“Foreign Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.”

Prepared By:

MD. Sadid Al Saharea

ID No: 113011052

ULAB School of Business

Supervised By:

Dr. Milan Kumar Bhattacharjee

Professor

ULAB School of Business

University of Liberal Arts Bangladesh

An internship report Submitted to the ULAB School of Business in partial fulfillment of the requirements for the award of degree

Of

Bachelor of Business Administration

Date of Submission: 16 April, 2015;

Internship Report Approval Form1 | P a g e

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PLAGIARISM DECLARATION

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1. I know that plagiarism means taking and using the ideas, writings, works or inventions of another as if they were one’s own. I know that plagiarism not only includes verbatim copying, but also the extensive use of another person’s ideas without proper acknowledgement (which includes the proper use of quotation marks). I know that plagiarism covers this sort of use of material found in textual sources and from the Internet.

2. I acknowledge and understand that plagiarism is wrong.

3. I understand that my research must be accurately referenced.

4. This assignment is my own work, or my group’s own unique group assignment. I acknowledge that copying someone else’s assignment, or part of it, is wrong, and that submitting identical work to others constitutes a form of plagiarism.

5. I have not allowed, nor will I in the future allow, anyone to copy my work with the intention of passing it off as their own work.

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Letter of Transmittal

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16 April, 2015

Dr. Milan Kumar BhattacharjeeProfessorULAB School of BusinessUniversity of Liberal Arts Bangladesh

Subject: Submission of internship Report.

Dear Sir,

I would like to submit this report titled ‘Foreign Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.’ prepared as a part of the requirement for my Internship at Mutual Trust Bank, Principal Branch under the BBA Program at University of Liberal Arts Bangladesh.

I started my internship period at the organization on January 5, 2015 and have completed my internship on April 7, 2015. During this period I have across different banking functions and responsibilities undertaken at MTB Principal Branch. It has been an enlightening experience as I learnt about various branch level functions in different departments such as General Banking, Foreign Exchange Department and Clearing.

After learning about the profile of Mutual Trust Bank and considering the bank’s principal business operations, I decided it would be appropriate to choose an area relating foreign exchange performance of the bank because of its being one of the major business operation of Mutual Trust Bank. As such, I have chosen to prepare my report on ‘Foreign Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.’. In this report, I have ventured to apply the knowledge and guidelines from my education span and to focus on evaluating the foreign exchange performance and the overall foreign exchange management activities of Mutual Trust Bank.

Despite several limitations faced while preparing the report, I have endeavored to make the study thorough as possible. I sincerely expect that this report accomplishes the objectives and requirements of my internship and that it finds your acceptance. Please accept my sincere thanks and gratitude for the guidance, support and time and should you require any elaboration on any issue, I shall be glad to pursue.

Yours Faithfully

Md. Sadid Al SahareaID No. 113011052ULAB School of BusinessUniversity of Liberal Arts Bangladesh

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Acknowledgement

At the very beginning I would like to extend my sincere gratitude to all those who have bestowed their assistance and cooperation upon the preparation of this report titled ‘Foreign Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.’

I take this opportunity to thank everyone who took concern in the successful completion of this internship. To put more specifically, I express my sincere gratitude to my Supervisor Dr. Milan Kumar Bhattacharjee for his direction, prudent supervision and moral support on the ground of which I have put effort to obtain knowledge on a new area.

I would like to thank the Human Resource Management (HRM) Department of Mutual Trust Bank Limited for appointing me as intern in the bank, without the support of which I this report couldn’t have come into existence. In particular, I would like to thank Mr. Kamruzzaman, the Branch Head of MTB Principal Branch who cordially granted my access to branch specific information and guided me through every step of difficulties I encountered during my internship period.

I specially acknowledge the contribution of Mr. Mohiuddin Chowdhury, and Mr. Kamal Uddin (First Assistant Vice President, Foreign exchange Department, MTB Principal Branch) for providing precious information and in depth idea of the Foreign Exchange management practices performed at different levels of Mutual Trust Bank Limited. I also express my sincere gratitude to Mr. Anayet ullah (Vice President, GB Department) who acquainted me with the different practical functions undertaken at the General Banking Department of the bank.

Finally, I would show my gratitude to all the individuals who helped me to prepare this report during this time.

------------------------

Md. Sadid Al Saharea

ID No. 113011052

ULAB School of Business

University of Liberal Arts Bangladesh

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Executive Summary

Within its 15th year of operations, Mutual Trust Bank Limited has opened 101 branches across the country and has been dealing with a wide variety of Foreign exchange Credit and Deposit Products since its emergence. This study deals with the performance of foreign exchange and the foreign exchange management practice of Mutual Trust Bank. The study is entitled as ‘Foreign Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.’

In this report consist up with four individual parts. In here the First part is the Introduction part

& here briefly describe Rationale of the Study, Objective, Methodology, scope, Limitations and

My Experiences during the report. The Second part is Theoretical Aspects and here describe,

Concepts, principals, techniques, Legal aspects etc. The third part is practical issues of Mutual

Trust Bank (MTB), here described about the Overview of Mutual Trust Bank, financial

analysis, Foreign Exchange Operation analysis, SWOT analysis, and findings. The Final part is

Concluding Notes here describe Recommendations and Conclusion.

Foreign exchange is an important department of Mutual Trust Bank, which deals with import,

export and foreign remittances. It bridges between importers and exporters. This department is

playing an important role in enhancing export earnings, which aids economic growth and in turn

it helps for the economic development. On the other hand, it also helps to meet those goods and

service, which are most demandable and not adequate in our country.

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Contents

Chapter 01: Introduction1.1 Rationale of the Study:....................................................................................................................9

1.2 Objectives:.....................................................................................................................................10

1.3 METHODOLOGY OF THE STUDY...........................................................................................11

1.1.1 Primary Data:.........................................................................................................................11

1.1.2 Secondary Data:.....................................................................................................................11

1.3.3 Data Analysis:.............................................................................................................................12

1.4 Scope of the Study:..............................................................................................................................12

1.5 My Engagements with MTB Principal Branch:.............................................................................12

1.5.1 Tasks in General Banking Department:........................................................................................12

1.5.2 Tasks performed in foreign exchange Department:......................................................................15

1.6 Limitations:.........................................................................................................................................16

Chapter 02: Theoretical Aspects

2.1 Foreign Exchange................................................................................................................................16

2.2 The History of Foreign Exchange........................................................................................................16

2.3 Foreign Exchange Market:..................................................................................................................18

2.4 Foreign Exchange Rates......................................................................................................................19

2.5 Concepts..............................................................................................................................................20

2.6 Import Section:....................................................................................................................................24

2.7 Export Section:....................................................................................................................................30

2.8 Foreign Remittance:............................................................................................................................37

Chapter 03: Practical Issues

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3.1 Sample Enterprise at a Glance.............................................................................................................41

3.1.1 Management Hierarchy of Mutual Trust Bank Limited:...............................................................42

Figure 1: Management Hierarchy of Mutual Trust bank (Source-MTB Corporate Intra-net)............42

3.1.2 Present Board of Directors:...........................................................................................................43

3.1.3 A Brief Overview of the Products of MTBL................................................................................43

Table 1: Present Board of Directors...................................................................................................43

3.1.4 Credit Rating of the Bank:............................................................................................................44

3.1.5 Summary of Financial Performance:............................................................................................44

Table 2: Summary of Financial Performance....................................................................................45

3.2 Analysis of Findings............................................................................................................................46

3.2.1 Total Import:.................................................................................................................................46

Figure: 02..........................................................................................................................................46

Table: 03............................................................................................................................................46

Figure: 03..........................................................................................................................................47

3.2.2 Total Export:.................................................................................................................................47

Table: 04............................................................................................................................................48

3.2.3 Foreign Remittance:......................................................................................................................49

Table: 05............................................................................................................................................49

Figure: 06..........................................................................................................................................49

3.2.4 Comparative Analysis:..................................................................................................................51

Figure 07:..........................................................................................................................................52

3.2.5 EARNINGS PER SHARE............................................................................................................54

Figure: 08..........................................................................................................................................54

3.2.6 TOTAL ASSETS..........................................................................................................................55

Figure: 09..........................................................................................................................................55

3.2.7 Compare of EPS to Others bank...................................................................................................56

Figure: 10..........................................................................................................................................57

3.2.8 Findings of the study....................................................................................................................58

3.3 SWOT Analysis...................................................................................................................................59

Chapter 04: Concluding Notes

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4.1 Recommendations...............................................................................................................................61

4.2 Conclusion:..........................................................................................................................................62

References:................................................................................................................................................63

Chapter: 01: Introduction

One of the largest businesses carried out by the commercial bank is foreign trading. Foreign trade can be easily defined as a business activity, which crosses national boundaries. These may be between parties or government ones. No country can produce all kinds of goods. From this sense; this is the origin of foreign trade. When two countries exchange goods or services between

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them we can call it foreign trade. The trade among various countries falls for close link between the parties dealing in trade. The situation calls for expertise in the field of foreign operations. The bank, which provides such operation, is referred to as rending international banking operation. Mainly transactions with overseas countries are respects of import; export and foreign remittance come under the preview of foreign exchange transactions. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller. In this case the bank plays a vital role to bridge between the buyer and seller.

In the Mutual Trust Bank Limited, Principal Branch, there are nine peoples are working continuously with great effort and teamwork. They are quite efficient and skilled at what they do. There are more than 300 clients and 25 countries they are dealing with. They believe in teamwork and extreme hard work.

1.1 Rationale of the Study:

Internship program, being a core academic requirement of the 4 year BBA program, involves receiving a realistic training through attending practical work at an organization. The program facilitates an intern to have a close look into the real-life practice of what are theoretically learnt in the whole period of his/her study. As a Student of a faculty of business studies majoring in finance, I was appointed to Mutual Trust Bank Limited, Principal Branch under the supervision of Dr. Milan Kumar Bhattacharjee, Professor, School of Business, at University of Liberal Arts Bangladesh. As per the academic rule, my supervisor required me to prepare a report on the basis

of the experience gathered during my tenure as an intern and additional studies on Foreign

Exchange Operations of a Commercial Bank: A Case study of Mutual Trust Bank Ltd.

1.2 Objectives:

The main objective is to get a clear-cut idea about procedures of foreign exchange department, how its run its operations step by step every day. Along with the main objective other objective of report are following:

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To Know the Foreign Exchange operation guideline of MTBL.

To find out the contributions of foreign exchange business of a bank in its overall

earnings.

To determine the factors that influences the choice of a bank by the customers.

To identify the problems faced by the customers and the bankers.

To evaluate whether the customer service provide by MTBL is good enough for its

congenial existence and growth.

To evaluate the performance of sanction, disbursement and recovery of foreign trade of

MTBL.

1.3 METHODOLOGY OF THE STUDY

This study is based on a blended mix of primary and secondary sources of data. However, since one of the core objectives of the study involves a number of analyses of the Foreign Exchange performance of MTBL, the dependence on secondary data has been naturally to a greater extent. Again, for the qualitative analysis of the overall Foreign Exchange management practices at different level of MTBL, the author’s observation as an intern in the bank has been used as the primary data. For the quantitative analyses, different secondary data in internal and external forms have been used.

1.1.1 Primary Data: Primary data used in this study have chiefly been gathered through

observations of the activities as performed at the Foreign Exchange department of MTB

Principal Branch. The author of this study has been facilitated to undergo a close

interaction with the foreign exchange department officers that resulted in the disclosure

of the foreign exchange managing tasks through the author’s informal interviews and

inquisitions. The data collected at this stage served the qualitative analysis of this study.

1.1.2 Secondary Data: In order to quantitatively evaluate MTBL’s performance of foreign

exchange through analyzing ratios and showing their trend, this study had to take inputs

from a wide number of secondary sources. These secondary data can be subsumed into

two following categories:

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a. Secondary Data from Internal Source: Internal secondary data have been

gathered from the bank’s own publications. Such data include the Audited Annual

Reports of the Mutual Trust Bank Limited (Up to 2013), the bank’s website

(www.mutualtrustbank.com), forms, brochures and other documents used in the

credit department and overall branch operations of the Principal branch.

b. Secondary Data from External Source: These documents include different

regulatory guidelines issued from Bangladesh Bank such as BRPD circulars,

BASEL accords, Investopedia definitions, books, articles, blogs and journals and

other publications available on the internet on foreign exchange related issues.

Bangladesh Bank website has been used as an important source of the industry

performance the banking industry. Helps have also been inferred from economic

updates of Bangladesh from Websites like www.unnayan.org. A detail of the

secondary data would be available at the end of this study under the section titled

‘References’.

1.3.3 Data Analysis: The Foreign Exchange data of Mutual Trust Bank Ltd. will be analyzed in a descriptive manner.

1.4 Scope of the Study:

The scope of the study is limited to the international Division of Mutual Trust Bank Limited. This report is a descriptive study which tries to focus on the theories and practices of foreign exchange operations in the context of the financial institutions in Bangladesh. It will not focus on the comparable Foreign Exchange practices of other banks. In connection with this effort, a case study has been conducted on Mutual Trust Bank Limited giving more emphasis on the foreign exchange side of the institution compared to the other sides.

1.5 My Engagements with MTB Principal Branch:

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Since the appointment letter of MTB bore no formal directions as to my appointment into any

specific department, I enjoyed kind of an informal freedom regarding my work. But my

organization supervisor, Mr. Mohiuddin Chowdhury, the branch head wanted me to work in

General Banking department as an assisting hand to the respective officer. Later, I was asked to

work in the Foreign exchange Department of the Branch. So my experiences are gathered around

mainly these two departments.

Followings are the activities I performed at the Principal Branch. Efforts have been made to

highlight the discrepancy of practice from the theory in the observation of each task.

1.5.1 Tasks in General Banking Department: Almost two-thirds of my internship time

was spent in the GB department. I had come across the opportunity to solely handle the front

desk, while a responsible officer was out in mandatory leaves for 15 days. In this department, I

performed the following tasks:

A. Opening Accounts: Although the Account Opening form is a deed between a bank and a

client and should be filled up by the client’s own hand, in our branch, the front desk

officers have to do this task. I had to fill in the account forms as per the customers’

documents i.e National ID card, Birth Certificate, Passport, Drivers License etc.

Followings are some special features and documents that are necessary to be attached to

the Account forms:

Transaction Profile: Usually savings, current and MTB Inspire accounts are

termed as the Transaction account whereby customer regularly makes to and

receives money from the bank. Transaction profile is the speculation of the

amount of the money he is likely to transact on a monthly basis. This profile is a

special requirement for the corporate Head Office audit committee to analyze how

risky a customer is. This profile is also audited by the Bangladesh Bank authority

to check and verify the money laundering activities in Bangladesh. The profile

seeks three information which are:

i. The ceiling of the amount of cash a client can deposit or withdraw at a

time and in a month

ii. The ceiling of the amount of cheque transaction of the customer at a time

and in a month

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iii. The ceiling of amount of money that a customer expects to receive from a

foreign country and the amount of money he wants to send overseas (this

is strictly regulated)

Observation regarding Transaction Profile: According to my observation, although this has to be filled by the customer him/herself, most of the customers can hardly perceive the gist of it. Therefore, we, people who are in charge, have to speculate and fill the profile and get it signed by the customer. The point I want to make is that, by such practice, the main purpose of maintaining Transaction Profile is getting hampered. Although signed by the customer, the profile always doesn’t say what it needs to say.

B. Issuing Cheque books: Cheque Books are maintained with much sensitivity in Principal

Branch. The GB officer herself unlocks the Cheque Books to be issued every day. When

a client comes and claims, the Cheque Book lot entry is posted in the computer using

Flora Banking Software. Since special cautions have been made by the Central Bank

authority as per Cheque forgery issues, Cheque issuing task is handled with considerable

attention. Interns are not usually allowed to handle the Flora Banking Software in case of

Cheque Book lot entry. But I performed this task of issuing Cheque Book under the

careful guidance of the GB officer I assisted. After the lot entry is posted, the registry

book is signed by the customer and the Cheque Book is handed over to him.

Observations: Once a Cheque Book is lost, the formality to retrieve a new one is

much lengthy process. The client claiming to lose a Cheque needs to file a General

Diary in the police station. The copy is then verified and kept by the branch

manager and the proceedings are done only after then. I have seen two clients who

were businessmen and their transactions were seriously hampered due to losing of

Cheque Books.

C. Customer Dealing: I had to demonstrate the features of different deposit products before

a prospective account holder of the company. Followings are the most sold products of

MTB Principal Branch, according to my observation:

Savings Accounts: Savings accounts pay interest on the deposits on a monthly

basis. But there is another savings account product named MTB Inspire that

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counts interest on a daily basis and pays in an accrual manner monthly. It is

usually opened on the name of an individual. This product is not available for

business institutions. The current interest rate on savings accounts paid by MTB is

5%.

Current Accounts: Typically current accounts are opened by people conducting

businesses in the neighboring area. Institutions generally use this product. No

interest is paid by MTB on this deposit product. For institutions to open this

account, some additional documents along with the Identity documents (NID,

Passport, Birth Certificate etc) are needed such as Trade License issued by the

local government authority, TIN certificate, seal of the institution etc.

Fixed Deposit Scheme: Like all other bank MTB is providing Fixed Deposit

Scheme. The rate has fluctuated between 8.50% to 8.75% during my working

period at the bank for the three months deposits. The deposits can be, however, of

6 months, 1 year and other maturity periods, but typically 3 months is the most-

sold and standard Fixed Deposit benchmark rate according to observation.

Looking at the previous records of the performance of the bank in the case of

FDR, it makes me believe that the sale of this deposit product has considerably

decreased due to interest rate plunge.

Other Deposit Schemes: Among deposit schemes like Brick by Brick, MTB

Kotipoti, MTB Millionaire etc. Brick by Brick the most popular scheme sold by

the branch. It pays approximately 11% return on the savings made by the party.

The installment can be of 500 taka to any amount of its multiple.

Observations about the deposit products: One remarkable observation that the special savings and other deposit schemes centrally designed by the MTBL are very much popular. Only a few deposit schemes like Savings, Brick by Brick, FDR are sold and the rest rigorously designed are hardly familiar to clients. I think proper marketing initiatives are should be taken to adapt products like MTB inspire, MTB Probaho, MTB Education Plan, MTB Millionaire etc to customers. In my tenure, I have hardly sold any of these deposit products to any client.

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1.5.2 Tasks performed in foreign exchange Department:

The foreign exchange department is one of the most confidential and sensitive departments of this branch. In this department, I was performed-

C-Form entry

Document endorsing

Attaching L/Cs to the documents

Throughout my foreign exchange period, I have made some critical observations. Most of the observations are positive in nature. All the employees are very wise and responsible. My observations are-

Work is never left pending for the next day unless it is absolutely necessary.

The operation can be more efficient.

A good performance is always praised by the fellow employees.

The employees hardly get any free time because of the huge workload.

Every employee has his own set of work. But still, if anyone needs any help, the employees come forward in helping him with his work despite having a huge workload.

1.6 Limitations:Audited Annual reports, as available till date, up to 2013 have been used in the analysis, while

the audited financial statements of 2014 and 2015 could have given a sharper update insight of

the foreign exchange performance. The unaudited and incomplete financial statements were not

considered, as they lack notes to the foreign exchange related particulars necessary for the

calculations of this study. A detailed insight of the in-practice approval and appraisal system

performed at the Head Office level could not be possible because of lack of access to necessary

files due to the bank’s concern of its confidentiality policies. The personal observation of the

author and some secondary data has been considered as the basis for the qualitative analysis for

lack of access to primary files, while listening from the horse’s mouth could reflect better

insights.

Chapter 02 Theoretical Aspects

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2.1 Foreign Exchange

By Foreign Exchange we mean foreign currencies or, more commonly, claims to foreign money balances. It includes all monetary instruments which give residents of one country a financial claim on another country. The use of foreign exchange is a country‘s principal means of settling its transactions with other countries. (T.T. Sethi, 2010)

In the broader sense, the foreign exchange is related to the mechanism of foreign payments. It refers to the system whereby one currency is exchanged for or converted into another Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

2.2 The History of Foreign Exchange

The Forex trading history started in 1875 with the birth of the gold standard monetary. Prior to 1875, countries primarily used gold and silver as a form of international payment. Payment using gold and silver were hampered by their devaluation according to external factors such as an increase in the discovery of new deposits, which would lead to a change in supply and demand. This factor would change the Forex trading history forever.

The aim of the implementation of the gold standard was to guarantee any currency, to set amount of gold. Currency was now backed by gold, measured in ounces. Countries needed large gold reserves to back the demand for currency. The price difference of an ounce of gold between two different currencies now became the foreign exchange rate for those two currencies. This History of Forex was changed by the birth of an international standard by which foreign exchange could take place between countries. The gold standard monetary broke down during the start of the First World War Political turmoil with Germany forced the larger European powers to focus on military projects. This financial drain on Europe gave way to a lack of gold to back the excess printing of currency and would determine a new change in the FX trading history.

The abolishment of the gold standard monetary system left a void in the method of foreign exchange, and changed the path of Forex history. This matter was a concern to the Allied countries and a convention were held at Bretton Woods, New Hampshire, in July 1944, to solve this problem. This convention led to the inception of the Bretton Woods monetary system.

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This new Bretton Woods monetary system defined the new Forex market history:

A new method of obtaining a fixed foreign exchange rate.

The gold standard to be replaced with the US Dollar as the ultimate exchange currency.

The US Dollar to be the only currency backed by gold.

The inception of three international authorities to guard over all foreign transactions.

The Bretton Woods monetary system only lasted about 25 years and failed primarily on the basis of making the US Dollar the only currency to be backed by gold. The U.S announced the end of the exchange of gold for US Dollars by foreign banks on 15 August 1971

2.3 Foreign Exchange Market:

The foreign exchange market (Forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. EBS and Reuters' dealing 3000 are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.

The foreign exchange market is unique because of the following characteristics:

Its huge trading volume representing the largest asset class in the world leading to high liquidity

Its geographical dispersion

Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday

The variety of factors that affect exchange rates

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2.4 Foreign Exchange Rates

A country‘s demand for foreign exchange and the supply of foreign exchange available to it provide a convenient basis for the determination of foreign exchange rate.

There are as many exchange rates as there are currencies traded. At any given moment it may be regarded as the price of one currency in terms of another. It is more enlightening, however to look upon the exchange rate as the price not of foreign money but of documents representing claims to foreign money. There is, thus, a cluster of rates in the exchange market and not one rate between any two currencies. Each rate shows some slight variation from the other rate.

Spot Rate and Forward Rate:

The spot rate of exchange is quoted for the immediate delivery of foreign exchange. It is distinguished from the forward rate which is quoted for the delivery of foreign exchange at a future date. The spot rate refers to the rate or quotation prevailing at a particular time, the foreign exchange required being made available on spot. The forward rate, on the other hand, refers to the rate at which a future contract for foreign currency to buy or to sell is made on the basis of the spot rates.

Buying rates and selling rates:

Under the exchange control system, when the government or the central bank of the country hold full control over the purchase and sale of foreign exchange, two different rates may be fixed for buying and selling foreign currencies.

Single rate and multiple rates:

Ordinarily, the government of a country adopts a single rate vis-à-vis the currency of another country. But in certain circumstances it may adopt more than one rate- two or even three rates vis-à-vis another currency. This is known as the system of multiple exchange rates. There may be one rate for exports, one rate for imports and still another for capital transactions.

Fixed, Flexible and Floating rates:

Fixed exchange rate refers to that rate which is fixed in terms of gold or is pegged to another currency which has a fixed value in terms of gold. Flexible exchange rate involves keeping the exchange rate fixed over short periods but allowing it to change from time to time according to the changed conditions of demand for and the supply of foreign exchange. Floating exchange rate is that which finds the natural price of the currency in accordance with the demand and supply conditions in relation to a foreign currency.

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2.5 Concepts

Foreign Exchange Department of Principal Branch has two sections. They are-

I. Import Section and

II. Export Section.

Before discussing the Import and Export section, some concepts related to foreign trade should be clarified.

Important concepts of foreign trade as per UCPDC 600 are discussed below:

Importer / Buyer/ Opener/ Applicant:Applicant means the party on whose request the credit is issued.

Issuing/ opening bank:Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf.

Exporter/ seller/ beneficiary:Beneficiary means the party in whose favor a credit is issued.

Advising / notifying bank:Advising bank means the bank that advises the credit at the request of the issuing bank.

Confirming bank:Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank‘s authorization or request.

Confirmation:Confirmation means a definite undertaking of the confirming bank, in addition to that of issuing bank, to honor or negotiate a complying presentation.

Complying presentation:Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Negotiating bank:The bank that negotiates the bill (draft) of exporter drawn under the credit is known as Negotiating bank. If the advising bank is also authorized to negotiate the bill (draft) drawn by the exporter then it becomes the negotiating bank.

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Reimbursing bank:

If the issuing bank does not maintain any account with a bank who will be negotiating documents under a L/C, then arrangement is made to reimburse the negotiating bank for the amount to be paid under credit from some other bank with which the issuing bank maintains his account. The latter bank is termed as reimbursing bank. An authority to debit his account is sent to the bank where he holds balance advising to honor claims placed by a negotiating bank.

Paying bank:

The bank that effects payment to the beneficiary (as named in the latter of credit) is known as paying bank/drawee bank.

Letter of Credit:

Credit means any arrangement however named or described, whereby a bank (issuing bank) acting at the request and the instructions of a customer (the applicant) or of its own behalf.1). is to make payment to or to the order of a third party (beneficiary), or is to accept and pay bill of exchange (drafts) drawn by the beneficiary.

2) Authorizes another bank to effect such payment, or to accept and pay such bill of exchange.

3). Authorizes another bank to negotiate.

Against stipulated documents, provided that the terms and conditions of the credit are complied with.

Types of L/C or Documentary Credit

Documentary Credits may be either:

(i) Revocable (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.

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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'.

Some Important Documents of L/C or Documentary Credit

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: Packing list is the letter describing the number of packets and 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.

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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.

IMP-Form

This form is prepared for maintaining account of the money, which goes outside 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:

1. Original copy for Bangladesh Bank.

2. Duplicate copy for authorized dealers. It is issued for processing Exchange Control Copy of bill of entry or certified invoice.

3. Triplicate copy for authorized dealers' record.

4. Quadruplicate copy for submission to the bank in case of imports where documents are retired.

Following documents are sent with FORM-IMP:

a) Letter of Credit Authorization Form,

b) One copy of invoice,

c) Indent copy / Pro-forma invoice.

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The following Information is included in the FORM-IMP:

i. Name and address of the authorized dealer,

ii. Amount of foreign currency in words and figures,

iii. Names and address of the beneficiary,

iv. L/C Authorization Form number and date,

v. Registration number of L/C Authorization Form with Bangladesh Bank, and

vi. Description of the goods.

2.6 Import Section:

Import may be defined as bringing of visible item to the country from abroad through letter of credit or the Authorization form (LCAF) paying foreign Currency to that of exporting country.

Import Mechanism

To import, a person should be competent to be Importer‘. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the Import Registration Certificate (IRC) to the importer. After obtaining this, person has to secure a Letter of Credit Authorization (LCA). And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Parties of L/C or Documentary Credit The parties are: The Importer

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.

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Things Are Done In Import Mechanism

In broader aspect the major responsibilities that are performed here are —

L/C Issuing. L/C Amendment (if necessary) Lodgment. Retirement of documents. Import Financing.

L/C Issuing:This is the first thing to be done for import. Already the definition of L/C is discussed. Now, the important types of L/C are discussed below:

There are three types of L/C offered by Principal Branch, Mutual Trust Bank. They are:

1. Sight L/C: Payment must be made within five (5) working days after the documents have been received from the exporter.

2. Deffered / Usance L/C: Payment must be made on or after the due date i.e. shipment date or Bill of Lading date. Deffered L/C usually opened for 90 days.

3. Back -to -Back L/C: Usually, this L/C is opened by the exporter. If exporter needs to import goods or equipments to manufacture the ordered goods, then he may import those goods or equipments by opening a L/C against this mother L/C. The value of the back-to-back L/C can be 80 percent of the mother L/C.

Classification of Back-to-Back Letter of Credit

Back to back L/C can be divided into four categories. These are:

Local (04)

EDF(05)

EPZ foreign (12)

Foreign (06)

Procedure to open an L/C

Usually, Principal Branch, Mutual Trust Bank issues import L/C for both the regular and for new importers.

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An importer is required to have the following to import through PBL--

i. Applicant has to apply for opening LC by a prescribed form.

ii. Applicant has to submit the Letter of Indent or Letter of Pro-forma Invoice.

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 of

Indent is required.

Letter of Pro-forma Invoice: If the contract is made directly between the buyer

and the sellers then Letter of Pro-forma Invoice is needed.

iii. 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.

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.

Considerations for issuing bank

i. He must have an account in PBL.

ii. He must have Importers Registration Certificate (IRC)

iii. Report on past performance with other bank. PBL collect this report from Bangladesh Bank.

iv. CIB (Credit Information Bureau) report from Bangladesh Bank.

v. 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.

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Desk Work

a. Register Entry

Then the particulars of L/C are recorded in the L/C opening register - Date and L/C number

Name of the party Amount in Tk. And foreign currency Name of advising bank Expiry dates. Percentage of margin and amount of margin Amount of commission, handling charge, postage charges, SWIFT charges.

b. Bangladesh Bank Entry

Another entry is made to L/C Monitoring cell of Bangladesh Bank through its web site.

Transmitting L/C

After securitization of the L/C application and authorization L/C is transmitted to the advising bank. Letter of credit can be transmitted to the advising bank through three methods. They are in Telex, Courier, or SWIFT (Society for Worldwide Inter Telecommunication Network).

Amendment:Parties involved in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. Bank transmits the amendment by SWIFT or by post to the advising bank. If the L/C is amended, service charge and telex charge is debited from the party account accordingly.

Lodgment:

Lodgment means payment of import bills or transfer of funds for import bills. Here L/C issuing bank will arrange to make payment against L/C through reimbursement bank or any other way. Through SWIFT a telex message is transmitted to the correspondent bank ensuring that payment is being made.

Steps involved in Lodgment

When the scrutiny of import bills is over the steps should be taken for lodgment:

At first all the particulars of the document are entered in PAD register. PAD No. Seal is given on all the copies of the received document.

Convert the foreign currency into Bangladeshi currency. Prepare Lodgment voucher Send IBCA to the Head Office Entry is made to L/C Monitoring cell of Bangladesh Bank through its web site. Make initiation to the import

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Retirement of Documents:After lodgment the issuing bank will send the importer an intimation regarding the document arrival notice. On intimation the importer calls on the bank‘s counter requesting retirement of the shipping documents against payment to the debit of their account by the bill amount and other charges payable.

Shipment of Goods and Lodgment of Documents by Exporter

Then exporter ships the goods to the destination of the importer country Sends the documents to

the L/C opening bank through his/her negotiating bank. Generally the following documents are

sent to the Opening Banker with L/C:

Bill of Exchange

Bill of Lading

Commercial Invoice

Certification of Origin

A certificate stating that each packet contains the description of goods over the packet.

Packing List

Advice Details of Shipment

Pre-shipment Inspection Certificate

Vessel Particular

Shipment Certificate

Payment against Documents (PAD)

Payment made by bank against lodgment of shipping documents of goods imported though

Letter of credit falls under this head. It is an interim advanced with import and it is generally

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liquidated against payments usually made by the party for retirement of the documents for

release of imported goods from the customer‘s authority. It falls under the category of

commercial loan.

Loan against Imported Merchandise (LIM)

Advances allowed for retirement of shipping document and release of goods imported though

LIM taking effective control over the goods by pledge fall under this type of advance. When the

importer failed to pay the amount payable the exporter against import LIM, then Mutual Trust

Bank gives loan against imported merchandise to the importer. The importer will bear all of the

expenses.

Import against Trust Receipt (LTR)

Advance against a LTR obtained from the customer is allowed when the documents covering an

importer shipment are given without payment. The customer holds the goods or their sale

proceeds in trust for the bank until the LTR are fully paid off. LTR is a document that creates the

bankers line on the goods. The period of LTR may be 30, 45, 60 or 90 days.

Payment Procedure of Import documents

This is the most sensitive task of the Import Department. The officials have to be very much

careful while making payment. This task constitutes the following:

Date of Payment

Usually payment is made within seven days after the documents have been received. If the

payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing Sale Memo

A sale memo is made at BC rate to the customer. As the TT & OD rate is paid to the ID, the

difference between these two rates is exchange trading. Finally, an Inter Branch Exchange

Trading Credit Advice is sent to ID.

Requisition for the Foreign Currency

For arranging necessary fund for payment, a requisition is sent to the International Department.

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Transmission of Message

Message is transmitted to the correspondent bank ensuring that payment is being made.

Kind of Import Business Related to L/C

Food

Chemical(Textile)

Medical Instruments

Electric Device( IPS, UPS cables etc)

Computer accessories

Others

2.7 Export Section:

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export.

Things Done in Export

In broader aspect the major responsibility that re performed here are —

L/C Advising Documents Collection Documents negotiation Export financing

Parties Involves In Export L/C1. L/C issuing Bank 2. Importer 3. Exporter L/C advising Bank 4. Negotiation Bank 5. The Paying / Reimbursing Bank

Documents Required for Export Letter of Credit

These documents should be submitted to the bank for negotiation:

Export L/C EXP form

Pro-forma invoice

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Bill of Exchange

Certificate of origin

Bill of Lading

Packing list

Inspection certificate Insurance document

Any other document as per L/C

Procedure for Export Letter of Credit

There are a number of formalities that require to procedure of Export Letter of Credit:

ERC (Export Registration Certificate)

For export from Bangladesh unless he is registered with CCI & E and holds valid Export

Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number

is to be incorporated on EXP forms and other documents connected with exports.

Obtaining EXP

After having the registration, the exporter applies to First Security Bank Limited with the trade

license, Export Registration Certificate and the Certificate from the concerned government

Organization to get EXP. If the bank is satisfied, an EXP is issued to the exporter. An EXP-From

contains the following particulars:

Name and address of Authorized Dealer

Particulars of the commodity to be exported with code

Country of destination

Port of destination

Quantity

L/C value in foreign currency

Terms of Sale

Name and address of Importer / Consignee

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Bill of Lading/ Railway Receipt! Airway Bill/ Truck Receipt/ Post Parcel

Receipt no. and date

Port of Shipment

Land Custom Post

Shipment Date

Name of the Exporter with address CCI & EI‘s Registration number and

Date of the Exporter

Sector (Public or Private) under which the Exporter falls

Securing the Order

Upon registration, the exporter may proceed to secure the export order. Contracting the buyers

directly through correspondence may be done. Some buyers of goods like jute and jute goods

maintain liaison office. Representative of local agents who can be contacted to the secure a deal.

Signing of the Contract

The following points are to be mentioned in terms of signing of the contract:

Quantity of the commodity

Price of the commodity

Shipment

Insurance and marks. Inspection

How can solve any kind of conflicts between the contract parties.

The terms of the L/C are in conformity with those of the contract

Procuring the Materials

After making the deal and on having the L.C opened in his favor, the nest step for the exporters

to set about the task of procuring or manufacturing the contracted merchandise.

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Shipment of Goods

The following are the documents normally involved at the stage of shipment:

EXP Form

Photocopy of registration certificate

Photocopy the contract

Photocopy of the L/C

Freight certificate from the bank in case of payment of the freight at his

port of loading is involved.

Railway Receipt, Berge Receipt or Truck Receipt.

shipping instructions

Insurance policy

Settlement of Local Bill to Back to Back

The settlement of local bills is done in the following ways:

The customer submits the LIC to First Security Islamic Bank Limited along

with the documents for negotiate

First Security Islamic Bank Limited official scrutinizes the documents to

endue the conformity with the term and conditions.

The documents are then forwarded to the to the L/C opening bank.

Preparation of the Export Document:

Substantive Document

Substantive document are those which are normally required to be furnished under almost all the

contracts for sale of goods to overseas buyers and they include:

Draft or bill exchange

Commercial invoice

Bill of lading or airway bill

Marine insurance policy

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Auxiliary Document

In substantive document, the exporter may be required to prepare other document, called auxiliary document. The number and type of those documents depends on the terms of the contract and /or the L/C, but they mainly include:

Packing list

Consular invoice

Certificate of origin

Inspection certificate

Quality control certificate

Photo- sanitary certificate

GSP certificate

Negotiation of Documents under Letter of Credit

Under this arrangement, after the goods are shipped, the exporter submits the concerned document to the negotiating bank for negotiation. The documents should be negotiated strictly in accordance with the terms and conditions and within the period mentioned in the letter of credit.

After shipment, exporter submits the following documents to the Bank for negotiation.

Bill of exchange

Bill of Lading

Invoice

Insurance Policy/Certificate

Certificate of Origin

Inspection Certificate

Consular Invoice

Packing List

Quality Control Certificate

G.S.P. certificate.

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Mode of Payment of Export Bill under Letter of Credit

As per UCPDC 500, 1993 revision there are four types of credit. These are as follows:

Sight Payment Credit

Deferred payment Credit

Acceptance credit

Negotiation Credit

Export Financing

Export financing can be two types:

Pre- Shipment

Pre- shipment, as the name suggest, is given to finance the activities of an exporter prior to the

actual shipment of goods. Pre-shipment credit is essentially a short-term credit and liquidated by

negotiation or purchase of export bills covering the merchandise.

Export Cash Credit (Hypothecation)

Under this arrangement, a credit is sanction against hypothecation of the raw materials or

finished goods for export. Such facility is allowed only to major exports. As the bank has no got

security, in this case, except change documents and line of export L/C or contract, the bank

normally insists on the exporter furnishing collateral security.

Export Cash Credit (Pledge)

This credit facility is allowed against a pledge of exporter goods or raw materials. In this case,

cash credit facilities are extended against pledge of goods to be stored in the go down under

banks control by signing the letter of pledge and other documents.

Packing Credit

In this case, the credit facilities are extended against security of railway receipt or steamer receipt

or barge receipt or truck receipt evidencing transportation of goods to the port for shipment of

the goods in addition to the usual charge document and lien of export letter of credit.

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Payment of Back-To-Back Letter of Credit

In case back to back as 60-90-120 days of maturity period, deferred payment is made. Payment is

given after realizing export proceeds from the L/C issuing bank.

Post-Shipment

Post shipment credit refers to the credit facilities extended to the exporter by the bank after

Shipment of the goods against export documents. Necessary of credit arises, as the exporter

cannot afford to wait for a long time without paying manufacturers/ suppliers.

Purchase of DP& DA Bills

In such a case, the bank purchased/discount the DP (document against payment) and DA

(document against acceptance) bills operated under the payment method of documents

separately, and clear instructions have to be obtained from the drawer of the bills in regard to all

important issues related to the negotiation of the bills.

Advances against Bills for Collections

Banks generally accept export bills for collection of proceeds when they are not drawn under

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.

The goods and services sold by Bangladesh to foreign households, businessmen and Government

are called export. The export trade of the country is regulated by the Imports and Exports

(control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before

and after shipment of goods. The exports from Bangladesh are subject to export trade control

exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI

& E). No exporter is allowed to export any commodity permissible for export from Bangladesh

unless he is registered with CCI & E and holds valid Export Registration Certificate (ERC). The

ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms

and other documents connected with exports.

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Payment Procedure for FDBP

After purchasing the documents, Bank gives the following entries:

o FDBP A/C ---------------------------------------------------- Dr. (at OD sight rate)

o Customer A/C ------------------------------------------------ Cr.

(Before realization of proceeds)

Bank would realize only postage charges from the exporter.

Subsequently, Bank will send the documents to the L/C opening Bank for payment with a

forwarding letter detailing the enclosures. Upon realization of proceeds the Negotiating

Bank would pass the following vouchers:

o Head Office A/C -------------------------------------------- Dr. (at T.T Clean rate)

o FDBP A/C --------------------------------------------------- Cr.

o Income A/C Profit on Exchange Trading --------------- Cr.

(Adjustment after realization of proceeds)

A FDBP Register is maintained for recording all the particulars

Kind of Export Business Related to Letter of Credit

Garments

Shrimpfish

Jute

Others

2.8 Foreign Remittance:

MTB, Principal Branch is an authorized dealer of foreign exchange. Their dealing in foreign

exchange involves buying and selling of foreign exchange covering inward remittances received

from abroad and outward remittances sent abroad.

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The basic functions of this department are outward and inboard remittance of foreign exchange

from one country to another country. In the process of providing this remittance service, it sells

and buys foreign currency. The conversion of one currency into another takes places at an agreed

rate of exchange, in where the banker quotes, one for buying and another for selling. In such

transactions the foreign currencies are like any other commodities offered for sales and

purchases, the cost being paid by the buyer in home currency, the legal tender.

Working of this Department

Foreign TT payment & purchase of F. Drafts, preparations of FBP (Foreign Bill Purchase)

Issuance of outward TT & FDD

Issuance of proceed responding certificate (PRC)

Foreign collection, Bangladesh Bank Clearing Check Collection, that comes from all

branch of FSBL

Withdrawal from F.C. A/C

Encashment of T.C & Cash Dollar and Sterling Pound

Deduction of Tax and VAT. On behalf of Bangladesh Bank

Preparation of related statements including convertible Take Accounts

Preparation of IBCA & IBDA and balancing of collection and other special assignment

as desired by department in charge

Balancing of account statement

Compliance of audit & inspection

Statement of all related works submitted to Bangladesh Bank

There are two types of remittance:

1. Inward remittance 2. Outward remittance

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Inward Foreign RemittanceInward Foreign Remittance covers purchase of foreign currency in the form of foreign TT, DD,

MT, Bills etc. sent from aboard favoring a beneficiary in Bangladesh. Purchase of foreign

exchange is to be reported to exchange control department of Bangladesh Bank prescribing two

forms:

EXP from: Remittances received against export of goods from Bangladesh are done by

this.

From C: Inward remittances equivalent to US$ 2000/- and above are done by this.

Outward Foreign Remittance

Outward Foreign Remittance covers sales of foreign currency though issuing foreign T.T, Drafts,

Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills

retired. Two forms are used for outward remittance of foreign currency are:

IMP Form: All Outward Remittance on account of imports

TM: For all other Outward Remittances

Remittance Facilities:

Private Remittances

Family remittances facilities

Remittances of membership fees

Education

Remittances of consular fees

Remittances of evaluation fees

Travel

Health & medical

Seminars & workshops

Foreign nationals

Remittances for Hajj

Other private Remittances

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Official and Business Travel

Official visit

Business travel quota for new exporter

Business travel quota for importer

Exporter retention quota

Commercial Remittances

Opening of branches or subsidiary companies abroad.

Remittances by shipping, airlines and courier services.

Remittance for royalty and technical fees.

Remittance on account of training & consultancy.

Remittance of dividends.

Subscription of foreign media services.

Fees for return monitors.

Adv. of Bang. Products in mass media abroad.

Bank charges.

Sundries.

The bank also gives service to the customer through-

Wall Street Finance Prabhu Money Transfer KMB Money Transfer Dollex Dollar Express Money Gram X-press money.

Chapter: 03: Practical Issues

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3.1 Sample Enterprise at a Glance

Mutual Trust Bank is one of the five oldest private commercial banks operating in Bangladesh that were issued permission during the early ‘90s. The other contemporary banks were Dutch-Bangla Bank, Al Arafa Islami Bank, Prime Bank, Dhaka Bank and Eastern Bank. These banks are known as the second generation banks in the country as they have come out of bad loan culture for the first time in the history of banking in Bangladesh. Mutual Trust bank limited is licensed as a Scheduled Bank in the private banking sector. The bank has recently opened its 101th branch and in a period of 15 years, it has conspicuously shown a growth through meeting its capital adequacy requirement of the central bank of Bangladesh. Following information regarding the commencement of the bank have been adopted from the bank’s website (www.mutualtrustbanklimited.com):

Mutual Trust Bank was incorporated as a Public Limited Company in 1999, under the Companies Act 1994. The company had an Authorized Share Capital of BDT 1,000,000,000 divided into 10,000,000 ordinary shares of BDT 100 each during its incorporation. Currently, the Authorized Share Capital of the company is BDT 10,000,000,000 divided into 1,000,000,000 ordinary shares of BDT 10 each. The Company was also issued Certificate for Commencement of Business on the same day and was granted license on October 05, 1999 by Bangladesh Bank under the Banking Companies Act 1991 and started its banking operation on October 24, 1999. According to the Memorandum of Association and as licensed by Bangladesh Bank under the provisions of the Banking Companies Act 1991, the Company started its banking operation. Currently Mutual Trust Bank Limited conducts the following banking operations:

Wholesale Banking 

Retail Banking 

International Trade Financing

Small and Medium Enterprises (SME) Banking 

NRB Banking

Privilege Banking

Card Services and

Treasury Operations 

MTB operates through its Head Office at Dhaka and the bank carries out international business through a Global Network of Foreign Correspondent Banks.

3.1.1 Management Hierarchy of Mutual Trust Bank Limited:

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As the figure depicts, MTBL has a standard organization structure which has compliance and consistence with the guideline as prescribed by the Bangladesh Bank.

As per their detailed organizational structure relevant with the credit management process, Board of directors is the source of all power which is delegated by the Managing Director and CEO of the Bank. Every Divisions and Departments has a divisional and departmental heads, sufficient manpower is employed under these departmental heads. Officers has to report to their line managers, Line Mangers has to report to their divisional heads, Divisional heads are accountable to Deputy Managing Directors, Deputy Managing Director has to report to Managing Director and CEO. CEO is accountable for his actions to the Board of Directors.

It is relevant to articulate that the MTBL restructured its banking system from Branch Banking to Centralized Banking in the year 2007. A corporate intra-net is used to centrally control the branch banking operations from the Head Office.

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Figure 1: Management Hierarchy of Mutual Trust bank (Source-MTB Corporate Intra-net)

3.1.2 Present Board of Directors:Sl. Name Designation1 Mr. Rashed Ahmed Chowdhury Chairman2 Mr. M.A Rouf, JP, Vice Chairman3 Mr Syed ManzurElahi4 Dr. ArifDowla5 Mr. Md. Hedaytellah6 Mr. Md. Abdul Malek7 Mr. Md. Wakiluddin8 Mrs. KhwajaNargisHossain9 Mr. AnjanChowdhury10 Mr. Q.A.F.M Serajul Islam11 Mr. Anwarul Amin12 Dr. Sultan HaffezRahman13 Mr. Anis A. Khan Managing Director &

CEOSource: www.mutualtrustbank.com

3.1.3 A Brief Overview of the Products of MTBLMTB’s products are broadly classified into four categories, namely:

1. Retail banking products

a. Deposit products

b. Loan Products

Retail products are enjoyed by individuals and institutions. MTB has a wide variety of deposit products, mainly dividing into 4 categories: Current Deposit (no interest paid), Savings Deposit (interest paid on a monthly basis), Fixed Deposits and other specific deposit plans that offer different interest earnings depending on the maturity. Retail Loan Products include Personal Loan, Auto Loan, Home Loan, Home Equity Loan and Professional Loan. MTB levies different interest rates (floating) on these credits issued.

2. Wholesale banking products-MTB’s wholesale banking includes:

a. Term Finance

b. Working Capital Finance

c. Trade Finance

d. Offshore Banking

e. Syndication and Structured Finance.

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Table 1: Present Board of Directors

MTB often term these financing activities as ‘Corporate Finance’ and the interest rate earned on these credits amount a greater amount of earnings for MTB.

3. SME Banking: Followings are MTB’s SME banking products:

MTB Bhagyobati

MTB Krishi

MTB Moushumi

MTB Revolving Loan

MTB Small Business Loan

MTB Digoon

MTB Green Energy Loan

The Revolving Loan, in the suburb areas is a popular credit scheme.

4. NRB

NRB Savings A/C

NRB DPS A/C

NRB FDR

5. Treasury

Dibor

Money Market

Foreign Exchange

Primary Dealers Business

Apart from these MTB provides other services such as taking Electricity Bills, Telephone Bills, Gas Bills etc, though these services are subject to branch specifications.

3.1.4 Credit Rating of the Bank: Mutual Trust Bank was last rated by CRAB, one of the leading credit rating agencies of the country, in May, 2010 which expired on June 30 2011. The agency didn’t rate it further, as per their website suggests. (http://crabrating.com/index.php)

3.1.5 Summary of Financial Performance:The following summary has been prepared by taking inputs from the annual report of Mutual Trust Bank Limited 2010-2013. Since the audited financial statement for the year 2014 is yet to be published, this study had to depend on the audited reports that were published up to 2013. For this, some facts, such as total branches have reached 101 in number, total number of employees has increased to a considerable amount etc couldn’t be included in this table.

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Particulars 2013 2012 2011 2010

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Authorized Capital 10000 10,000.00 3,800.00 3,800.00Paid up Capital 2543 2,119.58 1,766.32 1496.88

Shareholders’ Equity 4719 4,378.81 3,684.51 2,483.09

Total capital 6695 6,225.56 3,969.33 2,888.33Total Assets 65,683 58,246.03 52,774.7

738,964.97

Total Deposits 53778 45,846.31 42,354.07

33,820.41

Total Loan & Advances 44,506 39,676.12 33,883.92

28,529.35

Total Investment 20,149 9,216.33 9,537.97 5,606.49Export 26,596 16,842.85 19,676.3

819,463.24

Import 36,945 27,652.80 29,720.99

30,381.62

Total contingent Liabilities 15857 15,498.87 10,061.04

11,467.71

Operating Income 1488 3,398.65 2,544.02 1,839.57Operating Expenditure 848 1,396.93 917.1 644.49

Profit before provision & tax

303 2,001.72 1,626.92 1,195.09

Profit after provision & tax 404 988.36 820.61 305.03

Total provision maintained 1483 1,283.15 1,139.82 1,236.07

Earning asset 66,665 51,184.77 46,075.04

33,944.60

Price earnings ratio 20.84 15.18 10.64 22.23

Number of Branches 76 68 44 36

Number of Employees 1291 1,050 841 739

[Source: Annual reports of MTB, 2010-2013]

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Table 2: Summary of Financial

3.2 Analysis of Findings

Some general observations of the performance Mutual Trust Bank, Principal Branch of last FIVE

years (2009-2013) of the bank are as follows.

(All data collected from Annul report and internal document)

3.2.1 Total Import:

As, All the businesses located near the principal branch are related to trading of cast iron

products, commercial ply woods, papers, paper boards etc. Due to the nature of the businesses

located near the branch, all the import LCs opened here for importing industrial purpose. Besides

cast iron products, Back to Back LCs against export LCs is also opened here. Major products for

which BTB LCs are opened are Fabrics and Accessories of Ready Made Garments.

Raw Cotton Accessories Of RMG Machinery Items Others

10%

15% 40%

35%

Figure: 02

Year 2009 2010 2011 2012 2013Total Import (in lac) 6732.21 8623.56 10944.21 18832.38 33542.20

Figure 02: show that in 2009 the import L/C was opened 6732.21 lac and in 2013 was 33542.20

lac respectively. Import L/C increased to TK 33542.20 Lac from TK 6732.21 Lac during the five

year period. The growth rate of this is 51%.

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Table: 03

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IMPORT (IN LAC)40000.00

35000.00

30000.00

25000.00

20000.00 TOTAL IMPORT

15000.00

10000.00

5000.00

0.00

2009 2010 2011 2012 2013

Figure: 03

3.2.2 Total Export:

Export volume of the Principal branch reached Tk. 5615.04 LAC which is 26.35% higher than that of FY 2012. Major export items involved with the bank‘s foreign trade activities were readymade garments and non-traditional items.

Foreign Trade Accessories Of RMG Machinery Items Others

10%

30%

Figure: 04

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18% 42%

Table 4 shows that in 2009 exports were 2186.89 lac and in 2013 was 5615.04 lac respectively. Export L/C increased to TK 33542.20 Lac from TK 6732.21 Lac during the five year period, and yearly growth rate of export is 51%.

Year 2009 2010 2011 2012 2013

Total Export (in lac) 2186.89 1830.24 2625.38 4443.73 5615.04

Table: 04

EXPORT (IN LAC)

6000

5000

4000

3000EXPORT(IN LAC)2000

1000

0

EXPORT(IN LAC)2009 20102011 2012 2013

Figure: 05

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3.2.3 Foreign Remittance:

During the year 2013, the inflow of inward foreign remittance was TK. 92.10 LAC where in the previous year 2012 the amount was TK.86.63 LAC which is TK.6 LAC higher than the previous year.

Year 2009 2010 2011 2012 2013

Foreign remittance (in lac) 7.31 25.50 57.20 86.63 92.10

Table: 05

REMMITTANCE (IN LAC)

1009080706050 INWARD

REMMITTANCE(IN LAC)

40302010

0

2009 2010 2011 2012 2013

Figure: 06

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3.2.4 Comparative Analysis:

Comparative Analysis of the Mutual Trust Bank Ltd. with Islami Bank Bangladesh Ltd. (IBBL)

The Mutual Trust Bank Ltd.

(Million in Taka)

Year 2010 2011 2012 2013

Import 28048.00 36213.00 49496.00 65737.00

Export 13505.00 23268.00 31081.00 39038.00

Source: Annul report and internal document

Islami Bank Bangladesh Ltd

(Million in Taka)

Year 2010 2011 2012 2013

Import 59804.00 74525.00 82702.00 89788.00

Export 29151.00 36169.00 36682.00 41092.00

Source: annul report

Import Comparison of MTB with IBBL:

Million in Taka

Year 2010 2011 2012 2013

MTBL 28048.00 36213.00 49496.00 65737.00

IBBL 59804.00 74525.00 82702.00 89788.00

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10000090000800007000060000

MTB50000

IBBL40000300002000010000

0

2010 2011 2012 2013

Figure 07: Import Comparison of MTB with IBBL.

Interpretation:The trend of import business of the MTBL is increasing from 2009 to 2010 on the other hand IBBL also increasing but they are now standing in initial point. The growth of MTBL in 2012 to 2013 was Tk.16241 million and the growth of IBBL in 2012 to 2013 was Tk.7086 million. So the growth of IBBL is lower than MTBL.

Export Comparison of MTBL with IBBL

Million in Taka

Year 2009 2010 2011 2012

MTBL 13505.00 23268.00 31081.00 39038.00

IBBL 29151.00 36169.00 36682.00 41092.00

45000

40000

35000

30000

25000 MTBL

20000 IBBL

15000

10000

5000

0

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2009 2010 2011 2012

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Interpretation:

The above graphical presentation shows comparison exports between The Mutual Trust Bank

Ltd. (MTBL) and the Islami Bank Bangladesh Ltd (IBBL). The trend of export business of the

MTBL and IBBL is increasing and experiencing from 2010 to 2013. The growth of MTBL in

2012 to 2013 was Tk.7957 million and the growth of IBBL in 2012 to 2013 was Tk.4410

million. So the growth of export business of MTBL is higher than IBBL in 2013.

Comparison of Foreign Exchange Business:

(Amount in Million)TK

Year MTBL FSIBL IBBL EXIM

2009 41553 14327 88955 49313

2010 59481 15684 110694 72940

2011 80577 14979 119384 96175

2012 104775 50983 130880 115683

Total 286386 95973 449913 334111

Am

oun

t

Comparison of Different Banks

140000

120000

100000

80000 MTB60000 FSIBL

40000 IBBL

20000 EXIM

0

2010 2011 2012 2013

Years

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3.2.5 EARNINGS PER SHARE

Information per Share 2011 2012 2013

Earnings per share (BDT)

(Share value BDT)

3.933.8

1.627.7

1.326.1

EPS

4

3.5

3

2.5

2EPS

1.5

1

0.5

02011 2012 2013

Figure: 08

In 2011 to 2012 the banks earning per share decreases dramatically 3.9 to 1.6. Again in 2013

EPS decreases 1.6 to 1.3 and it reflects that the growth decreases -18.8%. It‟s not a good sign for

the bank and the shareholder.

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3.2.6 TOTAL ASSETS

At the year-end (BDT in millions) 2012 2013

Total Assets 76331 93162

Loans and Advances 47005 56511

Investments 19756 23251

Fixed Assets 1553 2385

180000

160000

140000

120000

100000

80000

60000

40000

20000

02012 2013

Fixed assets

Investments

Loans/Advances

Total Assets

Figure: 09

The banks total assets posted a 22.0% increase in 2013, raising form BDT 76.3 billion to BDT

93.2 billion. The major contributor to this growth was the increase in Investments, which jumped

by 18.0%, or from BDT 19.8 billion to BDT 23.3 billion and in loans and advances, which

jumped by 20.2%, or from BDT 47.0 billion to BDT 56.6 billion. Fixed assets of the Bank also

increased remarkably raised to BDT 2.4 billion from BDT 1.6 billion, an increase of 53.6%.

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3.2.7 Compare of EPS to Others bank

2012 2013 Average

AB Bank Ltd. 3.78 3.32 3.55

Bank Asia Ltd. 3.89 1.35 2.62

BRAC Bank Ltd. 5.54 1.74 3.64

Dutch-Bangla Bank Ltd. 10.77 11.57 11.17

Dhaka Bank Ltd. 6.25 1.69 3.97

Eastern Bank Ltd. 5.59 3.91 4.75

IFIC Bank Ltd. 3.00 1.20 2.1

Jamuna Bank Ltd. 3.71 2.47 3.09

Mercantile Bank Ltd. 3.53 2.24 2.89

Mutual Trust Bank Ltd. 1.59 1.29 1.44

NCC Bank Ltd. 3.76 2.09 2.93

National Bank Ltd. 7.11 1.01 4.06

ONE Bank Ltd. 3.99 2.70 3.35

Prime Bank Ltd. 4.77 2.89 3.83

Southeast Bank Ltd. 2.33 1.89 2.11

Standard Bank Ltd. 3.19 2.73 2.96

The Premier Bank Ltd. 1.34 1.30 1.32

The City Bank Ltd. 4.07 1.26 2.67

Trust Bank Ltd. 3.51 .55 2.03

Uttara Bank Ltd. 5.76 3.76 4.76

United Commercial Bank Ltd. 4.19 1.89 3.04

Rupali Bank Ltd 7.94 7.37 7.66

Total EPS 79.94

Mean 3.63

EPS

Mutual Trust Bank 1.44

Commercial Bank Average 3.63

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EPS

3.5

3

2.5

2EPS

1

0.5

0MTBL Commercial Bank

Figure: 10

Earnings per share of Mutual Trust Bank are 1.44, where commercial Bank average EPS

3.63. In 2012 to 2013 MTB EPS is decreasing and compare to commercial Bank EPS is

lower by 2.19 which is not good for MTB.

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3.2.8 Findings of the study

The main objective of Mutual Trust Bank Ltd. is to maximize profit by utilizing its resources at the optimum level and to ensure the best possible service towards the customers. Mutual Trust Bank always tries to uphold its social commitment, so it fixes the terms and conditions for getting loan under Foreign exchange activities in a most flexible fashion and reveal the actual interest rate it charges against the credit to be offered.

Mutual Trust Bank Limited disburses all loans through the bank stuffs and all bank stuffs emphasize on the bank‘s goals and objectives.

MTB foreign exchange department is doing well and it shows the growth compare to previous year.

Export, Import, Foreign Remittance growth rate increasing in 2013 compared to

previous year.

For the effectiveness of the foreign exchange department, MTB has divided the

whole department into three major parts, which are Export, Import, and Remittance.

The monitoring system of the foreign exchange department of MTB is

excellent. The chain of command is strictly maintained here. The executives

now and then visit the department, which keeps all the officers alert about their

duty.

MTB financial growth rate is not good in 2013 compare to 2012 and 2011.

MTB earning per share is decreasing and EPS is lower than average commercial

Bank EPS.

Some rules and regulations of government work as barrier for the free flow of

remittance, export and import of profitable goods.

Customers’ View

Most of the clients are satisfied with the management philosophy of the Bank.

They diverse modern technology in banking service.

Customers doing their business with the bank because of relationship and also for good

communication.

Customers not doing their business with the bank because of lack of relationship and also

for not good communication.

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3.3 SWOT AnalysisSWOT analysis basically as follows:

Internal:

Strength Weakness

External:

Opportunities Threats

Strength:

Strong non interest earning base.

Wide Branch network among the 2nd generation banks.

Low infection in loan exposure. Wide product line. Competency development & performance-management processes were good enough. Profits have increased.

Weakness:

High cost of fund. Highly exposed to volatile garment business. Inadequate delegation of power. Inadequate IT infrastructure. Excessive dependency on term deposits.

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Opportunities:

Scope of market penetration through diversified products and wide banking network. Regulatory environment favoring private sector development. Trade and Investment Framework Agreement (TIFA)

Threats

Increased competition in market for public deposits. Market pressure for lowering the interest rate. Deteriorated export, import and guarantee due to indecent competition as well as economic

slump. Foreign currency quick fluctuation. New regulations.

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Chapter 04 Concluding Notes

4.1 Recommendations

As per earnest observation some suggestions for the improvement of the situation are given

below:

To attract more clients MTB has to create a new marketing strategy, which will increase

the total export import business.

Attractive incentive packages for the exporter will help to increase the export and

accordingly it will diminish the balance of payment gap of MTB.

Long term training very much required for the foreign exchange officers.

Bank can provide foreign market reports, which will enable the exporter to evaluate the

demand for their products in foreign countries.

New investment sector is booming rapidly. MTB should identified those untapped areas

of business and invest in those sector such as Gas plant, condensed milk project, ship

breaking etc.

Effective Management Information System must be evolved by MTB so that correct

decisions may be taken at correct time at policymaking level.

Proper communication needs to establish with clients.

Arrangement of monthly /quarterly training courses /workshops for the selected by the

authority in order to promote employee to their desired level

It is noted that “delay in service” is one of the problems faced by the clients. Attempts

should be made to straighten the banking procedure.

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4.2 Conclusion:

This report is prepared to fulfill one of the requirements of BBA program to submit

internship report under Business students. It is an effort to cover the foreign exchange

activities in general which has been observed during the internship period in the

Mutual Trust Bank Ltd. The activities of the foreign exchange department are much

broader. Everything may not be covered here due to time constraint. However, the report

includes enough information to get an overall idea about the foreign exchange department

of Mutual Trust Bank.

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Update Vol-5, September 2014 [online] Available from :

http://www.unnayan.org/reports/meu/Meu_September_2014/MEU_September_2014.pdf

[Accessed: 15th December, 2014]

2. Mahmud (2013), Banking Sector: Current Status, Bangladesh Economic Update Vol-4,

December 2013 [online] Available from :

http://www.unnayan.org/reports/meu/December-2013/MEU%20December%202013.pdf

[Accessed: 15th December, 2014]

3. Accounting for Management (2014): Horizontal (Trend) Analysis of Financial

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analysis-of-financial-statements/ [Accessed: 7th December, 2014]

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2014]

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2014]

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