commerce (1993) Revision; Publication No. 600 defines Documentary Credit:
Any arrangement however named or described whereby a bank (the "issuing bank") acting at the request and on the instructions of a customer (the "Applicant") or on its own behalf. • To make a payment 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 • Authorizes another bank to effect such payment or to accept and pay such bills of exchange (Drafts) • Authorizes another bank to negotiate against stipulated documents provide that terms and conditions are complied with. 3.2.4 Types of Documentary Credits Documentary Credits may be either: (i)
Revocable or,
(ii)
Irrevocable.
Revocable credit: A revocable credit is a credit that can be amended or cancelled by the issuing bank at any time without prior notice to the seller. In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available, In the modern banking the use of revocable credit is not widespread. Irrevocable credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. This sort of credit is always preferred to revocable letter of credit. Sometimes, Letter of Credits is marked as either 'with recourse to drawee@ or 'without recourse to drawer'.
3.2.5 Parties for Letter of Credit: The parties are: •
The Issuing Bank,
•
The Confirming Bank, if any, and
•
The Beneficiary.
Other parties that facilitate the Documentary Credit are: •
The Applicant,
•
The Advising Bank,
•
The Nominated Paying/ Accepting Bank, and
•
The Transferring Bank, if any.
1. Importer - Seller who applies for opening the L/C. 2. Issuing Bank - It is the bank which opens/issues a L/C on behalf of the importer. 3. Confirming Bank - It is the bank, which adds its confirmation to the credit and it is don at the request of issuing bank. Confirming bank may or may not be advising bank. 4. Advising / Notifying Bank - is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit 5. Negotiating Bank - 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 also be confirming bank. 6. Paying / Accepting Bank - is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank. 7. Reimbursing bank - is the bank, which would reimburse the negotiating bank after getting payment - instructions from issuing bank. 3.2.6 Some Important Documents of L/C:
Forwarding: Forwarding is the letter given by the advising bank to the issuing bank. Several copies are sent to the issuing bank. All copies including original should be kept in the bank. Bill of Exchange: According to the section 05, Negotiable Instruments (NI) Act-1881, A "bill of exchange" is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay [on demand or at fixed or determinable future time] a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. It may be either at sight or certain day sight. At sight means making payment whenever documents will reach in the issuing bank. Invoice: Invoice is the price list along with quantities. Several copies of invoice are given. Two copies should be given to the client and the other copies should be kept in the bank. If there is only one copy, then its photocopy should be kept in the bank and the original copy should be given to the client. If any original invoice contains the custom's seal, then it cannot be given to the client. Packing List: It setter describing the number of packets and their size. If there are several copies, then two copies should be given to the client and the remaining should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original copy should be given to the client. Bill of Lading: Bill of Lading is the bill given by shipping company to the client. Only one copy of Bill of Lading should be given to the client and the remaining copy should be kept in the bank. Certificate of Origin: Certificate of origin is a document describing the producing country of the goods. One copy of the certificate of origin should be given to the client and the remaining copy should be kept in the bank. But if there is only one copy, then the photocopy should be kept in the bank and the original should be given to the client. Shipment Advice: The copy mentioning the name of the insurance company should be given to the client and the remaining copies should be kept in the bank. But if only one copy is given, then the photocopy should be kept in the bank and the original copy should be given to the bank.
3.2.7 Form - IMP This form is prepared for maintaining account of the money, which goes out side the country for the purpose of payment. This form is required by Bangladesh Bank. It is an application for permission under 4/5 of the Foreign Exchange Regulation Act, 1947 to purchase foreign currency for the payment of import. IMP - FORM has four copies: •
Original copy for Bangladesh Bank.
•
Duplicate copy for authorized dealers. It is issued for processing Exchange Control Copy of bill of entry or certified invoice.
•
Triplicate copy for authorized dealers' record.
• Quadruplicate copy for submission to the bank in case of imports where documents are retired. Following documents are sent with FORM-IMP: •
Letter of Credit Authorization Form(LCAF),
•
One copy of invoice,
•
Indent copy / performances invoice.
The following Information is included in the FORM-IMP: •
Name and address of the authorized dealer,
•
Amount of foreign currency in words and figures,
•
Names and address of the beneficiary,
•
L/C Authorization Form number and date,
•
Registration number of L/C Authorization Form with Bangladesh Bank, and
•
Description of the goods.
Accounting Treatment for Opening LIC.
For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening an L/C bank will create a contingent liability. In that case, the accounting posting will be the following-. Customers liability Contingent Liability Generally L/C is opened against some margin. •
Dr. Cr.
While paying the money by the issuing bank, issuing bank will reverse the above entry and the entry will be-
Contingent Liability Customers Liability •
Dr. Cr.
Then the issuing bank will give another entry-
Payment Against Document (PAD) AB General Account Exchange Gain
Dr. Cr. Cr.
PAD will debit because the bank will pay the money against some documents’ General Account is a miscellaneous account. It will be credited because by this entry ABBL creates a liability.
He has to pay the money to the advising bank. And the gain made by the
transaction is shown at Exchange Gain Account. All these entries are made after receiving some documents from the exporters. The above procedure is called Lodging. After giving the above entry, ABBL will inform the clients for collecting the documents from the bank. •
Importers will pay the due to the bank and collects the documents. In that case, the entry will be –
Party Account PAD Account
Dr. Cr.
After opening the L/C, ABBL (issuing bank) must receive the documents for any other proceedings. These documents are ---
i.
Bill of Lading,
ii.
Invoice,
iii.
Packing List,
iv.
Country of Origin.
3.2.8 Lodgment of documents: After receiving the documents from the exporters, at first ABBL write it in the PAD Registrar. PAD Register contains date, PAD number, L/C number, name of the drawer, name of the drawee, amount, number of copies of various documents, name of the imported items. This written procedure is called Lodgment. Accounting Application: While doing lodgment, ABBL makes the following entriesPayment Against Document (PAD) AB General Account
Dr. Cr .
Exchange Gain
Cr .
ABBL makes the payment to the reimbursing bank against the documents. That's why, it debts the PAD Account. For payment, ABBL deposits the money at the miscellaneous account @69.35 (current rate). And sends an Inter Branch Credit Advice (IBCA) to credit the amount to a nostro account maintained in a bank of exporters' country from which payment will be made. By this transaction, ABBL makes a profit @O. 1 5 per dollar. 3.2.9 Retirement of Documents:The process of collecting documents from bank by the importer is called retirement of the documents. The importer gives necessary instructions to the bank for retirement of the import bills or for the disposal of the shipping documents to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his current A/C.
3.3 FOREIGN REMITTANCES SECTION (INWARD & OUTWARD) Foreign remittance, in simple terms, means money remitted in foreign currency. More precisely, it is termed as remittances in foreign currency that are received in & made out abroad. Conceptual Issues International remittances are defined as the portion of migrant workers’ earnings sent back from the country of employment to the country of origin (ILO, 2000). Remittance can also be sent in kind. Transfers that take place in kind is quite difficult to measure. Remittances can be individual and it can also be collective. When, individuals send remittance to his/her household or kith and kin that can be termed as individual remittance. When a group of migrants, their associations or professional bodies oblige resource together and send for collective or community programs that can be termed as collective remittance. Individual remittances are mostly geared towards the family whereas collective remittances are generally used for community development. Transfer of remittances takes place through different methods. 46% of the total volume of remittance has been channeled through official sources, around 40% through hundi, 4.61% through friends and relatives, and about 8 percent of the total was hand carried by migrant workers themselves when they visited. TYPES:Two types of Foreign remittance:1. Foreign Inward Remittance 2. Foreign Outward Remittance
Wage Earners Remittance Inflows (Monthly) Year/Month 2008-2009 April March February January December
Remittances In million US dollar 781.71 808.72 689.26 710.74 635.34
In million Taka 53609.70 55445.80 47269.50 48742.50 43571.60
November October September August July 2007-2008 June May April March February January December November October September August July 2006-2007 June May
617.39 559.05 590.67 470.95 567.11
42383.80 38406.70 40579.00 32307.20 38926.40
516.38 557.02 543.74 537.29 500.32 462.55 555.08 598.73 377.34 466.00 471.22 412.80
35599.40 38495.70 37485.40 37040.80 34532.10 32235.10 38555.90 41857.20 25315.70 30310.20 32806.30 28751.50
429.13 487.24
29888.90 33829.00
Source : Foreign Exchange Policy Department, Bangladesh Bank From the trend analysis of wage earners remittance inflow we can see that the remittance is increasing day by day. In the month of July(FY’2006-07) the remittance inflow was 412.80 million dollar where as in the month of July(FY’2007-08) the inflow was 567.11 million dollar.
Wage Earners Remittance Inflows (Yearly)
Remittances In million US dollar 6430.94 5998.47 4802.41 3848.29 3371.97 3061.97 2501.13 1882.10 1949.32 1705.74 1525.43 1475.42 1217.06 1197.63 1088.72 944.57 849.66 763.91
Year/Month 2007-08* 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-2000 1998-1999 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91
In million Taka 441242.20 412985.29 322756.80 236469.70 198698.00 177288.20 143770.30 101700.10 98070.30 81977.80 69346.00 63000.40 49704.00 48144.70 43549.00 36970.40 32414.50 27256.20
*: data up to month of April of financial year 2007-2008. Source : Foreign Exchange Policy Department, Bangladesh Bank
19 91 -9 2
19 93 -9 4
19 95 -9 6
20 01 -0 2 19 99 -2 00 0 19 97 -9 8
20 03 -0 4
20 07 -
20 05 -0 6
7000 6000 5000 4000 3000 2000 1000 0 08
INCOME
WAGE EARNERS REMITTANCE INFLOW (IN DOLLAR)
YEAR
3.3.1 Foreign Inward Remittance 3.1 FOREIGN INWARD REMITTANCE
DEFINITION: The remittance of freely convertible foreign currencies which we are receiving from abroad against which the Authorized Dealers making payment in local currency to the beneficiaries may be termed as Foreign Inward Remittance.
MODE OF INWARD REMITTANCES (Also Outward Remittance): The following are the mode of Inward/Outward Remittances. i)
TT
=
Telegraphic Transfer.
ii)
MT
=
Mail Transfer.
iii)
FD
=
Foreign Drafts.
iv)
PO
=
Payment Order.
v)
TC
=
Travelers’ Cheque.
vi)
EFT
=
Electronic Fund Transfer
vii)
FCN
=
Foreign Currency Notes.
viii)
OLR
=
on line Remittances.
A remitter abroad simply has to approach a bank branch there with certain amount to be deposited beneficiary in Bangladesh either in foreign currency or in equivalent Taka currency. The Branch so approached abroad usually should have agency arrangement with the paying banks in Bangladesh. However, in the absence of any such agency arrangement, remittance may also be made by transferring cover value of the remittance to the paying bank’s account abroad by the remitting bank.
SOURCE OF INWARD REMITTANCE:i)
Expatriate Bangladeshis.
ii)
Exporters.
iii)
Visitors.
PURPOSE OF REMITTANCE: In short, remittances are being sent from abroad for the following purposes:•
Family maintenance
•
Indenting Commission
•
Recruiting Agents Commission
•
Realization of Export Proceeds
•
Donation
•
Gift
•
Export broker’s Commission etc.
PURCHASE OF DRAFTS & CHEQUES: Authorized Dealer may purchase Drafts & Cheques which are not drawn on AB Bank at the request of the beneficiary. COLLECTION PROCEDURES: To make entry in foreign bills Collection Register To prepare forwarding schedule. To prepare vouchers on realization. PAYMENT OF FOREIGN CURRENCY NOTES: Authorized branches of the bank are to make payment of F.C. notes in equivalent Taka currency at the prevailing rate (T.T. Clean buying rate). Generally, three foreign currencies namely U.S. Dollar, Pound Sterling and Euro are being bought and sold along with two other currencies like K.S.A. Riyal & Kuwaiti Dinar.
3.3.2 FOREIGN OUTWARD REMITTANCE DEFINITION: The remittances in foreign currency which are being made from our country to abroad is known as foreign outward remittance. PURPOSE OF OUTWORD REMITTANCE:•
To settle Import Payment.
•
To meet Travel Expenses/Medical Expenses/Educational Expenses etc.
APPROVAL OF BANGLADESH BANK Bangladesh is always in a scarcity of foreign exchange and foreign exchange business is restricted and controlled by the Central Bank of the country. For this reason Bangladesh Bank’s prior permission is required for any remittance to be made to outside the country. Bangladesh Bank provides permission/approval for outward remittances to the applicants who are to lodge an application for the purpose on the following prescribed forms with an Authorized Dealer who forwarded the same to Bangladesh Bank for approval.
i)
The IMP form (cover remittances for importers)
ii)
Form T/M (Traveling & Miscellaneous) Other than these two prescribed forms, Bangladesh Bank sometimes issue
permits know as Bangladesh Bank permit. CANCELLATION OF FD: For cancellation of any foreign draft which was issued earlier by the branch the following formalities to be observed: •
To receive an application from the purchaser.
•
To discharge on the reverse of the FD with Revenue Stamp by the purchaser.
•
“Received payment by cancellation”
•
The draft should be treated as a debit voucher & payment will be made by debit to concern Foreign Bank
•
To advise drawee bank/reimbursing bank regarding cancellation of Draft.
REPORTING TO BANGLADESH BANK REGARDING CANCELLATION: In the event of any remittance-which has already been reported to the Bangladesh Bank on the prescribed return being subsequently cancelled either in full or in part, the authorized dealer must report the cancellation of the remittance. The return in which the reversal of the transaction is reported should be supported by a letter giving the following particulars: •
The date of the return in which the inward remittance was reported.
•
The name and address of the beneficiary.
•
The amount of the purchase as effected originally.
•
The amount cancelled.
•
Reasons for cancellation.
Main Flow Currently, Saudi Arabia, UAE, Kuwait, Qatar, Oman, Iraq, Libya, Bahrain, Iran, Malaysia, South Korea, Singapore, Hong Kong and Brunei are some of the major countries of destination. Saudi Arabia alone accounts for nearly one half of the total number of workers who migrated from Bangladesh. Labour market of Bangladeshi workers is not static. During the 1970s Saudi Arabia, Iraq, Iran and Libya were some of the major destination
countries. While the position of Saudi Arabia remains at the top, Malaysia and UAE became important receivers. In mid-1990s, Malaysia became the second largest employer of Bangladeshi workers. However, since the financial crisis of 1997, Bangladeshis migrating to Malaysia dropped drastically. Now UAE has taken over its place. Over the past 25 years labor migration from Bangladesh has registered a steady increase. From 1990 onwards on an average 3,25,000 Bangladeshis are migrating on short-term employment, mostly to 13 countries. In the past the bulk of the migrants consisted of professional and skilled labor. However, the recent trend is more towards semi- and unskilled labor migration. Due to increase in the flow of unskilled and semi- skilled labor, remittance is increasing at a much lower rate than the labor flow. Remittance is crucial for Bangladesh’s economy. It constitutes almost one-third of the foreign exchange earning. About 25 percent of remittance senders were students when they went abroad and another 25 percent were living off their own land. A large segment of them were working as construction laborers overseas, another group worked as agricultural laborers. UAE, Saudi Arabia and Singapore constituted the most of important destinations of these migrants. One survey comments that
if the migrant workers’ total income abroad and the present
family income from other sources is combined and then compared with the pre- migration family income, it registers an increase in total income by 119 percent. On an average, the interviewee households annually received about Tk.72,800 as remittance. This means that a typical migrant remits 55.65 percent of his income. Remittance constitutes 51.12 percent of the total income of these families. Transfer of remittances takes place through different methods. 46 percent of the total volume of remittance has been channeled through official sources, around 40% through hundi, 4.61 percent through friends and relatives, and about 8 percent of the total was hand carried by migrant workers themselves when they visited. Contribution of Remittance to the national economy labour migration plays a vital role in the economy of Bangladesh. 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 (US $ 4.583 billion in 2003). However, if the cost of import of raw material is adjusted, then the net earning from migrant workers’ remittances is higher than that of the garments sector. In 2 003, net export earning from RMG should be between US$2.29-2.52 billion, whereas the earning from remittance is net US$3.063 billion. In fact, since the 1980s, contrary to the popular belief, remittances sent by the migrants played a much greater role in sustaining the economy of Bangladesh than the
garments sector.8 for the last two decades, remittances have been at levels of around 35% of export earnings, making it the single largest source of foreign currency earner for the country. This has been used in financing the import of capital goods and raw materials for industrial development. In the year 1998-99, 22 percent of the official import bill was financed by remittances (Afsar, 2000; Murshed, 2000 and Khan, 2003). The steady flow of remittances has resolved the foreign exchange constraints, improved the balance of payments, and helped increase the supply of national savings (Quibria 1986). Remittances also constituted a very important source of the country’s development budget. In certain years in the 1990s remittances’ contribution rose to more than 50 percent of the country’s development budget Government of Bangladesh treats Foreign aid (confessional loan and grants) as an important resource base of the country. However, remittances that Bangladesh received last year was twice that of foreign aid. Remittances have played a major role in reducing the extent of the country’s dependence on foreign aid. The contribution of remittance to GDP has also grown from a meager 1 percent in 19771978 to 5.2 percent in 1982-83. During the 1990s the ratio hovered around 4 percent. However if one takes into account the unofficial flow of remittances, its contribution to GDP would certainly be much higher. Murshed (2000) finds that an increase in remittance by Taka 1 would result in an increase in national income by Tk 3.33. Following the expiry of multi-fiber agreement (MFA), Bangladesh will face steep competition in export of RM. The country will cease to enjoy any special quota. It is apprehended that Bangladesh’s RMG export will decline sharply. This will result in loss of job of many workers and shortfall in foreign exchange earnings. Potential of retaining employment and export earnings through export of frozen fish, jute, leather and tea seems rather bleak. It is in this context labor migration has become key sector for earning foreign exchange and creating opportunities for employment. Therefore, the importance of migrant remittance to the economy of Bangladesh can hardly be over emphasized. Methods of Transfer Migrants use different methods in sending remittance involving both official and unofficial channels. Officially, transfer of remittance takes place through i)
TT
=
Telegraphic Transfer.
ii)
MT
=
Mail Transfer.
iii)
FD
=
Foreign Drafts.
iv)
PO
=
Payment Order.
v)
TC
=
Travelers Cheque.
vi)
EFT
=
Electronic Fund Transfer
ix)
Foreign Currency Notes.
x)
On line Remittances.
Hundi/ Money Courier is the most common among the unofficial channels of transfer. Hundi refers to illegal transfer of resource outside the international or national legal foreign currency transfer framework. Organized groups based in diverse cities such as London, New York, Dubai, Kuala Lumpur and Singapore conducts hundi operation through their partners in Bangladesh or From some countries remittances are sent by money gram. Besides this, other unofficial methods are, sending remittance through departing friends and relatives; personally hand carried by the senders themselves without declaration, and in the form of visa/ work permit for sell or family use. 3.3.3 Role of different institutes and instruments involved in foreign remittance Ministry of Finance Ministry of Finance (MOF) is the prime policy making body regarding banking and remittance. Macro-economic policies that affect exchange rate, monetary and fiscal mechanisms, foreign exchange reserve etc. are regulated by this ministry. Bangladesh Bank Bangladesh Bank (BB) is the central bank of Bangladesh. Among other powers and functions, BB regulates scheduled bank activities, acts as a clearing-house, maintains foreign exchange Reserves and monitors floating exchange rate mechanism in the current accounts. •
Bangladesh Bank encourages the nationalized and private banks to link up with foreign banks and exchange houses in the destination countries. It has a separate department for regulating and monitoring remittance entitled Foreign Exchange Policy Department (FEPD). It also generates analyses, interprets and distributes data on inflow of remittance.
•
Nationalize Commercial Banks Nationalized Commercial Banks (NCBs) of Bangladesh make direct banking facilities available at the doorsteps of Bangladeshi emigrants especially in those countries where a large number of Bangladeshis are employed. Four NCBs are deeply involved in remittance transfer. These are Sonali Bank, Janata Bank, Agrani Bank and Bangladesh Krishi Bank (BKB). Among the NCBs, BKB is solely targeted towards agricultural development in rural areas. Within Bangladesh these four NCBs have 2945 branches.
Through them they can disburse remittances even in distant areas. Besides their own branches, NCBs have opened exchange houses in joint collaboration with different banks and financial institutions in different countries of the world. Private Commercial Banks Private
Commercial Banks (PCBs) is also involved in remittance transfer. Of the PCBs, Islami Bank of Bangladesh Ltd. has been found to be most proactive in the area of migrants’ remittance. National Bank, International Finance and Investment Corporation (IFIC), Prime Bank and Uttara Bank are other private banks involved in remittance transfer. Most of their activities are in the Middle East. Saudi Arabia is the major working area of Islami Bank along with Qatar, Bahrain and UAE. National Bank is operating in Oman, Kuwait, UAE, Qatar, Bahrain and Saudi Arabia. IFIC has curved out a major niche in Bangladeshi community in Oman and has its largest share with 41 percent of the market. It also has branches and exchange offices in Nepal and some other Middle Eastern countries. Uttara Bank runs exchange house in Qatar in collaboration with a local financial institution. Corresponding Relationships In almost all countries of the world, both NCBs and PCBs have corresponding relationships with banks through which Bangladeshi migrants may easily send their money to their beneficiaries’ accounts with any branch of any bank in Bangladesh.
Exchange Rate Regimes in Bangladesh The rate at which one currency is exchanged for another currency in the foreign exchange market is called exchange rate. Until recent past, fixed exchange rate system was prevailing in Bangladesh in which case the central bank of the country could devalue the local currency. To better protect the external competitiveness of Taka and to enhance the resilience of the economy in responding to shocks, Bangladesh formally stepped over to market based exchange rate for the Taka from 31st May 2003 (Annual Report, BB, 2002-03). In this new system, the nominal exchange rate is set by the market forces but keeps discretion for the central bank to intervene in the foreign exchange market to keep the rate within certain limit of appreciation or depreciation. This is known as ‘managed float’ system. In this system, demand and supply primarily determine the exchange rate on a particular day. But Bangladesh Bank comes forward to keep the exchange rate within a certain limit of appreciation or depreciation by selling or buying the foreign currencies or by adopting some other measures. Floating Exchange Rate in Current Account In the year 2000, BB relaxed foreign currency dealing, allowing authorized dealers to transact dollars with Bangladeshi Bank. Earlier the banks were obliged to transact at certain fixed rates. In 2002, MOF has reformed exchange rate policy further. Foreign exchange in current
account has been made free floating. The Bank officials believe that a decision of allowing market to decide exchange rate in current account has help curb hundi business in a significant scale. Remittance Data and Monitoring BB maintains data on remittance transfer since 1972. Recently, it has introduced a method of weekly (provisional) data collection for understanding the trend of remittance. Currently, datasheets are prepared on bank and country wise. BB analyses and interprets the reports to identify remittance trends like increase or decrease. Comparative statement on performance of various NCBs is then distributed among banks; BB is now actively considering exchange house wise analysis and interpretation of remittance data. According to bank officials, this would lead to competitiveness among the NCBs and their exchange houses. BB has also determined annual minimum target for the exchange houses. The NCB’s have to ensure that their exchange houses meet those targets. Each exchange houses situated in USA should transact at least US $3 million. For UK exchange house, the target is 2 million GBP and for Canada, the target is US $2.5 million (BB, 2004). Complaint if a client face problem in transferring remittance or feel harassed, a system of lodging complaint to higher authorities has been established. Remitters may contact directly to the Secretary, Finance Division, Ministry of Finance or the Managing Director or Executives of concerned NCB to express their opinions or lodge complaints. Telephone and fax numbers and email addresses of relevant persons are provided in the website of BB, and also in the directory published by the five NCBs (Sonali, Janata, Agrani and BKB) engaged in remittance transfer. Investment Instruments Investment instruments are another effective mechanism for encouraging remittance through official channel. BB, NCBs and PCBs have developed different packages in this respect. From the government side, few packages were already there before 2001. Nonetheless, two new investment instruments have been launched at the end of 2002. In the following, some of the packages developed by all the three actors mentioned above are presented. Non-resident Foreign Currency Deposit (NFCD) Migrants can have a NFCD account in any branch of Bangladeshi and foreign banks that holds an authorized dealership license. The account can be opened for different periods: one month, three months, six months or one year in US dollar, pound sterling (PS), Canadian dollar (CD), German Mark (DM), Japanese Yen (Y) or Euro-currency (Euro). The minimum necessary balance must be US$1000 or PS 500 or their equivalent amount in currencies stated above. The accounts are renewable and can be maintained for an indefinite period even
after the return of the wage earner (migrants). One is also eligible to open an NFCD account with his/her savings within six months of one’s return to Bangladesh. The interest is determined in terms of interest accounted on the value of Eurocurrency. The interest accrued is tax-free. The capital and interest of NFCD account is also transferable in Bangladeshi taka to the current exchange rate. There is also the provision to withdraw the capital money before the expiry of the period specified but in that case one will not receive the interest. The central bank also allows investment of NFCD funds in remunerative business projects to allow payment of competitive interest rates to account holders. NFCD forms are available in Bangladeshi missions abroad. In order to make the schemes popular among the migrants, BB has gradually simplified the formalities with regard to NFCD. Only photocopy of passport, signature or a certification from a notary public is sufficient to open such an account. As far as the campaign to market these instruments is concerned, Bangladesh Bank is engaged in regular contacts with the missions abroad. Wage Earners’ Development Bond The remittance of Bangladeshi migrants abroad can be invested in Bangladeshi currency in five-year Wage Earners’ Development Bond. The bonds are available in different denominations: Tk. 1000, Tk. 5000, Tk. 10,000, Tk. 25,000 and Tk. 50,000. The Bonds are issued for specific periods. The profits are invested in Bangladesh and the bonds accrue an annual interest of 12% (as of 28.11.2000). If a bondholder wants to enc ash them before the expiry of the term s/he would be entitled to get interest at a reduced rate. The capital money of the investment is freely transferable abroad in foreign currency. The interest is tax free. The Bond is available at National Savings Bureau offices, branches of Bangladeshi banks abroad and Bangladesh missions abroad. Non resident Taka Account (NRTA) One can open a NRTA by the money remitted from abroad for investment in the share and securities of the capital market of Bangladesh. Such an account may be opened in any dealer branch of an authorized bank. The current balance of NRTA is transferable in foreign currency to any country any time. One can buy share and securities from stock exchange with the balance of NRTA and the money earned as dividend and shares and securities sold may be saved in NRTA. The capital and profit money is tax exempt and the bank directing the account can work as nominee. US Dollar Investment Bond 2002 The IRD of the MOF introduced the US Dollar Investment Bond, 2002 in 16 October 2002 as an investment instrument in foreign currency for Bangladeshi emigrants (GOB,
2002). Eligibility for the bond: It provisions for issuing US Dollar Bond in the name of a holder of a non-resident account against remittances from abroad to the account. Maturities, denomination etc. The US Dollar Investment Bond(s) shall be matured for payment after completion of three years form the date of its issue. The Bond holder will be entitled to draw interest on half-yearly basis at 6.5 percent fixed rate per annum in US Dollar. However, the Bond holder may surrender the Bond(s) before maturity and encash the same at the paying office in which case interest will be paid as under: a. No interest for encashment within 1 year of issue; b. 5.5 percent interest for encashment after completion of 1 year but within 2years; c. 6 percent interest for encashment after completion of 2 years but within 3 years; and d. 6.5percent interest for encashment after completion of 3 years. The Bond(s) shall be issued in the denominations of US $500, $1000, $5000, $10000 and $50000 and in such other nominations as the government may decide. The principal and interest will be payable in US Dollar to the holder or his/her nominee. The money invested in the purchase of Bond(s) shall be exempt from tax payable under the Income Tax Act, 1922. Nominee after death: If the Bond holder dies, the nominee will be able to draw the principal and the interest in US Dollar if he/she is non-resident. If the nominee is resident, the principal and the interest is payable in Bangladesh currency. Method of payment for the bond: Payment for the purchase of a Bond can be made either by cheque or draft in foreign currency received against inward foreign exchange remittance, or by funds heeled in non-resident foreign currency account of the applicant. Additional benefit for substantial investment: If a purchaser buys bonds totaling US $ 1,000,000 (one million) or above in value, he/she will be treated Commercially Important Person (CIP) and will be entitled to all the facilities accordingly. The CIP facilities will cease to apply if the purchaser’s investment in this bond goes below US $ 1,000,000 (one million) because of subsequent encashment and on his/her failure to retain the limit of US $ 1,000,000 (one million) through further investment in the Bond within 3 months of encashment. US Dollar Premium Bond 2002 The US Dollar Premium Bond is the most recent investment instrument in foreign currency introduced for Bangladeshi emigrants by the IRD, MOF. It was announced in October, 2002 and became applicable from the next month (GOB, 2002a). Maturity, denomination, etc.: The US Dollar Premium Bond(s) shall be matured for payment after completion of 3 years from the date of its issue. The Bond holder will be entitled to draw interest on half-yearly basis at 7.5 percent fixed rate per annum in Bangladesh currency at the USD/BDT rate. However, the Bond holder may surrender the Bond(s) before maturity
and encash the same at the paying office in which case interest will be paid as under: a. No interest for encashment within 1 year form the date of issue; b. 6.5 percent interest for encashment after completion of 1 year but within 2 years; c. 7 percent interest for encashment after completion of 2 years but within 3 years; and, d. 7.5 percent interest after completion of 3 years. The Bond(s) shall be issued in the denominations of US $500, $1000, $5000, $10000 and $50000 and in such other denominations as the government may decide. The principal amount will be payable in US Dollar to the holder of his/her non-resident nominee, where applicable. The principal amount due to the holder or his/her nominee may also be paid in Bangladesh currency as per option of the holder/nominee. However, interest amount shall be paid only in Bangladesh currency. Eligibility: The Bond can be issued to a ‘Non-resident account holder’ that means an FC account holder who is a Bangladeshi national residing abroad or a Person of Bangladeshi Origin (PBO) who has assumed foreign nationality and is residing abroad. Issuing authority: The ‘Issuing Authority’ of the Bond is the BB and the scheduled bank branches/authorized dealers in Bangladesh and their authorized offices abroad and shall include any such authority as the government may, from time to time determines. A foreign correspondent of an Authorized Dealer Bank may also act as an office of issue. Regulatory Instruments There are two regulatory instruments that apply to remittance. These are Foreign Exchange regulation Act, 1947and Money Laundering Prevention Act, 2002. Foreign exchange regulation act is operational for a long time, whereas Money Laundering Prevention Act is a recent creation. Authorized foreign exchange dealers: The act provisions authorized dealers in foreign exchange. It restricts foreign exchange dealings like buying, borrowing, selling, lending, conversion etc. by any person other than an authorized dealer. Penalty, prosecution and tribunal: The act provides for jail sentence of maximum 2 years and/or fine equal to the amount decided by court as punishment for violation of the act. Power to call information: The act entitles government or BB to call for any kind of information with regard to any matter of foreign exchange by any person. Power of inspection: The act entitles government or BB to inspect books of accounts and other documents of any person, firm or business organization over foreign exchange. Export of foreign currency: The Notification No. FE 1/94-BB dated 12 November 1994 permits any person, at the time of departure, take out Bangladeshi currency of Tk.500/- value. Import of
foreign currency: The Notification No. FE 2/94-BB dated 12 November 1994 permits any person to bring into Bangladesh from any place outside US $5000 or equivalent in foreign exchange and/or Tk.500/- in Bangladeshi currency without declaration. If the amount of money brought is more than the said amount, the concerned person has to make a written declaration to the Customs Authority at the time of arrival, in the form prescribed by BB. Implementing agency: Bangladesh Bank is the implementing agency of the act. It has a specific department entitled ‘Foreign Exchange Policy Department’ for supervising all kinds of foreign exchange matters including foreign remittance. Evaluation: Foreign Exchange Regulation Act, 1947 is an all encompassing legislation that over’s all kinds of foreign exchange transfer. This act was does not have any specific section on migrant remittance. Under the broad umbrella of the act, the Foreign Exchange Policy Department has framed guidelines to manage remittance movement. Currently there are 16 cases under this act. But none of them are related to migrant remittance. Money Laundering Prevention Act, 2002 The Money Laundering Prevention Act, 2002 received the consent of President to became a law on 5 April 2002. The act was amended in 2003(BB, 2003). The act understands 'Money Laundering' as illegally earning or gaining resources directly or indirectly and as perpetrating or assisting in illegal transfer, conversion or concealing position of legal or illegal resources earned or gained directly or indirectly. Responsibilities and powers of BB in prevention: The BB is entrusted with the responsibility of suppressing and preventing money laundering crimes by implementing the act. Bangladesh Bank has an Anti-Money Laundering Department who has the following responsibilities: •
Investigating money laundering crimes;
•
Supervise and observe activities of banks, financial institutions and other bodies involved in financial activities;
•
Calling up report on money laundering from banks, financial institutions and other bodies involved in financial activities;
•
Reviewing the aforementioned reports and act accordingly;
•
Train officers and staffs of banks, financial institutions and other bodies involved in financial activities; and
•
Conducting other activities required for fulfilling the objectives of the act.
Power of investigation: BB or a person empowered by BB can investigate money laundering crime(s). All money laundering investigations are initiated by BB. If a case concerns a bank official, BB conducts the whole investigation. But if the alleged perpetrators are general people, BB gives power to police/CID/Bureau of Anti-corruption etc. to investigate the case. It often happens that police or other law enforcement agency comes across a money laundering crime. Then they request BB to empower them to investigate and she obliges. Reasons of launching money laundering investigation: Money laundering investigation can be launched for a number of reasons: absence of source or destination of money in a bank transaction; imbalance of a transaction with the known earning of the account holder; suspicious TT; hundi; money recovered from public place like road, rail station, port or airport; complaint from bank(s), other financial institution(s) or law enforcement agency/agencies. Money laundering court: Trial of money laundering cases will take place in a session court. Any session court will be considered as money laundering court while trial of a money laundering case is underway in the court and the judge hearing the case will be called money laundering court judge at that point of time. Punishment for money laundering: A person can be given a minimum of 6 months to a maximum of 7 years jail sentence along with fine worth double the amount of money involved for money laundering. International agreements: The act provides scope for entering into agreements with foreign governments to fulfill its objectives. After it came into being, Bangladesh was approached by Thailand last year for an agreement to prevent inter-state money laundering. But that agreement stipulated for existence of Financial Intelligence Unit (FIU) which Bangladesh is yet to have. Formation of FIU is currently under active consideration of government. Evaluation: Bangladesh is the first South Asian nation to have specific law for prevention of money laundering and money laundering court for trial of such cases. Pakistan and Sri Lanka is yet to establish such specialized laws and courts to deal with money laundering. India has framed money laundering law in 2003. Since introduction of the act, BB received around 300 complaints of money laundering. After investigation, 17 of them turned out to be criminal offences. All 17 cases are currently under trial. However, in general, prosecution process in Bangladesh is extremely slow paced. In many instances, cases remain unresolved for decades. For effective implementation, prosecution process has to be streamlined, of course, maintaining due course of law. 3.3.4 REMITTANCE TRANSFER PROCESS: The modes of transfer of remittance are as follows:
1) Instant draft sent by expatriates 2) EFT i.e. Electronic Fund Transfer a. Through SWIFT b. Modem to modem fund transfer c. Through E-Mail The expatriates sent instant draft through courier or any friend or family member who will visit to the home country.
The expatriate sent money through electronic fund transfer
process. It may be through swift or it may be through E-Mail. The contracted exchange house or bank help the expatriate to sent the remittance to the country by taking some service charge. SWIFT: Wage earners branch of AB Bank Ltd. get the message file from remittance sending country. The message file is then decrypted and process through swift. MODEM TO MODEM: Specially SECI of AB Bank Ltd send the remittance through their host modem and the other modem of SECI section of Head Office, AB Bank Ltd trace the remittances send by the SECI, New York, USA. E-MAIL: After receiving the mail from foreign country from where the contracted exchange houses or banks send the remittance through E-Mail to wage earners corporate branches or concerned branch of AB Bank Ltd. Then the responsible officer process the encrypted file and the remittance file send to the Concerned principal offices or corporate branches and they process the file through RMS program by taking print out of transfer responding advice/voucher and the responsible officer credited the remittance to the beneficiaries account. 4.1 REMITTANCE: Foreign remittance means remittance of foreign currencies from one place/person to another place/person. In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of Import, Export, Travel and other purposes. However, specifically foreign remittance means sale & purchase of foreign currencies for the purposes other than export and import. As such, this chapter will not cover purchase & sale of foreign currencies on account of Import & export of goods. All foreign remittance transactions are grouped into two broad categoriesII. III.
Outward remittance & Inward remittance
4.1.1 Inward Remittance: The term inward remittance includes not only purchase of foreign currency by TT, MT, Drafts etc. but also purchase of bills, purchase of traveler’s cheques. Two forms are 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. Form C: Inward remittances equivalent to US$ 2000/- and are 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
NAME OF THE EXCHANGE CO.
SL NO
Bank/exchanage 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
AL Amodi Exchange Co., K.S.A AL Ansari Exchange Co. U.A.E AL Musa Exchange Co. Kuwait AL Mullah Exchange Co.Kuwait AL Omari Exchange Co. K.S.A AL Muzaini Exchange Co.,Kuwait AL Raji Exchange Co.,K.S.A AL Commercial Bank,K.S.A Arab National Bank , K.S.A Bahrain Exchange Co. Kuwait Bahrain Exchange Co.Bahrain Bank AL Bilad,K.S.A Bank of Muscat City Bank NA City International Exchange Co.,Kuwait Dalil Exchange Co.Kuwait Daulat Interprise,Canada Dollar Co Exchange Co.,Kuwait Eastern Exchange Co.,Qatar Eastern Union & Ex Co. Oman Gulf Overseas Exchange Co.Oman Habib Exchange Co.,U.A.E Indian Bank Baharaj,Singapore Injaz Money Exchange,K.S.A Kuwait Bahrain Int. Exchange Co.,Kuwait Kuwait Overseas Mashreq Bank, U.A.E National Bank of Oman National Money Exchange,Kuwait Oman Int. Exchange Thomas Kook Al Rostamani Exchange Co.U.A.E Trust Exchange Co.Qatar U.A.E Exchange Co.,Kuwait U.A.E Exchange Co.Dubai Wall Street Exchange Co.U.A.E Zenj Exchange Co.Bahrain
Balance Tk
Foad
Nrat A/C
042 039 043 038 027 036 015 029 045 017 016 044 011 NIL 008
33027066 33025342 33028683 33024955 33016498 33024732 A-693 33017587 33028873 B-110 B-109 33028808 C-25 33024872 C-25
034 040 019 EE-1 049 013 028 048 041 014
33023214 33025813 D-103 E-13 33029475 G-49 33017455 33029293 33025846 K-121
023 NIL 007 026 050 003
33012803 B16 N-99 33016176 33029632 O-06
009 032 046 037 030
3291 33020855 33029244 33017975 33017975
Bank officials concerned. Name of the Foreign Bank dealing with ABBL. SL. NAME OF BANK NO 01 STANDARD CHARTERED BANK NY 02 AMERICAN EXPRESS BANK NY 03 CITI BANK N.A.NY 04 HSBC BANK, USA, NY 05 06 HABIB AMERICAN BANK, NY 07 ACU DOLLAR 09 BANK MELLI , IRAN 10 BANK OF CELON,SRILANKA 11 MAYANMAR FOREIGN TRADE BANK LTD. 12 13 STANDARD CHATERED BANK,KARACHI 14 BANK OF BHUTAN,BHUTAN 1. Foreign Currency (Bank) Notes General Principles and Precautions •
Branches may freely buy foreign currency notes from Bangladesh as well as foreign nationals.
•
Currency notes, especially notes of higher denominations, i.e. US $ notes of 50 and 100 denominations, should be checked carefully to ascertain their genuineness.
•
Foreign Exchange Department shall maintain currency wise F.C. in hand Control Ledger to record each day’s transactions.
•
On the last working day of each month the branch shall calculate the exchange gain or loss and carry out necessary adjustment in the control ledger.
•
Foreign currencies shall be purchased at the rates instructed by the Head Office,
Accounting Entries: For purchase of foreign currency notes
FC in hand A/C for FC amount @ FC (Cash) Buying rate Cash A/C or Party’s A/C for payment to the customer at the same rate
Dr. Cr.
For payment to the customer’s FC A/C FC in hand A/C for FC amount @ FC (Cash) Buying rate Customer’s FC A/C @ TT clean (buying) rate Income A/C (Difference between the two rates) Month end adjustments
Dr. Cr. Cr.
If there is gain on conversion of the FC in hand at TT clean buying rate, the vouchers to be passed are as follows: FC in Hand (Control Ledger) at TT clean buying rate Dr. Income A/C - Exchange Earnings Cr. If, however, there is loss on conversion of FC balance, the vouchers will be as follows: Expenditure A/C—Exchange loss FC in hand (Control Ledger) 2. Travelers’ cheques:
Dr Cr
Payment against TCs The customer tendering the Travelers’ Cheques should be asked to sign the TCs at the designated places in front of the concerned bank official who would satisfy himself about its genuineness with reference to the customer’s signature already appearing on the TCs and his passport. Should there be any doubt; purchase contracts of the TCs may be asked for. The vouchers will be passed as follows: FBP Clean A/C for FC amount @ TC buying rate
Dr
Cash / Party’s A/C at the same rate minus charges
Cr
Collection of Proceeds of Enchased TCs Enchased TCs should be sent to the relevant foreign correspondent for collection and crediting the proceeds to the Head Office’s Nostro A/C. On receipt of the credit advice from the foreign correspondents the following vouchers are to be passed. HO (relevant Nostro A/C) at ready buying rate
Dr.
FBP for outstanding amount
Cr.
Income A/C (Exchange difference).
Cr.
3. TCs and Foreign Drafts received on Collection Basis (FOBC) After observing the usual formalities, the branch, on transmission of the instruments abroad for collection, will pass a contra liability voucher at the TT (clean) buying rate, as follows:
Customer’s liability (FBC) at the TT (clean) buying rate Customer’s liability (FBC) at the TT (clean) buying rate
Dr. Cr.
On receipt of credit advice from the correspondents, the branch will reverse the contra liability voucher as follows: Banker’s liability (FBC Lodged) at the TT (clean) buying rate
Dr.
Customer’s liability (FBC) at the TT (clean) buying rate
•
Cr.
Simultaneously, the following vouchers are to be passed:
AB General Account HO (ID)-Relevant Nostro Account (@ TT clean rate
Dr.
Cash / Party’s A/C / Cash (@ TT Doc rate) Income A/C Exchange earning (difference between TT (doc) &
Cr. Cr.
Ready buying rate) Income A/C Commission Postage, (if any) 4. Foreign Drafts and Cheques:
Cr.
The branch should exercise due care and ordinary prudence for purchase of foreign currency denominated drafts, cheques and similar kinds of instruments. The instrument should not be purchased unless the customer is well known to the branch as a regular trustworthy client. An Indemnity Bond should be obtained for refund of the money along with interest in the event of dishonour of the instruments. Indemnity need not be obtained in case of instruments against which proceeds have already been credited to the bank’s Nostro account. The accounting vouchers will be as follows:
•
If the instrument is drawn on the bank’s branch and the cover amount already paid by the issuing bank into the bank’s Nostro account the vouchers will be passed at TT (clean) rate.
AB General Account HO (ID) Relevant Nostro A/C) @ TT
Dr.
(clean) rate Party’s A/C / Cash
Cr.
Income Account--Commission as per schedule
Cr.
•
For outright purchase of the instrument without cover fund having been credited to Nostro A/C, the vouchers to be passed as follows at OD (transfer) rate-
FBP at OD (transfer) rate
Dr.
Cash /Party’s A/C
Cr.
Income A/C commissions, as per schedule
Cr.
Income A/C postage
Cr.
•
On receipt of cover in Nostro A/C in due course of time at TT (clean) rate-
AB General A/C: HO ID) (at ready buying rate) Nostro
Dr.
FBP for outstanding amount
Cr.
Income A/C Exchange gains on FC (difference between the two)
Cr.
•
For collection of drafts/Cheques i.e. without payment of value to the customer at TT (doc) buying rate-
Customer’s liability (FBC) at TT (doc) buying rate Banker’s liability ( FBC)
•
Dr. Cr.
On receipt of proceeds to the bank’s Nostro A/C the vouchers shall be passed at the TT(clean) rate:
AB General Accent HO (ID)- (Nostro A/C) at TT ready
Dr.
buying rate Party’s A/C / cash at TT (doc) buying rate Income A/C Exchange gains on FC (Difference between two
Cr. Cr.
rates) Commission, (if any)
Cr.
•
Simultaneously, the branch will reverse the contra liability voucher as follows-
Banker’s liability (FBC Lodged) Customers liability (FBC) 5. Telegraphic Transfer (T.T)
Dr. Cr.
Test number appearing on the TT must be checked and authenticated by the concerned official. After receiving confirmation from the Head Office about the proceeds having been credited to their Nostro A/C and observing the usual formalities including declaration on Form ‘C’, if necessary, the vouchers are to be passed at the TT buying rate as follows; •
For payment to customer’s A/C or cash-
AB General A/C: HO ID) (Nostro A/C) at ready buying rate Party’s A/C / Cash or Payment Order at TT buying less
Dr. Cr.
commission and charges as per schedule Income A/C exchange on FC amount at difference between
Cr.
ready buying rate and TT clean buying amount Taxes / VAT, (if any) Income A/C-commission TT Foreign
Cr. Cr.
•
For Credit to FC A/C-
AB General A/C: HO ID for FC amount at TT (clean) buying rate Customers FC A/C (at the same rate) 4.1.2 Miscellaneous Services Given by This Department: Student file NRIT Account
Dr. Cr.
Students who are desirous to study abroad can open file in the bank. By opening this file. Bank assures the remittance of funds in abroad for study. ‘Non-resident Investor’s Taka Account is an account by which Non-resident Bangladeshi can deposit foreign currency for investment in security of stock exchanges. For such account holders, 5% of primary shares are reserved.
F.C. Account
NFCD
Foreign Currency Accounts are opened in the names of Bangladeshi nationals or persons of Bangladeshi origin working or self-employed in abroad and are maintained as long as the account holder’s desire. Stands for Non-resident Foreign Currency Deposit
RFCD Accounts
Eligible persons may open such accounts even after their return to Bangladesh, within six months of their arrival. Stands for Resident Foreign Currency Accounts Persons ordinarily resident in Bangladesh may maintain foreign currency accounts with foreign exchange brought in at the time of their return to Bangladesh from visiting abroad. Balance of such accounts is freely remittable to abroad.
FOREIGN INWARD REMITTANCE: One of the strategic links of international trade financing of the bank is the inward remittance. Towards the end AB bank strengthened the existing remittance relationships with various exchange house. Besides AB signed an agreement with RIA an exchange house having extensive presence world-wide to enhance the remittance network. AB bank is also focusing on enhancing the customer service windows through the existing 70 branches network. Besides an ATM based remittance network, predominantly on card base, is being worked upon through the proposed IT joint venture with few other banks of the country. Corporate clients of AB remain another major source of foreign currency. Bank is also trying to broaden its base through solicitation of indigenous export clients. Total remittance at the end of the year stood at USD million 156.36 registering a growth of nearly 19 percent over last year. YEAR 2003 2004 2005 2006 2007
INWARD REMITTANCE 73.65 83.47 115.41 131.64 156.36
INWARD REMITTANCE
VALUES
200 150 INWARD REMITTANCE
100 50 0 2003 2004 2005 2006 2007 YEAR
Year wise Foreign inward remittance target & achievement there against k.
USA UK Middle East
KSA
2008 Target Achievement % Up to April. 08. $72. 59 498.40 $50 . 21 344.69 $232.40 1595.71
KUWAIT UAE OMAN BAHRAIN, IRAN, IRAQ & QATAR TOTAL Others Total
Tk 9038.00 $1321.0 0
2007 Target Achievement . $ 215 $ 184 $ 694
$67.14 460.86 $19.12 131.29 $6.12 42.29 $7.24 49.67
$ 174
$332.02 2279.52 $8.60 58.64
$ 961
$463.42 3181.65
$ 1380
$ 42 $ 28 $ 23
$ 20
$199.65 1366.48 $243..08 1663.82 $453.46 3103.81 $174.76 1196.18 $48.22 330.05 $24.68 168.93 $22.98 157.29 $724.10 4956.26 $20.31 139.02 $1187.14 8125.65
Branch wise Yearly Remittance Position of SECI Figures in Million U.S. Dollar. Year / Manh Name -attan of Branc h
Jackso n Height s
Brookl yn
Astori a
Los Angel es
Atlan ta
Detroit Michi gan opene d on 2002
Paters on N.J opene d on 2003
Total achie Targe vt ement
2000
131.4 7
32.14
16.82
9.88
7.00
1.25
-
-
198.5 6
150.0 0
2001
38.15
38.34
23.40
11.84
9.53
3.35
-
-
124.6 1
160.0 0
2002
41.94
64.62
32.67
23.07
18.58
7.38
0.13
-
188.3 9
189.0 0
2003
29.76
51.94
19.87
20.20
16.76
11.03
4.78
1.12
155.4 6
209.0 0
2004
20.39
53.04
19.26
20.45
16.31
12.35
6.99
3.40
152.1 9
200.0 0
2005
23.38
58.20
21.17
21.13
18.62
12.96
9.09
5.11
169.6 6
175.0 0
2006
22.49
58.99
17.78
21.36
18.62
12.62
9.18
5.01
166.0 5
180.0 0
2007
22.78
61.20
15.79
23.05
21.18
13.34
7.12
5.75
170.2 1
178.0 0
NOTE: Official Remittance of Manhattan branch for 2000 was 106.01 million Dollar and 2001 was 11.80 million Dollar
Branch wise Monthly Remittance Position of SECI, USA for the year-2008. Figures in Million U.S. Dollar Month/
Manh
Jackson
Brookl
Astori
Los-
Atlanta
Detroit Paters Total
Branch Name Jan.08
a-ttan
Heights
yn
a 1.76
Angele s 1.98
2.35
4.63
1.36
Feb.08
2.06
4.76
Mar.08
2.62
Apr.08
on 1.13
0.87
0.38
14.46
1.07
2.26
1.67
1.09
0.84
0.48
14.23
5.76
1.24
2.19
2.31
1.51
0.89
0.62
17.14
2.09
5.14
1.23
2.21
1.92
1.40
0.85
0.51
15.35
May.08
2.44
5.68
1.31
2.45
2.08
1.61
0.78
0.55
16.90
June,08
2.00
4.57
1.32
1.86
1.63
1.18
0.59
0.47
13.62
July,08
1.97
4.67
1.19
1.97
1.91
1.34
0.64
0.44
14.13
4.1.3 Outward Remittance: 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. Two forms are used for Outward Remittance of foreign Currency such as: IMP Form: All outward remittance on account of Imports is done by this form T.M Form
: For all other outward remittances form T.M is used.
A. Private Remittance: 1. Family remittance facility: a) Foreign Nationals working in Bangladesh with approval of the Government may remit through an Authorized Dealer 50% of Salary and 100% of leave salary as also actual savings and admissible person benefits. No prior approval of Bank is necessary for such remittance, b) Remittance of moderate amounts of foreign exchange for maintenance abroad of family members (spouse, children, parents) of Bangladesh Nationals are allowed by Bangladesh Bank on written request supported by certificate from the Bangladesh Mission in the concerned country.
2. Remittance of Membership fees/registration fees etc. Authorized Dealer may remit without prior approval of Bangladesh Bank, membership fees of foreign professional and scientific institutions and fees for application registration, admission, examination JOEFL, SAT etc.) in connection with admission into foreign educational institutions on the basis of written application supported by demand notice/letter of the concerned institution. 3. Education: Prior permission of Bangladesh Bank is not required for releasing foreign exchange in favor/on behalf of Bangladesh students studying abroad or willing to proceeds abroad for studies. Authorized Dealers shall allow exchange facilities for this purpose according to the following drill: •
Application duly filled in by the student as per prescribed format of Bangladesh Bank.
•
Original and photocopy of admission letter issued by the concerned institution in favor of the student.
•
Original and photocopy of estimate relating to annual tuition fee, board and lodging
•
Incidental expenses etc. issued by the concerned institutions.
•
Attested copies of educational certificates of the applicant and
•
Valid passport.
4. Remittance of Consular Fees: Consular fees collected by foreign embassies in Bangladesh Taka and deposited in a Taka Account maintained with an AD solely for this purpose may be remitted abroad without prior approval of Bangladesh Bank. 5. Remittance of evaluation fee:
Authorized Dealer's without prior approval of Bangladesh Bank may remit evaluation fee on behalf of Bangladeshis desiring immigration to foreign countries for getting educational certificates of the person concerned evaluated by a foreign institution. A demand note of the foreign immigration authority is required for this purpose. 6. Travel: Private travel quota entitlement of Bangladesh Nationals is set at US$3000/- per year for visit to countries other than SAARC member countries and Myanmar, Quota for SAARC member countries and Myanmar is US$1000/- for travel by air and US$500/-for travel by overland route. Authorized Dealers may release this travel quota in the form of foreign currency notes up to US$500/- or equivalent and balance exchange in the form of TCs or total quota in the form of TCs the annual quotas mentioned above are for adult passengers. Fore minors (Below 12 year in age) the applicable quota will be half the amount allowable to adults. Authorized Dealers may release above travel quota without prior approval of Bangladesh Bank subject to observation and satisfaction of following points: •
The intending traveler is a customer of the AD bank or is sufficiently well known to the AD Bank or the intending traveler has paid relevant Travel Tax. The intending traveler has a valid passport.
•
The AD should verify and satisfy itself that any foreign exchange released for an earlier travel was utilized with the journey being actually undertaken or was duly enchased unutilized.
•
The intending traveler is in possession of confirmed air ticket for journey to be undertaken and that the intended journey to be undertaken not later than two weeks after the date on which exchange is issued.
•
The amount releases is endorsed on the passport and air ticket of the traveller with indelible ink, with the signature and the name of the AD branch embossed in the passport and ticket. However, while issuing foreign exchange to the Diplomats/ privileged persons/ UN personnel, Govt. Officials travelling on officials' duties, such endorsement in the passports need not be made.
•
In each case of release of foreign exchange for travel abroad, photocopies of first six pages of the passport s and the page recording endorsement of foreign exchange and photocopies of the pages of ticket showing name of the passenger, route and date of
journey and endorsement of foreign exchange along with the relative T.M. form should be sent to Bangladesh Bank along with monthly returns. 7. Health & Medical: Authorized Dealers without prior approval of Bangladesh Bank may release foreign exchange up to US$10,000/- for medical treatment abroad on the basis of the recommendation of the medical Board set up the Head Directorate and the cost estimate of the foreign medical institution. Applications for release of exchange exceeding US$10,000/- should be forwarded along with supporting documents to Bangladesh Bank for prior approval. 8. Seminars & workshops: Without prior approval of Bangladesh Bank AD may release US$200/- per them and US$250/- per them to the private sector participants for attending seminars, conferences and workshops organized by recognized International bodies in SAARC member countries or Myanmar
and
in
other
countries
respectively
for
the
actual
period
of
the
seminar/workshop/conference to be held on this basis of invitation letters received in the names of the application or their employer institutional. 9. Foreign Nationals: •
The Authorized Dealers may issue foreign currency TCs to foreign nationals without any limit and foreign currency notes up to US$300/- or equivalent per person against surrender of equivalents amounts in foreign currencies. The TCs and foreign currency notes should however, be delivered only on production of ticket for a destination outside Bangladesh and the amount issued should be endorsed on the relative passports.
•
Authorized Dealers may allow recon version of unspent Taka funds of foreign tourists into foreign exchange on production of the encashment certificate of foreign currency. Recon version shall be allowed by the same AD with which the foreign currency was encashed earlier. AD should retain the original encashment certificate and relative forms where reconversion exceeds US$5000/-.
10. Remittance for Haji:
Authorized Dealers may release foreign exchange to the intending pilgrims for performing Hajj as per instructions/circulars to be issued by the Bangladesh Bank each year. 11. Other Private remittance: Applications for remittances by private individuals for purposes other than those mentioned above should be forwarded to Bangladesh Bank for consideration & approval after assessing the bonafide of the purpose of remittance on the basis of documentary evidence submitted by the applicant. B. Official & Business Travel: 1. Official Visit: For official or semi officials visits abroad by the officials of govt., Autonomous/Semiautonomous institutions etc., Authorized Dealers may release foreign exchange as per entitlements fixed by the Ministry of Finance from time to time, In such cases, the applicant for foreign exchange shall be required to submit the sanction letter and the competent authority's Order/Notification/Circular authorizing the travel. 2. Business Travel Quota for Now Exporters: Up to US $6,000/- or equivalent may be issued by an AD without prior approval of Bangladesh Bank to a new exporter for business travel abroad, against recommendation letter from Export Promotion Bureau, Bonafide requirement beyond US$6000/- is accommodated by Bangladesh Bank upon written request through an AD with supporting documents. 3. Business Travel Quota for Importers and Non-exporting producers: I.
Subject to annual upper limit of US$5000/- importers are entitled to a business travel quota @ 1 % of their imports settled during the previous financial year.
II.
Subject to annual upper limit of US$5000/- non exporting producers for the local markets are entitled to a business travel quota @1 % of their turnover of the proceeding financial year as declared in their tax return. The same business organization engaged in imports as well as production shall however; draw business travel quota entitlement only on one count.
4. Exporters' Retention Quota: i) Merchandise exporters may retain up to 40% of realized FOB value of their exports in foreign currency accounts. However, for export of goods having account. However, for exports of goods having high import content (such as readymade garments, POL products including furnace oil bitumen, electronic goods etc.,) the retention quota is 7.5% of the repatriated FOB value. Funds from these accounts can be used to meet bonafide business expenditure, such as business visits abroad, participation in export fairs and seminars, establishment and maintenance of office abroad, import of raw materials, machinery and spares etc. without prior approval of Bangladesh Bank. Exporters may at their option, retain the foreign currency in interest bearing renewable term deposit accounts with Authorized Dealers in US Dollar, Pound Sterling DM or Japanese Yen with a minimum account of US$2000 or Pound 1500. ii) Service exporters (excluding indenting commission or agency commission of indenting house of buying house respectively) may retain 5% of their repatriated income in foreign currency accounts or as renewable time deposits with Authorized Dealers, Funds from these accounts can be used to meet expenses for bonafide business travel abroad.
C. Commercial Remittances: 1. Opening of branches or subsidiary companies abroad: Remittance of up to US$30,000/- or equivalent per annum may be released by the Authorized Dealers without prior approval of Bangladesh Bank to meet current expenses of offices/branches opened abroad by resident in Bangladesh or Commercial/Industrial concern incorporated in Bangladesh. Such remittance may only be made in the names of concerned offices/subsidiary companies abroad subject top examination of following papers:
I.
Approval letter of the competent authority of the country concerned for opening the office in that country
II.
Copy of report submitted to Bangladesh bank.
2. Remittance by shipping companies airlines & courier service: Foreign Shipping Companies, airlines and courier service companies may send, through an AD, funds collected in Bangladesh towards freight and passage after adjustment of The Authorized Dealers may remit such royalty and other local cost & Taxes, if any without prior approval of Bangladesh Bank. 3. Remittance of royalty and technical fees: No prior permission of the Bangladesh Bank of BOI is required by the enterprises for entering into agreement involving remittance of royalty, technical know-how or technical assistance fees, operational services fees, marketing commission etc., if the total fees and other expenses connected with technology transfer do not exceed. a) 6% of the cost of imported machinery in case of new projects b) 6% of the previous year's sales as declared in the income tax returns of the ongoing concerns. The authorized dealers may remit such royalty and other fees without prior approval of Bangladesh Bank. Royalty and other fees beyond the rate mentioned above may be remitted by the Authorized Dealers without prior approval of Bangladesh bank provided specific approval of BOI has been obtained by the applicant company. 4. Remittance on account of training & consultancy Industrial enterprises producing for local market may remit through Authorized Dealers up to 1% of their annual sales as declared in their previous years' tax return for the purpose of training and consultancy services as per relevant contract with the foreign trainer/consultant, without prior approval of Bangladesh Bank.
5. Remittance of profits of foreign firms/branches: Authorized Dealers may without prior Bangladesh Bank approval remit abroad the post tax profits of branches of foreign firms and companies including foreign banks & other financial institutions subject to submission of relevant documents/information along with the application. 6. Remittance of Dividend: Prior permission of Bangladesh Bank is not required for •
Remittance of dividend income to non-resident shareholders on receipt of application in the prescribe form from the companies concerned.
•
Remittance of dividend declared out of previous years' accumulated reserves.
7. Subscriptions to foreign media services: On application from the local newspapers, Authorized Dealers may remit foreign exchange towards cost of subscription of news items, features, articles of foreign news agencies subject to submission of (1) contracts entered into between the applicant and the foreign news agency and (ii) NOC of the Ministry of Information.
8. Costs/ for Router monitors: Authorized Dealers may remit abroad costs/fees on account of their own subscription to foreign media services such as Reuter monitor service, without prior approval of Bangladesh Bank. 9. Advertisement of Bangladeshi Products In mass media abroad: Prior permission of Bangladesh is not required by the Authorized Dealers for remittance of charges for advertisement of Bangladeshi commodities in mass media abroad subject to submission of Invoice from the concerned foreign mass media along with the applications of
the remitter. The applicant will have to submit copy of the advertisement to the Ad within one month of this issuance. 8. Bank Charges: The Authorized Dealers may affect remittances towards settlement of dues to foreign banks of bank charges, cost of cables and other incidental charges arising in their normal course of the business without prior approval of Bangladesh Bank. The following would be the procedure for Accounting4. Foreign Currency Notes Party’s A/C / Cash at FC selling rate Foreign currency in hand Income A/C-Commission, (if any)
Dr. Cr. Cr.
5. TC, Draft and TT Party’s A/C / Cash from party@ TC/ OD selling rate Plus charges AB General A/C: HO ID) @ ready selling rate Income A/C for the difference between the two rates Income A/C for Commission as per schedule of charges
Dr. Cr. Cr. Cr.
6. TC draft and TT issued from FC A/C of customer (General as well as retention quota of exporter) Customer’s FC A/C @ current holding rate of FC balance AB General A/C: HO ID) @ current holding rate of FC balance Customers A/C or cash from the customer for charges Income A/C as per schedule of charges
Dr. Cr. Cr. Cr.
4. Issue of Foreign Currency Notes to the debit of the customer’s FC A/C (General or retention quota) Party’s FC A/C at prevailing cash selling rate plus
Dr.
commission and charges as per schedule FC in hand A/C at cash selling rate Income A/C for Commission, as per schedule.
Cr. Cr.
5. Settlement of TC on weekly basis TC issued AB General A/C HO ID
Dr. Cr.
Year wise WES Remittance Position. Figures in Million U.S. Dollar K.S.A.
Middle East except KSA
U.S.A.
U.K.
OTHERS
TOTAL
2000
335.88
173.43
100.88
54.11
16.23
680.53
2001 2002 2003
340.30 417.82 329.49
183.47 207.99 206.14
134.71 206.05 181.87
48.47 153.02 206.55
12.17 19.62 19.48
719.12 1004.50 943.53
2004
497.99
219.83
173.70
228.68
21.35
1141.55
2005 2006 2007 2008(July)
558.99 630.98 453.46 398.51
231.44 242.91 270.67 180.73
193.44 194.96 199.65 128.31
187.93 167.68 243.08 85.82
18.22 18.03 20.28 13.88
1190.02 1254.56 1187.14 805.85
Month wise WES Remittance Position Figures in Million U.S. Dollar Month
Jan.08 Feb’08 March’08 April’08
K.S.A
Middle East except KSA
U.S.A.
U.K.
OTHERS
TOTAL
56.63
21.16
17.20
12.80
2.23
110.02
54.63
22.00
16.33
10.92
2.24
105.52
59.08
27.80
20.71
15.24
1.94
124.77
62.70
28.62
18.35
11.25
2.19
123.11
54.69
27.38
18.72
8.95
1.84
111.58
62.01
31.31
18.63
12.80
1.40
126.15
49.37
24.42
16.37
12.46
2.08
104.70
398.51
180.73
128.31
85.82
13.88
805.85
May, 08 June’08 July’087 Total
Year wise target & achievement their against. Figures in Million U.S. Dollar Year
Target
Achievement
%
2003
$1106.00
$ 943.53
85.31
2004
$1191.05
$1141.55
95.84
2005
$1430.00
$1190.02
83.22
2006
$1309.00
$1254.56
95.84
2007 2008(June)
$1380.00 Tk90380 $1321.00
$1187.14 $805.85
86.02 61%
4.2 EXPORT: AB Banks Export volume growth was 15.67 percent as the total export reached tk. 2067.66 crore at the end of the year. Export business concentration was in the area of frozen fish, readymade garments, knitwear and other indigenous products.
YEAR READYMADE GARMENTS KNITWEAR
MAJOR EXPORT BY AB BANK (FIG. IN CRORE) 2003 2004 2005 2006 500 250
700 200
1000 150
1200 400
2007 1300 500
FROZEN FISH INDIGENOUS PRODUCTS
100
80
80
100
100
100
50
50
100
168
MAJOR EXPORT BY AB BANK READYMADE GARMENTS
1500 VALUES
1000
KNITWEAR
500 0
FROZEN FISH 2003
2005
2007
YEAR
INDIGENOUS PRODUCTS
AB Banks foreign correspondence relationship is spread across the world covering important financial centers including important financial houses. This network of over 300 correspondents has helped bank in expanding its international trade. EXPORT(Million YEAR tk) 2003 9743 2004 10100 2005 12595 2006 17876 2007 20677 EXPORT 25000 20000 15000 10000 5000 0
EXPORT 2003 2004 2005 2006 2007 YEAR
4.2.1 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. • Registration of Exporters: For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Raishahi/ Mymensingh/ Sylhet/ Comilla/ Badshal/ 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.
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
•
Buyers Local Agent
•
Export Promoting Organization
•
Bangladesh Mission Abroad
•
Chamber of Commerce (local & foreign)
•
Trade Fair etc
•
Signing the Contract:
After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. •
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-. •
The terms of the L/C are in conformity with those of the contract"
•
The L/C is an irrevocable one, preferably confirmed by the advising bank;
•
The L/C allows sufficient time for shipment and negotiation.
(Here the regulatory framework is UCPDC-600, 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-522, ICC publication •
Procuring the Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.
•
Shipment Of Goods:
Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time. Documents for shipment: i. EXP form, ii. ERC (valid), iii. L/C copy, iv. Customer Duty Certificate, v. Shipping Instruction, vi. Transport Documents, vii. Insurance Documents, viii. Invoice ix. Other Documents, x. Bills of Exchange (if required) Certificate of Origin, xi. Inspection Certificate xii. Quality Control Certificate, xiii. G.S.P. Certificate, xiv. Phyto-sanitary Certificate. • Final Step: Submission of the documents to the Bank for negotiation. Back to Back Letter of Credit (BTB): Bangladesh is a developing country.
After receiving order from the importer, very
frequently exporters face problems of scarcity of raw material. Because some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin. Sometimes there is provision in the export UC that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened.
Payment of Back to Back LC: 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 ABBL. But if there is discrepancy, the ABBL sends it for collection. In case of BTB L/C, ABBL gives the payment to the beneficiary after receiving the payment from the UC of the finished product (i.e. exporter). Bank gives the payment from DFC Account (Deposit Foreign Currency Account) where Dollar is deposited in national rate. For BTB L/C, opener has to pay interest at LIBOR rate (London Inter Bank Offering Rate). Generally LIBOR rate fluctuates from 3% to 5%. A schedule named Payment Order; Forwarding Schedule is prepared while making the payment. This schedule is prepared when the payment of UC is made. This schedule contains the followings: •
Reference number of the beneficiary's bank and date.
•
Beneficiary's name.
•
Bill value.
•
Payment order number and date.
•
Equivalent amount in Taka
Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods, A slight deviation of the documents from those specified in the L/C may rise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful prompt, systematic and indifferent while scrutinizing the documents relating to the export. Foreign Documentary Bill Purchase (FDBC): Sometimes the client submits the bill of export to bank for collection and payment of the BTB UC. In that case, bank purchases the bill and collects the money from the exporter.
ABBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order. For this purpose, ABBL maintains a separate register named FDBC Register. This register contains the following information: •
Date
•
Reference number (FDBC)
•
Name of the drawer
•
Name of the collecting bank
•
Conversion rate
•
Bill amount both in figure & in Taka.
•
Export form number
•
Export L/C number
Advances against Export Bills surrendered for collection: Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. The bank generally negotiates bills drawn under L/C, without any discrepancy in the documents, and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property. 4.2.2 Export Documents Checking: General verification: •
L/C restricted or not.
•
Exporter submitted documents before expiry date of the credit.
•
Shortage of documents etc.
Particular verification: •
Each and every document should be verified with the L/C.
4.3 IMPORT: International trade is one of the important components of the AB Banks foreign exchange business. In 2007, both Import and Exports experienced double digit growth keeping in pace with the overall business growth. Imports at the end of the year stood at Tk. 4844.14 crore. Major Import finance was in the areas of food items, textiles, and scrap vessels among others. YEAR FOOD ITEMS TEXTILE SCRAP VESSELS
2003 1300 500 200
2004 1200 400 350
2005 1700 500 200
2006 2500 900 880
2007 3000 1000 845
MAJOR IMPORT BY AB BANK
VALUES
4000 3000
FOOD ITEMS
2000
TEXTILE
1000 0 2003 2004 2005 2006 2007
SCRAP VESSELS
YEAR
Procedures:An importer is required to have the following to import through ABBL--Applicant has to apply for opening LC by a prescribed form. a. Applicant has to submit the Letter of Indent or Letter of Proforma Invoice. b. Letter of Indent: Many sellers have their agent in seller’s country. If the contract of buying is made between the buyers and the agent of the sellers then Letter o Indent is required. c. Letter of Proforma Invoice: If the contract is made directly between the buyer and the sellers then Letter of Proforma Invoice is needed. d. Applicant has to submit IRC (Inventors Registration Certificate). It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyers and the agents of the sellers. IRC is of two types - COM and IND. COM is given for commerce purpose and IND is given for industrial purpose. e. Applicant has to submit LCAF (Letter of Credit Authorization Form). f. Applicant has to submit insurance document.
g. Applicant has to prepare FORM-IMP. h. Recently, there has been made a provision to give a certificate named TIN (Tax Payers Identification Number).Taxation department issues this certificate. i. Then after proper scrutiny bank will open an L/C. While openingL/C, importer must keep certain percentage of the document value in the bank as margin. 4.3.1 Procedure to Open an L/C:To open an L/C, the requirements of an importer are: •
He must have an account in ABBL.
•
He must have Importers Registration Certificate (IRC).
•
Report on past performance with other bank. ABBL collects this report from Bangladesh Bank.
•
CIB (Credit Information Bureau) report from Bangladesh Bank.
•
A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit.
If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one crore
Accounting Treatment for Opening LIC. For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening an L/C bank will create a contingent liability. In that case, the accounting posting will be the followingCustomers Liability Contingent Liability
Generally L/C is opened against some margin.
Dr. Cr.
•
While paying the money by the issuing bank, issuing bank will reverse the above entry and the entry will be-
Contingent Liability
Dr.
Customers Liability
•
Cr.
Then the issuing bank will give another entry---
Payment Against Document (PAD)
Dr.
AB General Account
Cr.
Exchange Gain
Cr.
PAD will debit because the bank will pay the money against some documents’ General Account is a miscellaneous account. It will be credited because by this entry ABBL creates a liability.
He has to pay the money to the advising bank. And the gain made by the
transaction is shown at Exchange Gain Account. All these entries are made after receiving some documents from the exporters. The above procedure is called Lodging. After giving the above entry, ABBL will inform the clients for collecting the documents from the bank.
4.3.2 A Rich picture of current L/C system
Figure: Mechanism of LC •
Importers will pay the due to the bank and collects the documents. In that case, the entry will be –
Party Account Dr. PAD Account Cr. After opening the L/C, ABBL (issuing bank) must receive the documents for any other proceedings. These documents are --i.
Bill of Lading,
ii.
Invoice,
iii.
Packing List,
iv.
Country of Origin.
4.3.3 Lodgment of documents: After receiving the documents from the exporters, at first ABBL write it in the PAD Registrar. PAD Register contains date, PAD number, L/C number, name of the drawer, name of the drawee, amount, number of copies of various documents, name of the imported items. This written procedure is called Lodgment. Accounting Application:
While doing lodgment, ABBL makes the following entriesPayment Against Document (PAD) Dr. AB General Account Cr. Exchange Gain Cr. ABBL makes the payment to the reimbursing bank against the documents. That's why, it debts the PAD Account. For payment, ABBL deposits the money at the miscellaneous account @69.35 (current rate). And sends an Inter Branch Credit Advice (IBCA) to credit the amount to a Nostro account maintained in a bank of exporters' country from which payment will be made. By this transaction, ABBL makes a profit @O. 1 5 per dollar. 4.3.4 Retirement of Documents The process of collecting documents from bank by the importer is called retirement of the documents. The importer gives necessary instructions to the bank for retirement of the import bills or for the disposal of the shipping documents to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his current A/C.
From 2003 to 2007 AB Bank Import is as follows:
YEAR
IMPORT
2003
19281
2004
19266
2005
23151
2006
42860
2007
48441
IMPORT 50000 40000 30000 20000
IMPORT
10000 0
2003 2004 2005 2006 2007 YEAR
EXPORT 1 2 3 4 5 6 7 8 9 10 11 12 13
L.C ADVICE CHARGE L.C AMMENDMENT CHARGE L.C CORRECTION CHARGE DOCUMENT HANDLING COMMISSION L.C TRANSFER COMMISSION DOCUMENT HANDLING POSTAGE CURRIER CHARGE EXP CHARGE EXP CANCELLASION CHARGE DISCREPENCY CHARGE TRANSFER L.C OTHER BANK ADD CONFIRMATION CHARGE ISSUANCE OF PRC
TK ABBL 1000 800 500 .20-.40 .30-.45 500 1500 500 500 300 1200 1000 500
IMPORT & BACK TO BACK 1 2 3
L.C OPEN COMMISSION L.C AMMENDMENT COMMISSION L.C OPEN SWIFT CHARGE
ABBL .30-.45 .30-.45 500
4
L.C OPEN POSTAGE
300
5
L.C OPEN PROCESS SHIPPING GURRENTE CHARGE ACCEPTANCE COMMISSION ACCEPTANCE POSTAGE ACCEPTANCE SWIFT ACCEPTANCE IMP CHARGE AMMANDMENT PROCESSING CHARGE
2000
6 7 8 9 10 11
2000 .20-.55 300 750 50 1000
FOREIGN REMITTANCE
TK ABBL
HANDLING CHARGE FOR STUDENT EDUCATION FOR ABROAD ENCASHMENT OF ANY T.T
150-350
OTHER CHARGES
200-1000
3000
5.1 SWOT ANALYSIS OF ABBL: From the SWOT Analysis, it would be easy to figure out the ongoing scenario of the ABBL. It is possible to find out the strength, weakness, opportunities and threats of ABBL. To have a better view of the present business practices of ABBL, SWOT Analysis has been done.
SWOT ANALYSIS
INTERNAL
EXTERNAL FACTORS
FACTORS STRENGTH
WEAKNESSES
OPPORTUNITIES
THREATS
In SWOT Analysis, two factors act as prime movers. Internal factors:
Which are prevailing inside the concern, which include strength and weaknesses
External factors: Which act as opportunity and threat Strength •
Very good profit margin earn by the last few years.
•
Strong capital back to bring available liquidity.
•
Efficient and experienced management team.
•
Directors of the bank are not over ruling the decisions made by the management team.
•
Several deposit schemes and financial products offered by the ABBL, so clients have enough options to invest their money.
•
Bank quickly expanding its business all over the country.
•
Getting the membership of SWIFT.
Weaknesses •
Performance of the marketing sector is not satisfactory
•
Limited geographic coverage.
•
Traditional banking system is followed.
•
High employee turnover.
•
Lack of technological improvement.
• Opportunities •
Client’s reliability on ABBL is growing day by day on the bank.
•
ABBL has now the global market reputation.
•
ABBL offers many popular schemes to the people and with these schemes ABBL can raise its deposit promptly.
•
Recently ABBL provides credit card facility to the customer.
•
Good chance of expanding geographically within Bangladesh.
•
Opportunity to take market share from rivals by offering new innovative products or services.
•
Taking advantage of emerging new technologies in banking especially online ATM, Internet Banking etc.
Threats •
Very competitive market.
•
Political unsuitability affects the banking sector very often.
In Bangladesh, economy now passing recession this also
• •
Affects the bank. Central Bank’s policies sometimes are not in favor of the private bank’s policies.
•
Entry of new commercial banks, leasing companies and merchant bank etc. they all are competitors.
•
Competitors are offering innovative new products and services.
•
Competitors are using several new marketing policies to attract the customer.
5.2 RATIO ANALYSIS OF AB BANK LIMITED:
Ratio Analysis: Ratio Analysis is a diagnostic tool that helps to identify problem areas and opportunities within a company. The most frequently used ratios by financial analysis provide insights in a firm’s • Liquidity • Degree of financial leverage or debt • Profitability • Efficiency • Value Importance of Financial Ratio: Ratio Analysis is very important for every business, because by calculating ratio analysis we can understand the business position, business strength and weakness. By knowing this information, management can take its necessary steps to achieve their organization goal. 5.2.1 Bank Profitability Ratio: Profitability refers to the ability of a firm to generate revenues in excess of expenses. When making compression across firms it is useful to control for different in their resource base. There are some basic formulas for probability ratio: Return on Assets (ROA): Return on Assets (ROA) = Net Income / Total assets Calculation: million tk. Year Net Income (Amount) Total Assets (Amount) Ratio % 2005 162 33065 .049% 2006 532 47989 1.11% 2007 1903 63550 2.99% 2008 2301 84054 2.74% 2009 3363 106912 3.14%
Graphical Presentation: ROA Ratio (%) 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%
3.14% 2.99%
2.74% Ratio %
1.11%
0.05%
1
2
3
4
5
year
Decision: The above figure represents the Return on Assets (ROA) ratio of AB Bank Limited and we see that in the year 2009 AB Bank was in most profitable position. In year 2005the bank was in lowest profitable position. Return on Equity (ROE): Return on Equity (ROE) = Net Income / Total Shareholder equity Calculation: million tk. Year Net Income (Amount) Total Shareholder equity Ratio % (Amount) 2005 162 1527 10.61% 2006 532 2583 20.60% 2007 1903 4512 42.17% 2008 2301 6723 34.22% 2009 3363 10087 33.34% Graphical Presentation: ROE Ratio % 50.00% 40.00% 42.17%
30.00%
33.34% 34.22%
Ratio %
20.60%
20.00% 10.00%
10.61%
0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Return on Equity (ROE) ratio of AB Bank Limited and we see that in the year 2007 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position.
Profit Margin (PM): Profit Margin (PM) = Net Income / Operating Income Calculation: Year Net Income (Amount) Operating Income (Amount) 2005 162 1577 2006 532 2650 2007 1903 4657 2008 2301 6153 2009 3363 8269 Graphical Presentation:
Ratio % 10.27% 20.07% 40.86% 37.40% 40.67%
PM Ratio % 50.00% 40.67%
40.00% 40.86%
30.00% 20.00%
37.40% Ratio %
20.07%
10.00%
10.27%
0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Profit Margin (PM) ratio of AB Bank Limited and we see that in the year 2007 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position. Return on Deposits (ROD): Return on Deposits (ROD) = Net Income / Total customer deposits Calculation: Million Tk. Year Net Income (Amount) Total customer deposits Ratio % (Amount) 2005
162
27361
.59%
2006
532
42077
1.26%
2007
1903
53375
3.56%
2008
2301
68560
3.36%
2009
3363
83087
4.05%
Graphical Presentation:
ROD Ratio % 5.00% 4.00%
4.05%
3.56%
3.36%
3.00%
Ratio %
2.00% 1.26%
1.00%
0.59%
0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Return on Deposits (ROD) ratio of AB Bank Limited and we see that in the year 2009 AB Bank was in most profitable position. In year the 2005 bank was in lowest profitable position. Return on shareholder capital (ROSC): Return on Shareholder capital (ROSC) = Net Income / Shareholder contribution capital Calculation: million tk. Year Net Income (Amount) Total Shareholder equity Ratio % (Amount) 2005 162 1527 10.61% 2006 532 2583 20.60% 2007 1903 4512 42.17% 2008 2301 6723 34.22% 2009 3363 10087 33.34% Graphical Presentation:
ROSC Ratio % 50.00% 42.17%
40.00%
34.22%
30.00%
33.34% Ratio %
20.60%
20.00% 10.61%
10.00% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Return on Shareholder capital (ROSC) ratio of AB Bank Limited and we see that in the year 2007 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position.
Net operating margin (NOM):
Net operating margin (NOM) = Operating profit or Income / interest income Calculation: million Tk. Year Operating profit or interest income (Amount) Ratio % Income (Amount) 2005 1577 2263 69.69% 2006 2650 3378 78.45% 2007 4657 5269 88.38% 2008 6153 7366 83.53% 2009 8269 9047 91.40% Graphical Presentation:
NOM Ratio % 100.00% 80.00%
69.69%
78.45%
88.38%
83.53%
91.40%
60.00%
Ratio %
40.00% 20.00% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Net operating margin (NOM) ratio of AB Bank Limited and we see that in the year 2009 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position. 5.2.2 Bank Efficiency Ratio: Interest income to Expenses (IEE) = (Interest income – Interest expenses) / total loans and advances Calculation: million Tk. Year Interest income – Interest total loans and advances Ratio % expenses (Amount) (Amount) 2005
691
21385
3.23%
2006 2007 2008 2009
616 1439 2034 2908
31289 40915 56709 70880
1.97% 3.52% 4.06% 4.10%
Graphical Presentation:
IEE Ratio (% ) 5.00% 4.10%
4.06%
4.00%
3.52%
3.23%
3.00% 2.00%
Ratio %
1.97%
1.00% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Interest income to Expenses (IEE) ratio of AB Bank Limited and we see that in the year 2009AB Bank was in most highest position. In year 2006 the bank was in lowest profitable position. Operating expense to Assets (OEA): Operating expense to Assets (OEA) = Operating expense / Total assets Calculation: million Tk. Year Operating expense Total Assets (Amount) Ratio % (Amount) 2005 822 33065 2.49% 2006 1939 47989 4.04% 2007 1331 63550 2.09% 2008 1854 84054 2.21% 2009 2466 106912 2.31% Graphical Presentation: OEA Ratio (%) 5.00% 4.04%
4.00% 3.00%
2.49%
2.00%
2.31% 2.09%
1.00%
Ratio %
2.21%
0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Operating expense to Assets (OEA) ratio of AB Bank Limited and we see that in the year 2006 AB Bank was in highest position. In year 2007 the bank was in lowest position.
Operating income to Assets (OIA):
Operating income to Assets (OIA) = Operating Income / Total assets Calculation: Year
Operating Income (Amount) 2005 1577 2006 2650 2007 4657 2008 6153 2009 8269 Graphical Presentation:
Total Assets (Amount)
million Tk. Ratio %
33065 47989 63550 84054 106912
4.77% 5.52% 7.33% 7.32% 7.73%
OIA Ratio (%) 10.00% 7.33%
8.00% 6.00%
4.77%
7.32%
7.73%
5.52% Ratio %
4.00% 2.00% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Operating income to Assets (OIA) ratio of AB Bank Limited and we see that in the year 2009 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position. Operating expenses to revenue (OER): Operating expenses to revenue (OER) = Operating expenses / Operating Income Calculation: million Tk. Year Operating expenses Operating Income Ratio % (Amount) (Amount) 2005 2006 2007
822 1939 1331
1577 2650 4657
52.12% 73.17% 28.58%
2008
1854
6153
30.13%
2009
2466
8269
29.82%
Graphical Presentation: OER Ratio (%) 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%
73.17% 52.12% 28.58%
1
2
3
30.13%
4
29.82%
Ratio %
5
Year
Decision: The above figure represents the Operating expenses to revenue (OER) ratio of AB Bank Limited and we see that in the year 2006 AB Bank was in highest position. In year 2007 the bank was in lowest profitable position. Asset Turnover (ATO): Asset Turnover (ATO) = Interest Income / Total assets Calculation: million Tk. Year Interest Income Total Assets (Amount) Ratio % (Amount) 2005 2263 33065 6.84% 2006 3378 47989 7.04% 2007 5269 63550 8.29% 2008 7366 84054 8.76% 2009 9047 106912 8.46% Graphical Presentation: ATO Ratio ( %) 10.00% 8.46%
8.00% 6.00%
6.84%
7.04%
8.29%
8.76% Ratio %
4.00% 2.00% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Asset Turnover (ATO) ratio of AB Bank Limited and we see that in the year 2008 AB Bank was in most profitable position. In year 2005 the bank was in lowest profitable position.
Net interest margin (NIM):
Net interest margin (NIM) = (Net Interest Income – Net non-interest expenses) / Total assets Calculation: Year Net Interest Income – Net non-interest expense (Amount) 2005 691 2006 616 2007 1439 2008 2034 2009 2908 Graphical Presentation:
Total Assets (Amount)
million Tk Ratio %
33065 47989 63550 84054 106912
2.09% 1.28% 2.26% 2.42% 2.72%
NIM Ratio( % ) 3.00% 2.50%
2.26%
2.09%
2.42%
2.72%
2.00% 1.28%
1.50%
Ratio %
1.00% 0.50% 0.00% 1
2
3
4
5
Year
Decision: The above figure represents the Net interest margin (NIM) ratio of AB Bank Limited and we see that in the year 2009 AB Bank was in most highest position. In year 2006 the bank was in lowest profitable position. Net non- interest margin (NNIM): Net non- interest margin (NNIM) = (Net non Interest Income – Net non-interest expenses) / Total Assets Calculation: million Tk. Year Net non Interest Income Total Assets (Amount) Ratio % – Net non-interest expenses (Amount) 2005 886-822 33065 0.1935% 2006 2034-1939 47989 0.1980% 2007 3217-1331 63550 2.97% 2008 4118-1854 84054 2.69% 2009 5360-2466 106912 2.71%
Graphical Presentation:
NNIM Ratio ( %) 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%
2.97%
2.69%
2.71% Ratio %
0.19%
0.20%
1
2
3
4
5
Year
Decision: The above figure represents the Net non- interest margin (NNIM) ratio of AB Bank Limited and we see that in the year 2007 AB Bank was in most highest position. In year 2005 the bank was in lowest profitable position 5.3 Financial Performance Overview: Financial Highlights AB Bank Limited 2009
2008
Consolidated
%Growth
2009
2008
%Growth
Equity
10,087
6,723
50%
10,221
6,817
50%
Total deposits
83,087
68,560
21%
83,083
68,559
21%
Loans &
70,880
56,709
25%
72,063
57,661
25%
advances Investments
16,369
11,396
44%
16,369
11,396
44%
Fixed assets Total assets
2,441 106,912
2,445 84,054
-0.2% 27%
2,441 107,093
2,445 84,191
-0.2% 27%
Performance During the year 2009
2008
%Growth
2009
2008
%Growth
Interest income
9,047
7,367
23%
9,111
7,368
24%
Operating profit
5,802
4,298
35%
5,870
4,330
36%
Provision for
598
698
-14%
599
698
-14%
loans and others Profit before tax
5,205
3,601
45%
5,271
3,632
45%
Provision for tax Profit after tax
1,842 3,363
1,300 2,301
42% 46%
1,853 3,417
1,300 2,332
43% 47%
[
Statutory Ratios
2009
2008
2144%
24,06%
Capital adequacy 13.78%
12.84%
Liquid assets
%Growth
2009
2008
%Growth
20.31%
19.41%
ratio Share information 2009 Earnings
per 131.13
share (Taka) Dividend - %
*45
Net asset value 393
2008
%Growth
2009
2008
%Growth
8972
46%
133.26
90.96
47%
*45
30
30 301
30%
399
306
30%
2008
%Growth
2009
2008
2.70%
2.94°h
3.57%
2.77%
40.11%
34.21%
per share (Taka) Ratios 2009
Non performing 2.75% 2.99% loan Return on assets 3.52% 3.12% (ROA) Return on equity 40.01% 40.96% (ROE) Financial Performance at a glance Financial position Cash & bank balances Investment Money at call and short notice Loans & advances Fixed assets Other assets Total assets Borrowings Total deposits Other liabilities Equity Total liability & SH’s equity Total contingent liabilities & commitments Loan deposit ratio Interest earning assets Non-Interest earning assets Profitability Net interest margin Operating income Operating expenses Operating profit Provision for loans and others Profit before tax Provision for tax Profit after tax Cost income ratio Return on investment (ROl) Return on assets (ROA) 0.50% Return on equity (ROE) Cost of fund Earnings per Share (Taka) Net income per share Other business
2009
%Growth
2008
2007
2006
2005
8,849 16,369 600 70,880 2,441 7,773 106,912 6,125 83,087 7,613 10,087 106,912 28,996 85.31% 87,068 19,844
6,396 11,396 1,191 56,709 2,445 5,918 84,054 3,193 68,560 5,577 6,723 84,054 26,074 82.71% 68,580 15,473
6,160 4,520 8,885 6,281 574 517 40,915 31,289 2,381 1,148 4,635 4,233 63,550 47,989 1,872 1,297 53,375 42,077 3,791 2,032 4,512 2,583 63,550 47,989 27,288 21,112 76.66% 74.36% 49,208 36,648 14,342 11,341
2,908 8,269 2,466 5,802 598 5,205 1,842 3,363 29.83% 21.06% 3.52%
2,034 6,153 1,854 4,298 698 3,601 1,300 2,301 30.14% 23.89% 3.12%
1,439 4,657 1,331 3,325 507 2,818 915 1,903 28.59% 22.87% 3.41%
616 2,650 1,939 711 178 532 --532 73.18% 18.81% 1.31%
40.01% 10.31% 131.13 131.13
40.96% 11.09% 89.72 89.72
42.19% 10.54% 74.23 74.23
20.61% 11.73% 10.04% 8.60% 20.75 6.34 20.75 6.34
2,476 4.061 390 21,385 370 4,384 33,065 1,911 27,361 2,267 1,527 33,065 14.663 78.16% 24,007 9,059 691 1,577 822 755 348 407 245 162 52.14% 5.88%
Import Export Remittance (Million USD)
65,956 30,640 182
70,041 28,937 164
48,441 42,860 20,677 17,876 156 132
23,151 12,595 115
Equity measures Authorized capita 2,000 800 Paid-up capital Capital - Core (Tier I) 1,400 Capital - Supplementary (Tier II) Total capital Capital surplus! (deficit) Statutory reserve Retained earnings Capital adequacy ratio
6000
3000
2,564 9,250
2,230 6,128
743 3,838
572 1,941
520
1,541 10,790 2,957 3,101 3,542 13.78%
1,312 7,440 1,644 2,066 1,790 12.84%
947 4,785 331 1,357 1,696 10.75%
723 2,664 67 773 555 9.23%
327 1,727 33 650 181 9.17%
Total loans & advances 21,385 Classified loans (CL) 1,756 % CL to total loans & advances Provision for unclassified loan 216 Provision for classified loan 375 Share information
70,880
56,709
40,915
31,289
1,949
1,695
1,763
1,259
Market price per share (DSE) Dividend - % Price earning ratio (Times) Net Asset Value per share (Taka) 294
Asset quality
2.75% 826
Distribution network Number of branches Number of SME service center Employee number
Sources & Distribution of Income 2009 Source of Income 1,452
691
4.02% 487
8.21% 358
427
658
660
416
1,177 *45 8.97 393
822 30 9.16 301
77 10 1,952
72 1,804
% of Total 100%
2.99%
4.31%
2008 1,157
2,561 893 364 200 30 10 34.50 43.02 57.41 607 452
71 1,725
68
67 -
1,590
1,525
% of Total 100%
Interest income
911
63%
737
64%
Investment income
292
20%
215
19%
and brokerage
228
16%
182
16%
Other operating income
20
1%
22
2%
Distribution of Income
1,452
100%
1,157
and borrowing etc.
615
42%
535
46%
Salaries and allowances
122
8%
103
9%
108
7%
70
6%
20
1%
16
1%
Commission, exchange
100%
Interest paid on deposits
To Suppliers for providing goods and services Depreciation set aside Provision for Loan &
Advances, and Others
60
4%
70
6%
Tax
185
13%
130
11%
To Statutory Reserve
103
7%
73
6%
To Retain Earnings
239
6%
161
14%
To Government as Income
Management (validation) system in order to ensure sustainable value addition to stakeholders. It has not been a case of bottom line enhancement alone but creation of value conducive to socio- economic development. Maintaining adequate capital: Capital adequacy is the measure of the financial strength and sustainability of a bank. Capital Adequacy Ratio (CAR) determines the capacity of the Bank in terms of meeting the time liabilities and other risks such as credit risks, market risks etc. It is the policy of AB to maintain adequate capital as a cushion for potential losses to absorb unforeseen eventualities/shocks, to ensure long term sustainability and growth of the Bank to endure and enhance shareholders value. At the end of 2009, Bank’s total capital reached at Taka 1,079.02 Crore as against Taka 743.98 Crore on 31 December 2008. Summary of total capital and capital adequacy ratio of the Bank under Basel I is as follows: (Taka in Crore) 2009
2008
Core Capital - Tier I
924.96
612.78
Supplementary Capital—TierII
154.06
131.19
Total Capital
1,079.02
743.97
Risk weighted assets
7,833.13
5,795.44
CAR against Core Capital ll.
8l%
Supplementary Capital
1.97% 2.27%
Total Capital
10.57%
13.78% 12.84%
Sustainable Dividend policy AB’s dividend policy aims at ensuring long term sustainable growth maintaining capital adequacy requirements which ultimately leads to shareholders value creation. AB Bank paid 15% Stock Dividend and 15% Cash Dividend in 2008 while for 2009 the proposition is Stock Dividend 25% and Cash Dividend 20%respectively.
Economic Value Added Statement Economic Value Added (EVA) is a key performance indicator to measure profitability of a Bank as compared to cost of equity capital. It indicates how much excess value has been created by the Bank for its shareholders after deducting the minimum rate of return required by the shareholders i.e. cost of equity. AB has been consistently able to deliver higher EVA to its shareholders: (In Crore Taka) Shareholder’s equity Add: Cumulative provision for loans & Off-balance sheet items Total Invested fund by shareholders Average Shareholder’s equity (A]
2009
2008
2007
1,009
672
451
135
155
123
1,144
827
574
986
700
455
Earnings for the year Profit after taxation
336
230
190 Add: Provision for loans & Off-balance sheet items Earning for the year [B]
54
48
45
390
278
235
Average Cost of Equity (based on highest rate of Shanchay Patra issued by the Government of Bangladesh) plus 2% risk premium [C]
14.50% 14.00% 14.00%
Cost nof average equity [D=AXC]
143
98
64
Economic Value Added [B-D]
247
180
171
Growth over last year
37%
5% 368%
5.4 Financial Performance in 2009 Amid a challenging economic environment, which prevailed throughout 2009, financial results of the Bank stood for the strength and resilience of the Institution in achieving its desired path. Business and functional strategies and activities were successfully driven towards the achievements as AB attained highest ever profitability in the history of the Bank’s 28 years of existence. Total Assets of the Bank stood at Taka 10,691.20 crore (growth of 27 percent) while Total Capital crossed the threshold and reached the level of Taka 1,079.0 crore at the year end. Key business areas registered significant growth which ultimately resulted in a bottom line
(PAT) growth of over 46 percent compared to last year. EPS stood at Taka 131.13 showing a growth of 46 percent over last year as well. Business Results (Taka in Crore)
Deposits
2009 8,309
2008 %change 6,856 21%
Loans and Advances
7,088
5,671
25%
Investments
1,637
1,140
44%
Import Business
6,596
7,004
-6%
Export Business
3,064
2,894
6%
Guarantee Business
826
658
26%
Operating Profit
580
430
35%
Net Operating Profit
521
360
45%
Profit after Tax
336
230
46%
Earnings per Share (TK) 131.13
89.72 46%
Return on Equity-%
40.01
40.96
Return on Assets-%
352
3.12
Asset Utilization Ratio-%
81.44 81.61
Loans and Advances reached Taka 7,088.0 crore while Deposits was Taka 8,308.7 crore representing growth of 25 percent and 21 percent respectively. Trading business experienced relatively mixed results in 2009 amply showing the effects of the economic situation in the overall. Bank’s Investment in portfolio and regulatory instruments had significant growth of 44 percent. Operating Profit of the Bank was Taka 580.0 crore. Net Interest Income growth of 42.90 percent and nearly 36 percent growth in Investment Income during the year led to the record Operating Profit. Non-funded income also registered a growth of 28.82 percent. After providing for requisite Tax and Provisions as per Bangladesh Bank guidelines, Profit after Tax (PAT) was Taka 336.20 crore for the year. During the year, Bank also provided for Taka 184.23 crore as provision for Tax and Deferred Tax.
5.5 Operational Performance (Taka in Crore) 2009
2008
% change
Interest income
905
737
22.80
Interest expenses
614
533
15.14
Net interest income
291
203
42.90
Investment income
292
215
35.76
& brokerage
227
176
28.82
Other income
17
21
Operating Revenue
827
615
34.37
Operating expenses
247
185
33.01
Profit before Prov. & Tax
580
430
34.96
Provision & Tax
244
200
22.12
Profit after Tax
336
230
46.11
Comm. exchange (16.99)
Capital Management Bank has a detailed capital plan in place developed in line with the annual Business Plan. Quarterly review of the Capital Plan is done by the Board. Bank also adjusts its capital plan as and when required judging on the business eventualities. Bank maintained adequate capital throughout. At the end of the year 2009, Capital Adequacy Ratio (CAR) stood at 13.78 percent under Basel I. CAR Position under Basel I (Taka in crore)
2009
% Growth 2008
Paid-up- Capital
256
5%
223
Statutory Reserve
310
0%
207
General Reserve
4
-
4
Retained Earnings
354
8%
179
a. Total Tier I Capital
925
1%
613
83
19%
69
Off Balance Sheet Items
38
36%
28
Exchange Equalization
5
General Provision on Unclassified Loans General Provision on -
5
Assets Revaluation Reserve
29
-2%
29
154
17%
131
c. Total Capital (a+b)
1,079
45%
744
d. Total Risk Weighted Assets
7,833
35%
5,795
b. Total Tier II Capital
Capital Adequacy Ratio to Tier I (a/d)11.81%
-
10.57%
Capital Adequacy Ratio to Tier Ii (b/d)1.97%
-
2.27%
Capital Adequacy Ratio (CAR) (c/d) 13.78%
-
12.84%
International Trade International Trade remains the most important component of AB’s business profile. In 2009, Exports experienced growth although Imports was slightly lower than last year. Imports at the end of the year stood at USD 746.64 million. Major import finance was in the areas of food items, chemicals, medicines, textiles, scrap vessels among, others. Total export reached USD 331.53 million at the end of the year. Export business concentration was in the area of frozen fish, readymade garments, knitwear and other indigenous products. Financial Performance Review Operating Profit of the Bank reached Taka 580.24 crore resulting in a volume growth of Taka 150.00 crore. Net Profit after Tax in 2009 was Taka 336 crore registering a growth 46.16 percent compared to last year. Inspire of difficult market conditions in 2009, Bank could generate income from the available business composition resulting in a growth of 35 percent at the Operating Profit level. Taka in Crore
2009
2008
Growth
Net Interest Income
290.81 203.44
42.94%
Income from Investment
292.35 215.29
35.80%
Other Operating Income
24370 196.54
23.99%
Operating Expenses
246.62 185.44
32.99%
Operating Profit
580.24 429.84
35.00%
Loan Loss Provision
4366
28.13
55.22%
Other Provisions
16.09
41.65
-61.37%
Net Profit before Taxes
520.49 360.06
44.56%
Provision for Taxes
184.23 130.00
41.72%
Net Profit after Tax
336 .26
230.06
46.16%
Interest income grew by 22.81 percent during 2009 which is consistent with the increase
of Loans and Advances of 25 percent during the year. Bank had to mobilize funds to finance the growth of business. Deposits experienced a growth of 21.19 percent also resulting in increase of interest expense by 15.14 percent. Net interest income of the Bank was Taka 291 crore and was also having a growth of 42.94 percent, a testimony of Banks ability to maintain reasonable yield on Loans and Advances which is remarkable in the back drop of recent interventions by Bangladesh Bank in the interest fixation arena. In the overall Cost of Deposit of the Bank also came down as the Deposit mix showed considerable improvement in terms of low cost deposits. Total non-funded or non-interest income including Income from Investments stood at Taka 536 crore at the end of the year which compares with the last year level of Taka 412 crore. Operating expenses during the year increased by Taka 61.18 crore an increase of 33 percent over last year. Bank had to sustain the growth momentum through investment in infrastructure and human capital. Moreover, inflationary effects and increase of business inputs including utilities contributed towards this upward move. Salary and allowances which accounts for 54 percent of Operating expenses increased by 18.83 percent as the Bank went for recruitments to support business volume and expansion. One of the key operational indicators ‘productivity of the employee� showed remarkable improvement in 2009:
Taka in Crore
Operating Profit per employee
2009 0.30
2008
Growth
0.2425% Net Profit after Tax per employee
0.17
0.1335% Total Assets per employee
5.48
4.6618% Bank made progress in all areas of business in 2009. Total Asset growth of 27 percent, Deposit growth of 21 percent, Loans and Advances growth of 25 percent, Investment growth of 44 percent, among others signifies the claim of a high performing Bank. Only, Import growth was down by 6 percent reflecting the trend of overall Import business of the country.
Taka in Crore
2009 Total Assets
10,691.20
2008 8,405.40
Growth
27% Deposits
8,308.70
6,856.00
7,088.00
5,670.90
1,636.90
1,139.60
6,596.00
7,004.10
3,060.00
2,893.70
18.22
16.40
826.00
657.80
21% Loans & Advances 25% Investments 44% Import -6% Export 6% Remittance ($) 11% Guarantee 26% Provision against Loans and Advances has increased during the year due to volume growth and also to cover the classified loans and advances which increased by Taka 25 crore. Bank gave constant emphasis on quality credit portfolio and could also keep the NPL Ratio at a manageable level due to the prudent risk management strategies. A committed recovery team and adequate monitoring and control systems are in place for asset quality assurance. Taka in Crore
2009 Net Profit after Tax
2008
Growth
336.26
230.06
46.16%
1,440.77
1,148.51
25.45%
904.72
736.68
22.81%
Advances (NPA)
194.92
169.54
14.97%
NPL Ratio
2.75%
2.99%
NPL Provisions
42.69
65.82
Total Income Interest Income Non Performing
Total Assets of the Bank stood at Taka 10,691 crore in 2009 from Taka 8,405 crore in 2008 registering a growth 27.19 percent. Increases of total assets were mainly driven by business assets like Investments, Loans & Advances. Taka in Crore
Cash
2009
2008
Growth
535.49
409.60
0.13%
Balance with other banks and financial institutions
349.41
230.01
51.91%
Money at call and short notice
60.00
119.06
49.61%
Investments
1,636.93 1,139.59
43.64%
Loans and Advances
7,087.99
5,670.88
24.99%
Fixed Assets
244. 10
244.47
-0.15%
Other Assets
777.31
591.75
31.36%
10,691.23
8,405.36
27.20%
Total
Loans and advances of the Bank grew by 25 percent and stood at Taka 7,088 crore during the year 2009. This is a result of continued growth in ending business and solid growth in banking activities reflecting a continued focus on customers and profitable growth. Total liabilities in 2009 increased by 25 percent to Taka 9,683 crore from Taka 7,731 crore in 2008. Significant increases were in the area of Deposits and Other Liabilities. AB’s total Deposit stood at Taka 8,309 crore at the end of year 2009.The volume of deposits, therefore, grew by 21 percent in 2009 over the previous year. The growth was supported by Branch network and along with liability campaign carried out for mobilization of deposits. Shareholders’ fund grew from Taka 672 crore to Taka 1,008.65 crore. Paid- up capital of AB stood at Taka 256 crore during 2009 increased by Taka 33.44 crore (Bonus Share of 2008). Statutory Reserve increased by Taka 103.51 crore during the year while Distributable profit stood at Taka 354.2 crore indicating 97.88 percent growth over the previous year. Taka in Crore
2009
2008
Change(%)
Paid up capital
256.42
222.98
15.00%
Statutory Reserve
310.12
206.61
50.10%
Total Capital
566.54
429.59
31.88%
5.6 Cash flow statement Overview During the year 2009, Bank had a net cash flow ofTaka 186.10 crore as’given below: Taka in Crore
Net cash flow from operating activities
2009
2008
723.45
316.40
Net cash flow from investment activities
(506.54)
(250.35)
Net cash flow from fanning activities
(30.81)
19.20
Net increase and decrease in cash
186.10
85.25
Capital Adequacy Bank maintained adequate capital throughout and at the end of the year CAR was 13.78 percent. In 2009 the Banks Core capital and Total Capital were 11.81 percent and 13.78 percent respectively.
Capital Adequacy (Basel I) Taka in Crore
2006 Capital requirement
2007
2008
2009
206
446
580
783 Capital maintained
266
479
7
33
RWA
2,885
CAR% requirement
9.00%
CAR% maintained
9.23% 10.75% 12.84%
Surplus / (Deficit)
164
296
4,455
5,795
7,833
10.00%
10.00%
10.00% 13.78%
Return on Equity (ROE) stood at 40.02 percent during the year and over the years trend of ROE has been showing consistent improvement. Earnings per Share stood at Taka 131.13 during the year 2009 compared to Taka 89.72 last year. Overall business performance indicators shows improvement in terms of profitability, capital maintenance and Shareholders value addition for AB in 2009. 2009
2008
2007
2006
85.31
82.71
76.66
74.36
2.75
2.99
4.31
4.02
Capital Adequacy Ratio (%)
13.78
12.84
10.75
9.23
Cost Income Ratio (%)
59.73
62.57
60.82
86.87
Earning Per Share (Taka)-Diluted 131.13
89.72
74.23
20.75
LD Ratio (%) CL (%)
Return on Equity (%)
40.01
40.96
42.19
20.61
Return on Assets (%)
3.52
3.12
3.41
1.31
81.44
81.61
77.43
76.37
Assets utilization Ratio (%)
5.7 Growth Performance – Export and Import Remittance Inward Remittance from Bangladeshi Nationals working abroad marked an important milestone in Bangladesh Economy in 2009. Receipts from this sector increased by 22.4 percent to USD 9689.3 million in FY09 from USD 7914.8 million in FY08. Exports Exports increased by USD 1432 million (or 10.1 percent) in FY09 to USD 15583 million. Though raw jute, jute goods, tea, leather and frozen shrimps and fish recorded a negative growth, however, all other major exportable items significantly increased. A substantial growth of export of knitwear products (16.2 percent) and woven garments (14.5 percent) continued to increase the growth of merchandise exports in FY09. Imports Merchandise Imports increased by USD 810.0 million (or 4.2 percent) in FY09 to USD 20291.0 million. Decreased international prices resulted in falling of import payments for rice, pulses, crude, petroleum, edible oil, capital machinery, POL and clinkers. On the other hand, import of fertilizer, pharmaceutical products, iron, steel & other base metal, wheat, dying & tanning materials, etc induced to increase overall import. Imports as a percentage of GDP decreased by 1.8 percentage points to 22.7 percent in FY09 from 24.5 percent in FY08. As a potential source of foreign exchange reserves, Foreign Direct Investment (FDI) has been emphasized by the Government. Despite global financial turmoil, as per primary estimate, net FDI flows in Bangladesh increased by 25.8 percent to USD 941.0 million in FY09 from USD 748.0 million in FY08. The overall balance of payments recorded a significant surplus of USD 2,058 million in FY09, which was much higher than the surplus of USD 331 million of FY08. Foreign Exchange Reserve has crossed the $10 billion mark for the first time in the history of the country piggybacking on remittance, export growth and lower import. Double-digit growth rate of remittances and moderate export receipts helped increase gross foreign exchange reserve. 6.1 Conclusion
Banks play a very vital role in the economic development of the country. The popularity of banks is increasing day by day which leads to increase competition as well. Currently 52 Banks are operating in Bangladesh. All the Commercial banks are offering almost the same products and services and almost same their operation system. But the ways they provide the services are different from each other. So people choose their Bank according to their satisfaction and need. And they will prefer the bank of which service is easily accessible and understandable. One the other hand, Bank innovate new products and services to attract their desired customers. ABBL is one of the most potential banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and the management of this bank is equipped with the expert bankers and managers in all level of management. So it is not an easy job to find out the drawbacks of this bank. 6.2 FINDINGS Both export and import seem to be increasing every year for all the concerned banks. This shows the rising effect of globalization and accelerating foreign trade in Bangladesh. Every year the banks seem to have increasing facilitating international trade. Import has always been greater than export for every bank every year. The increase important from 2003 to 2008 for each bank has been approximately BDT 30,000 million for every concerned bank. Whereas the rise in export has been approximately BDT25,000 million. This shows our dependency on foreign goods hence foreign trade. This is also the cause of negative balance of trade of Bangladesh. Excess import over export during the years means increasing outflow than inflow of foreign currency for the country. This results in negative balance of payment for Bangladesh. Rising demand for foreign currency creates rising trend in their price or value hence making our local currency weaker than before. Foreign remittance inward has also increased over the years for each bank but it is much lower than the increase in import. Thus this low inflow of foreign currency into the country cannot cover up the balance of payment deficit. 6.3 RECOMMENDATIONS For the improvement of the service the following measures should be taken:
•
Providing More Industrial Loans:
It seemed to me that the bank having a large amount of deposit is not encouraging the large scale producers that much of long term industrial loans to accelerate the economy as well as to help the economy to solve unemployment problem.
•
Ensure Proper Division of Labor In The Desk:
There is lack of division of labor in the branch. This decreases the level of performance of the personnel, though it reduces monotonousness. But lack of division of labor hampers the discipline of working environment. So customers are to wait for some time for the desired service, which is contrary to the AB Bank’s objective.
•
Ensure Sufficient Manpower:
The number of human resources in the Computer section is really insufficient to give services to huge number of customers. So, number of staff should be increased in this section.
•
Development of Human Resources:
Human resource is another sector for the branch to be developed urgently. Human resources, in the branch, need to be equipped with adequate banking knowledge. Majority of the human resources must have basic knowledge regarding money, banking, finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can arrange training program on these subjects.
•
Ensure Sufficient Forms and Brochures:
There are always shortages of application forms, brochures, etc. in the branch. These forms and brochures must be maintained in sufficient quantity. Otherwise customer service will be hampered.
•
More Gifts and Discounts for the Premium Customers:
Premium Customers should be offered occasional gifts and discounts, which can make the Premium service more attractive and make customer delight. The interest rates on several loan and deposit schemes should be differentiated for the premium customers.
•
Offer Some Loan and Deposit Scheme Exclusively for the Premium Customers:
All the lending and savings packages offered to the premium customers are same as offered to the general customers, excepting the waiver of service charges for premium ones. The bank can pay more attention to this segment of customers, as it is the most solvent group from which income can be generated if the package is designed properly. The bank can pay more attention to this segment of customers, as it is the most solvent group from which income can be generated if the package is designed properly. AB Bank limited is a leading Private commercial bank in Bangladesh with superior customer bases that are loyal, faithful, worthy towards the bank. The service provided by the young energetic officials of the AB Bank Limited is very satisfactory. As a commercial bank ABBL has to follow the rules of Bangladesh bank despite the fact that These rules sometime restrict the foreign business to some extent. As a proud member of this bank I have found its foreign exchange department to be very efficient; therefore this department plays a major role in the overall profitability of the bank. BIBLIOGRAPHY •
Guidelines for foreign exchange transaction.
•
Import and Export policy order.
•
Exchange rate policy.
•
Importers , Exporters and Indenters ( Registration ) order , 1981
•
Uniform rules for collection, international Chamber of commerce, publication no.522 widely expressed as URC, ICC- 522.
•
Uniform rules for Bank- to Bank Reimbursement , International Chamber of Commerce, publication no. 525 widely expressed as URR, ICC- 525
•
International Standard Banking practice (ISBP).
•
Inco terms – 2000
•
Import & Export ( control) act, 1950
•
Foreign Exchange Regulation Act ( FFRA ), 1947
•
UCPDC, ICC – 600, Revision, 2007.
•
Operational manual
•
Various Circulars sent by Head Office and Bangladesh Bank, broachers, publications on Bank
•
Daily diary (containing my activities of practical orientation in AB Bank Ltd) maintained by me,
•
Websites,
•
Annual Report of the bank,
•
Personal investigation with bankers,
APPENDIX Year
export
import
2005 2006 2007 2008 2009
12595 17876 20677 28937 30640
23151 42860 48441 70041 65956
profit after tax 162 532 1903 2301 3363
Regression Descriptive Statistics
PAT EXPORT IMPORT
Mean
Std. Deviation
N
1682.2000 22145.00 50089.80
1270.5474 7580.87 18910.80
5 5 5
Correlations
Pearson Correlation Sig. (1tailed) N
PAT
PAT 1.000
EXPORT .938
IMPORT .873
EXPORT IMPORT PAT
.938 .873 .
1.000 .978 .009
.978 1.000 .027
EXPORT IMPORT PAT EXPORT
.009 .027 5 5
. .002 5 5
.002 . 5 5
IMPORT
5
5
Std. Deviation PAT 1682.2000 1270.5474 EXPORT 22145.00 7580.87 IMPORT 50089.80 18910.80
N
Descriptive Statistics Mean
Variables Entered/Removed Model Variables Variables Entered Removed 1 IMPORT, . EXPORT
5 5 5
Method Enter
a All requested variables entered. b Dependent Variable: PAT Model Summary R R Square Adjusted R Square Model
5
Std. Error of the Estimate
Change Statistics R Square Change .927
1 .963 .927 .854 484.9652 a Predictors: (Constant), IMPORT, EXPORT ANOVA Model Sum of df Mean F Squares Square 1 Regression 5986780.38 2 2993390.19 12.727 1 1 Residual 470382.419 2 235191.209 Total 6457162.80 4 0 a Predictors: (Constant), IMPORT, EXPORT b Dependent Variable: PAT Coefficient Correlations Model IMPORT EXPORT 1Correlations IMPORT 1.000 -.978 EXPORT -.978 1.000 Covariances IMPORT 3.783E-03 -9.230E-03 EXPORT -9.230E-03 2.354E-02 a Dependent Variable: PAT
F Change
df1
df2
12.727
2
2
Sig. .073
Sig. F Change .073
ABBL –AB Bank LTD CRAB - Credit Rating Agency of
ST-1 - Short Term AA3 - Double A
Bangladesh Limited FX – Foreign Exchange SME - Small & Medium
Three SWIFTEPS- Earnings per
Enterprise ROA- Return on Assets
Share ROE- Return on
ATM- Automatic teller machine
Equity L/C- Letter of
SECICCI&E- Chief Controller of
Credit FOB-Free on board ERC- Export
Import & Export
registration
EXP-Export TR- Trust receipt
Certificate IMP-Import BTB- Back to Back
DFC- Deposit Foreign Currency
Letter of Credit LIBOR- London
Account
Inter Bank Offering
Rate FDBC- Foreign Documentary Bill TT-Telegraphic Purchase LCAF- Letter of Credit
Transfer TIN- Tax Payers
Authorization Form
Identification
IRC- Inventors Registration
Number CIB- Credit
Certificate
Information Bureau
UCPDC- Uniform Customs &
NI- Negotiable
Practices for Documentary Credit Instruments
PAD- Payment Against
IBCA- Inter Branch
Document FD-Foreign Deposit MOF-Ministry of Finance
Credit Advice $=US dollar BB-Bangladesh
NCB- Nationalized Commercial
Bank PCB- Private
Banks GBP-Great Britain Pound
Commercial Banks NFCD Non-resident Foreign Currency
PS- Pound sterling
Deposit CD- Canadian
Y- Japanese Yen
dollar NRTA -Non resident
UBME-Union Bank of Middle
Taka Account FIU- Financial
East EFT-Electronic Fund Transfer
Intelligence Unit FC- Foreign
IBCA- Inter Branch Credit
Currency DM- German Mark
Advice
`