Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
2009
Prepared By Shaikh Razib Hasan ID: 2009222451838 Contact: razib.mba.cse@gmail.com H/P: +880-1973-102030
Chapter 1
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Introduction
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best to show the knowledge which have been acquired in my practical orientation period. 1.2: Objectives of the study: The Prime objectives of the study are to gather practical knowledge regarding banking systems and operation. This practical orientation gives us a chance to coordinate the theoretical knowledge with the practical experience. The following are the objectives for this practical orientation in bank: To get an overall idea about the Foreign exchange Business of BASIC Bank Limited. To apply theoretical knowledge in the practical field. To help the students in taking up professional courses in the MBA program. To describe the organizational structure, management, background, functions and objectives of the bank and its contribution to the national economy. To achieve overall understanding of BASIC Bank Limited. To analyze the financing systems of the bank to find out any contributing field. To examine the profitability and productivity of the bank. To acquire knowledge about the every day banking operation of BASIC Bank Limited. To understand the real management situation and try to recommend for improving existing problems.
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Personal Interview Face-to-face conversation and in depth interview with the respective officers of the branch. Personal observation Observing the procedure of banking activities followed by each department. Daily diary Practical work exposures on different areas of the branch. Informal conversation with the clients or customers.
5.3.1.2 Secondary Sources Annual report (2005, 2006& 2007) of BASIC Bank Ltd. Periodicals Published by Bangladesh Bank. Different publications regarding Banking functions and foreign exchange operation Internet will also be used as a theoretical source of information. Use of different theories to make the report more relevant. Printed Materials: This study is mostly dependent on the printed materials which may include the books, newspapers, magazines, journals, directories, annual reports, Bangladesh bank publications, BASIC Bank Ltds Annual Report etc Internet: Internet was another major secondary source that we have used to collect related information to conduct the study. Newspapers: We have collected some information from the various dailies and business articles.
1.5.2: Data analysis and Interpretation: Both quantitative and qualitative analysis will be performed on the findings. The quantitative analysis will be done on the trend of export- import, growth pattern of export-import, pre and post facilities provided for easing the export-import operations. Qualitative analyses will be based on the macroeconomic variables and foreign exchange policy provided by Bangladesh bank, the central bank of Bangladesh. Different statistical tools will be used for the analysis of the findings.
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*The Bank is required to transfer 20 percent of its net profit before Tax to Capital Fund as per the Banking Companies Act 1991
2.2 Functions
The Bank offers Term Loans to industries especially to Small-Scale enterprise. Full fledged commercial banking Service including collection of deposit, short term trade finance, Working capital finance in processing an manufacturing units and facilitating international trade. Financing & Technical support to Small Scale Industries (SSI) in order to enable them to run their enterprises successfully. Micro Credit to the urban poor trough Linkage with NGOs with a view to facilitating their access to the formal financial market for the mobilization of resources. Financing in import and export business like other commercial Banks. 6
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General banking facility like Certificate of Deposits, Fixed Deposits Receipts, Savings account, Short Term Deposits, Foreign Currency Account etc are available here.
FOREIGN EXCHANGE OPERATIONS OF BASIC BANK LIMITED cautions way. banking technology
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2.5.2.2 Commercial Viability Market prospect and potential for the product has to be fully assured at competitive prices. Marketing channels existing for the product should be accessible to the entrepreneurs. 2.5.2.3 Financial Viability 8
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There should be reasonable debt equity ratio as determined by the Bank on individual case basis. Debt service coverage ratio should be at least 2.5 times at the optimum level of production. IRR should preferably be not less than 20 percent 2.5.2.4 Economic Viability The project should benefit the national economy by creating employment and increasing income. Savings/Earnings of foreign currency may give an additional dimension.
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FOREIGN EXCHANGE OPERATIONS OF BASIC BANK LIMITED BASIC Bank Limited. Head Office Dhaka. Company Secretary Mr.Md.Mesbaul Haque Company Auditor ACNABIN Chartered Accountants Table 3: Board of Directors
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2.6.2 Management
The management is headed by the Managing Director. He is assisted by the General Manager and Departmental heads in the head office. BASIC is different in respect to hierarchical structure from other bank in that it is much more vertically integrated as for as reporting to the chief Executive is concerned. The Branches in charge of the Bank report directly to the Managing Director and for functional purposes, to the Head of Department consequently, quick decision making in disposal of cases is ensured. [ORGANOGRAM OF BASIC BANK]
CHAIRMA
BOARD OF DIRECTORS MANAGING DIRECTOR
GM GM GM
(Audit & Inspection)
(Admin)
(Operation)
International Division
Credit Division
DEVELOPMENT
Central Accounts
Personal Division
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Assistant
Clerical Staff:
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Fully computerized accounts maintenance. Well-decorated and air-conditioned facilities. A fully operational computer network, which is currently being implemented. The work of LAN and WAN installation to facilitate fast communication between the branches and the head Office is in progress to facilitate any Branch Banking and ATM Services. machine for making cash transaction easy and prompt. Money counting
Fifteen out of thirty two branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade.
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Like any other financial intermediaries, BASIC is no exception in performing its core function viz. Mobilization of fund and utilizing such mobilized fund for profitable purposes. 2.7.3.1 Mobilization of Funds The main sources of fund for BASIC are: 1) 2)
Deposit Borrowing
(1) Deposit: Deposit is the mainstay of BASICs sources of fund. Following usual practices, it collects deposit through: Current Deposit Saving Deposit Fixed Deposit Others (Margin A/c, Retention quota A/c etc.)
Figure 2: Deposits mix of BASIC Bank Limited in 2007 (2) Borrowing for Development Finance: Apart from deposit BASIC received funds from the following sources: Bangladesh Bank. Asian Development Bank. KfW (Kreditanstalt fur Wieder-aufbau- Credit Institution for Reconstruction), a German Development Bank.
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All of these funding sources fund are for relatively longer period. Receiving the credit lines from ADB and KfW has been recognition of BASICs highly satisfactory performance. Table 5: Borrowing for Development Finance (Taka In million) Year 2004 2005 2006 Amount 839.61 937.52 830.06 2.7.3.2 Utilization of Funds Utilization of banks fund was more of less satisfactory during the year 2007. Given the difficult economic situation, the management of bank focused on the consolidation and quality of assert rather than in growth. The total assets of the Bank increased to Taka 38,773.91 million at end 2007 from Taka 29,417.09 million in the previous year. The growth rate was 31.81 percent. Deposit rose from Taka 31,947.98 million (82.40% of total liabilities) in 2007 to Taka 24,084.65 million (81.87% of Total liabilities) in 2006 showing a growth rate of 32.65 percent. 2.7.3.2.1: Banks Assets During the year 2007, total assets of the bank increased by 31.81 percent to Taka 38,773.91 million from Taka 29,417.09 million in 2006.As expected for a bank, loans and advances comprised the largest share in the assets portfolio of the Bank constituting 57.51 percent. Balances with other banks and financial institutions and investment were the second and the third largest constituents being 17.89 percent and 13.67 percent of the assets portfolio respectively. Cash & money at call and short notice came next in size with 5.48 percent and 3.40 percent of the total assets portfolio. 2007 1385.81
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Table 7:
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Table 8
SI.
# 1 01. 02. 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Particulars
2 Paid Up Capital Total capital Capital surplus/(deficit) Total Assets Total Deposits Total loans & Advances Total contingent liabilities & commitments Credit-deposit ratio Percentage of classified loans against total loans and advances Profit after tax and provision Amount of classified loans and advances Provision kept against classified loan Provision surplus / (deficit) Cost of funds Interest earning assets Noninterest bearing assets Return on investment Return on Assets Incomes on Investment Earnings per share Net income per share Price earning ratio
Position as on 2007 3 1,247,400,000 2,947,858,896 663,726,896 38,773,905,83 6 31,947,979,10 1 22,263,349,60 8 10,189,525,37 3 69.69% 3.25% 282,965,086 723,233,815 436,543,180 0 8.31% 35,046,030,90 0 3,727,874,936 7.89 % .83 % 206,480,219 22.68 22.68 N/A
Position as on 2006 4 945,000,000 2,489,523,909 619,126,000 29,417,094,93 9 24,084,659,39 1 19,000,004,68 8 8,579,394,196 78.89% 3.70% 554,138,494 703,269,923 323,218,141 0
Position as on 2005 5 810,000,000 1,952,002,043 445,474,000 27,136,370,67 6 22,325,581,34 0 15,339,350,84 7 6,102,505,592 68.71% 4.55% 285,494,792 698,443,122 274,845,923 734,147
Position as on 2004 6 675,000,000 1,623,732,250 453,632,080 19,436,566,270 15,509,176,960 12,000,145,123 5,580,954,700 77.37% 3.70% 291,484,207 443,854,593 179,798,406 8,050,949 6.86% 17,449,378,068 1,987,188,202 6.50% 1.68% 132,356,456 35.99 18 35.99 N/A
6.77% 7.34% 26,469,275,53 24,437,566,81 6 4 2,947,819,403 2,698,803,862 5.78 % 1.94 % 225,733,106 58.64 58.64 N/A 6.59% 1.23% 162,531,619 25.25 25.25 N/A
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Graphical Presentation
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3.1 Import:
Under the import policy of Bangladesh the Importer has get the valid Import Registration Certificate (IRC) from the Chief Controller of Import & Export (CCI&E). 3.1.1 Letter of credit: Letter of credit means any arrangement whereby a Bank (the issuing Bank) is committed (on behalf of the buyer/applicant) to pay certain amount at the sellers disposal under some agreed conditions. Types of documentary credit: Documentary credit may be of three types Recoverable credit Irrecoverable credit Add confirmed credit
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3.1.2 Recoverable credit: This type of credit can be cancelled or amended at any time by the issuing Bank without prior notice to the seller. It is not in use. 3.1.3 Irrecoverable credit: This type of credit cant be cancelled or amended by the issuing Bank without agreement of parties concerned thereto. All the credits issued in our country are of recoverable nature. 3.1.4 Add confirmed credit: When a third Bank provides guarantee to the beneficiary to make payment, if issuing Bank fail to make payment, the L/C is called confirmed L/C. In case of a conformed L/C a third Bank adds their confirmation to the4 beneficiary, to make payment, in addition to that of issuing Bank. Confirmed L/C gives the beneficiary a double assurance of payment. 3.1.5 Special documentary letters of credit: The following five major steps are involved in the operation of a documentary letter of credit: Opening Advising Amendment Presentation Settlement 3.1.6 Import Financing: The post import finance extends the import credit in the following forms: PAD (Payment against documents) LTR (Loan against trust receipt) LIM (Loan against imported merchandise
3.2 Export:
Under the export policy of Bangladesh, the exporter has to get the valid export registration certificate (ERC) from chief controller of export & import (CCI&E). The ERC is required to renew every year. The ERC number is to be incorporated on export Form & other paper connected with exports.
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3.2.1 Receiving the letter of credit: After getting contract for sale, exporter should ask the buyer for L/C clearly starting terms & condition of export & payment. 3.2.2 Procuring the materials: After knowing that the L/C has opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. If the exporter has to procure the raw materials from another supplier (local or abroad) he has to open Back-to-Back L/C. 3.2.3 Back-to-Back L/C: Back-to-Back L/C is one type of L/C, which is opened against lien on a valid export L/C. It is opened for inland & abroad as well. Bank will supply the following papers/documents for opening a Back-to-Back L/C. L/C application form LCA form IMP form Charge document papers
The above papers must be completed, filled & signed by the party thereto. The party will submit the entire filled document along with application in printed form of the designated Bank which is also an agreement between application & the Bank. 3.2.4 Export Financing: An export is who exports the goods to another customer whether in domestic country or in abroad. In exporting the stipulated goods he may require financing. So export financing may be required at two stages. Pre shipment credit Post shipment credit
3.2.4.1 Pre shipment credit: Pre shipment credit is the credit, which is given to finance the export activities of an exporter for the actual shipment of goods. The purpose of each credit is to meet the working capital needs from the procuring of raw materials to the transportation of goods for the export the foreign country. Before sanctioning of that credit the Bank takes into consideration the credit worthiness, export performance of the exporters together worthiness all other information required for sanctioning the credit in accordance with the existing rules & regulations. 27
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3.2.4.2 Post shipment credit: There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Bank may finance against export documents ensuring the following: Export documents comply with the credit terms Partys past performance is satisfactory Any other security in case of exporting under contract
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conversion, the forms in which such conversions take place and causes which render these conversions necessary. In Bangladesh, we have the unit of money is 'Taka' for domestic transaction; also have other obligations by exchanging foreign currencies. To meet-up the obligation that arise import of goods & services from other countries, other foreign necessity, that part of the economic science, which deals with the conversion of domestic currency into foreign currency for the purpose of setting international obligations, is called Foreign Exchange. There are three types of modes of foreign exchange market, which are as follows:
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Post-shipment: It is required by the exporters after actual shipment of goods in order to bridge the period between shipment of the goods and receipts of sales proceeds from abroad. An exporter owns resource may not be adequate to meet all such expenses. So he / she has to come in contact with commercial bank and financial institutions to get finance from them. As a state owned scheduled bank BASIC Bank Limited provides credits to exporters at a consideration rate of interest as an export promotion measure as per government directive.
Export
registration certificates (ERC) Bank usually charge documents to be signed by exporter or his / her duly authorized agent. Confirmed irrevocable export letter of credit or firm contract made by the buyer with the exporter. Insurance coverage Collateral securities. 4.1.1.4.3: Packing Credit: This facility is generally extended when the goods become ready for shipment for a very short period usually from the date of dispatch of the stock from the go down up 32
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to the date of actual shipment of the goods that is for the transit period of shipment for further purchase of raw materials or procurement of exportable goods by exporter.
4.1.1.4.4: Back to back letter of credit: Pre-shipment facilities are also credited in the form of back- to-back letter of credit. When the beneficiary of an export letter of credit is not the actual manufacturer or producer of exportable goods mentioned in the relative export letter of credit as securities with his / her banker for procurement of exportable goods to enable him /her to execute the export letter of credit and such letter of credit is called inland back to back letter of credit.
Expiry date of letter of credit should be properly recorded in the book and no drawing is to be allowed against expired letter of credit. The credit worthiness or solvency of the foreign buyer as well as the exporters must be ascertained before hand. In case of mortgage of properties as collateral securities, the bank by engaging lawyer together with valuation certificate from proper authority must scrutinize the relative documents.
The exporter should arrange forward sale of foreign exchange loss at the time of negotiation of export documents. In case of packing credit, the export letter of credit and relative documents have to submit in, such a way that the bank may not face any problem in negotiation of shipping documents in due course.
To dispatch goods for shipment to post under packing credit the bank must verify the shipping mark on the each packet or cartoon and the relative invoice.
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export performances of the exporters as well as the reputation and financial soundness of the foreign buyers provided the shipping documents are drawn strictly in accordance with letter of credit terms and in accordance with foreign exchange regulation in force.
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pay after the askance period. In dealing such documents the banker must take proper precaution to realize the proceeds in time.
C.
Providing loan against export bills tendered for collection: Export bills not drawn under letter of credit. Bills drawn under letter of credit but contains.
Export bills are sending abroad generally by banks on collection basis in the following cases:
Against the above collection documents bank may allow loans keeping substantial margin on the basis of banker customer relationship with the exporter. While handling such documents the banker must remain vigilant to refer the exporter proceed with a view to adjust the credit so extended. D.
When the export bills are not drawn under letter of credit or the goods send on consignment basis, the exporter may approach the bank for discounting the export bills on commission basis. Bank generally does not accept such proposal excepting on exceptional cases. If the exporters have very good credit worthiness and previous good export performance and foreign buyers have also good report & good reputation for past transaction.
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The main objective of creating an export development fund at the Bangladesh Bank is to assure a continued availability of foreign exchange to meet the import requirement of non-traditional manufactured items, this facility is available to the non-traditional exporters, particularly newer exporters, exporters diversify into higher value export and exporters diversify into new markets. An exporter identified above is eligible on the basis of the conditionally stated below: -
The value added of these products could be 20% except in the case of garments where it has to be 30% & above. The loan should be utilized in the case of importing raw materials for manufacturing the exportable products. The exporter must have an export letter of credit. One must create a back-to-back for importing raw materials. The period of loan is 180 days.
I.
The draft should be drawn by the party indicated as the beneficiary of the credit i.e. the exporter; drawee must be in accordance with the terms of the credit. The tenor and amount of the draft be in conformity with the credit terms. The bill of exchange should be properly stamped if necessary with the requisite value and the cost must be recovered from the drawers unless it is provided otherwise in the letter of credit. The draft or bill must bear the correct date and must be drawn or endorsed to the order of the bank. The drawer's signature must be verified.
II.
Scrutiny of invoice:
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The physical description of the goods i.e. price, quantity, quality, markings etc. in the invoice must correspond with the specifications in the credit. If the credit stipulates a consular invoice, the requisite invoice should be furnished. All copies must be signed and certified as correct shipper. If the credit stipulate for any other particulars to be stated in the invoice these must complied with. It should not include charges such as postage; cable etc. unless specifically authorized under the credit.
III.
The bill of lading should be a full set clean on board ocean bill of lading, unless the credit stipulates otherwise. 'Received for shipment' bills of lading must not be accepted unless permitted by the credit.
It must agree with the invoice as regards quantity and description of goods as well as in respect of ports of shipment and destination. The bill of lading must also indicate where it is 'freight paid' (C & F, GIF) or freight payable at destination (FOB transaction). Transshipment and port shipment clauses in the shipping bill should be in accordance with credit terms and the provisions of the uniform custom and practice. Credit frequently stipulates for shipment not letter than a specified date. Bill of lading must be examined to ensure that these are dated not later than the date mentioned.
stamped and must be endorsed, expect when the relative credit stipulate for bill of lading to order of a named firm.
insurance.
Dock shipment not permitted unless specifically authorized and covers by Bill of lading must not be a stale one.
IV.
Scrutiny of Insurance:
Where insurance is to be effected by the beneficiary for GIF consignment, the policy accompanying the documents should be examined to ensure:
That the insurance covers the merchandise for the value stipulated in the credit. That the document is of the class stipulated in the credit. That the insurance documents describe the merchandise covered and mention the 37
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name of the carrying steamer. In case where 'on board' bill of lading are not presented the following clause or words of similar indent must follow the name of the steamer' and / or 'following steamer'.
That all risk stipulate in the credit is properly covered in the insurance documents. When the credit stipulates that 'all risk' are be covered, it is not sufficient that various risks are mentioned but a clause to the credit that 'all risk' are covered, is required.
That the policy is in the name of the bank and the importer.
That the party designed in the documents to perform such act properly countersigns the insurance document. That the insurance document complies with the conditions of the letter of credit is in negotiable form that it is endorsed by the party to when the loss payable, unless the credit stipulates that the insurance must be issued 'loss payable to a specified party in the country of destination'.
That the date appearing on the insurance document is not later than the date appearing on the bill of lading. That the insurance document covers transshipment when the bill of lading indicates that transshipment would take place. That the insurance claims are payable at the port of destination, that insurance certificate / policy acknowledges the payment of the premium.
V.
The other documents i.e. certificate of origin, packing list, weight / measurement certificate, inspection certificate, survey report, quality control certificate etc. should be issued or signed by the proper authorized and description of 'export - order' given in these documents not be in contradiction to the credit terms.
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of the merchandise by the buyer. For international sales, these risks are far more pronounced than they are domestically. For these reasons BASIC Bank Ltd also accompanied with elements of uncertainty some which are as follows:
I. Commercial risk:
Insolvency of overseas buyer, which result in non-realization of export proceeds. Failure of the buyer to retire credit already accepted by him / her in case of askance bill within stipulated period. Willful negligence of the importer to accept of pay bill or to accept goods for no fault of the exporter.
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processing of exportable products. The exporter may not be able to make shipment within the stipulated time due to power failure, strike, natural calamites etc. The materials under back-to-back letter of credit may not reach well in time to allow the exporter to process goods within the expiry date of original export letter of credit.
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Machinery & transport equipment. Petroleum & petroleum products Textile, yarn, fabrics, article & related products Chemicals Bicycle parts Iron & steels Cereal & cereal preparations 40
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Income tax registration certificate. Nationality certificate. Certificate from chamber of commerce & industry registered trade association. Bank solvency certificate. Copy of trade license. Any other document if required by CCI&E. .
On receiving application the respective CCI&E office will scrutinize the documents, conduct physical verification, and issue demand note to the prospective importers to furnish the following documents through their nominated bank: 41
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Memorandum & Articles of association in case of limited company. After securitization and verification the nominated bank will forward the same to the respective CCI&E office with forwarding schedule in duplicate through banks representative. CCI & E then issues import registration certificate to the applicant.
Original copy of treasury deposited as IRC fees. Assets certificate. Affidavit from 1s'class magistrate. Rent receipts. Two passport size photograph. Partnership deed in case of partnership firms. Certificate of registration
The buyer & the seller conclude a sales contract provided for payment by documentary credit. The buyer instructs his / her bank i.e. issuing bank to issue a credit in favor of the seller i.e. beneficiary. The issuing bank asks another bank usually in the country of the seller, the advice or confirms the credit. The advising or confirming bank informs the seller that the credit has been issued.
As soon as the seller receives the credit and is satisfied that he / she can meet its terms & conditions, he/she are in a position to load the goods & dispatch them. The seller then sends the documents evidencing the shipment to the bank where the credit is available i.e. the nominated bank. This may be the issuing bank, or the confirming bank, bank named in the credit as the paying, accepting or negotiating bank.
either
The bank if other than the issuing bank, sends the documents to the issuing bank, The issuing bank checks the documents and if they meet the credit requirement
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Affect payment in accordance with the terms of the credit either to the seller if s/he has sent the documents directly to the issuing bank or to the bank that has made funds available to him/her in anticipation. Or
Reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit. The bank checks the documents against the credit. If the documents meet the requirements of the credit, the bank then pay, accept or negotiate accordingly to terms of credit. In case of a credit available by negotiation, issuing bank or the confirming bank will negotiate with recourse; another bank including the advising bank has not confirmed the credit, which negotiates will with recourse.
When the documents have been checked by the issuing bank and found to meet the credit requirements, they are released to the buyer upon payment of the amount due or upon other terms agreed between importer & the issuing bank. The buyer sends transport documents to the carrier who will then proceed to deliver the goods.
Lodgment:
a) Intimation should be given to the party in time. b) Conversion of foreign currency in to Bangladesh Currency. c) Entry in PAD (payment against document) register d) Entry in Letter of Credit opening register by rounding the letter of credit number with date. e) Scrutinize the shipping documents meticulously. f) Inform the importer to deposit balance amount of letter of credit and to release the 43
FOREIGN EXCHANGE OPERATIONS OF BASIC BANK LIMITED necessary documents. g) Enter the shipping documents in inward foreign bills register.
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h)
At the end of the total procedure, taking the retirement of import bills or clearing certificate from the bank, the importer will clear the goods from the port through the clearing & forwarding agent. i) On the other hand, completing the above all steps the issuing bank will prepare "foreign exchange transaction schedule" and send one copy to international division of Head Office and another one copy to reconciliation.
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be able to comply with the terms of credit for some reasons. Therefore, risk inherent in all credits. The bank has to consider following risk in financing the import procedure:(A) Commercial risk: I. Violation of the requirement of letter of credit authorization or letter of credit: Shipment effected before authentication of the letter of credit authorization from by the nominated bank and registration with the Bangladesh bank, whenever necessary and before opening of letter of credit or after expiry of the validity of the letter of credit authorization or letter of credit shall be treated as import in contravention of this order. Letter of credit authorization obtained in the basis of false or incorrect particulars or by adopting any fraudulent means shall be treated as invalid and void. II. Import against indent and Performa invoice: Letter of credit may be opened against and indent issued by a local registered indenter or against a Performa invoice issued by a foreign manufacturer or seller or supplier. (b)Political risk: In addition to the credit and commercial risk we have outlined, international transaction such as import financing take on the whole new dimensions of political risk. They are as follows: Sudden outbreak of war, revolution, coups or civil disobedience in the seller's country. Imposition of restriction on remittance. Imposition of trade embargo or blockade. New import restriction on the buyer or cancellation of the license. Additional handing transport or issuance charges due to interruption or diversion of voyage, which can't be recovered from the buyer. (c)Informational risk: There may be informational risk inherent in import financing on the importer because of shortage of required information. So it is much harder to judge the financial strength, reputation and integrity of a seller or buyer who is thousands of miles away and belongs to a different culture.
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It is the most important and commonly used in connection with foreign trade. Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor 45
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of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity.
Bill of Exchange:
A Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay on demand or on fixed or determinable future time a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. From the definition - we get the features of bill of exchange. In generally there are three parties like- Drawer: The person who prepare the bill; Drawee: The person who is ordered for the payment in future specified time; Payee: The person who is the amount of bill receiver as per the order of the drawer to the drawee.
Bill of Lading:
A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constitutes a document that is, or may be, needed to support an insurance claim. The detail on the bill of lading should include: A description of the goods in general terms not inconsistent with that in the credit. Identifying marks & numbers f any). (i The name of the carrying vessel. Evidence that the goods have been loaded on broad. The ports of shipment & discharge. The names of shipper, consignee and name & address of notifying party. The number of original bills of lading issued. The date of issuance. A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit.
Commercial invoice:
A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally including the following information: Date 46
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Name & address of buyer & seller. Order or contract number, quantity & description of the goods, unit price and the total price. Weight of the goods, number of packages and shipping marks & number. Terms of delivery & payment. Shipment details.
A certificate of origin is a signed statement providing evidence of the origin of the goods.
This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and / or the letter of credit. The buyer who also indicates the type of inspection usually nominates the inspection company he /she wish the company to undertake.
The insurance certificate document must: Be specified in the credit Cov er the risks specified in the credit. Be consistent with the other documents in its identification of the voyage and description of the goods. Unl ess otherwise specified in the credit: a) Be a document issued and / or signed by an insurance company or its agent, or by underwriters. b) Be dated on or before the date of shipment as evidenced by the shipping documents or establish that cover is effective at the latest from such date of shipment. c) Be for an amount at least equal to the GIF value of the goods and in the currency of the credit.
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1. DOCUMENTARY CREDIT:
In simple terms a documentary credit is conditional bank undertaking of payment. Expressed more fully, it is written undertaking by a bank (Issuing Bank) given to the seller (Beneficiary) at the request and in accordance with the instructions of the buyer (applicant) to effect payment (i.e. by making a payment or by accepting or negotiating bills of exchange) up to a stated sum of money, within a prescribed time limit & against stipulated documents. These stipulated documents are likely to include those required those required for commercial invoice, certificate of origin, insurance policy or certificate and bill of lading or combined transport document. There are various types of documentary credits. A revocable credit can be amended or cancelled at any time without prior warning or notification to the seller. An irrevocable credit can be amended or cancelled only with the agreement of all parties. As there are often two banks involved the issuing bank & the advising bank, the buyer can ask or an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit. There are four types of documentary credits according to payment methods: 1. Sight credit 2. Acceptance credit 3. Cash credit 4. Deferred payment credit
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b) Authorizes such payment to be made or such drafts to be paid, accepted or negotiated by another bank against stipulated documents, provided the terms & conditions of the Letter of Credit are complied with.
Issuing Bank
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letter of credit the issuing bank gives a definite, absolute and irrevocable undertaking to honor its obligations, provided the beneficiary complies with all the terms & conditions of the credit. Government letter of credit: That letter of credits, which are done by the Defense Ministry and other Ministries of the government. Master or mother letter of credit: The L.C. which come from out side the country to the exporter from importer that is mother or master letter of credit. Other classes of letter of credit: Revolving letter of credit: When the L.C. is used again & again in same amount for a specific period of time that is called revolving letter of credit. Transferable letter of credit: Exporter can transfer his / her right of letter of credit in full or partly to a third party. In generally, the exporter is not the supplier but act as a middleman with in the supplier & importer. Back-to-Back latter of credit: The letter of credit, which done by the security of mother letter of credit. Clean or open letter of credit: The letter of credit, which provides assurance of payment bill of exchange without submission, of any export documents that is called clean letter of credit. Confirmed letter of credit: When the Irrevocable letter of credit issued by issuing bank to the exporter as assurance of the L.C., then as per advice or documents the authorized representative or representative bank's provide assurance or payment guarantee that is confirmed letter of credit. At sight letter of credit: That letter of credit which expires ninety days i.e. with in this period the documents must be sending to the negotiating bank. Deferred payment letter of credit: That letter of credit which expires one hundred & eighty days i.e. with in this period the documents must be send to the negotiating bank. Contract letter of credit. Refinance Letter of Credit. Marginal Letter of Credit. Traveler's Letter of Credit.
Justification for fitness of letter of credit opening: Application from importer. Bio-data of the applicant. Current account opened by the applicant in the branch. Supplier's acceptance & rate of goods. Is it a banned item or not? Contract on prescribed form of bank (stamp TK. 150). Performa invoice from supplier.
Steps in letter of credit opening: On receiving the documents or papers from the importer the letter of credit opening bank is to perform the following functions in connection with opening the letter of credit: A. To scrutinize the documents thoroughly and to consult with import policy, Bangladesh Bank & International Division's circular. B. To prepare an "offering sheet". This offering sheet is nothing but a prescribed office note on which the branch manager will sanction the margin to be obtained from the importer. C. Commission against opening of the L/C is determined on the basis of tenure of the L/C i.e. for how long the bank is going to take the liability on behalf of the importer D. If the L/C transmitted through SWFIT/TELEX the related charges should be picked up from the respective charges schedule. E. Exchange rates for the respective currency should be picked up automatically form the treasury module. F. Margin is the amount and the percentage of the total L/c value that the applicant has agreed to provide before opening of L/C as his equity participation. The margin should be in local currency. G. If there is any FCC on applicant account which should be deducted as per charges schedule. H. To make entry in "letter of credit opening register". I. Accounting treatment to prepare vouchers in prescribed forms: J. For creating contingent liability Customers Liability A/c.Dr
Bankers Liability A/c..Cr K. Margin Voucher Clients A/CDr. Commission on LC value ...Cr VAT on L/C commission @15%...................................Cr. F.C.C Charge...Cr Recovery SWIFT (For L/C).Cr Recovery SWIFT (For R/A)Cr Stock of StampCr Miscellaneous (For LCA)Cr H. To dispatch the letter of credit as follows: First & second copy - Advising Bank, which in turn forward The original copy to the exporter Third copy - Reimbursing Bank. Fourth & Fifth copyImporter Sixth copyC.C.I. & E. Seventh to Ninth copyLetter of credit opening bank's copy.
Required documents for letter of credit opening: Proposal letter (in proposal letter it must be mentioned that - price of goods, CCI &
E registration, pass book number, LCA form dully filled in signed & sealed, Import form full set, insurance policy & addendum, P.I. number). Application and agreement for irrevocable LC with adhesive stamp of TK.150. Import license HS. Code. TIN. VAT registration. Indenting certificate. Performa invoice - two copies (with in this it indicate - Performa bill no. & date, item, particulars, quality, quantity, rate, and amount of goods, total invoice value (E &O.E.) LCA (Letter of Credit Authorization) form for industrial consumer - four copies. (With in this - IRC number, total amount) Signature of Director of the firm and manager of BASIC Bank Ltd. IMP form - Four copies (by this the declaration of the firm's directors) Money receipts of insurance policy. After preparing the procedure the bank provide offer in prescribed "offering sheet". Approval certificate of Bangladesh Bank on behalf of the importer.
PAD account...... ..................... ...Cr. P&T charges account... .................. Cr. Cost of stationary account... ........... ...Cr. Interest account. .......................... .Cr. Then the opening liability reversed by credit in liability voucher (FEF - 20 internal vouchers). Then the documents endorsed by the LC opening bank and send to the importer. The party goes for customs clearing. After clearing the importer submit the customs "Bill of entry" certificate with in four months to the LC opening bank. The LC opening bank matching the documents and report to the Bangladesh Bank within the month of retirement of LC. Then the letter of credit is fully closed.
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Foreign inward remittance Foreign outward remittance 4.3.1.1: Foreign Inward Remittances:
The remittance of freely convertible foreign currencies which BASIC Bank Ltd Foreign Exchange Section is receiving from abroad against which the authorized dealers making payment in local currency to the beneficiaries may be termed as foreign inward remittance.
C: Travelers Cheque.
T F
For family maintenance. Realization of exports proceeds. Gift. Donation. Export brokers commission.
4.3.1.1.4: Payment procedures of FD. MT. & PO. Drawn on BASIC Bank Ltd:
The above investments that are drawn on BASIC Bank Ltd Foreign Exchange Corporate Branch may be paid on the spot before making payment the following procedures to be observed by the authorized dealer: To obtain Form-C. To verify the signatures of the instrument. To convert the foreign currency into Bangladesh TK. with O.D. (On Demand Transfer) Buying rate prevailing on the date. To make entry in TTs, drafts & Mails received register. To prepare FET schedule and to send first five copies of FET along with vouchers to international division, Head Office, Dhaka.
To make entry in T.T.s, drafts, M.T.s, received registration. To prepare vouchers. To prepare FET schedule.
To checkup the custom declaration (if any). To consult with purchase agreement (if any). To obtain signature on TC and to verify the same with the previous signature of the
beneficiary of the TC. To make entry in register for TC & drafts purchased. To convert foreign currency into Bangladesh currency. To prepare FET schedule. To send the TC for collection. To prepare the vouchers.
On the last working day of each month the transaction during the month to be reported to Bangladesh Bank through the following schedule: Schedule -J-l / 0-3 for TK. 5000 & above. Inward remittance voucher-1/04 for below TK. 5000.
To prepare the instrument. To make entry in DD, MT, TT issued register. To prepare draft advice in duplicate one for drawee bank & one for reimbursing bank. To make entry in draft advice dispatched register. To send reimbursement authority in case of MT & TT. T o prepare FET schedule.
To verify the approved T / M form or Bangladesh Bank permit. To issue TC by obtaining signature of the purchaser on the TC. To endorse in the passport. To prepare FET schedule. To make entry in the travelers cheque issue register. The TC issuing slip of the issued TC to be sent to that bank (whose TC issued) With reimbursement instruction.
4.3.1.2.5: Issuance procedure of foreign currency notes: To verify the approved T.M form or Bangladesh Bank permit. To issue foreign currency notes by endorsing in the passport. Voucher preparing with accounting treatment: Party's account.......................................Dr. Foreign Currency Notes on Hand A/C Cr. 4.3.1.2.6: Facilities for wages Earners:
Bangladeshi national/Bangladesh origin dual citizen working abroad may open Foreign Currency account (F.C. A/C) in US Dollar and Pound Sterling without initial deposit. Nominee can operate the account Interest is paid on F.C. A/C Balance in F.C. A/C can be utilized for import of goods Balance available in the F.C. account may wholly or partially be sent abroad.
A/C
Foreign currency brought in by Wage Earners can be deposited in the F.C. A/C Wage earners Development Bond in Taka can be purchased from the balance of F.C.
Non-Resident Foreign Currency A/C (NFCD A/C) can also be opened by Wage Earners. F.C. A/C & NFCD A/C may be maintained as long as the account holder desires.
These accounts can be opened from abroad on submission of required papers duly attested by our Embassy/ Branch/ Representative office abroad.
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Export & import business of BASIC Bank Limited: BASIC Bank's expertise in International Banking has a record of in-house growth over more than one decade. With limited network of branches at home and also a few correspondent banks worldwide it is handling the export-import business including homebound remittances. The following graph shows year-wise export-import business of BASIC Bank Limited. Though both export and import are increasing day-by-day, imports exceed exports which ultimately drastically hit the countrys negative Balance of Trade.
4.4.1.1: Performance of Foreign exchange business of BASIC Bank Limited The following table shows year-wise performance of foreign exchange operations consisting item-wised income generating avenues. All the figures show positive growth which generally signals foreign exchange business as a profitable business in Bangladesh. Within all the income avenues, income from exchange gain shows highest figure in taka value. Growth rate here was 48.92%. Income from Letter of Credit and Letter of Guarantee were the second and the third largest among the income avenues respectively.
Table 9: Income from foreign exchange business of BASIC Bank limited Particulars 2004 2005 2006 Foreign bill Purchased 460,581 360,461 654,329 Local bill Purchased 3,833,860 4,485,557 8,646,784 Remittance 7,730,748 7,702,293 7,968,002 Letter of Guarantee 14,160,897 21,397,445 23,360,370 Letter of Credit 66,555,289 75,284,688 96,433,989 Bills for Collection 2,846,448 4,078,047 8,747,327 Acceptance 5,195,369 7,048,898 8,747,327
Export bill Miscellaneous(includes commission on sale of PSP,TC (A) Total (B) Exchange gain (Profit on exchange trading) Total (A)+(B)
Revenues earnings from foreign exchange section are now graphically presented.
Figure 22 shows the growth of income from exchange gain consisting profit on exchange trading only. In 2005 growth was negative, but in 2006 & 2007, exchange gain shows positive trend.
6.1: The findings obtained from the study on overall banking sector are follows:
At present, Bank rate is 5%. At present, statutory liquidity ratio (SLR) is 18% and Cash reserve ratio (CRR) is 4.5%. At the end of 2008, Bangladesh Bank (BB) instructed the commercial banks for doubling their paid-up capital and reserves to BDT 4 billion from the existing BDT 2 billion by August 11, 2011. At the end of 2008, Bangladesh Bank (BB) allowed the commercial banks to show a maximum of 50% of the revaluation reserves of the government securities held by them to meet their capital adequacy requirement. At the end of 2008, Bangladesh Bank (BB) slashed interest rates on its housing sector refinancing scheme to 9% from existing 10%. BB increased the amount of monthly income of an applicant up to BDT 0.05 million from BDT 0.03 million to qualify for loan of maximum BDT 2 million for housing purpose. At the end of 2008, Bangladesh Bank (BB) set new definition for SMEs. In the manufacturing sector and in the service and trading sector, total fixed asset excluding land and building has been set at BDT 0.05 million BDT 15 million and BDT 0.05 million BDT 5 million, respectively, for the small enterprises. In the manufacturing sector and in the service and trading sector, total fixed asset
excluding land and building has been set at BDT 15 million BDT 200 million and BDT 5 million BDT 100 million, respectively, for medium enterprise. At the end of 2008, Bangladesh Bank (BB) raised the allocation for the re-financing scheme aimed at facilitating development of Small and Medium Enterprises (SMEs) to BDT 5 billion from BDT 3 billion. At the end of 2008, Bangladesh Bank (BB) issued BDT 1000-denomination bank note for the first time in the country from October 27, 2008. At the end of 2008, Bangladesh Bank suspended issuing two monetary tools 28day T-bill and 91-day BB bill from July 1, 2008. At the end of 2008, Government has approved tax exemption at the rate of 10% on a part of the corporate income to be spent on discharging corporate social responsibility (CSR).
BoP situation continues to maintain surplus in Q1 At the end of 2008, the country's overall balance of payments (BoP) continued to maintain a surplus position during the first quarter (Q1) of the current fiscal mainly due to higher surplus in current account balance. "Despite deficit in the trade balance current account balance recorded a larger surplus of USD 366 million during July-September, 2008 compared to the surplus of USD 99 million in the same period of 2007 due mainly to larger current transfers of USD 2.517 billion," BB said in its Major Economic Indicators: Monthly Update - November, 2008. The overall balance also showed a surplus of USD 64 million during the period compared to the surplus of USD 203 million of the corresponding period of the previous fiscal. Local banks market share up, foreign banks down The market share of private commercial banks (PCBs) increased by 3.7 percentage points while that of the foreign commercial banks (FCBs) dropped by 3.6 percentage points in 2007, according to Bangladesh Banks (BB) annual report2007-2008.The PCBs' share in terms of the total industry assets rose to 51.4% in 2007 from 47.7% in 2006 while the FCBs held 8.2% of the industry assets in 2007 against 11.8% in 2006. Spread between bank lending, deposit rates falls marginally The weighted average spread between lending and deposit rates in the country's banking sector came down to 5.18% as on September 30, 2008 from 5.34% of June 2008, according to Bangladesh Bank (BB) statistics. The weighted average rates on lending stood at 12.35% in September, while the banks paid interests on deposit at 7.17%. BB will keep continuing its persuasion until the spread come down to 5%.
6.2: The findings obtained from the study on of BASIC Bank Limited (Overall) are follows:
As a state-owned scheduled bank, BASIC Bank Ltd. is playing an important role toward the growth and economic development of Bangladesh. BASIC Bank Limited is a blend of development and commercial banking functions. Cash reserve ratio (CRR) and statutory liquidity ratio (SLR) with Bangladesh bank have been maintained as per rule. At the end of the year 2007, Banks capitalization stood at 10.78% for Tier-I and 12.91% for total capital against the total risk weighted assets exceeding the required minimum level of 5% and 10% respectively. Thus the bank was able to maintain the confidence of investors and depositors while providing a lucrative return to the Government, the sole shareholder of the bank. One of the prime features/objectives of BASIC Bank Limited is 50% of Loan able funds shall be invested in Small and Cottage industries Sector. During the year 2007, it has disbursed 60% loans to Small and medium industries (SMI) and 91% loans to Small and Medium enterprise (SME). Recovery rate of loans and advances is 97% which indicates sound performance of the bank management. Total assets of the bank increased by 31.81% to Taka 38,773.91 million from taka 29,417.09 million in 2006. Loans and advances comprised the largest share in the asset portfolio of the bank constituting 57.41%. Deposit rose from Taka 31,947.98 million (82.40% of total liabilities) in 2007 to Taka 24,084.65 million (81.87% of Total liabilities) in 2006 showing a growth rate of 32.65 percent. The total Loans and Advance of the Bank for the year 2007 was Tk. 22,263.35 against Tk. 19,000 million in 2006. The loan to deposits liabilities stood 69.69% in 2007 as against 78.89% in 2006. SMI/SSI loan and micro credit to total loan stood 56.73% in 2007 as against 53.43% in 2006. The Net Profit after tax and provision of the Bank for the year 2007 was Tk. 282.96 million as against Tk.554.14 million in 2006 which is Tk.271.18 million lower than the previous year. BASIC Bank Ltd. Training cell provides training facilities to its medium and junior level officers of the bank and also provides executive development and internship program. Computers are being used in the Bank for day-to-day operation since its inception. Local area network (LAN) has been installed in the head office and all the Branches. A number of branches are also connected with each other, the head office and the
Data Center through Wide Area Network (WAN). Already several branches have started online operation. The online system, which includes integrated core banking, trade finance, treasury and internet banking solutions along with ATM, POST etc., SWIFT interfaces, will allow the bank offer its customers new products and better services, paper-based works are still in existence. In order to measure corporate performance, the bank presents Economic Value Added (EVA) statement in its annual report every year which is an estimate of the amount by which earnings exceed or fall short of the required minimum return for shareholders or lenders at comparable risk. It is also the best measure of a firms intrinsic value and the best tool of aligning management and owners interest. At the end of year 2007, monetary value of EVA is Taka 132,615,352 as against Taka 280,931,657 in 2006 which is positive that adds value to the Bank. BASIC Bank Limited provides value added statement in its annual reports which indicates how the value is created and distributed among different stakeholders of the bank. There are mainly three types of audit conducted in the BASIC Bank Limited. They are as follows Internal Audit Bangladesh Bank Audit External Audit
following information in its Annual reports (A questionnaire is given as annexure-A) : Analysis reveals that 82% of the total respondents have positive (Yes) answers regarding the following issues: Details about the Board members Responsibility of the Board. Authority and accountability of the board. Activities of the Board. Appointment and rotation of the Board members. Share Holdings by the Board members. Chairmans statement Company prospect details Executive Directors Non-executive Directors Audit Committee Details about the Management Team Shareholders right and Control Relationship with the shareholder Maintenance of Corporate affairs division Voting Power of the Shareholder Notice of AGM in due time Agenda of the AGM
Appointment of Auditors Internal Control System Compliance with different Legal Requirements Risk Perception Detail Activities of the Company CEO serves on no more than two additional Boards of other public Company. The CEO and Chairman duties are separated or a lead director Size of Board of Directors is at least six but not more than 15 members. Composition Committee is comprised solely of independent outside Directors. Shareholders vote on Directors selected to fill vacancies. Board Members are elected annually. Shareholders approval is required to change Board size. Shareholders have cumulative voting rights to elect Directors. Policy exists requiring outside directors to serve on no more than five additional boards. Shareholders are allowed to call special meetings. A majority vote is required to amend charter/by laws. Performance of the Board is reviewed regularly. A Board approved CEO succession plan is in place Board has outside advisors. Directors are required to submit their resignation upon a change in job status. Outside Directors meet without the CEO and disclose the number of times they meet. Directors term limits exist. Fairness of financial statements. Maintenance of proper books of accounts. Consistent application of accounting policies in preparation of financial statements. Observance of Bangladesh Accounting standards(BAS) Soundness and efficiency of Internal control. Ability to continue as a going concern. Significant deviations in operating results from last years. Presentation of key operating and financial data for at least last three years. Constitution of audit committee Audit committee consists of independent outside Directors. Qualification of the chairman of Audit committee. Corporate social Responsibility. Dividend declaration. Shareholders pattern. Number of Boards meeting held during the years attendance by each Director. Numbers of member Audit Committee.
6.3: The findings obtained from the study on Foreign Exchange Business of BASIC Bank Limited are follows:
There are three types of modes of foreign exchange market, which are: Export Finance, Import Finance & Foreign Remittance. Foreign Exchange section of BASIC Bank Limited Branch does import operations out of above-mentioned foreign exchange activities vastly.
With limited network of branches at home, volume of export-import business including homebound remittances is increased day-by-day. The Banks financing of import business increased from taka 17,804 million in 2006 to Taka 21,266.5 million in 2007 registering growth of 19.45 percent. On the other hand, banks export finance increased to Taka 16,795 million in 2007 compared to Taka 15,464 million in 2006- a growth of 8.61%. During first half of FY08, exports, import payments and remittances receipts increased by 4.43% to US$6,495.92 million, 15.90% to US$9,599.80 million and 26.24% toUS$4,827.31 million against US$6,220.61 million, US$8,282.50 million, and US$3,824.04 million respectively during the same period of the previous year. Total official foreign aid disbursement increased by 3.6% to USD 1,625.0 million in FY07 from USD 1,568.0 million received in FY06. Besides, SWIFT is being used in the AD Branches and the head office of the bank for trade finance-related operations like documentary credit, documentary collections, fund transfer, guarantee, etc. with optimum security. Reuters services are being used at the head office for offering the best exchange rates to its customers as well as for other treasury functions. For Bangladesh Banks exchange control purpose, online L/C monitoring systems is performed daily by inputting details of L/C information with the following Applicant name & address Beneficiarys name & address Foreign currency amount Date of issue of L/C Date of expiry and place of L/C H.S code (Harmonized system code) Description of goods (Quantity, per unit price, total amount)
Chapter 7 Recommendations
As an internee of BASIC Bank Ltd I have some recommendations. These are: Banks should establish a review process to examine the changing circumstances of borrowers to determine the position of loans. Attention devoted to these loans is more likely to result in proper action to safeguarded the Banks position and to assist the borrower to take appropriate steps in their business to bring back loan performing. Here some recommendations are made to enrich the foreign exchange policy, credit policy and practices of the bank:
1. Customer Services should be enhanced: Every banks prime objective is to satisfy its client. Increased customer services are must for it. In Bangladesh all foreign banks and some private commercial banks are now providing excellent services like: ATM, Credit card, phone banking, and super saving facilities and other fast service facilities to its client. But in that area BASIC has taken limited steps. As such they are loosing its valuable client to those which are providing these services. So BASIC should improve its service portfolio and should introduce more technology-oriented services to its customer. 2. Marketing for selling the services should be encouraged: Most of the employees of BASIC or the top management of it is not very much interested for marketing for BASIC Bank. Door to door or business to client relationship is not maintained in this respect. The reason behind this may be that, no incentives are given for this job. So, special incentive schemes should be introduced for mass marketing of services. 3. The Bank should develop an effective database needed for analyzing Foreign Exchange Business. 4. More specifically, the Bank should develop sectors wise export-financing facilities. 5. Letter of Credit (L/C) opening system for the importer should be easier. 6. For customer's convenience, BASIC Bank Ltd. should provide more personnel to deliver faster services to the customers. 7. Proper communication system and maintenance of files & machineries like phone, computer, fax, and photocopier need to be ensured in all branches. Though some branches have these kinds of facilities. 8. To ensure error free faster services, the bank should be fully computerized and internet- based. 9. Research & Development activities should be taken into consideration. 10. Effective strategies must be undertaken against defaulters. 11. Office should be fully decorated to attract clients to take its services. 12. More employees are to recruit. For the better service, training is must and according to the skill and education background of employee needs to be positioned. 13. The Bank should absolutely maintain on its own rules and procedures. 14. The Bank should introduce reward system for good borrowers as well as punishment for bad borrowers. 15. The Bank should apply modernized Marketing Information System.
16. The Bank should act without any kind of political influence. 17. The time to reach Permanent Position from probation period takes almost two years, which is a very long time process as I considered and it should be less than two year. 18. Some Officers of the bank are not self-motivated. They should be self-motivated by training. BASIC Bank Limited has only 32 branches, which are not so satisfactory to serve the country widely. It requires more branches throughout the country. 19. Some banking operations are still operated in manual basis rather than computer system that take more time. 20. Computer should be used in all their activities.DD, TT takes more time to operate. It should minimize time. On line banking may be encouraged. 21. Management should be careful about high liquidity ratio: As per Bangladesh Bank inspection report it has been revealed that, most of the branches are keeping more funds in their hand, which are affecting the profitability. Also the conservative approach of the bank is affecting its profitability. As such the bank now should involve more of its strength to find new investment area and let its idle funds to be used. 22. We require some valuable information for the purpose of making Internship report but these kinds of information is not available. We strongly suggest helping us in this matter.
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Chapter 8 Conclusion
From the practical implementation of customer dealing procedure during the whole period of my practical orientation in BASIC Bank Limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level computerized transaction is necessary condition but not the sufficient condition. For proper functioning of the banking systems, corporate governance is desired at highest level. Reviewing the report and from the experience of the two months with the bank under internship program, I can say that BASIC Bank Limited is a potential and promising bank
in the banking sector in Bangladesh. As desired, its functions and activities in the economy are being aligned with the objectives set by the Government of Bangladesh since its inception. After getting Authorized Dealers license from the authority of Government of Bangladesh, BASIC Bank Limited finds foreign exchange business as a profitable and challenging business. Though, income from loans and advance shows the highest amount/percentage of total income, some loans and advances are indirectly created from foreign exchange section, such as PAD, LTR, LIM, Local Documentary Bills Purchased (LDBP), Foreign Documentary bills Purchased (FDBP) which shows high level of income generating avenues from BASIC Bank Limited. The effective and efficient Foreign Exchange Business of the Bank helps in the continuous growth and progress of national economy. Through the foreign exchange operations and all other banking activities, BASIC Bank Limited is, no doubt, playing a vital role not only in the micro economic sector but also in macro economic sector of Bangladesh. We hope, the successful walkway of BASIC Bank Limited will remain continuous for a long time and become an example in the banking sector in our country.
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REFERENCES Ali Syed Ashraf,Foreign Exchange & Risk Management, First Mowla Brothers
Edition, May 2005,Mowla Brothers,Dhaka.
Monthly Business review published by IDLC finance Ltd. Vol. 4 Issue 12, December 2008.
Hossain ,Dewan Mahboob & Khan ,Arifur Rahman (2006), Disclosure on Corporate Governance Issues in Bangladesh: A survey of the Annual Reports The Bangladesh Accountant,January-March,2006,pp 95-99
Guidelines for foreign exchange transaction of Bangladesh Bank (Volume 1 & 2).
Monthly Statement of BASIC Bank Limited, December, 2008 Various Official Records of BASIC Bank Limited. The Daily Prothom Alo-January 14, 2009. Foreign Exchange and Financing of Foreign trade Import Policy2006-2009 Export Policy2006-2009 Export-Import (Control) Act1950
Consultation with the Following Persons o Md. Ghulam Sayeed Khan (Manager) o Md. Saifullah (Manager) o A.K.M. Shamsuddin (Assistant Manager) o A.B.M. Nazmus Sayadat Mondol (Officer) o Md. Mahedi Hasan
Annexure-A Questionnaire
A questionnaire was given to the high officials of BASIC Bank Limited with an
objective how well the company follows corporate governance as a system mechanism. Table 7: Issues considered developing corporate governance disclosure index
Particulars Answers Yes No
Details about the Board members. Responsibility of the Board. Authority and accountability of the board. Activities of the Board. Appointment and rotation of the Board members. Share Holdings by the Board members. Chairmans statement Company prospect details Executive Directors Non-executive Directors Audit Committee Remuneration Committee Any other Committee for proper functioning of the Board Details about the Management Team Shareholders right and Control Relationship with the shareholder Maintenance of Corporate affairs division Voting Power of the Shareholder Notice of AGM in due time Agenda of the AGM Appointment of Auditors Internal Control System Compliance with different Legal Requirements Risk Perception Detail Activities of the Company Audit committee consists solely of independent outside Directors Consulting fees paid to auditors are less than audit fees paid to auditors CEO serves on no more than two additional Boards of other public Company. The CEO and Chairman duties are separated or a lead director All directors attended at least 75% of board meetings or had a valid excuse Size of Board of Directors is at least six but not more than 15 members.
Board is controlled by more than 50% independent outside Directors Composition Committee is comprised solely of independent outside Directors. Shareholders vote on Directors selected to fill vacancies. Board Members are elected annually. Shareholders approval is required to change Board size. Governance committee meets at least once during the year. Shareholders have cumulative voting rights to elect Directors. Board guidelines are in each proxy statement Policy exists requiring outside directors to serve on no more than five additional boards. Shareholders are allowed to call special meetings. A majority vote is required to amend charter/by laws. Executives are subject to stock ownership guidelines. Mandatory requirement age for directors exist. Performance of the Board is reviewed regularly. A Board approved CEO succession plan is in place. Board has outside advisors. Directors are required to submit their resignation upon a change in job status. Outside Directors meet without the CEO and disclose the number of times they meet. Directors term limits exist. Fairness of financial statements. Maintenance of proper books of accounts. Consistent application of Accounting policies in preparation of financial statements. Observance of Bangladesh Accounting standards(BAS) Soundness and efficiency of Internal control. Ability to continue as a going concern.
Significant deviations in operating results from last years. Presentation of key operating and financial data for at least last three years. Constitution of audit committee Audit committee consists of independent outside Directors. Qualification of the chairman of Audit committee. Corporate social Responsibility. Dividend declaration. Shareholders pattern. Number of Boards meeting held during the years attendance by each Director. Numbers of member Audit Committee. Appointment of independent Directors. Any other Matters.
Annexure-B
The commodities which required mandatory PSI are set by the circulars issued by the customs. There are at present four zones to conduct the PSI over the world for Bangladesh. These are following.
Name of PSI Agency (2) SGS Societe Generale Surveillance S.A Switzerland. Bureau Veritas (BIVAC) International S.A, France OMIC Overseas Merchandise Inspection Co. Ltd, Japan Intertek International Limited, UK
Block-wise name of the countries: Block A: India Block B: China, Thailand, Korea (N & S), Philippines, Cambodia. Block C: Pakistan, Nepal, Bhutan, Sri Lanka, Maldives, Myanmar, Afghanistan, Indonesia, Malaysia, Singapore, Iraq, Iran, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, U.A.E., Egypt, Ethiopia, Nigeria, Kenya, Ghana, Bahrain, Uzbekistan, Azerbaijan, Tajikistan, Tunisia, Morocco, Sudan, Algeria, Libya, Yemen, Turkmenistan, Brunei, Tanzania, Albania. Block D: Japan, Hong Kong, Vietnam, Taiwan, Australia, New Zealand, Solomon Islands, Fiji, Kiribati, Vanuatu, Papua N. G. Block E: Canada, U.S.A., South Africa, Seychelles, Zimbabwe, Norway, Turkey, UK, Italy, Netherlands, Belgium, Switzerland, Germany, Denmark, Spain, France, Ireland, Sweden, Other European Countries, Czech Republic, Estonia, Lithuania, Latvia, Poland, Romania, Russia, Slovenia, Ukraine, Argentina, Brazil, Chile, Mexico, Peru, Uruguay, Venezuela, and countries, rest of the world which is/are not included in the other Blocks.
Annexure-C
Documents are submitted to the customs by importer/ C& F agents (Attached in the next page):
Bill of exchange Commercial invoice PSI Report (CFR- Clean Report of findings) Packing List Certificate of origin Bill of lading Pro-forma invoice Insurance cover note LCAF (For custom purpose copy)