Internship Report On BASIC Bank Limited

Foreign Exchange Operation Of BASIC Bank Limited Gulshan Branch
BASIC BANK LIMITED
Internship Report on
Foreign Exchange Operation of BASIC Bank Limited
Submitted to:
The Department of Business Administration, Daffodil International University, In partial fulfillment of the requirement for the award of BBA Degree, Major in Finance.
Prepared by:
Md. Ferdous Hosain ID: 09182-11-1144 Batch: 20th Major: Finance Department of Business& Economic Daffodil International University
Under the Supervision of

Rafiqul Islam Professor & Dean Department of Business& Economic Daffodil International University
Date of submission 2nd May 2013
Letter of Transmittal
2nd may 2013 Rafiqul Islam Professor and Dean Department of Business Administration Daffodil International University Subject: Submission of Internship Report on Foreign Exchange operation of BASIC Bank Ltd. Dear Sir, It is a pleasure to present the internship report on Foreign Exchange operation of BASIC Bank Ltd. which was assigned to me as a partial requirement for the completion of the BBA Program. I am very much grateful to Almighty Allha because he gave me an opportunity to complete my internship program smoothly. I have tried to combine the secondary data available with my own investigation in order to come up with a complete report. In spite of several constraints, I gave my all efforts to make this report a meaningful one. I hope and sincerely believe that this report will serve the purpose of my Internship Program. My effort will be rewarded only if it adds value to the research literature. Thank you again for valuable direction and cooperation. Sincerely yours, . Md.Ferdous Hossain Program: BBA, Batch: 20th ID No. 09182-11-1144 Department of Business Administration Daffodil International University
Declaration of the student
I do hereby solemnly declare that , that work presented in this Internship report has been by done by me and has not been previously submitted to any other university or organization for an academic qualifications/certification /diploma or degree. The work I have presented does not breach any existing copyright law and no portion of this report is copied from any work done earlier for a degree or otherwise. I further undertake to indemnify the Department against any loss or damage arising from breach of the forgoing obligation.
Md.Ferdous Hossain ID No. 09182-11-1144 Batch: 20th Program: BBA Department of Business Administration Major: Finance
Letter of Approval
I am pleased to certify that the internship report on Foreign Exchange Operation of BASIC Bank Limited. A study on Gulshan Branch conducting by Md. Ferdous Hossin is bring ID No:09181-11-1144 of the department of Business and Economic has been approved for presentation and defense / viva voce. Under my supervision Md . Ferdous Hossain worked with BASIC Bank Limited as an intern. He completed the work during the spring 2013 semester. I am pleased to hereby certify that the findings presented in the report are the authentic work by Md.Ferdous Hossain. I strongly recommend the report presented by Md.Ferdous Hossain for further academic commendation and defense / viva-voce. Md.Ferdous Hossain bears a strong moral character and a very pleasing personality. It has indeed a great pleasure working with him. I wish him all success in life.
Rafiqul Islam Professor and Dean Department of Business and Economies Daffodil International University
PREFACE
Organizational Internship is a program, which is a conducted to acquire practical knowledge. It is believe that practical working experience will be added advance in our future life, which may also help to achieve our aim and ambition. It is provide a chance to acquire knowledge from global business and earmark for executive .It identifies the practical phenomena including risk and opportunities and also enable to take probable alternative decisions. The knowledge is best on learning and experience.
It is really a matter of great pleasure that, I have completed my internship program in BASIC Bank Limited, Gulshan Branch. Thos program was conduct from 1 st January , 2013 to 1st April , 2013 under the faculty of Business and Business Administration, (Daffodil International University).
The report has been prepared for the fulfillment of academic curriculum as required under the program .While preparing this report , I gather practical experience of working field and I also think that closer Internship program are further gathered . Finally I would like say that tireless struggle would become successful when any person or organizational will get benefit from this report.
Page 7 of 69
ACKNOWLEDGEMENTS
It is high time for me to express my deepest gratitude and humble submission to the almighty Allha but for whose support I would not be able to complete a huge task of preparing this Internship report within the scheduled time.
I would like to take the opportunity to express my gratitude to my Internship Advisor, Rafiqul Islam, Professor & Dean, Department of Business administration, Daffodil International University, whose direction, guidance and support helped me a lot in writing this report.
My deepest appreciation and special thanks goes to the Business Administration of Daffodil International University for providing me an opportunity to come closer to the real world and help me in enriching my knowledge.
I would specially like to thank the authority of BASIC Bank Limited for recruiting me as Internship student which brings me to come closer to the real world and help me in enriching my knowledge.
I would like to thank, all staff of Gulshan Branch of BASIC Bank Limited for adopting me with corporate culture and providing necessary information which is essential for preparing my Internship report.
Page 8 of 69
Executive Summary
The internship is designed to bridge the gulf between the theoretical knowledge and real life experienced as a part of Bachelor of Business Administration (BBA) program. It is designed to have a practical experience while passing through the theoretical understanding.
The report is a combination of three months internship program with BASIC Bank Limited. The report is about Foreign Exchange Operation of BASIC Bank Limited
This report contents seven chapters. In chapter 1 is introduction and background of the study that included rational of the study, objective, methodology and limitation of the study. In chapter 2 is organizational profile of BASIC Bank Limited that have background, organizational goal, organizational structure, organogram of BASIC Bank Limited. In chapter 3 is a foreign trade activity of BASIC Bank Limited that is most important thing in a bank sector contents export, import and remittance. In chapter 4 is evaluation of foreign exchange operation of BASIC bank limited. In chapter 5 is theoretical deliberation of foreign exchange risk management. In chapter 6 is other department of BASIC and last chapter is conclusion.
Page 9 of 69
Table of content
Chapter
Chapter 1
Content
1.1 Rational of the study 1.2 Objective of the study 1.3 Methodology of the Study 1.4 Limitation of the Study 2 2 3 4
Page
Introduction and Background if the study
2.1 Background 2.2 Organizational Goal Chapter 2 2.3 Organizational Structure
6-8 9 9 10 11-15 16 16
Organizational profile of BASIC
2.4 Customer Service 2.5 Bank Performance at a glance 2.6 Technology of BASIC 2.7 Risk management
Chapter 3
3.1. Information and location 3.2. At a Glance of BASIC Bank Limited Gulshan Branch
18 18
Gulshan Branch
4.1 Literature Review 4.2 BASIC Bank and Trade Finance Chapter: 4 4.3 IMPORT Bills 4.3 Export Bills
20 201 - 22 23 - 30 31 - 37 38 - 40
Foreign Trade
4.5 Collection
Page 10 of 69
Activities of BASIC
4.6. Banks facilities and Services to Exporter and 41 42 Importer 4.7. Remittance 42 - 44 3.8. Core Concept of Foreign Exchange 4.9. Factor Affecting Fluctuation In Exchange Rates 4.10. Ways of avoiding Exchange Risk 45 - 46 47 48
Chapter: 5
5.1 General Banking Department 5.2 Advance or Loan Department
50 51 - 53
Other Department
Chapter: 6
6.1.Findings: 6.2.Recommendation
6.3 Conclusion
55 56 57 58
Finding, Recommendation & Conclusion
6.4 Reference
Page 11 of 69
Chapter: 1
Introduction and Background of the Study
Page 12 of 69
Chapter: 1
Introduction and Background of the Study

1.5 Rational of the study
Now a days, foreign trade plays a vital role in banking. It is a system or process in which one national currency is converted into another and of transferring money from one country to another. It is mainly consist of export, import and other foreign Remittance. In a developing country, foreign direct investment (FDI), export, import, foreign remittance etc. plays very significant role. There is a great opportunity to invest the foreign remittance which also comes from wages earners working abroad, in several prospective investing fields like energy sector, telecommunication, information technology etc, in our economy. Therefore, Foreign Exchange has an important role to play in the financial sector of Bangladesh. Consequently, the study of Foreign Exchange the context of Bangladeshs developing economy is of great opportunity.
1.6 Objective of the study

1.6.1 General objective
The general objective is that; practically know about foreign exchange actives and it how to apply our real life.
1.6.2 Specific objective

To present an over view of The BASIC Bank Ltd. To analysis the Foreign Exchange Transaction procedures maintained by the BBL To know overall activities of the Foreign Exchange division To evaluate Foreign Exchange performance of The BASIC Bank Ltd. To identify problems in Foreign Exchange operations of The BASIC Bank Ltd. To recommend suggestions for the successful Foreign Exchange Operations of the BASIC Ltd.
Page 13 of 69
Chapter 1: Introduction and Background of the Study
1.3 Methodology of the Study

The following methodology has been followed to come to a successful conclusion of the report:-
1.3.1 Sources of Information and data:
The sources of information are: Primary data Officers. Conversion with clients. Questionnaire.
Secondary data Different Circulars issued by the head office of Bangladesh Bank. Banks Annual reports. (years.2009,2010,2011) Prior research report. Some printed materials like brushier, hand notes etc. Data Collection through personal interviews.
1.3.2 Period covered

Department General banking Credit Division Foreign Exchange Total Total Days 7 7 76 90
Table 1.1 shows the period covered during the internship

Page 14 of 69
Chapter 1: Introduction and Background of the Study
1.3.3 The process of application of the techniques and reason

A critical analysis of the data has been made through the bar diagram and line graph over the last five years. This has enabled me to visualize the trend of the variables of interest over time; indicators of bank perforation have also been computed through ratios of variables and spread-burden analysis. In addition ROE, Profitability etc. have been critically analyzed. Trade finance procedure of documentary credit of the BASIC Bank has been critically evaluated through the analysis of diagram, flow charts. This will provide the identification of the problems faced by BASIC and ways of removing the problems. Protection of foreign exchange risk occurring out of transaction exposure for BASIC by flowchart.
1.4 Limitation of the Study

Deposit all out co-ordination from the bank official, I faced some limitations. The main problem I faced in preparing the paper was that inadequacy and lack of availability of required data. This report is an overall view of Foreign Exchange of BASIC Bank Ltd. But the is some limitation for preparing this report. These barriers, which hinder may work, are as follows: Difficulty of accessing latest data of internal operation. Most limitation of this report is Banks policy is not to disclose some data and information for obvious reason, which could be very much useful. Lack of Experience on preparing these type of report Sometimes data could not be verified. The scope limited by the availability of data. I was placed to this department for only 3 months of time and working like a regular employee hindered the opportunity to put the better effort for the study.
With All this limitation I try my best to make this report as best as possible. So readers are requested to consider these limitations while reading and justifying any part of my study .
Page 15 of 69
Chapter: 2
Organizational Profile of BASIC
Page 16 of 69
Chapter: 2 Organizational Profile of BASIC
2.1 Background
Bangladesh Small industries and Commerce (BASIC) Bank Limited was established as a banking company under the companies act 1913 and was incorporated under this act on the 2nd august 1988. The Bank launched its operation from the 21 st January 1989. It is governed by the Banking Companies act 1991. The Bank started as a joint venture enterprise of the BCC foundation with 70 percent share and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC foundation being nonfunctional following the closure of the BCCI, the Govt. of Bangladesh took over 100 percent ownership of the Bank on 4thJune 1992. However, the Bank is not nationalized; it operates like a private Bank as before.
BASIC is unique in its objective. It is a blend of development and commercial Banking functions. The memorandum and Articles of Association of the Bank stipulate that 50 percent of loan able funds required to be invested in small and cottage industries sector. As others commercial Banks, BASIC provides their clients full-fledged commercial Banking services including collection of deposits. Short term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade.
CAPITAL POSITION (up to 2011)

Authorized capital Tk. 2000.00 million. Paid-up capital Tk. 1964.65 million. Total Reserve up to31.12.2011 Tk. 2509.78 million The Bank is required to transfer 50 percent of its net profit before tax to capital Fund as per the Banking Companies
Page 17 of 69
Chapter 2: Organizational Profile of BASIC
2.1.1 Capital structure and ratios
At the end of the year 2011 Bank's capitalization stood at 8.68 percent for tier 1 and 10.13 percent for total capital against the total risk weighted assets exceeding the required minimum levels of 5 percent and 10 percent 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. Details of the capital structure were as follows:
Particulars
Core Capital (Tier 1)
2011
2010
(Amount in million take)
Paid up capital Statutory reserve Other reserve and surplus Total of Tier 1 Capital Supplementary Capital (Tire 2) 1%general provision on unclassified loans and off balance sheet exposures Revaluation reserve of HTM and HFT securities Total of Tier 2 capital Total Capital (Tier 1 +Tier 2) Ratios to risk weighted Capital Ratios to risk weighted Tier 1Capital Tier 2Capital Total Capital
235759 2224.69 653.17 5235.45 752.35 123.16 875.51 6110.96 60304.50 8.68% 1.45% 10.13%
1964.66 1824.69 469.99 4259.34 706.18 107.55 813.73 5073.07 53907.00 7.90% 1.51 % 9.41%
Page 18 of 69
2.1.2. At a Glance of BASIC Bank Limited
Name BASIC BANK LIMITED Date of incorporation August 2, 1988 Date of inauguration of operation January 21, 1989 Registered office Bana Shilpa Bhaban 73, Motijeel Commercial Area Dhaka-1000, Bangladesh. Head Office Sena Kalyan Bhaban(6th floor) 195, , Motijeel Commercial Area Dhaka-1000, Bangladesh. Logo Name of the chairman of the Board Mr. Sheikh Abdul Hye Bacchu Name of Managing Director Mr. AKM. Sajedur Rahman Number of Branches (In year 2012) 65 Services provided Deposit scheme, Credit facility and Foreign exchange services Paid up capital Taka 1964.65 million (2011) Profit after tax and provision Taka 660.93 million (2011) Ownership Government of Bangladesh Banking software used CASTLETM Technology used Member of SWIFT Earnings per share 33.64 (2011) E-Mail basicho@citechco.net Website www.basicbanklimited.com SWIFT BKSIBDDHA015 Number of Authorized Dealer 15
Table:1 At a Glance of BASIC Bank Limited
Page 19 of 69
2.2 Organizational Goal

To employ funds for profitable purpose in various fields with special emphasis on small scale Industries. To undertake project promotion to identify profitable areas of investment.
To search for newer avenues for investment and develop new product to suit such needs. To establish linkage with other institutions which are engaged in financing micro enterprises?
To co- operate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.
2.3 Organizational Structure

To achieve its organizational goal, the bank conducts its operation in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The day to day operation off the bank is looked after by the management.
2.3.1 Board of Director

The Government holds 200 percent ownership of the bank. All the Directors of the board are appointed by the Government of Bangladesh. The Secretary of the Ministry of Industries is the chairman of the bank other directors of the bank are high Government executive. The managing Directo5r are at the present 6 directors including the Managing Director on the board. The present Board of Directors of the bank consists of the following members:
2.3.2 Management
The management is headed by the Managing Director. He is assisted by the General Manage and Departmental heads in the head office. BASIC is different in respect of hierarchical structure from other Bank in that it is much more vertically integrated as far as reporting to the chief executive is concerned. The Branches incharge of the Bank report directly to the Managing Director and, for functional purpose, to the head of the departments. Consequently, quick decision making in disposal of cases is ensured.
Page 20 of 69
Organ gram of BASIC Bank Limited

BOARD OF DIRECTORS
MANAGING DIRECTORS
GM OPERATION
GM DEVELOPMENT
OFFICER IN CHARGE ACCOUNT
OFFICER IN CHARGE CREDIT
AGM INTERNA TIONAL
DGM INDUSTRIAL CREDIT
AGM ESTABLI SHMENT
AGM COMPUTER
DGM
ADMINIS TRATION
2.4 Customer Service

In this department, the customer service officer is the bank representative and is often the first person contract with clients. The main job of the customer service officer is to attend any concerns expressed by the clients. They are responsible for handling any quarries by the clients and also serve as initial interviewers and inform future clients of what kinds of accounts BASIC offers. They explain what accounts is available for what clients and what prerequisites are necessary for these accounts. BASIC has saving accounts, current accounts, fixed deposits, Short- term notice account, Bearer certificate of deposit accounts etc. The customer service department works closely with the Remittance and Bills department.
Page 21 of 69
2.5 Bank Performance at a glance

This section deals with performance analysis of BASIC highlighting the certain aspect of BASIC through chart and the situation of spread, Burden and productivity indicator over the last five years.
Progress at a glance From the Balance sheet(Million in TK) Authorized Capital Paid-up Capital Reserve & Surplus Shareholder's Equity Fixed Assets Total Assets Deposits Long-term Debt Loan & Advances Placement & Investment From the Income Statement (Million Taka) Gross Income Gross Expenditure Profit before Tax Profit after Tax Tax Paid (Cumulative) Others (Million Taka) Import Business Export Business Financial Ratios (Percentage) Capital Adequacy Ratio Capital Fund to Deposit Liabilities Liquid Assets to Deposit Liabilities Loan to Deposit Liabilities Earning Assets to Deposit Liabilities After Tax Return on Average Assets Net Profit to Gross Income Interest Magin Cover After Tax Return on Equity SMI/SSI Loan and Micro Credit to Total Loan Number of Branches Number of Employees 2007 2000 1247.4 1349.17 2596.58 196.11 38773.91 31947.98 1385.81 22263.35 13560.92 2008 2000 1309.77 1672.82 2982.59 228.36 4660.03 38368.23 1708.4 27269.13 15659.03 2009 2000 1455.3 2468.65 3923.95 232.65 54308.31 34501.69 2875.16 29261.53 12244.91 2010 2000 964.65 2509.78 4474.43 283.12 61569.38 49259.6 2718.46 46341.51 9294.02 2011 5000 2357.59 3124.17 5481.76 364.46 78031.73 62650.73 2788.15 56884.76 13760.82
3,549.51 2458.41 1091.1 282.96 2790.98
5,060.29 3626.35 1533.94 549.86 3538.01
5,162.30 3,593.96 1568.34 648.85 4,225.37
6120.53 4,403.49 1717.05 660.93 4,948.64
8,825.20 6,476.70 2348.5 976.11 5,987.61
21,266.57 27,359.77 33,976.60 16,794.96 22,270.87 19,887.70
42,206 47,087.80 23,999 33,061.10
12.91 9.23 49.1 69.69 109.7 0.83 7.97 176.8 11.7 56.73 31 721
12.04 7.81 47.7 71.07 114.69 1.3 10.87 137.08 19.68 59.32 31 735
13.48 11.37 24.67 84.81 116.44 1.41 12.57 135.79 18.79 56.93 32 776
9.41 9.08 12.06 94.08 81.55 1.24 10.8 95.15 14.95 56.78 34 964
10.13 10.36 58.01 69.74 114.56 1.23 12.81 214.56 17.75 67 45 601
Page 22 of 69
Chart 2.1: Total Asset

Amount in Million TK
80000 70000 60000 50000 40000 30000 20000 10000 0 2007 2008 2009 2010 2011 Total Asset
Chart 2.1 shows the Total Asset in million taka of BASIC Bank. The Total Asset has increased during the period 2010 to 2011.
Chart 2.2: Placement & Investment

16000 14000 12000 10000 8000 6000 4000 2000 0 2007 2008 2009 2010 2011 Placement & Investment
Chart 2.2 shows the Placement& Investment in million taka of BASIC Bank. The Placement& Investment has increased during the period 2010 to 2011. Page 23 of 69
Chart 2.3: Operating Income

1000 800 600 400 200 0 2007 2008 2009 20010 2011 Operating Income
Chart 2.3 shows the Operating Income in million taka of BASIC Bank. The Operating Income has increased during the period 2010 to 2011.
Chart 2.4: Operating Expenses

400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 20011 Operating Expenses
Chart 2.4 shows the Operating Income in million taka of BASIC Bank. The Operating Income has increased during the period 2010 to 2011. Page 24 of 69
Chart 2.5: Net Income

1000 800 600 400 200 0 2007 2008 2009 2010 2011 Net Income
Chart 2.5 shows the Net Income in million taka of BASIC Bank. The Net Income has increased during the period 2010 to 2011.
Chart 2.6: No of Employee

Number of People
1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 No of Employee
Chart 2.6 shows the No. of Employ of BASIC Bank. The No. of Employ has increased during the period 2010 to 2011. Page 25 of 69
Chart 2.7: Total Deposits
70000 60000 50000 40000 30000 20000 10000 0 2007 2008 2009 2010 2011 Total Deposits
Chart 2.7 shows the Total Deposit in million taka of BASIC Bank. The Operating Income has increased during the period 2010 to 2011.
2.5.1 Return on Equity of BASIC

The return on Equity (ROE) of BASIC has decreased in 2011 compared to the year 2010. Interest margin cover has been increased due to increase of interest income of BASIC is in 2011. Net profit to Gross income is decreased during the year 2011. The after tax return on average asset has been also been decreased in 2011 compared to 2010.
Page 26 of 69
2.6 Technology of BASIC

The Board attaches grant importance on acquisition and use of appropriate information technology in the bank. Since inception the bank has continued its effort to meet the complex and dynamic needs of customers. BASIC bank has its own software developed in 1991. Local area network (LAN) has been installed in Head office and 15 branches of the bank. Wide area network (WAN) has been set up between Head office and branches using X.28 leased line of BTTB. The bank has undertaken a project for5 introduction of Any Branch Banking ATM automated Teller Machine and Debit Card at its 16 branches in Dhaka and Chittagong. The project will be implemented in 2002. Once completed, the valued customers will be able to withdraw or deposit cash from any branch in Dhaka and Chittagong during office hours, withdraw cash, transfer funds and pay utility bill at any time from any ATM and pay their shopping bills using a debit card. These system is called centralized.
2.7 Risk management

In banking business, no reward can be expected without risk. In this backdrop, the management has established a formal program for managing the business risk faced by the bank. Considering the present non- performing loan position of the country, BASIC bank is very much cautious about its investment. Every loan proposal is placed under careful scrutiny before approval. Proposal of large amount of loans need approval of the board of Directors. Credit lines are established for each borrower or borrower group. Internet audit team and recovery team exercise close monitoring on every loan transaction. Management regularly reviews the banks overall assets and liabilities structure and makes necessary changes in the mix asset/liabilities of balance sheet. The Bank also has a liquidity policy to ensure financing flexibility to cope with unexpected future cash demand. The Bank takes necessary action to avoid foreign exchange risk which is called as exposure.
Page 27 of 69
Chapter: 3 BASIC Bank Limited Gulshan Branch
Page 28 of 69
Chapter: 3
BASIC Bank Gulshan Branch

3.1. Information and location
Ridge park, crystal place (1st floor) H#22 R#140, Gulshan south avenue, Gulshan, Dhaka1212 DGM/ Branch in charge : ShiperAhamed AGM : Imrul Islam SWIFT Code : BKSIBDDH021 Zip Code: 1212 Institution Code: 1212 No of Employ : 54 Corporate customer : BTRC Phone : 9883501-2 Fax : 880 -2-9857307 Rent: 28,00,000 (28 lac tk) Advance: 6,00,00,000tk (6 core tk)
Adders:
3.2. At a Glance of BASIC Bank Limited Gulshan Branch
Particular Deposit Advance Expenditure Net profit Total Income Import Export
Year2010 71494,00,000 72,00,00,000 57,00,00,000 38,90,00,000 96,00,00,000 250,00,00,000 470,00,00,000
Year2011 624,00,00,000 180,00,00,000 180,00,00,000 53,93,00,000 229,00,00,000 352,00,00,000 538,00,00,000
Page 29 of 69
Chapter: 4 Foreign Trade Activities of BASIC
Page 30 of 69
Chapter 4: Foreign Trade Activities of BASIC
Chapter: 3
Foreign Trade Activities of BASIC
4.1 Literature Review

Banks play a very important role in effecting Foreign Exchange Transaction of a country. Mainly transaction with overseas countries is respect of imports; exports and Foreign Remittance come under the preview of foreign exchange transactions. Banks are the vital sector by which such transactions are effected/settled. Central Bank records all sorts of foreign exchange transaction and therefore, transaction effected by the Banks and other authorized quarters are to be reported regularly (Daily, Fortnightly, Monthly, Quarterly, Yearly etc) to Bangladesh Bank by the foreign exchange department of every Banks. Foreign Exchange Department plays a vital role to earn the Banks maximum profit. This department is classified according to their activities. The foreign exchange department consists of three sections, these are as follows:
Import Section Export Section Foreign Remittance Section

Foreign Exchange Department, Banks facilitates their clients in enhancing International Trade. The provision of finance to importers (Trust Receipt Facility, Documentary Credit Facility) and exporters (Negotiation of export Bills, Purchase of Bill for collection) encourages enterprises to engage in trade and enhance their liquidity position. Bank makes the payment International Trade through letter of credit to the exporter on behalf importers. Banks is a media of fund transfer from one party to another. In International Trade, as both importers and exporters in different countries and do not deal with same currency, they have to confront the risk of currency fluctuation. This exchange risk can be transferred from the trader to the bank i. e. ready to provide the former with forward foreign exchange or currency option so that the importer and the seller can devote their time to their business.
Page 31 of 69
4.2 BASIC Bank and Trade Finance

BASIC Bank plays an important role in international trade. The trade finance department of BASIC is efficient of their activities and provides the best services to their clients. The major clients of BASIC are corporate clients. Performing their activities since 1989, BASIC has a very good relationship with the big corporate clients of Bangladesh. Trade finance department consist of Bills (Import) and Bills (Export).
4.2.1 BASIC Bank Statement policy

All BASIC employees are responsible for ensuring compliance with the Bank policies and procedures Operational Manual (OM), Know Your Client (KYC), and other policies. It is imperative that the trade finance staff is fully conversant with all aspects of the above stated documents relating to Letter of Credit (L/C), Documentary and clean Collection, Bank Guarantee, and Bank to Bank Reimbursement and export Bills.
a. International chamber of commerce (ICC) Uniform Rules, customs and practice:

Transactions relating to L/C, Documentary and clean collection, Bank to Bank reimbursement are processed subject to and in conformity with the current versions of International Chamber of Commerce Publication
b. Credit policies:
Bank has their own credit policies and procedures for all Trade finance activities. These are Credit Principle, Global credit portfolio limit, Credit categories, Types of credit activities, Credit approval, Credit administration, Credit monitoring and review.
c. Know Your Client (KYC):

Relationship Managers (RM) are responsible for ensuring that client profile are kept current and that copy is distributed in accordance with the Banks Know your client policy.
Page 32 of 69
4.2.2 Function of Trade Finance Department

Trade finance consists of the following areas of activity: Import Bills Export Bills Bills Processing Unit Basic function: 1. 2. 3. 4. All transactions related to Import Transaction All transactions related to Export Transaction Handling of L/C reimbursements Checking and collection of export bills for correspondent Banks.
4.2.3 Parties Involve in Trade Finance

1. The applicant: The applicant is the party that induces the Banks to issues the letter of credit. The applicant is normally obligated to reimburse the Bank for any payment made under letter of credit. 2. The issuing Bank: The issuing Bank is the Bank that issues the letter of credit. The issuing Bank undertakes an absolute obligation to pay upon presentation of documents drawn in strict conformity with the terms and condition of the letter of credit. 3. The Advising Bank: An advising Bank simply advises a letter of credit without any obligation on its part. However, the advising Bank shall take reasonable care to check the apparent authenticity of the credit that it advises. The advising Bank is typically a Bank in the Beneficiaries. 4. The Beneficiary: The beneficiary is the party entitled to drawn payment under the letter of credit. The beneficiary will have to present the required documents to avail payment under the letter of credit. 5. The Confirming Bank: The confirming Bank confirms that the issuer has issued a letter of credit. The confirming Bank becomes directly obligated on the credit to the extent of its confirmation and by confirming the Bank receives the rights and obligation of an issuer 6. The Nominating Bank: The Bank where drafts drawn under the credit are payable. In case of a usance credit where drafts are to be accepted by this Bank. 7. The Negotiating Bank:The Bank that negotiates document under letter of credit upon presentation. Typically advising Bank as nominated as negotiating Bank Page 33 of 69
4.3 IMPORT Bills

Import Bills deals with L/Cs and the issuance of L/Cs for import purposes. The letter of credit serves as a vehicle for the importer and exporter to ensure that their goods and money are coming. It is important to remember that the Bank deals with documents and not goods. There are various steps towards the issuance of L/Cs; these steps will also BASIC, as will as various Banks serving as negotiating, confirming, etc. Banks. L/Cs are used for the purchase and sale of goods. L/C are used mainly in trade. They usually include the mode of shipment of a specified goods, and what the port of destination is the expiry of the shipment, the document all need to be submitted to the issuing Bank, Certificate of Origin, of where the goods is produced, inspection certificates, as to quantity and quality, are countries may have their own set of demands they want to ask.
There are two criteria for importing goods: 1. Commercial ( Normally BASIC takes 50% margin of total values of goods ) 2. Industrial ( Normally BASIC takes 10% margin of total values of goods) There are also two types of L/C: 1. Sight L/C: Sight L/C has also to be immediately through advanced payment can be allowed. 2. Usance L/C: Usance L/C has also to be paid at a fixed maturity date. For example, payment upon the receipt of goods. Beneficiaries that want to apply for a L/C need to have proper credit facilities. After calculating the outstanding, and there is a still room, then L/C is issued. Calculation of margin and charges are also done. Upon the receipt of goods, proper documentation is certified, and then payment is done. The reimbursement of funds can be made in through negotiating. They can be negotiated to the Bank of choice of the relevant currency.
4.3.1 Import Procedure and Practice

1. 2. 3. 4. 5. 6. 7. 8. Regulation Import policy Licensing for Imports Making the purchase contract Opening the Letter of Credit Amendments to Letter of Credit Securing and Lodgment of Documents Verification and Lodgment of Documents by the L/C opening Bank
Page 34 of 69
. Chapter 4: Foreign Trade Activities of BASIC
Chart 4.1: Import business of other Banks (2010 and 2011)
45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2010 2011
BASIC Bank Prime Bank Dhaka Bank
Chart 3.1 shows the import amount in other Banks (2010 and 2011). As compared to other Banks BASIC import amount has fallen in 2011.
Chart 4.2: Import business of BASIC Bank Amount in Million TK
16000 14000 12000 10000 8000 6000 4000 2000 0 2006 2007 2008 2009 2010 2011 Import (Million Tk.)
Chart 4.2 shows the import in million taka of BASIC Bank. The import has increased during the period 2010 to 2011.
Page 35 of 69
Chart 4.3: Amount of Guarantee

1400 1200 1000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 Garments (Million ok TK)
Amount of Garments increased as increase the number of Garments which is shown as chart 4.3. It is increased by 30 percent in 2011 as compare in the year 2010.
4.3.2 Documentary Credit or L/C

Documentary credit is written undertaking given by a Bank ( Issuing Bank, Opening Bank ) to a seller ( Beneficiary, Exporter ) at the request and on the instruction of the Buyer ( Applicant, Importer ) to pay either at sight or at a determinable future date, a stated sum of money against stipulated documents and fulfillment of all the terms and condition in the D/C. It is most suitable on the flowing circumstances: When the importer is not well known, the exporter selling on credit terms may have importers promise of payments backs by a buyer Banker. On the other hand, the importer may not wish to pay the exporter until it is reasonably certain that the merchandise has been shipped in the good condition. A D/C in this case, can satisfy both the exporter and the importer.
Page 36 of 69
4.3.2.1 Various steps in the operation of Documentary Credit

The importer and exporter have made a contract before a L/C is issued. Importer applies for a letter of credit from his issuing Bank. Issuing Bank opensa L/C, which is channeled through its overseas correspondent Bank, known as advising Bank.g Advising Bank informs the exporter of the arrival of the L/C. Exporter ships the goods to the importer or other designated place as stipulated in the L/C.
COTRACT
IMPORTER BUYER APPLICANT
SHIP GOODS
EXPORTER SELLER BENIFICIARY
APPLY L/C
TAKE DELEVERY GOODS

RELEASE DOCUMENTS AGAINST CASH
NEGOTIATI ON OF EXPORT BILLS
PREPARE AND PASS DOCUMENT
ADVISE L/C
MAKE PAYMENT
ISSUING BANK
SEND DOCUMENT
ADVISING, CONFIRMING,NE GOTIATING BANK
L/C
Diagram 4.4: Steps in D/C
Documents are sent to issuing Bank for reimbursement or payment. Issuing Bank release documents to importers when the letter makes payment to the former or against the letter trust receipt facility. Importer takes delivery of goods upon presenting on the transport documents. Page 37 of 69
4.3.2.2 Different types of documentary credit or L/C :

1.Red clause credit A red clause credit is a special type of credit with a clause inserted which authorizes the advising or confirming Bank to make advances to the Beneficiary before presentation of the documents. In other wards, it is a pre- shipment finance in the form of a loan the advising / confirming Bank provides to the beneficiary, with payment of principle and interest Guaranteed by the issuing Bank of the client. Possible risk in issuing a Red Clause credit: Exporter may use the advance for other purpose. Documents presented from the exporter may have discrepancies unacceptable to the importer.
2.Revolving Credit A revolving credit is a credit, which provide for the amount of the credit to be renewed automatically after use without the need to renew the credit every time. A Revolving credit With respect to time can be cumulative or non cumulative. It can be renewed with respect to either: Time Amount (i,e total value of the credit) 3.Transferable Letter of Credit A Transferable letter of credit, which can be transferred in whole or in part by the original beneficiary to one or more Second Beneficiaries. It is normally used when the first beneficiary does not supply the goods himself, but acts as a middleman between the supplier and ultimate buyer. 4.Standby Credit A standby credit is a guarantee type of documentary credit. It might in many form such as pure loan forms, bid bond and performance guarantee form etc 5.Back To Back Credit When beneficiary receives a documentary credit which is not transferable, and he can not furnish the goods himself, he may arrange with the Banker to issue a second credit (which is known as Back to Back L/C) to a supplier to supply the goods. The Bank issuing Back to Back Credit will obtain repayment through the master credit which is deposited to the issuing Bank of the Back to Back Credit Page 38 of 69
FOREIGN COUNTRY
ULTIMA TE BUYER APPLICA NT L/C
BANGLADESH
MASTER L/C ISSUING BANK
ADVISING BANK
MIDDLEMAN BENIFICIARY OF MASTER L/C APPLICANT OF B/B L/C
B/B L/C ISSUING BANK
ADVISING BANK/NEG OTIATING BANK
SUPPLIER BENIFICIARY OF B.B L/C
Diagram 4.5: Shows the Back to Back Credit Procedure
6. Standby Credit A standby credit is a guarantee type of documentary credit. It might in many form such as pure loan forms, bid bond and performance guarantee form etc. 7.Confirmed Credit If a letter of credit is confirmed by a Bank (The advising Bank), this mean that, in addition to the definite undertaking to the issuing to honor beneficiarys draft, the advising Bank also makes its a promise to pay the beneficiary.
Page 39 of 69
4.3.2.3. Stage to a documentary Credit

(A) (B) (C) (D) (E) (F) (G) Issuance of L/C Execution of Amendment Advising Letter Of Credit Confirming Letter OF Credit Advising Amendment Negotiation The process include following: At negotiating Bank At issuing Bank
BASIC Bank
Banks in beneficiary locate

REIMBURSEMENT BANK
ISSUING BANK ADVING BANK

CONFIRMING BANK
CORRESPONENT BANK
NEGOTIATING BANK
BENIFICIARY
Diagram 4.6: BASIC involvement in D/C
Page 40 of 69
4.3.2.4 Advantages and Disadvantages of Documentary Credit
DOCUMENTARY CREDIT Advantages IMPORTER * An importer can be assured the exporter has complied with certain steams and conditions as specified in the D/C before payment. * He can insist of shipment of goods with in a certain time by stipulating a latest shipment date. * He can have export advice from his Banker as to the D/C terms. * He can ask for financial assistance from his Banker such as T/R. * Protection offered by DCP500. Disadvantages * Since Banks deals in document only : Goods may not be the same as these specified in the credit. * Issuing Bank are obligated to pay even through the conditions of goods may be poor. * D/C commission are relatively costly. * Line of credit or application is necessary before an importer can open an D/C, this may cause extra inconvenience and is time consuming.
EXPORTER
* The risk of non payment is lower provided he complies with D/C terms and condition. * It is a safe method through which to obtain prompt payment after shipment. * The exporter can have export advice from his Banker. * The exporter also can seek financial assistance from his Banker before the buyer makes payment, such as negotiation of export Bills advance etc.
* It is comparatively costly. * Sometimes, the terms and condition can not be fulfilled such as unreasonable shipment date and expiry date, adding on D/C the clause of Restriction of a designated vessel to be informed by D/C amendment . * The goods are shipped before receiving payment; So it is not 100% safe.
Page 41 of 69
4.3 EXPORT Bills

They deal with incoming L/Cs from various Banks. BASIC usually serves as an advising Bank; but sometimes at request it also serves as confirming and negotiating Bank. Amount in Million TK
30000 25000 20000 BASIC Bank 15000 10000 5000 0 2010 2011 Prime Bank Dhaka Bank
Chart 4.7: Export amount in other Banks Chart 3.7 shows the export amount in other Banks (2010 and 2011).
This department has to verify L/Cs. As a confirming Bank, BASIC takes responsibility over the issuing Bank. If the issuing Bank does not pay the beneficiary then BASIC has to as an advising Bank its job is to verify the L/C, and if it passes their checklist ; Advise it. If all documents are in accordance with the L/C then payment can be authorized.
12000 10000 8000 6000 4000 2000 0 2007 2008 2009 2010 2011 Export
Chart 3.8: Export Chart 4.8 shows the increasing export in million taka over time supported by BASIC Bank Page 42 of 69
4.3.1. Export financing Pre shipment credit Post shipment credit

Financing of exports constitutes an important part of Bank activities. The exporter needs finance at various stages; some at the Pre shipment stage and the other of the post shipment stage.
4.3.1.1. Pre shipment credit Pre shipment credit, as the name suggest, is given to finance the Activities of an exporter prior to the actual shipment of good. Pre shipment credit is essentially as short term credit and liquidated by negotiation or purchase of export bills covering the merchandise. Generally, the Bank grants pre shipment credit against irrevocable, confirmed, unrestricted letter of credit received by an exporter from an overseas buyer.
Pre shipment credit given under the following arrangement:

1. Cash credit against hypothecation: Under these arrangements a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. 2. Cash credit against pledge: Not infrequently, a cash credit limit is sanctioned against pledge of exportable goods or raw materials. 3. Cash credit against Trust Receipt: Under this arrangement credit limit is sanctioned against trust receipt. 4. Packing credit: This facility is generally extended when the goods become ready for the shipment for a very short period. Packing credit is given to the exporter against the security of railway receipt, steamers receipts etc.
Page 43 of 69
5. Back to Back Letter of Credit: Under this arrangement the Bank finances an export by opening a letter of credit on behalf of the exporter who has received a letter of credit from the overseas buyer but is not the actual manufacturers of producer of the exportable goods. 6. Advance under Red clause Letter of Credit: Under the red clause Letter of Credit, the Bank provides advance to the exporter prior to shipment under the authority of the opening Bank.
Procedure for sanction of pre shipment finance:

The following are some of the points that must be borne in mind for this purpose:
1. Export Letter of Credit should from a reputable Bank abroad whose status has to be ascertained. The letter of credit should be irrevocable, unrestricted, and valid and preferably confirmed. 2. Expiry date of letter of credit should be properly recorded in the book. 3. The credit worthiness of the exporter and his exporter performance are to be invariably ascertained. 4. The period for which the credit is sanctioned should be clearly mentioned. 5. Incase of pledge Bankers effective control should be mentioned. 6. Charges documents and other necessary documents as stipulated in the sanction letter should be properly obtained. 7. Guarantee / Policies should be obtained under the export credit scheme administered by Insurance Company.
Page 44 of 69
4.3.1.2. Post Shipment Credit Post shipment credit is given to the exporter by Banks after the actual shipment of goods. The necessity for post shipment credit arises because the exporters who have shipped the goods have to wait for a long receiving payment for the overseas buyers; the period of waiting depends on the terms of payment. The exporter needs funds to carry on his normal export activities. BASIC also finances the export at post shipment stage on verification of the credit worthiness and soundness of both the buyers and the seller by preparing application for limit (AFL).
1. Negotiating documents under letter of credit The document generally include (a) Bill of exchange or Draft (b) Bill of lading (c) Insurance Policy (d) Indent / Proforma Invoice (e) Invoice (f) Certificate of origin (g) Inspection certificate (h) Packing list (i) Weight list and (j) Any other documents specially called for in the letter of credit.
2. Purchase of DP and DA bills The provision of finance by way of negotiation of documents against payment (DP) and documents against acceptance (DA) bills is generally made in favor of the exporter who have been given bill purchase limit. The Bank should obtain instruction from the drawer of the bill covering the following aspects: Documents against payment or acceptance Instruction to protest 3. Advance Against Bills for collection: The Bank generally accepts bills for collection of proceeds when they are not drawn under a letter of credit or when the documents, even through drawn against in L/Cs contains some discrepancies
Page 45 of 69
4.3.2. Operating procedure

1. Telex / Swift Messages: The procedures are as follows according to the system: The following Telex and SWIFT Messages to be received from the Register: 1. Export L/Cs 2. Amendments 3. Other messages: Note: a. For unauthenticated messages telex is to be sent to our correspondent for authentication. b. Some messages are to be sent to local Bank for test authentication. c. Bills and L/C related messages to be filled in the respective fill. 2.Advising: The procedures are as follows according to the system: Take reference for Telex, SWIFT and mail L/Cs and amendments from the L/C register. Fill up L/C checklist. Insert L/Cs and amendments in the system. Making photocopy of all messages. Mail outside Dhakas L/C and amendments by courier and pack mail.
3. Document Mailing The procedures are as follows according to the system: Type bill schedule. Endorse bill of exchange and shipping documents. Endorse in L/Cs. Photocopy of the documents. Shorts Bills. Mail clients information
Page 46 of 69
4.4.3 Methods of payment in export sales

The following methods of payment are ranked in the order of measuring risk to the exporter. In other wards, they are increasingly unfavorable to the exporter but favored by the importer.
A. Cash in advance B. Documentary credit or L/C (note: this already explained above the bills import) C. Documentary collection (note: this defined to next section) D. Open document
A. Cash in advance
Cash in advance gives exporter the greatest protection because exporter either before shipment or upon arrival of the goods receives of payment. Sometimes exchange controls of the importers country may cause payment delays or even prevent method it most suitable.
IMPORTER BUYER DRAWEE
1. Pays exporter before exporter makes Delivery of goods
EXPORTER SELLER DRAWER
2. Delivery of goods upon receipt of Payment
Diagram 3.9: Cash in Advance
B. Open account
The credit items are arranged between the buyer and the seller, but the seller has little evidence of the importers obligation to pay a certain amount at the certain date. This payment method is, therefore, risky for the seller.
Page 47 of 69
Chapter 4: Foreign Trade Activities of BAS Diagram 3.10 shows open account procedure
1. Exporters ships the goods before being paid
2. Importer makes payment upon
EXPORTER SELLER DRAWER
Receipt of goods
Diagram 4.10: Open Account
Although the payment method bears a higher risk for seller, open accounts sales have greatly expanded due to the major increase in international trade, and the sellers eager to major export volume. A comparative statement of the methods of payment is given below with the classification of risk category and merits and demerits of each method:
Method Cash in advance
Risk L
Chief advantages No credit extension required.
Sight draft
M/L
Letter of credit Irrevocable Revocable Time draft
M M/H
Chief disadvantages is Can limit sales potential disturb some potential customer. Retains control and title; If customer does not or Ensured payment before cannot accept goods, goods goods are delivered. remains at port of entry and no payment is due. Bank accepts the If revocable, terms can responsibility to pay; payment change during contract upon presentation of papers. week. Lowers customer resistance by allowing extended payment. Facilities delivery; Lowers customer resistance. Same as sight draft, plus goods are delivered before payment is due or received. Capital tied up until sales; must establish distributions credit worthiness; need political countries; increased risk from currency controls.
M/H Consignment sales M/H
Open account
Simplified procedure; customer resistance.
No High risk; Seller must finance production; increased risk from currency controls.
* L: Low risk ; M: Medium risk ; H: High risk Page 48 of 69
4.5 Collection
Collection are a method of settling the monitory side of international Trade transactions in both goods and services. Where goods are Involved, the documents allowing the buyer to take delivery of these Goods will be routed through Banks in the exporters and importers Countries. Chart 4.11 Bills for Collection Amount in Million TK
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2007 2008 2009 2010 2011
Bill for Collection
Chart 4.11 shows that the total amount of bill for collection over the year. It is increased very sharply growth rate during the 2001 to 2005.
There are two types of collection.
1. Documentary Collection 2. Clean Collection

The first type is documentary collection, which means collection of: Financial documents and commercial documents. Commercial documents only. The another type is clean collection. It consists of one or more bills of exchange or promissory notes, for obtaining cash. Clean collection requires no other commercial documents to be attached.
Page 49 of 69
Please refer to the diagram on 4.12 for an explanation of various steps in the operation of the collection: -
Diagram 4.12 shows the collection procedure

1. Goods shipped to buyer

4.Present document for payment
EXPORTER SELLER PRINCIPLE
5. Makes payment or accepts draft
7. Pays export
2. Forward Documents 6. Sent payment

PRESENTING BANK
REMITTING BANK 3. Forward Documents Forward Documents

COLLECTING BANK
Diagram 4.12: Collection
4.5.1 Documentary collection

These collection entails the use of commercial documentation, they are concerned with goods and, although not obliged, Bank frequently take steps to protect the goods in their customers interests. The payment instruction in a documentary collection is usually a bill of exchange, which is drawn by exporter (Seller) on the importer (buyer) The bill of exchange that can be drawn is the following two types: 1. Sight bill: A bill of exchange drawn by the drawer (exporter) at sight for immediate payment. 2. Term bill: (usance bill) A bill of exchange drawn by the drawer (exporter) and provides times for the drawer to pay at a fixed or determinable future date, such as 30 days sight. Page 50 of 69
4.5.2 Clean Collection

Collection, which do not include goods but consist of documentation only, usually a bill of exchange, or occasionally a check, is known as clean collections. They are frequently used for the settlement of trade on open account and for service rendered, rather than goods supplied. They are very simple for Banks to process since goods are not directly involved. The term Collection applies to the procedure under which payment to the client for a check, draft or similar instrument is made only after the proceeds have been received from the Drawer. Thus Collection requires special handling.
4.5.3 Advantages and Disadvantages of Clean Collection COLLECTION Advantages

can take possession of the goods before payment. * For D/A collection, the buyer can inspect and sell the goods before payment. Terms bill provide the buyer with a period of credit from the exporter. Hence its liquidity can improved.
Disadvantages
of exchange (Notwithstanding the poor condition of the goods). Legal action can be taken against him. * If he refuse to accept or pay a bill, pretest by the exporter against non acceptance or the exporter can take non payment, this can damage the reputation of the importer. * Loss of control over goods under D/A. * No guarantee that buyer will pay because Presenting Banks are to collect the Payment only. * In case of delays or difficulties, an exporter has to bear all the cost arising such as demurrage charges in the importers country. * He has to bear buyers credit risk and country risk.
IMPORTER * For clean collection, buyers * If he default on an accepted Bill
EXPORTE R
* It is cheaper than D/A. * A presenting Bank may have influence over the foreign buyer and thus he more able to collect the payment than an open account basis. * Exporters may obtain immediate payment by negotiation of the bill or applying for Bank advance. * Exporter can retain control over the goods D/P.
Page 51 of 69
4.6. Banks facilities and Services to Exporter and Importer

4.6.1. Export facilities and Services
Overdraft (O/D): Overdraft are granted to a customer in order to finance his daily business requirements and assist his cash flow position. Bills (Advance): The Bank may agree to offer thus type of finance if thinking that the Exporter is reliable Negotiation of export bills: After the beneficiary has effected shipment, he may present documents to his Banker for negotiation. Sight bills might be negotiated by the exporters Bank. Performance Bond: This is a written instrument, issued by a Bank or a surety company, stating that the exporter will comply with the terms of the contract with the buyer, otherwise the buyer will receive compensation for any losses suffered as a result of the exporters failure to perfo rm under the contract. Guarantee/Indemnity: Guarantee and Indemnity are Banking service available to both exporters and importers. Red clause credit: It is a pre-shipment finance granted to the exporter by and at the risk of the issuing Bank. Packing loan: The purpose of packing loan is to help the exporter to buy rawmaterials for production or to buy the necessary goods required by the D/C. Letter of Indemnity: It is a undertaking given by a Bank on behalf of his customer to another Bank. The Bank giving the promise is primarily liable. Leasing: This is a financial arrangement in which the Banks and their subsidiary companies known as lesser of leasing companies hold the title to property or equipment which the customer known as the leases use it.
4.6.2. Import facilities and services

A. Overdraft (O/D) B. Documentary Credit Facility (D/C) C. Loan against imported merchandise: LAM is an advance to the importer based on the imported goods as the security.
Page 52 of 69
D. Trust receipt facility: This is a document executed by a customer who agrees to hold the goods in trust for and on behalf of the Bank. E. Shipping Guarantee: A shipping guarantee is an undertaking given by a Bank on behalf of his customer to a shipping company to return the original transport documents. F. Collection
4.7. Remittance
Designing a global Remittance policy, The task facing International financial executives is to co-ordinate the used of the various financial linkages in a manner consistent with value maximization for the firm as a whole. This tasks require the following four inter-related decisions: 1. How much money (if any) to remit 2. When to do so. 3. Where to transmit these funds 4. Which transfer method(s) to use A common or shared responsibility with cash development is the custodianship of the volt. Two groups independently monitor the inflow and outflow of financial instruments to and from the volt. Bangladesh Bank checks deposits are processed for collection from Bangladesh Bank.
25 20 15 10 5 0 2008 2009 2010 2011 Remittance
Chart 4.13 shows Remittance in Million taka of BASIC Bank. It is shown that BASIC Banks Remittance business has been increased by steady growth rate during the year 2008 2011.
Page 53 of 69
Remittance Department
This Department deals with the basic paying and receiving of funds into the Bank, for the clients. They transfer, or wire money abroad as well as locally through TT or SWIFT, etc.. They work very closely with the cash department. They also sell Government bonds to clients and organizations. Remittance Department works as an intermediary for clients and actions taken on their accounts. Automatic credits and debits are not necessary done, especially in cases of International transactions. They deal with fund transfers both locally and abroad as well. A principal mode of remitting fund abroad is through SWIFT. Other traditional mode TT, Telex, Mailing of Drafts, and transfer of TCs is also used. In both case of incoming and outgoing remittances the purpose is to be disclosed. Local fund transfer is also done here, there areas of transfer activities include: 1. Issuance of Pay order 2. Salaries 3. TT to any where the country 4. TT to other parts of the country
4.7.1 Inward Remittance

Function in Inward Remittance Step 1: Fund Received
Step 2: Clarification by I. II. III. Step 3: Own Client Other Client Foreign Mission and International Bodies
If the fund is for own client I. II. III. IV. V. Check faster account Valid IRC Copy Vat Register Certificate Check the fund account Message transfer date
Step 4: Process the fund
Page 54 of 69
4.7.2 Outward Remittance

Outward Remittance Bank Condition: Client must have an account in BASIC Process: 1. Travel Mucilaginous 2. Document transfer by SWIFT other transaction activities Types of Transaction (Remittance Department): 1. Govt. Bond Sold 2. Govt. Bond interest paid 3. Other Bank check collection 4. NFCD Open 5. NFCD interest paid 6. NFCD Encasement 7. Credit Advance/Debit Advance 8. Outgoing Payment Instruction 9. Collection item both local/Foreign 10. Incoming Payment Instruction Pay order Installed 11. Salary Disbursed 12. Foreign Currency Draft Issued 13. Correspondence 14. Incoming Collection 15. Bangladesh Bank Check Collection
Page 55 of 69
3.8. Core Concept of Foreign Exchange

a. Foreign Exchange Business In Foreign Exchange Business, the Commodity is Currency, Buying and Selling of any currency against local currency is called Foreign Exchange Business. According to Bangladesh Bank order 1972, Foreign exchange means foreign currency and includes any Instrument drawn, accepted made and issued under clause 13 of section 16 of the Bangladesh Bank order 1972. b. Foreign Exchange Rate The rate of exchange is the price of the one currency expressed inters of another currency. The rate at which exchange dealer would buy or sell foreign exchange in terms of the domestic currency is known as the rate of exchange. c. Foreign Exchange Transactions All transactions related to FOREX are monitored and controlled by the Treasury Department of the Bank. This Department is responsible for providing all FOREX rate, interest rates. Basically there are two types of transactions taking place through out of the Bank spots and forwards. Approximately 95% of all FOREX transactions are spot transactions.
1. Different terms used in foreign exchange

Terminology of foreign exchange market. A foreign exchange rate is the price of one currency expressed in terms of another currency. Spot rate: A spot rate is a rate quoted immediately, for delivery of the currency to the buyer within the working days. Forward rate: The exchange rate quoted for transaction which called for the delivery of the currency at future date. Inter Bank market: This is a foreign market for commercial Banks only and the rate is known as Inter Bank.
Page 56 of 69
A Forward Exchange Contract may be either fixed of option

1. Fixed means that performance of the contract may take place on a specified date in the future. 2. Option means that performance of the contract may take place, at the option of the customer, on any date before maturity.
Premium and Discount

Forward rate for a currency is quoted as an adjustment to the spot rate. This department Is at a either Premium or a Discount. If the forward rate of a currency is more expensive than the spot rate, it is quoted in premium If the forward rate for a currency is more cheaper than the spot rate, it is quoted in discount.
Buying rate and Selling rate

Buying rate means the Bank is buying the currency. The customer is selling the currency to the Bank in this transaction. Selling rate means the Bank is selling the currency. The customer is buying the currency to the Bank in this transaction. Exchange rate is quoted in Buying rate and Selling rate, the difference of the rate is Called Spread.
2. Relevancy of Foreign Exchange Revenue for BASIC

Revenue generated in Foreign Exchange (FOREX) business has turn out to be an important element for generating income for BASIC.
Page 57 of 69
4.9. Factor Affecting Fluctuation In Exchange Rates

Medium and Long -Term Factors:
1. Balance of payment If the country suffer from a balance of payment deficit, its currency will depreciate. If, on the other hand, a country experiences balance of payment surplus, its currency will appreciate. 2. Rate of Inflation If the country suffer from high inflation rate, its currency will depreciate. On the other hand, if a country experiences a relatively low Inflation rate, its currency will appreciate. 3. Interest Rate The currency, which gives a relatively high interest rate, will appreciate while the currency, which only offer a relatively low interest rate, will depreciate.
Short Term Factors:

1. Official Intervention 2. Hot Money Hot Money refers to money, which flows in for speculative purpose. When Hot Money Flows into a country, its currency will appreciate and vice versa. Hot money is a very substantial forces affecting the movement in exchange rate.
4.9.1 Exchange rate in Bangladesh and its function over time

Bangladesh currency is pegged to composite of nine currency. In Bangladesh capital account transaction are regulated even through our currency is made convertible in current account of the Balance of Payment in 1993 and therefore our exchange rate is technically fixed. The four factors that are usually taken into consideration while determining exchange rate in Bangladesh are given below
Real effective exchange rate (REER has a positive relationship with exchange rate) Balance of current account (BOCA has a negative relationship with exchange rate)
Foreign Exchange Revenue (FER has a negative relationship with exchange rate Unofficial exchange rate (UER has a negative relationship with exchange rate).
Page 58 of 69
4.10. Ways of avoiding Exchange Risk

1. Forward exchange contract: An immediately firm and binding contract For the purchase and sale of a specified quantity At a rate of exchange fixed at a time the contract is made. For delivery at a future time Types: Contracts a) Fixed performance at a specified data in the future b) Option : Performance at any data between two
1. specified date (Note: Option under forward exchange contract should not be mixed up with currency option).
2. Currency Option 3. Open a foreign currency account Buy foreign currency and deposit it in a foreign currency account. Any receipts and payments are to be made from this account so as to avoid any losses in the movement of exchange rate.
Page 59 of 69
Chapter: 5
Other Department
Page 60 of 69
Chapter: 5
Other Departments
5.1 General Banking Department:
1. Accepting Different Types of Deposits
1 Current Account An active account at a bank into which deposits can be paid and from which withdrawals can be made by cheque. The bank issues cheque books free of charge but bank sometimes make charges for current account, based on the number of transactions undertaken, especially for business accounts. 2 Saving Account A bank account into which personal savings are paid. Interest paid on a saving account is usually higher than that paid on a deposit account and withdrawals are usually restricted. 3 Short Term Deposit Deposits rose for a short period to cover an exceptional demand for funds over a short period. 4 Fixed Deposit Receipt Deposits for a specific period for a specific interest rate.
2. Account Opening
The following requirements are needed for opening an Account: 1. 2. 3. 4. Two copies passport size photograph One copy passport size photograph of nominee National identification Utility copy (Electricity, Gas, Water etc)
Page 61 of 69
Chapter 5: Other Departments
I. II. III.
Cheque Book Issue Transfer of an Account Closing of Account
5.2 Advance or Loan Department

The Advance department performs one of the most important tasks for it generates the income for the company. So the company must sell its product very carefully so that it can provide more income. And the bankers get to be more about bad loss of the loans and advances. They evaluate and assessment the credit risk of loan. They approve loan and advance under dual signs, among these signs one must be by the lending authority.
6.2.1. Security of Loans and Advances

Normally a banker does not lend money without adequate security. The different types of securities which may be offered to a banker generally are as follows:-
Immovable properties. Movable properties: Goods Documents Stock exchange securities Life insurance policies Fixed deposit receipts Book debts Supply bills Securities may also be classified as:1. Personal and tangible. In all advances the bank has a right of action against borrower personally; although the borrowers personal liability is presumed, the banker, where the debt is not fully realized from the sale of the tangible security, the bank has usually a right of action in law to recover the balance from the borrowers other assets Page 62 of 69
2. Primary and collateral. Primary security is that which is regarded as the main cover for an advance and is deposited by the borrower himself. The term collateral security is applied to security deposited by a third party to secure customers borrowing if however, the banker has to realize it before claming the balance from the debtors estate. In this case, therefore, if the dividend received from the official receiver in insolvency does not cover the balance due to the banker, he will have to suffer a loss. In the other case, the banker can recover the balance, if any, out of the sale proceeds of the collateral security. If any Attributes of a good tangible security: There are certain qualities, which a good tangible security should possess. Some of the important attributes are given below 1. Marketability 2. Easy ascertainment of value 3. Stability of value: 4. Storability 5. Cost and labor of supervision 6. Durability 7. Transportability 8. Ascertainment of title 9. Easy transfer of title 10. Absence of contingent liability 11. Yield
Margin:
A bank does not meet cent percent the requirements of a borrower. The borrower should have some stake in the business. In that case they follow some application: He will devote more time. He will effort to make the business a success than may be in the case when he is dealing entirely with borrowed funds The difference between the value of the securities and the amount up to which the borrower can draw is known as margin. The value of securities, less margin, is known as drawable limit or advance value. A banker must keep adequate margin while granting loans because of the following reasons: The market value of the security is subject to fluctuations. The security remains the same while advance against the borrower may go on increasing on account of non-payment of interest, charges etc. Page 63 of 69
Factors determining margin: The margin to be kept by a banker in respect of a particular security depends on several factors. Some of them are follows a) Fluctuations in market prices. b) Financial soundness. c) Central Banks control
Page 64 of 69
Chapter: 6
Page 65 of 69
Chapter 6: Finding, Recommendation & Conclusion
Chapter: 6

6.1. Findings
In recent years, the foreign exchange business of BASIC Bank ltd is increasing at a faster rate. As a state owned scheduled bank, BASIC Bank Ltd is playing an important role toward the growth and economic development of Bangladesh. BASIC bank is rendering a stable support to the national foreign exchanges business. Although the foreign exchange business is increasing day by day there are also some obstacles around it which are as follows: 1. One problem relates to technology, the bank must try to adopt new technologies. Otherwise the profitability of the bank may hamper. 2. To meet the challenges in the banking industry and to help employees to adapt to the changes and new working condition, training is essential but no such training center has yet been established in BASIC Bank. Moreover, training given to employees is not adequate. 3. Besides, SWIFT is being used in some 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, but not in all branches. 4. The officers are very helpful to the business men. Some of our business men do not know exactly the procedures of opening L/C. the officers of BASIC bank help them properly to execute their business. 5. To make the process easy, bank should give emphasis to use the modern communication media like e-mail, fax, internet etc. 6. Modern technical equipment like computer, ups, modem etc. is not sufficient in foreign exchange department, which results in the delay of exchange process. 7. The data base system of foreign exchange department is not very systematic. Also documentation and filing process of foreign exchange operation is not user friendly, which sometimes wastes valuable time.
Page 66 of 69
8. Letter of credit (L/C) opening system for the importer is easy. it consumes time and money as well. Chapter 7: Finding, Recommendation & Conclusion
6.2. Recommendation
I had the practical exposure in BASIC Bank Ltd. for just twelve weeks, with my little experience in the bank in comparison with vast and complex banking system, it is very difficult for me to recommend. We have observed some shortcomings regarding operational and other aspects of their banking. On the basis of my observation we would like to recommend the followings: The branch need to set up well designed IT section by using more updated technology and information. Adequate on the job training is required for the newly employed personnel. SWIFT service should be introduced in each and every branch of the bank, which will help to smoothen the foreign exchange operations of the bank. Some officers of the bank are not self motivated. They should be self- motivated by training. The bank should do more advertisement for attracting new customers. Bank needs sufficient computer, ups, modem etc for foreign exchange department. The bank should develop an effective database system to analyze the data of foreign exchange business. Bank should provide emphasis to make the documentation and filing process of foreign exchange operation user friendly. Letter of credit L/C opening system for the exporter should be easier. I think the Management should employ at least few more employee in foreign trade department as I have seen from my practical experience that many customers wait for a long time for any service as they see that only one concerned official is doing their best to meet the requirements of the customers.
Page 67 of 69
6: Finding, Recommendation & Conclusion
6.3. Conclusion
BASIC Bank Ltd. is committed to Boost up export, reduce import, raising of Gross Domestic Product (GDP) and increase employment. All the branches of BASIC Bank Limited are authorized dealer of Foreign Exchange Business. The authorized dealer motivates the importer to import Raw materials, Fabrics, Frozen fish, jute items, and electronics goods, Accessories, Chemicals, and Vegetable Fat etc. The import or exports are motivated by the BASIC Bank Limited to the foreign exchange business, particularly to open the letter of credit. A letter of credit offer advantages both to the importer and exporter. The advantages accruing to either of the parties differ depending upon the nature of credit opened. There are certain Common benefits accruing from the use of credit as under. BASIC Bank Limited is playing a vital role in financing import and exports of the country. Without Bank's co-operation, it is not possible to run any business or production activity in this age. Exports and import need finance in various stages of their activities. Export and import financing need letter of credit (L/C), payment against documents (PAD), loan against imported merchandise (LIM) etc. All these facilities are being provided by BASIC Bank Limited. For this purpose Bank considers the borrower's business standing, integrity, liability with the bank and term and conditions of the L/C. There is lot of risks involved in foreign exchange business. So, the Basic Bank Limited has to clearly serve the customers from a neutral point and gather the current information about the market.
Page 68 of 69
Chapter 6: Finding, Recommendation & Conclusion
6.4. REFERANCE
In Text 1. Foundation of International trade finance, KWLUK, The Hong Kong Institute of Bankers. 2. Multinational Business Finance Eiteman, Stonehill and Moffelt. 6th edition. 3. Multinational Financial Management, Allan C. Shapiro, 4 th edition. 4. Business Finance, Prof. M Shahjahan Mina, 3rd edition. 5. Annual report of Exim Bank, Prime Bank and Dhaka Bank, 2005.
On profile of BASIC Bank 1. BASIC Bank Limited ;Annul Report 2011&2010
2. BASIC Bank policy Guide lines on Foreign Exchange 2009 3. BASIC Bank Limited Several Booklist 4. BASIC Bank prospectus Online 1. http://www.basicbanklimited.com/ 2. basicbanklimited.com/files/Annual_Report_2011_BASIC_Bank.pdf 3. http://www.basicbanklimited.com/Annual_Report_2010_BASIC_Bank.pdf
Page 69 of 69

Internship Report On BASIC Bank Limited

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Internship Report On BASIC Bank Limited

Transféré par

Droits d'auteur :

Formats disponibles

Foreign Exchange Operation Of BASIC Bank Limited Gulshan Branch

BASIC BANK LIMITED

Under the Supervision of

Date of submission 2nd May 2013

Declaration of the student

Introduction and Background if the study

2.1 Background 2.2 Organizational Goal Chapter 2 2.3 Organizational Structure

Organizational profile of BASIC

5.1 General Banking Department 5.2 Advance or Loan Department

Finding, Recommendation & Conclusion

Introduction and Background of the Study

Introduction and Background of the Study

1.6 Objective of the study

1.6.2 Specific objective

Chapter 1: Introduction and Background of the Study

1.3 Methodology of the Study

1.3.1 Sources of Information and data:

1.3.2 Period covered

Table 1.1 shows the period covered during the internship

Chapter 1: Introduction and Background of the Study

1.3.3 The process of application of the techniques and reason

1.4 Limitation of the Study

Organizational Profile of BASIC

Chapter: 2 Organizational Profile of BASIC

CAPITAL POSITION (up to 2011)

Chapter 2: Organizational Profile of BASIC

2.1.1 Capital structure and ratios

(Amount in million take)

Chapter 2: Organizational Profile of BASIC

2.1.2. At a Glance of BASIC Bank Limited

Table:1 At a Glance of BASIC Bank Limited

Chapter 2: Organizational Profile of BASIC

2.2 Organizational Goal

2.3 Organizational Structure

2.3.1 Board of Director

Chapter 2: Organizational Profile of BASIC

Organ gram of BASIC Bank Limited

OFFICER IN CHARGE ACCOUNT

OFFICER IN CHARGE CREDIT

AGM INTERNA TIONAL

DGM INDUSTRIAL CREDIT

AGM ESTABLI SHMENT

2.4 Customer Service

Chapter 2: Organizational Profile of BASIC

2.5 Bank Performance at a glance

3,549.51 2458.41 1091.1 282.96 2790.98

5,060.29 3626.35 1533.94 549.86 3538.01

5,162.30 3,593.96 1568.34 648.85 4,225.37

6120.53 4,403.49 1717.05 660.93 4,948.64

8,825.20 6,476.70 2348.5 976.11 5,987.61

21,266.57 27,359.77 33,976.60 16,794.96 22,270.87 19,887.70

42,206 47,087.80 23,999 33,061.10

Chapter 2: Organizational Profile of BASIC

Chart 2.1: Total Asset

Chart 2.2: Placement & Investment

Chapter 2: Organizational Profile of BASIC

Chart 2.3: Operating Income

Chart 2.4: Operating Expenses

Chapter 2: Organizational Profile of BASIC

Chart 2.5: Net Income

Chart 2.6: No of Employee

Chapter 2: Organizational Profile of BASIC

Chart 2.7: Total Deposits