An Internship Report on Foreign Exchange Operations of Mercantile Bank Limited

Introduction: Bank is defined as a financial institution that collects deposits from various individual and organizations and provides loans to those who need it. But modern banks do not mean only the means of collecting and disbursing money to various entities. Rather it provides various services to various entities which facilitate their business operations. A foreign exchange operation of banks is one of those services that not only facilitates the business of businessmen but also contributes to the development of the economy as a whole. Foreign exchange is defined as the mechanisms by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. Foreign exchange department of banks plays significant roles through providing different services for the customers. 1.1. Background of the Mercantile Bank Limited (MBL): Mercantile Bank Limited, incorporated on May 20, 1999 and commenced business on June 02, 1999, is now one of the most important entity in the banking industry of Bangladesh. With the passage of time it has expanded its number of branches and variety of services along with its core business of taking deposits and granting loans. Now MBL has emerged as a new commercial bank to provide efficient banking services and to contribute socio-economic development of the country. Rising trend of the banks profitability over the last 8 years is also materialized. The MBL is committed to the delivery of the superior shareholders’ value. Foreign Exchange Department of the bank is one of the most important departments. Now it has become the backbone of the bank. With the aim to be the ‘Bank of choice’, it is operating in the industry with a team of devoted personnel to excel both their own career and the bank’s future. 1.2. Origin of the study: This report is originated as the course requirement of the BBA program under the business studies faculty of Stamford University Bangladesh. Under this program students of every department of this faculty must go through an internship program of 3(Three) months duration. As practical orientation is an integral part of the BBA degree requirement, I was sent by the department of Finance to take real life exposure of the activities of banking financial institutions from July 16, 2009 to October 18, 2009. 1.3. Background of the Study: Mercantile Bank Limited (MBL) is one of the risen Banks in Bangladesh. This year they have declared 40% dividend to their shareholders. This Bank has already 42 branches located in different places and also going to establish more branches. The Internship program is an essential and mandatory of the BBA Program of Stamford University Bangladesh. After completion of four years theoretical training, I got the opportunity as a practical exposure to business horizon through internship program. Mercantile Bank Limited is one of the well- reputed private commercial bank of Bangladesh with paid up capital of BDT

1,798.68 (in million, 2008). Banks strong capital base allows it to make large chunk of advances to its corporate clients. My internship supervisor and respected teacher Md. Ifte Kharul Alam, Assistant Professor & HOD Finance, Department of Business Administration, Stamford University Bangladesh, assigned me the topic “A study on the Foreign Exchange Operations of Mercantile Bank Limited.” I hope this report would able to portray the real picture of the operation of foreign exchange department of Mercantile bank Ltd. 1.4. Rationale of the Study: This report is broadly organized into two broad parts. The first part (first 3 chapters) is an overview of the organization itself. The second part concentrates on the assigned topic “A study on the Foreign Exchange Operations of Mercantile Bank Limited.” Finally it includes the evaluation of Foreign Exchange performance, findings, and recommendation to make understood the scope of overall Foreign Exchange with its constraints of MBL. 1.5. Objective of the study: The objective of the study is to obtain an understanding of the practical banking activities and relate them with theoretical knowledge that I gained through the theoretical training in the university and from various documents of the bank. Beside this, the followings are the specific objectives which I will try to cover in my report: 1.5.1. Primary objective: The primary objective of preparing this report is to represent the Mercantile Bank Limited and to have a clear conception about all of the essential parts of the internship program. 1.5.2. Secondary objective: 1. To give an idea about the evolution of the banking business. 2. To give an idea about the evolution of banking in Bangladesh. 3. To give an overview of the current Bangladesh economic scenario. 4. To give an overview of the MBL. 5. To give some idea about the international trade, different types of exchange rates, process of executing transactions relating international trade, accounting of these transactions, etc. 1.6. Scope of the study: As I was sent to Mercantile Bank Limited, Main Branch, the scope of the study is only limited to this branch. The report covers its overall foreign exchange function. The report covers import, export and remittance activities about MBL. Besides it covers topic such as evolution of banking business, evolution banking business in BD, Bangladesh economy scenario, background of MBL has also been discussed. 1.7. Internship at Mercantile Bank Limited: My Three months at the Mercantile Bank Limited as an internee had been the most enjoyable time of my life. Doing my internship at one of the leading private commercial banks in

Bangladesh, I believe I have accumulated an experience unmatched to any other. I was assigned to the project of “A study on the foreign exchange operations of Mercantile Bank Ltd.” as my project report. I am extremely happy to work in such a project. Though as a student of finance it was a new situation to me. For the internship program the contact person of the head office sent me to the Main branch of the bank. My objective was to get a clear idea about the function of the foreign exchange of the branch. But my host supervisor sent me first to the Local Export department to have a preliminary idea and to be acquainted with various types of local export bills and related matters; I worked there for 60 days and learned the procedure of issuance of pay order, demand draft (DD), and method of maintaining books for the above mentioned activities. Then I was sent to the clearing section, of worked there for 20 days and learned how inward and outward checks are cleared, how transfer delivery from one branch to another branch is made. After that, I was sent to the IT department of this branch. I worked there for 5 days. Here I learn how to give bank statement, Tax purpose statement. After that I was sent to the export section of the foreign exchange department of this branch. I work there for the rest of the period of my internship program. In the export section I mainly observed the export procedures, files and documents of different exporters, export proceed collection procedures and compliance of export procedures with the set rules of export policy and Bangladesh bank rules. Actually this period was my area of concentration and activities of this period is mainly focused in my report. I extended my best effort to collect as much information as possible to prepare my report. The working environment of this division of the Mercantile Bank Limited is conductive and friendly. The staffs are specialized in their respective fields. Each of them works on their own and there is supervision from the top. The motivation of the staff, I believe comes from the very sense of responsibility for his or her work. 1.8.Limitations of the study: On the way of the study, I have faced the problems that are given below that may be terms as the limitation or shortcoming of the studyShort Time Period: The first obstruct is time itself. Due to the time limit, the scope and dimension of the study has been curtailed. For an analytical purpose adequate time is required. But I got a short time period to prepare the report. Data Insufficiency: It was very difficult to collect data, because the branch of Mercantile Bank Limited is very large. But the data is very essential to prepare the report. All of the employees of this branch are very busy. For the time limitation they could not able to supply my topic related data. Lack of Records: Sufficient books, publications, facts and figures narrowed the scope of accurate analysis. If this limitation were not been there, the report would have been more useful and attractive. Poor Library Facility:

Most of the commercial banks have its own modern, rich and wealthy collection of huge and various types of banking related books, journals, magazine, papers, case studies, term papers, assignment etc. But the library of Mercantile Bank Limited is not well ornamented and decorated. Lesser Experience: Experience makes a man efficient. I do such kind of research activity for the first time. That’s why inexperience creates obstacle to follow the systematic and logical research methodology. 1.9. Methodology of the study: The study requires a systematic procedure from selection of the topic to final report preparation. To perform the study the data sources are to be identified and collected, they are to be classified, analyzed, interpreted and presented in a systematic manner and key points are to be found out. The over all process of methodology is given in the following page in a form of flow chart that has been followed in the study. A. Selection of the topic: The topic of the study was assigned by our supervisor. Before assigning the topic it was discussed with me so that a well organized internship report can be prepared. B. Identifying data sources: Essential data sources both primary and secondary are identified which will be needed to complete and work out the study. To meet up the need of data primary data are used and study also requires interviewing the official and staffs were necessary. The report also required secondary data. Information collected to furnish this report is both from primary and secondary sources. i) The primary sources are: Face to face conversation with the officers. Practical desk work. Relevant files study as provided by the concerned officers. ii) The Secondary sources are: Annual reports of MBL. Foreign exchange of MBL. Periodic reports of MBL. Annual Reports of Bangladesh Bank (BB). Publications of Bangladesh Bank (BB). Publications of BIBM. Office circulars of MBL. Publicly published documents. Relevant books, newspapers, journals, etc. MTO recruitment materials of MBL. Information kept by branch manager, operations manager in their own files. C. Collection of data: Primary data are collected by using interviewing technique. The reports are an exploratory research and for qualitative survey open ended question were ask to the Bank official.

D. Sampling: Population: All the Branches of MBL located in everywhere in Bangladesh has been taken into consideration as population. Sample: MBL, Main Branch, is the vital sample. E. Classification, analysis, interpretations and presentation of data: some arithmetic and graphical tools are used in this report for analyzing the collected data and to classifying those to interpret them clearly. F. Findings of the study: The collected data were scrutinized very well and were pointed out and shown as findings. Few recommendations are also made for improvement of the current situation. G. Final report preparation: On the basis of the suggestions of our honorable faculty advisor some corrections were made to present the paper in this form. CHAPTER- 2 Evolution of Banking Business 2.1. Evolution of Banking Business: The word bank, which means a financial intermediary that collects deposits from savers and disburses loans to the fund seekers and acts as the principal medium of internal resources mobilization of an economy, is not the result of a short period. Instead, it has to pass through a very long period. In the ancient age, people had to satisfy all of their needs by themselves. At this stage, there was no surplus production. Hence the concept of transaction was yet to be introduced. But, as the division of work took place in the society, there was surplus as well as deficit production in each society. This lead to the introduction of ‘BARTER SYSTEM’ in which commodities were exchanged for commodities directly. But this transaction system could not last for a long time for some problems such as, 1) Double coincidence of needs: this means the needs of two persons must meet the surplus that they have. For example, one person has some surplus rice and another person has some surplus cloths. If they the person with rice has the need of cloths and the person with cloth needs rice, only then the transaction will take place. But it was difficult. 2) Indivisibility of goods: all goods are not divisible and not of same worth. This caused a big problem for transaction. For example, a cow is not exchangeable for 1 meter cloth, neither it can be dividable in smaller units. As a result, people had to think for a mechanism that would solve these problems and facilitate the transaction process. This resulted in the introduction of money in the form of stone, metals, bones etc.

After the introduction of money, the volume of transactions increased to a great extent. People with surplus money started to feel insecure about their money. At that stage, goldsmiths, priests, businessmen were the most honorable and trusted people in the society. People started to keep their surplus money and jewelry deposited with them. They lent this money without any charge to those who needed money. This was the ‘transaction of utmost faith’. From here, the history of bank counts. The previous discussion can be presented in the following diagram:

Figure 2.1: Diagram of evolution of banking business After some time, businessmen started to charge some charges on those who took loan from them. It was the goldsmiths who introduced the ‘deposit slips’ in the history. Day by day, volume and complexity of transactions kept increasing, so as the concept of bank. The banking systems of ancient age and the banking systems of modern age are two distinctively separate entities. The situations and flaws that resulted the banking systems in the present form are highlighted below: As early as 2000 B.C., Babylonians had developed a system of bank. In ancient Greece and Rome the practice of granting credit was widely prevailed. ‘Traces of Credit by compensation and by transfer’ orders were found in Assyria, Phoenicia and Egypt before the system attained full development in Greece and Rome. The book of old Hindu saw giver, MANU, is full of regulations for governing credit. He speaks of judicial proceedings credit instruments were called for, interest on loans, on bankers, users and even of the renewals of commercial papers. In Rome, bankers were called Argentarii. Some banks carried business on their own account and others were appointed by the Government to receive the taxes. Loan banks which lent money to the poor without any interest on the security of land for a period of 3 of 4 years were also common in Rome.

The Bank of Venice, established in 1157, is supposed to be the most ancient bank. It was not a bank in the modern sense being simply an office for the transfer of public debt. History shows the existence of a ‘Monte’ in the Florence in 1336 the meaning of ‘Monte’ is given in the Italian Dictionary 1959 as ‘a standing bank or mount of money, as they have in diverse cities of Italy’. Banbrigge, an English writer, speaks about ‘the three banks of Venice’ meaning the three public loans of Monte. The beginning of the English banking may correctly be attributed to the London goldsmiths. They used to receive their customers’ valuables and funds for safety custody and issue receipts acknowledging the same. These notes, in the course of time, became payable to bearer on demand and hence enjoyed considerable circulation. In fact, the goldsmiths’ notes may be considered as the precursor of the bank note. The business of the goldsmiths got a rude shock by the ill treatment of the Government of Charles II, under the Cabal ministry. In the words of Bagehot; “It had perpetrated one of those monstrous frauds which are likewise gross blunders”. The goldsmiths used to deposit their reserve of treasure in the ‘Exchequer’ with the sanction and under the care of government. But Charles II shut down the Exchequer and paid nothing to the goldsmiths. However, the ruin of goldsmiths marks a turning point in the history of the English banking. It led to the growth of private banking and the establishment of the ‘Bank of England’. In the India, as early as Vedic period, banking existed in the crudest form. The bloods of Manu contain references regarding deposits, pledges and policy of loans and rates of interest. Truly, banking in those days largely meant money lending and they did not know the complicated mechanisms modern banking. This is true not only in case of India but also in case of other countries. The evolution of banking institutions became more and more organized as the time passed. In various periods, different amendments were made in different countries throughout the world. So, different countries have different contributions to the banking institutions to appear in the present form.

Figure 2.2: At a glance-Evaluation in Banking Institutions in World According to Different Age 2.1.1. List of some important Ancient Banks:

Name of the Bank

Place of Year of Establishmen Establishmen t t

Shansi Bank

Remarks

1st Bank in the World China

600 B.C.

Bank of Venice

1st Government Bank Italy

1157

Bank of San Georgio

Jointly established by traders Geneva

1178

Bank of Barcelona

Established by Govt. incentive Italy

1401

Risk Bank of Sweden Sweden

1656

U.K.

1694

Calcutta

1700

Bank of England

1st Central Bank in the World

Hindustan Bank

Bank of Prussia

1st commercial Bank in Indian subcontinent 1st Bank in Germany

Germany

1765

Bengal Bank

Ancient Bank of Indian Continent India

1785

Central Bank of India

Ancient Bank of Indian Continent India

1785

France

1800

Calcutta

1806

Bank of France

Central Bank of France

Bank of Calcutta

1st Precedence Bank of India

Bank of Netherlands Netherlands

1814

Norway

1817

Central Bank of Owned by private owners but controlled by Govt. members Central Bank of Owned by private owners but controlled by Govt. law.

Denmark

1818

Central Bank of Owned by private owners

Bombay

1840

Bank of Norway

National Bank of Denmark

1st licensed Bank in World which issued notes

Bank of Bombay

2nd Precedence Bank of India

Bank of Madras

3rd Precedence Bank of India Madras

1843

Reichs Bank

Central Bank of Germany Germany

1875

Bank of Japan Japan

1882

Italy

1893

Switzerland

1907

Bank of Italy

Switch National Bank

Federal Reserve System

Central Bank of U.S.A U.S.A

1913

Impreial Bank of India India

1920

Bank of China

Largest commercial Bank of India in the period

China

1928

Canada

1934

Bank of establishment in private ownership, which was nationalized in 1949 Central Bank of Canada, which was nationalized in 1949

India

1935

1st central Bank in Indian Subcontinent.

1941

1st Muslim Bank in Indian subcontinent.

Bank of Canada

Reserve Bank of India

Habib Bank Ltd. Bombay The Ban coda Brazil Brazil

1941

Pakistan

1948

Pakistan

1949

State Bank of Pakistan

National Bank of Pakistan

Central Bank of Japan Owned by both private and Government owners. Bank of establish in private ownership, which gets right to issue note at 1926 Central Bank owned by both private and Government owners.

Central Bank of Brazil owned by both private and Government owners. 1st Central Bank of Pakistan

1st Commercial and enlisted Bank of Pakistan

Eastern Mercantile Bank

Chittagong

1959

1st Bank established in Bengali Ownership.

Table 2.1: List of some important Ancient Banks 2.2. Banking System in Bangladesh: Bangladesh has a mixed banking system comprises of nationalized, private and foreign commercial banks. Bangladesh Bank (BB) has working as the central bank of the country since the independence of the country. Its prime jobs include issuing currencies, maintaining foreign exchange reserve and providing transaction facilities of all public monetary mattes. BB is responsible for planning and implementing the government’s monetary policy 2.2.1. Banking Companies Ordinances: The Banking Companies Ordinance was promulgated on the 7th June 1962. This has been adopted in Bangladesh and is applicable to the banking companies only. Nothing of this ordinance shall apply to a co-operative bank registered under the co-operative Securities Act (1912). Main forms of business of Banking Companies o Borrowing, raising or taking up money. o The lending or advancing of money either upon or without security. o Dealing in securities and investment. o Other business as detailed in section 7. 2.2.2. Negotiable Instrument Act: The Negotiable Instrument Act, 1881 is the legislative enactment of the Law relating to three classes of Negotiable Instruments namely: Promissory Notes, Bills of Exchange and Cheques, which are in common mercantile use in the monetary instructions. It came into force on 1st March 1882. The law relating to negotiable instruments is not the law of our country or of one nation. It is the law of the mercantile world in general. It consists of “Certain principles of equity usages of trade, which general convenience and commonsense of justice had established to regulate the dealings in merchants and mariners in all the commercial countries of the civilized world”. 2.2.3. Categories of Banks: In our country, there are four types of banks exists. Such as: 1. Central Bank. 2. Commercial Banks. a. Nationalized Commercial Banks. b. Private Commercial Banks. c. Foreign Banks. 3. Specialized Banks / Development Banks and credit agencies.

4. Bangladesh Samabaya Bank.

Figure 2.3: Classification of Banks in Bangladesh 2.3. Economic Overview of Bangladesh: During FY08 (July 2007 – June 2008), the Bangladesh economy maintained a strong growth underpinned mainly by robust growth in services and notable expansion in manufacturing activities, despite facing high and volatile oil prices in the international market. With a view to achieving higher economic growth, the Government and the Bangladesh Bank continued to adopt policies to support economic activities to the highest sustainable level, while maintaining a moderate Consumer Price Index (CPI) inflation. These policies contributed toward a strong real GDP growth of 6.5 percent in FY07, slightly lower than 6.6 percent of FY06. Economic growth was also aided by increased inflow of workers’ remittances from abroad and reasonable growth in exports. In U.S. dollar terms, export earnings recorded a moderate growth of 15.8 percent, while the growth of import payments remained to a sustainable level at 16.6 percent. At the same time, remittances from non-resident Bangladesh nationals increased substantially by 24.5 percent. The country’s external current account balance continued to record a significant surplus with a substantial increase in remittances more than offsetting trade deficit and services deficit. A significant surplus in current account balance and a sharp rise in financial account surplus led to a sizeable surplus in the overall balance, which helped improve the international reserve position. Inflation was on uptrend during FY07 due mainly to rising import prices of fuel oil, metal, food grain and some other essentials in the international market coupled with problems in the domestic supply chains like political turmoil in the first half of FY07; dislocation of market structure created by anti-hoarding drive and crackdown on corrupt business houses; and lower growth of crop production. Increasing domestic demand induced by high monetary and credit growth added to the uptrend in consumer prices. The annual average inflation increased to 7.20 percent in June 2007 from 7.16 percent in June 2006, while 12-month consumer price inflation on point to point basis increased over the same period to 9.20 percent. Total domestic credit grew by 14.5 percent, while credit to private sector increased by 15.1 percent in FY07.

In more recent period, the economic situation of Bangladesh is like this: The IMF expects that the real GDP growth of Bangladesh will be possible 5.5-6.0% in FY 08. The IMF has earlier projected the country’s GDP growth at 5.0-5.5% due to natural disasters and slowdown in economic activities due to factors like anti hording drive and negative growth in export during the first half of the fiscal year. Due to increase of export and strong Boro harvest, real GDP growth expected to be higher than anticipated earlier. IMF also suggested to improve the efficiency of the state owned commercial banks. 2.3.1. Exports: during July February, 2007-08 export increase by US$ 908.72 million or 11.33% to US$ 8932.59 million against US$ 8023.87 million during the same period of the previous year. 2.3.2. Import payments & Fresh opening of import LCs: During July-February, 2007-08, import payments increased by US$ 2327.20 or 21.04% to US$ 13387.90 million compared to US$ 11060.70 million during July-February, 2006-07. Fresh opening of import LCs during July-February, 2007-08 increased by US$ 3887.33 million or 34.70% to US$ 15089.56 million against US$ 11202.23 million during July-February, 200607. 2.3.3. Remittances receipts: During July-March, 2007-08 remittances increase by US$ 1288057 million or 29.55% to US$ 5649.90 million against US$ 4361.33 million during July-March, 2006-07. 2.3.4. Gross foreign exchange reserves: Gross foreign exchange reserves of Bangladesh Bank stood lower at US$ 5302.46 million as of end March, 2008, against US$ 5978.60 million as of end February, 2008 due o ACU payment of US$ 733017 million on 6th March, 2008. However, this was higher than the US$ 4199.52 million reserves as of end March, 2007. 2.3.5. Inflation: The annual average rate of inflation increased to 9.79 in February, 2008 from 9.56% of January, 2008. The rate of inflation on point basis, however, decreased to 10.16% in February, 2008 from 11.43% of January, 2008. 2.3.6. Macro-economic trend: This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by the International Monetary Fund with figures in millions of Bangladeshi Taka. However, this reflects only the formal sector of the economy.

Year Gross Domestic Product US Dollar Exchange

1990

1,054,234

35.79 Taka

Inflation Index Per Capita Income (2000=100) (as % of USA) 58

1.16

1995

1,594,210

40.27 Taka

78

1.12

2000

2,453,160

52.14 Taka

100

0.97

2005

3,913,334

63.92 Taka

126

0.95

2008

5,003,438

68.65 Taka

147

-

Table2.2: Macro-economic trend For purchasing power parity comparisons, the US Dollar is exchanged at 12.86 Taka only. Average wages in 2008 hover around $2-3 per day. 2.3.7. Economic target: World Bank predicted economic growth of 6.5% for current year. Foreign aid has seen a decline of 10% over the last few months but economists see this as a good sign for self-reliance. There has been 18% growth in exports over the last 9 months and remittance inflow has increased at a remarkable 25% rate. Export was $10.5 billion in fiscal year 2005 exceeding the target export of $10.4 billion. Target export for current year is $11.5 billion. An estimated GDP growth of 6.7% was predicted for FY 2006. Fiscal Year

Total Export

Total Import

Foreign Remittance Earnings

2007-2008

$14.11b

$25.205b

$8.9b

2008-2009

$15.56b

$22.00b+

$9.68b

2009-2010(Set Target)

$17.6b

N/A

$10.87b

Table 2.3: Economic target CHAPTER- 3 Overview of Mercantile Bank Limited

3.1. An Overview of Mercantile Bank Limited : Banking system occupies an important place in a nation’s economy. A banking institution is indispensable in modern society. It plays a liberalization of economic policies in Bangladesh. Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking services with a view to improving the socio-economic development of the country. Mercantile Bank has been incorporated on May 20, 1999 in Dhaka, Bangladesh as a limited company with the permission of the Bangladesh Bank; MBL commenced formal commercial banking operation from the June 2, 1999. The bank stood 15 branches all over the country up to 2001. The Authorized Capital of the Bank is 3000.00 million taka and the Paid-Up Capital is 1498.90 million taka as on December 31, 2007.The Bank provides a broad range of financial services to its customers and corporate clients. The Board of Directors consists of eminent personalities from the realm of commerce and industries of the country. There are thirty Sponsors involved in creating MBL the Sponsors of the Bank have a long heritage of trade, commerce and industry. They are highly regarded for their entrepreneurial competence. The Sponsors happen to be members of different professional groups among whom are also renowned banking professionals having vast range of banking knowledge. There are also members who are associated with other financial institutions like insurance companies, leasing company’s etc. Mercantile bank Limited continued its expansion program during the year ended as on December 31, 2007. Its core lending and deposit taking business have increased significantly. Rising trend of the banks profitability over the last 8 years is also materialized. The MBL is committed to the delivery of the superior shareholders’ value. With the aim to be the ‘bank of choice’, it is operating in the industry with a team of personnel devoted to excel both their own career and the bank’s future. 3.2. Mission: Will become most caring, focused for equitable growth based on diversified deployment resources, and nevertheless would remain healthy and gainfully profitable Bank. Mercantile Bank Limited aims to become one of the leading banks in Bangladesh by prudence, flair and quality of operations in their banking sector. The bank has some mission to achieve the organizational goals. Some of them are as follows as: Mercantile Bank Limited provide high quality financial services to strengthen the well being and success of individual, industries and business communities. Its aim to ensure their competitive advantages by upgrading banking technology and information system. MBL intends to play more important role in economic development of Bangladesh and its financial relations with the rest of the world by interlining both modernistic and international operations. MBL encourages investors to boost up share market. The bank creates wealth for the shareholders. The bank believes in strong capitalization.

It maintains high standard of corporate and business ethics. Mercantile Bank Limited extend highest quality of services, which attracts the customers to choose them first. The bank creates wealth for the shareholders. The bank maintains congenial atmosphere for which people are proud and eager to word with Mercantile Bank Limited. Mercantile Bank Limited intend to provide better benefits to their customers and good returns to their shareholders. The bank intends to meet the needs of their clients and enhance their profitability by creating corporate culture. 3.2.1 Vision: “Would make finest corporate citizen.” is the main vision of MBL. MBL dreams to become the bank of choice of the general public that includes both the consumer and the corporate clients. It has created a cadre of young professionals in banking profession which has helped boosting productivity in the bank. 3.2.2. Objectives: 3.2.2.1. Strategic Objectives: • To achieve positive Economic Value Added (EVA) each year. • To be market leader in product innovation. • To be one of the top three financial institutions in Bangladesh in terms of cost efficiency. • To be one of the top five financial institutions in Bangladesh in terms of market share in all significant market segments we serve. 3.2.2.2. Financial Objectives: • To achieve a return on shareholders’ equity of 20% or more, on average. 3.2.3. Core Values: 3.2.3.1. For customers: Providing with caring services by being innovative in the development of new banking products and services. 3.2.3.2. For Shareholders: Maximizing wealth of the bank. 3.2.3.3. For the employees: Respecting worth and dignity of individual employees devoting their earnings for the progress of the bank. 3.2.3.4. For the community: Strengthening the corporate values and taking environment and social risks and reward into account. 3.2.4. Business Philosophy of MBL: The philosophy of MBL is not to ‘Carry coal to the new castle’.

3.2.5. Nature of business: Mercantile Bank Limited offer services for all banking needs of the customers, which include deposits, making loans and advances, discounting bills, conducting money transfer and foreign exchange transactions and performing other related services such as safe keeping, collections, issuing guarantees, acceptances and letters of credit. 3.2.6. Features of Mercantile Bank Limited: There are so many reasons behind the better performance of Mercantile Bank Limited than any other newly established banks: Mercantile Bank Limited has established a core Research & Planning Division comprising skilled person from the very inception of the bank. Highly qualified and efficient professionals manage the bank. The inner environments of the all branches of Mercantile Bank Limited are well decorated. Banking operations of the all branches of Mercantile Bank Limited have been computerized to provide the promptly & frequently customers service. The bank has established correspondent relationship with 102 of foreign banks. The bank has launched some financial products, which is not available in any other banks, like Ajebon Pension Scheme. Mercantile Bank Limited provides attractive interest rate than the other financial institutions. The bank provides loan to the customers at lower interest with easy & flexible condition than the other do. The bank frequent arranges customers meeting to achieve their valuable suggestions. Letter of Credit (L/C) commissions and other charges are very lower than the other banks. Profit earning is not the main aim of the MBL. The bank is responsible to maintain the social duties. The bank is committed to provide the cherub amount within 30 seconds of submission the cherub. 3.2.7. Corporate information at a glance: Name of the Bank Status Date of Incorporation Date of Commencement Subscription for Shares Listed in Dhaka Stock Exchange Listed in Citation Stock Exchange Head Office Phone E-mail Website Chairman Managing Director Number of Employees

Mercantile Bank Limited Public Limited Company May20, 1999 June 02, 1999. October 21-22, 2003 February 16, 2004 February 26, 2004 61, Dilute Commercial Area, Dhaka- 1000 +880-2-9559333, 01711-535960 [email protected] www.mblbd.com Md. Abdul Jail Dean Manipur Raman 1104

Number of Branches

42

Table 3.1: General Information of MBL SOURCE: www.mblbd.com 3.3. Ownership Structure: The Board of Directors consists of eminent personalities from commerce and industry of the country. Mr. Md. Abdul Jail, the founder Chairman of the Board of Directors, is a businessman besides being an eminent personality of the country. The last Government had been pleased to induct him as a Senior Cabinet Minister with the portfolio of Commerce. The Bank is manned and managed by highly qualified and efficient professionals. The chief Executive officer of the Bank is Mr. M. Taheruddin who has rich experience of managing both the nationalized and the private sector banks as Managing Director. Mr. Lutfar Rahman Sarkar who born in 1935, initiated his banking carrier from Habib Bank Limited as a provisionary officer. Then he served as Managing Director in Agrani Bank, Sonali Bank, Islami Bank Bangladesh Limited and Prime Bank Limited. The Chief Adviser of the Bank is the former Governor of the Central Bank of Bangladesh. He brings with him a wealth of experience of managing both the public and private sector banks. 3.3.1. Board Committees of MBL: Board of Directors who also decides the composition of each committee determines the responsibilities of each committee. 3.3.2. Executives Committees of MBL: All routine matters beyond delegated powers of management are decided by or routed through the Executives Committee, subject to rectification by the Board of Directors. 3.4. Composition of the board: Board of Directors, the apex body of the Bank, formulates policy guidelines, provides strategic planning and supervises business and performance of management while the Board remains accountable to the company and its shareholders. The Board is assisted by the Executive Committee and Audit Committee.

Figure 3.1: Composition of the board SOURCE: Adapted from MBL’s Annual Report 2008

3.5. Capital & Reserves:

3.5.1. Capital:

3.5.1.1. Authorized Capital:

The authorized capital of the bank was BDT 3,000.00 million of 30,000,000 ordinary shares of BDT 100 each as of December 31, 2008.

Year

Taka(BDT in million)

2006

1200.00

2007

3000.00

2008

3000.00

Table 3.2:

Authorized Capital Source: Audited annual report of MBL, 2008. 3.5.1.2. Paid up Capital:

Paid-up Capital of the bank was BDT 1498.90 million of 14,988,983 ordinary shares of BDT 100 each as of December 31, 2008.

Year

Taka(BDT in million)

2006

1199.12

2007

1498.90

2008

1,798.68 Table3.3: Paid-up Capital Source: Audited annual report of MBL, 2008.

3.5.2. Reserve:

3.5.2.1 Year

Taka(BDT in million)

2007

726,729,402

2008

966,496,902

Statutory Reserve: Table 3.4: Statutory Reserve Source: Audited annual report of MBL, 2008.

3.5.2.2. Other Reserve:

Year

Taka(BDT in million)

2007

24,864,349

2008

161,038,249 Table3.5: Other Reserve Source: Audited annual report of MBL, 2008.

3.6. Milestones in the development of the organization:

Figure 3.2: Milestones in the development of the organization SOURCE: Adapted from MBL’s Annual Report 2008

3.7. Management Structure of MBL: Organization Chart of Mercantile Bank Limited

Figure 3.3 : Management Hierarchy SOURCE: Adapted from MBL’s Annual Report 2008 3.8. Risk Management: 3.8.1. Credit Risk: Credit risk is the potential that the borrower may not repay or fails to repay his/her debt obligation. They are exposed to credit risk through traditional lending activities and transactions involving settlements between their counterparts. • Objectives [[ Maintain a well-diversified asset portfolio within approved risk tolerance levels and earn a return appropriate to the risk profile of the portfolio. • Approach

Skill appraisal officers first evaluate credit transactions for commercial and corporate loans. Credit Management Committee provides and independent assessment of all significant transactions, and a concurrence form this function is usually required to make a lending commitment to a customer. Their Audit and Inspection Division also reviews management processes in order to ensure that establish credit policies are followed. In addition, Credit Management Committee performs periodic reviews of significant and higher risk transactions. 3.8.2. Market Risk: : Market risk is the potential for loss from changes in the value of financial instruments. The value of a financial instrument can be affected by changes in interest rates, foreign exchange rates and equity and commodity prices. They are exposed to market risk when they enter into the following transactions: Loans and Advances (LDOs) Deposit with other Banks - Investment - Treasury Bills - Bond - Shares Foreign Exchange Positioning • Objective Identify, measure, monitor and report all market risk-taking activities, ensuring that exposures remain within approved risk tolerance levels and that the return from market risk activities is acceptable. • Approach They have established Asset Liability Committee (ALCO) to monitor their market risk activities. The primary risk measurement methodology is Repricing Gap and its sensitivity to interest rate changes. Reprising Gap over 12-month period stood at positive BDT 4251.76 million as at Dec 31, 2008. Reprising Gap as percentage of total assets stood at 14.72%, which is within the international standard of 20%. In the position, the Net Interest Income (NII) of the Bank may increase by BDT 42.52 million in case of 100 basis point increase in interest rate. However, in case of 100 basis point decease in interest rate, the NII of the Bank will go down by BDT 42.52 million. Particulars Rate Sensitive Assets (RSA) Rate Sensitive Liabilities (RSL) Repricing Gap (RSA-RSL) Repricing Gap as % of Total Assets For 100 basis point increase in interest rate

Volume 17656.56 13404.80 4251.76 14.72% 42.52

For 100 basis point decrease in interest rate

(42.52)

Table 3.6: Repricing Gap: 2008

3.8.2.

Liquidity Risk:

Liquidity risk is the risk that the Bank may fail to meet is obligation due to short of cash and/or cash equivalent assets. This situation may arise in the case of withdrawal of deposits, debt maturities and commitment to provide credit.



Objective

Main sufficient liquid assets* and finding capacity to meet their financial commitments, under all circumstances, without having to raise funds at unreasonable prices or sell assets on forced basis. 

Approach

Their approach to liquidity management is to project liquidity requirements based on expected and stressed economic, market, political and enterprise-specific event. This enables them to ensure that they have sufficient funds available to meet their financial commitments even in times of crisis. Funds encompass both liquid assets on hand and capability to raise additional funds.Their large based of scheme deposits form individuals and strong capital positions provide a long-term stable source of funding. The primary risk measurement methodology is to monitor liquid asset ratios, deposits mix, core deposits as percentage of total deposits and net liquidity gap.

Figure 3.4: Liquidity Risk Source: Annual report 2008 Mercantile Bank Limited. 

Liquid Assets =Cash + Balance with Bangladesh Bank + Deposit with other Banks+ Money at Call and Short Notice + Investments.

3.8.3.

Operational Risk:

Operational risk is the risk of loss resulting form inadequate or failed internal processes, people and systems or from external events.



Objective

Operational risk is inherent in all business activities, and the management of these risks is important to the achievement of organizational goals. While operational risks can never be eliminated, these can be managed, mitigated and in some cases insured against to preserve and create value.



Approach

Operational risk is managed through the establishment of effective infrastructure and controls. To this end, we have established a well-formulated framework that uses the strengths and specialized knowledge of our lines of business. Our strategy is to maximize our ability to manage and measure operational risk through implementation of a framework that takes advantages of the best practices in the industry.

3.8.5. Credit Rating Report on MBL by CRISL:

Mercantile Bank Limited has been rated by Credit Rating and Information Services Limited (CRISL) on the basis of Financial Statements as on December 31, 2007. The summary of the rating is presented below:

Credit Rating and Information Services Limited (CRISL) has upgraded the rating of Mercantile Bank Limited to ‘A’ (pronounced as single A) from ‘A-’ (pronounced as single A minus) in the Long Term and ST-2 for the Short Term from ST-3. CRISL has disclosed the said rating on March 9, 2008. The up gradation has been done in consideration with its financials such as improvement in asset quality, capital adequacy, stable source of

fund, diversified product lines etc. Financial institutions rated in this category are adjudged to offer adequate safety for timely repayment of financial obligations.

The short-term rating indicates high certainty of timely payment, strong liquidity factors, good company fundamentals, easy access to capital market and risk factors are very minimal. The long-term rating is valid for only one year and short-term rating is for six months.

3.9. Human Resources Development:

In today’s competitive business environment, the quality of human resources makes the difference. The Bank’s commitment to attract high quality persons to work for it is reflected in the efforts of the Bank. In the face of today’s globalization, the Bank envisages to develop highly motivated workforce and equip them with latest skills and technologies. The Bank evolves human resources development strategy with a view to ensuring good working environment, a high level of loyalty and commitment, devotion and dedication on the part of the employees.

3.9.1

Mercantile Bank Foundation:

The Bank has set up Mercantile Bank Foundation for extending benevolent services to the society. The Bank contributes 1% of operating profit or Tk.4.00 million; whichever is higher, to Mercantile Bank Foundation every year. The Foundation has been established with following objectives:



Mercantile Bank Prize to 8(eight) eminent personalities of the country for the outstanding contribution in the fields of Economics and Economic Research, Bengali Language and Literature, Science and Technology, Education and Culture, Journalism, Sports, Research on Liberation War and Industry and Commerce.



Interest free education loan for the meritorious but poor students



To conduct research on Bengali language and literature.



Book purchase and Distribution Policy to encourage writers and publishers of the country.



Interest free Loan to the unemployed educated people.



Donation for handicapped artists, literature and distressed people.



Project for the development of shelter-less children.

3.10. Branch expansion:

The Bank commenced its business on June 02, 1999. The First branch was opened at Dilkhusha Commercial Area in Dhaka on the inauguration day of the Bank. The Second Branch was opened at Dhanmondi Residential Area, Dhaka on August 04, 1999. The Third Branch was opened at Kawran Bazar, Dhaka on September 06, 1999. The Fourth Branch was opened at Agrabad,

Citation on November 06, 1999. Now, the total number of branches stood at 42 at the end August of the year 2009.

Figure 3.5: Branch Network of Mercantile Bank Limited 3.10.1. Head Office and Branch Network: Head Office 61, Dilute Commercial Area Dhaka-1000, Bangladesh Tel: +880-2-9559333, 01711535960 Fax: +880-2-9561213 Telex: 642509 MBLID BJ E-mail: [email protected] Website: www.mblbd.com Branch Network

Name 01. 02. 03. 04. 05. 06. 07. 08. 09.

Main Branch Dhanmondi branch Kawran Bazar Branch Agrabad Branch Joypara Branch Banani Branch Rajshahi Branch Naogaon Branch Sylhet Branch

Address Dhaka Dhaka Dhaka Citation Dhaka Dhaka Rajshahi Naogaon Sylhet

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

Board Bazar Branch Nayabazar Branch Khatungong Branch Mohakhali Branch Mirpur Branch Ashulia Branch Uttara Branch Jubilee Road Branch Elephant Road Branch Motijheel Branch Madam Bibir Hat Branch Khulna Brach Rangpur Branch Satmasjid Road Branch Jhilongja Brach O R Nizam Road Branch Bogra Branch Chowmuhani Branch Konabari Branch Gulshan Branch Feny Branch Moulobhi Bazar Bijoynagar Mogbazar Branch Sataharnagar Branch Hemayetpur Branch Sapahar Branch Beanibazar Branch Barisal Branch Bhojeshwarbazar Branch Comilla Branch Green Road Branch Sheikh Mujib Road Branch

Gazipur Dhaka Citation Dhaka Dhaka Savar Dhaka Citation Dhaka Dhaka Citation Khulna Rangpur Dhaka Cox’s Bazar Citation Bogra Noakhali Gazipur Dhaka Feny Sylhet Dhaka Dhaka Naogaon Dhaka Naogaon Beanibazar Barisal Shariatpur Comilla Dhaka Citation

Table 3.7: Branch Network SOURCE: Adapted from MBL’s Annual Report 2008

3.11. An Overview of Main branch: The main branch of Mercantile Bank Limited is located in the Motijheel commercial area. The total manpower of this branch is 118.The total number of the senior vice president is 10.As it is the main branch of the bank, the customer appearance in the bank is very high. In the Mercantile Bank Limited, Main Branch, the people are mostly courteous, friendly in nature and eager to help despite the tremendous workload. Manpower is sufficient in the branch but there is no information booth for customer information. So as a new private bank, Mercantile Bank Limited is running steadily. 3.11.1. Department of Main Branch: 

General Banking Division



Credit Division



Foreign Exchange Division

3.12. Divisions of MBL: 1. General Banking & Deposit Management 2. Credit Department 3. Foreign Exchange Department General Banking & Deposit Management: 1. Account opening and KYC procedures. 2. Issuance of DD/TT/PO/FDR. 3. Interbank Transaction, OBC/IBC. 4. Account section. 5. Clearing Section. 6. IT Section. Credit Department: 1. Credit Proposals Processing Procedures. 2. Documentation and Loan Disbursement Procedures.

3. Overview on all returns. Foreign Exchange Department: 1.

I.

Cash L/C

1. Opening of L/C. 2. Lodgment of Import Bill. 3. Payment against Import Bill. 4. B/E Matching. 5. IMP Reporting.

1.

II.

BTB L/C

1. Export L/C Checking. 2. Opening of BTB L/C (Local/ Foreign/ EDF/ EPZ). 3. Lodgment and confirmation of maturity date. 4. Allowing of PC. 5. Payment against realization of Export Proceeds/ Forced Loan. 6. B/E Matching. 7. Reporting. 8.

III.

Export

1. Scrutinizing/ Negotiation/ Send on Collection. 2. Follow-up.

3. Realization. 4. Reporting. 1. IV.

Foreign Remittance

Inward FDD. 1. FTT. 2. Others. Outward 1. Endorsement of Traveling. 2. Education/ Treatment/ Others. 3. Cash Rebate. 4. FC issuing. 5. FDD/ FTT etc. 3.13. Services Offered by MBL: The Bank does believe that it has differentiated itself from other banks through its products and services. It is banking for the people to fulfill their needs conceptualizing product and services to meet their aspiration and expectations. The bank is proud to have exemplified the true concept as ‘Banglar Bank’. The Bank launched several financial products and services since its inception. Among them are: 3.13.1. Deposit Schemes a) Family Maintenance Deposit (FMD): Objectives: 

Help the retired persons for investing their retirement benefits.



Create investment opportunities for Non-Resident Bangladeshi.



Explore investment opportunities for school, college, university etc.



Give investment opportunities for Trust; Foundation etc.

Mode: 

Deposit a fixed amount of money for 05 (Five) years.



Depositor will get a certain sum of money in each month proportion to his/her deposit during the entire tenure.

Benefits: 

Tenure of deposit is 05 (Five) years.



Minimum amount of required deposit is TK.50, 000.00 or it’s multiple. Deposit 1,00,000 2,00,000 3,00,000

Monthly Benefit (Amount in TK.) 1,000 2,000 3,000

Table3.8: Deposit under Family Maintenance Deposit (FMD) scheme B) Monthly Savings Scheme: Objectives: 

Build up habit of savings.



Attract small savers.



Saving for rainy days.

Mode: 

Monthly installments of various sizes.

Benefits: Amount in TK

Period

Monthly Installment 250 500 Benefits

1,000

5 Years 8 Years 10 Years

20,625 41,250 40,375 80,750 57,500 1,15,000 Monthly Installment 1500 2500 Benefits 1,23,750 2,06,250 2,42,250 4,03,750 3,45,000 5,75,000

Period 5 Years 8 Years 10 Years

82,500 1,61,500 2,30,000 5,000 4,12,500 8,07,500 11,50,000

Table3.9: Deposit under Monthly savings scheme c) Pension & Family Support Deposit (PFSD): Condition: 

Provides monthly income for retired person.



Helps to meet monthly expenses after certain period of time.



One person can deposit a certain sum in every month for certain tenure and after that period he/she can get monthly income.

Monthly Installment 500 1,000 2,500 5,000

15 Years

10 Years

Pension per month 625 1,250 3,125 6,250

One time 80,000 1,60,000 4,00,000 8,00,000

Pension 1,150 2,300 5,750 11,500

One time 1,35,000 2,70,000 6,75,000 13,50,000

Table3.10: Monthly Installment of Pension & Family Support Deposit (PFSD) d) Monthly Benefit Scheme: Under this Scheme; customer has to deposit a fixed amount of money for five years and in return he will receive benefits on monthly basis. Benefits start right from the first month of opening an account under Scheme and will continue up to five years when the depositor will get refund of his deposit. e) Quarterly Benefit Deposit Scheme:

The ‘Quarterly Benefit Deposit Scheme’ will be maintained for a period of 3 (three) years and the minimum amount of deposit is BDT 50,000.00 (fifty thousand) or its multiples. Example Initial Deposit (BDT) 50,000 100,000 200,000

Term 3 Years 3 Years 3 Years

Quarterly Benefit Payable (BDT) 1,500 3,000 6,000

Table3.11: Initial Deposit under Quarterly Benefit Deposit Scheme f) 1.5 Times Benefit Deposit Scheme: Under the ‘1.5 Times Benefit Deposit Scheme’ a deposit of minimum BDT 50,000.00 (fifty thousand) or its multiples will be received for a period of 42 months (3.5 years). On maturity after 42 months, 1.5 times of the deposited amount will be paid back to the account holder as per example given below: Example Initial Deposit (BDT) 50,000.00 1,00,000.00 5,00,000.00 Return after 42 months (BDT) with benefits 75,000.00 1,50,000.00 7,50,000.00 Table3.12: Deposit under 1.5 Times Benefit Deposit Scheme g) Double Benefit Deposit Scheme: Objectives: 

Give maximum benefit.



Help in meeting specific needs like education, marriage etc.



Deposit becomes double in six years.

Mode: 

Tenure of the deposit is 06(Six) years. Amount of Deposit 1,00,000

Period 6 Years

Amount Payable 2,00,000

Table 3.13: Deposit under Double Benefit Deposit Scheme h) Special Savings Scheme: Under this Scheme, depositor’s money will be more than three times in ten-year period. The main attraction of this Scheme is depositor can get his money back after one year and onwards with attractive benefits. Objectives: 

Help in meeting specific needs like education, marriage etc.

Mode: 

Deposit a fixed amount of money for any period up to 15 (Fifteen) years.

Benefits: 

Triple of the amount deposited after 15 years.



Minimum deposit shall be Tk.50, 000.00 or it’s multiple. Deposit 1,00,000

Period 15 Years

Amount Payable at Maturity 3,00,000

Table 3.14: Deposit under Special Savings Scheme

3.13.2. Credit Schemes: a) Consumer Credit Scheme: Consumer Credit is a relatively new field of collateral-free finance of the Bank. People with limited income can avail this credit facility to buy household goods including car, computer and other consumer durable. Objectives: 

Help fixed-income people for buying household durable.



For the amount up to Tk. 1,00,000 the period is two years.



Interest rate will be charged quarterly rest.

Terms & Conditions:



Interest Rate 16.00%



Risk Fund 1.00%



Supervision Charge (per year on outstanding balances) 0.25%



Application Fee BDT 200.00

Special Feature: 

The loan amount is directly credited to the customer’s account.

b) Small Loan Scheme: This Scheme has been evolved especially for small shopkeepers who need credit facility for their business and cannot provide tangible securities. The present maximum range of loan under the Scheme is Tk. 2,00,000. Objectives: 

Extend credit facility to small shopkeepers.



Give collateral-free credit.

Mode: 

Maximum amount of loan Tk. 2,00,000.



Interest Rate 16.00%



Risk Fund 1.00%



Service Charge 0.25% per year on outstanding balances



Application Fee BDT 200.00



Loan Limit BDT 2.50 Lac



Repayment period 3 years



Interest rate will be charged at quarterly rate

c) Lease Finance:

This has been designed to assist and encourage the genuine and capable entrepreneurs and professionals for acquiring capital machinery, medical equipment, computers and other items, which may help them to be economically self-reliant. Terms and conditions of this credit have been made easier than before in order to help the potential entrepreneurs to acquire equipment of production and services and repay the liability gradually from earnings on the basis of “Pay as you earn.” Objectives: Assist and encourage entrepreneurs for acquiring capital machinery, medical equipment, automobiles etc. Terms & Conditions: 

Lease period 3 to 7 years



Lease rent @ 16.00%



Risk Fund 1.00%



Service Charge 0.25% per year on outstanding balances.

Security: 

Primary: Ownership of fixed items.



Collateral: Landed property, Bank Guarantee, ICB Unit Certificate etc.

d) Doctors Credit Scheme: Doctor’s Credit Scheme is designed to provide financing facilities to doctors, clinics and hospitals on easy terms. Objectives: 

Help new F.C.P.S. or post-graduate doctors for setting up chambers and buying medical equipment.



Help experienced doctors for refurbishing chambers and buying medical equipment.



Assist private clinics for acquiring modern medical equipment.



Interest rate will be charged quarterly rest.

Terms & Conditions:



Equity

1. For new doctor10% 2. For experience ddoctor15% 3. For Hospital, Clinic and Diagnostic Center 20% 

Interest Rate 16.00%



Risk Fund Tk. 1.00%



Repayment period 5 years..

e) Rural Development Scheme: Rural Development Scheme has been evolved for the rural people of the country to make them self-employed through various incomes generating activities. This Scheme is operated through the rural branches of the Bank. Objectives: 

Raise the standard of living of rural people.



Initiative to break the vicious cycle of poverty.



Enhance the purchasing power of rural people.

 Terms & Conditions: 

Group Formation

1. 30 people in a group 2. 1 group leader 3. 6 sub-groups consisting 5 person each in a group 4. 1 sub-group leader in each sub-group f) Women Entrepreneurs Development Scheme:

Women Entrepreneurs Development Scheme has been introduced to encourage women in doing business. Under this Scheme, the Bank finances the small and cottage industry projects sponsored by women.

g) Ajibon Pension Scheme: Ajibon Pension Scheme has been designed mainly for providing income after retirement Under this Scheme one can get life long benefit if he deposits specific amount per month for a period of 10,15,20 or 25 years. The Scheme can also be opened in the name of minors. h) SME Financing Scheme: Small and Medium Enterprise (SME) Financing Scheme has been introduced to assist new or experienced entrepreneurs to invest in small and medium scale industries.

I) Car Loan Scheme: Car Loan Scheme has been introduced to enable middle-income people to purchase Cars/SUVs/Jeeps. Objectives: 

Help fixed-income people for buying car



Interest rate will be charged quarterly rest.

Terms & Conditions: 

Maximum loan amount is BDT 25,00,000



Tenure of loan is 05 (Five) years



Interest Rate 16.00%



Risk Fund 1.00%



Supervision Charge (per year on outstanding balances) 0.25%



Application Fee BDT 200.00



Tenure of loan is 05 (Five) years

j) Personal Loan Scheme: Objectives: 

Help fixed-income people for buying house hold Durable



For the amount up to Tk. 3,00,000 the period is 03 (Three) years



Interest rate will be charged quarterly rest.

Mode: 

Interest Rate 16.00%



Risk Fund 1.00%



Supervision Charge (per year on outstanding balances) 1.00%



Application Fee BDT 200.00

3.14. Functions of Mercantile Bank Limited: The functions of commercial banks are now wide and varied. However, the functions of Commercial Banks may broadly be classified under the following two categories: A. Primary Functions: The primary functions of MBL are same as other Commercial Banks. These functions include: 

Accept Deposit.



Lends Money.



Create Credit.



Creates medium of exchange.

B. Secondary Functions: Modern Commercial Banks like MBL, besides performing the primary functions, cover a wide range of financial and on financial services to meet the growing needs of the time. Some of these services are available only to the customers while others are available to the public in general. The subsidiary services provided by a modern banker may be classified into the following three groups:

1. Agency Service. 2. Generally Utility Services. 3. Foreign Exchange Business. Operations of MBL: Deposit: The Bank mobilized total deposits of BDT 49,538.36 million as of December 31, 2008 as compared to BDT 39,348.00 million in 2007. Competitive interest rates, attractive deposit products, deposit mobilization efforts of the Bank and confidence reposed by the customers in the Bank contributed to the notable growth in deposits. The Bank introduced a number of attractive deposit schemes to cater to the requirement of small and medium savers. This improved not only the quantum of deposits; it also brought about qualitative changes in the deposits structure. Figure 3.8: Trend of Deposits in MBL 3.15.2. Advances: The Bank has formulated its policy to give priority to small and medium enterprises while financing large-scale enterprises through consortium of banks. Total loans and advances of the Bank stood at BDT 41,993.95 million as of December 31, 2008 as compared to BDT 31,877.86 million in 2007. The Bank has formulated its policy to give priority to small and medium businessmen while financing large-scale enterprises through consortium of banks. Total loans and advances of the Bank stood at BDT 31,877.86 million as of December 31, 2008 as compared to BDT 26,842.14 million in 2007. Trade and commerce, garments industry, large and medium scale industries and construction are major sectors in which the Bank extended credit. 3.15.4. Import Trade: Mercantile Bank Limited opted quality financing while facilitating import trade in 2008. This year the Bank executed a total of 20,321 letters of credits amounting to BDT 56,528.80 million. The principal items were capital machineries, garments & accessories, rice, wheat, sugar, CDSO, vegetable oil, cement clinkers, hot roll steel, raw cotton, ships-breaking etc. The Bank is very much supportive in export financing since its inception. As an outcome of its positive attitude in export performance it is holding the top position among leading bank’s of new generation. A total of 17,581 export bills were handled worth BDT 43,108.50 million in 2008. the main export items of the bank were readymade garments, jute & jute goods, leather, handicrafts, tea frozen food, fish products etc.

3.15.6. Syndication and Structured Finance: The Bank sanctioned BDT 6986.99 million as funded and non-funded facilities in Syndication and Structured Finance. The Bank worked as lead arranger in syndication financing as well as the participating financial institution. The project in which the Bank participated in Syndication and Structured Finance included: Grameen Phone Bangladesh Limited, TM International Limited, Pacific Bangladesh Telecom Limited, Nasir Glass Industries Limited, Partex Sugar Mills Limited, United Sugar Mills Limited, PHP Float Glass Industries Limited, AM Energy Limited, Dhaka Telephone Limited, Rising Spinning Mills Limited, Karim Spinning Mills Limited, BRAC, Rural Power Company Limited and KYCR Coil Industries Limited. 3.15.7. Card Business: MBL cardholder can enjoy the following benefits and much more: No Cash Withdrawal Fee: For withdrawals of cash from MBL ATM by MBL cardholders no cash advance fee is necessary and from any other Q-cash ATM the fee is Tk.10 only. MBL is the only bank offering such unique facility. Moreover, our VISA Cardholders can also withdraw cash from any Visa logo ATM locally and internationally. Acceptability: International/Dual card is accepted all over the world at millions of outlets and ATMs. A Dual card is also accepted in most of the big cities like Dhaka, Citation, Khulna, Rajshahi, and Sylhet at more than 10,000 outlets including 4500 POS. It covers various kinds of merchants like hospital, hotel, restaurant, department store and the card has accessibility to any outlet having VISA logo. Credit Facility: Mercantile Bank Ltd. Visa Credit card offers maximum 45 days credit facilities free of interest and minimum payment is 5% of outstanding billing payment for easy repayment and convenience of the customers. Supplementary Card: A Principal cardholder (local) may apply for more than one supplementary card where one supplementary card is free. Expenses made by supplementary card will be charged to the principle card. Advance against Credit card: MBL cardholder can take advance as term loan up to 50% of the card limit to be repaid on the monthly installment basis. Any POS transaction over TK. 20000 but not exceeding 50% of the credit limit is convertible to Personal loan/CCS and to be repaid on monthly installment basis. Repayment period of such loan may be from 6 months to 36 months. Overdraft Facilities: Overdraft facilities up to 80% of the credit card limit may also be allowed for payment of the installment of scheme deposit with our Bank. Payment of Utility Bill: Payment of utility bills like telephone bills, gas bills, electric bills, water bills, may be settled by card.

Dual Card (two in one): Single Card with double benefits. No hassle to carry two cards (local and international). A single credit card can be used both locally and internationally to withdraw cash from ATM for POS transaction. This is the special feature of MBL Visa card. Debit Card: Visa debit card is mainly tagged with deposit account (CD/SB/STD) that is automatically debited from the A/C having available balance. Debit card can also be used for purchasing goods, services, payment of utility bills etc as well as withdrawal of cash from ATM. Pre-Paid Card: Those who have no account with MBL may avail Pre-Paid card facilities. The Pre-Paid cardholders pay first buy later. Pre-Paid card offers the convenience and security of electronic payment in situations where one might otherwise use cash, such as birthday gift or a monthly allowance for a young adult. Examples include gift cards and salary payment etc. Cash advance fee:

a)

MBL card to MBL ATM: No fee.

b)

MBL card to other Q-Cash ATM: Tk.10 per transaction.

c)

MBL card to other ATM: 2% of transaction amount or Tk.125 whichever is higher.

d)

For international card: USD 3 or 2% of transaction amount whichever is higher.

3.15.8. Foreign Exchange Business:

From the very beginning a Commercial Bank like MBL is involved in financing foreign trade apart from financing internal credit requirements in the economy. This involves handling of import business through opening Letter of Credit and Handling of export business. As banking has become very keenly competitive, banks find it convenient to involve in foreign exchange business as lucrative sources of earning income and profit.

Apart from financing foreign trade, Commercial Banks also provide guarantees of various types to their clients. While these facilities clients to undertake jobs assigned to them by various Corporations and Organizations, this enables the Bank to earn commission, which is becoming gradually major source of earning of Commercial Bank. 3.15.9. Online Banking:

Online Banking has so far been activated with 41 Branches of the Bank from January 01, 2006. Online service is now available for all customers – Both Cash deposit and withdrawals, Cherub Deposits and Transfer in CD, SB, STD, Loan accounts (Cherub Bearing within limit) and Monthly Savings Scheme (MSS). 3.16. Financial Performance: CHAPTER- 4 Introduction to Foreign Exchange 4.1. Foreign Exchange- its meaning and definition:

Foreign exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign Trade gives rise to foreign exchange. Modern banks facilitate trade and commerce by rendering valuable services to the business community. Apart from providing appropriate mechanism for making payments arising out of trade transactions, the banks gear the machinery of commerce, specially in case of international commerce, by acting as a useful link between the buyer and the seller, who are often too far away from and too unfamiliar with each other.

According to Foreign Exchange Regulation Act (FERA) 1947, “Any thing that conveys the right to wealth in another country is foreign exchange. Foreign exchange means and includes all deposits, credits and balances payable in foreign currency as well as foreign currency instruments such as drafts, TCs. Bill of Exchange, promissory Notes and Letters of Credit payable in any foreign currency. “.

This definition implies that all business activities relating to Import, Export, Outward & Inward Remittances, buying & selling of foreign commissions, etc. come under the purview of foreign exchange business. Foreign exchange department of banks plays significant roles through providing different services for the customers. 4.2. Foreign Exchange Market and Bangladesh Foreign Exchange Market allows currencies to be exchanged to facilitate international trade and financial transactions. Evolution of the market in Bangladesh is closely linked with the exchange rate regime of the country. It had virtually no foreign exchange market up to 1993.

BANGLADESH BANK, as agent of the government, was the sole purveyor of foreign currency among users. It tried to equilibrate the demand for and supply of foreign exchange at an officially determined exchange rate, which, however, ceased to exist with introduction of current account convertibility. Immediately after liberation, the Bangladesh currency taka was pegged with pound sterling but was brought at par with the Indian rupee. Within a short time, the value of taka experienced a rapid decline against foreign currencies and in May 1975, it was substantially devalued. In 1976, Bangladesh adopted a regime of managed float, which continued up to August 1979, when a currency-weighted basket method of exchange rate was introduced. The exchange rate management policy was again replaced in 1983 by the trade-weighted basket method and US the dollar was chosen as intervention currency. By this time a secondary exchange market (SEM) was allowed to grow parallel to the official exchange rate. Up to 1990, multiple exchange rates were allowed under different names of export benefit schemes such as, Export Bonus Scheme, XPL, XPB, EFAS, IECS, and Home Remittances Scheme. This led to a wide divergence between the official rate and the SEM rate. The situation also gradually gave rise to a number of conflicting regulations, poor risk management, and various types of implicit or explicit government guarantees to the users of foreign exchange. This resulted in a number of macro-economic imbalances prompting the government to adjust the official rate in phases.

4.3 Functions of Foreign exchange department:

Following are the functions that Foreign exchange department performs to facilitate the transaction of foreign exchange: 

Facilitating import and export trades.

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Providing funded and non-funded credit facility.

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Providing non-commercial remittance.

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Maintaining foreign currency accounts.

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Selling foreign currency bond.

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Preparing and submitting statements relating to foreign currency.

4.4. Exchange Rate Policy:

The exchange rate policy of Bangladesh Bank aims at maintaining the competitiveness of Bangladeshi products in the international markets, encouraging inflow of wage earners’ remittances, maintaining internal price stability, and maintaining a viable external account position. Prior to the inception of floating exchange rate regime, adjustments in exchange rates were made while keeping in view the trends of Real Effective Exchange Rate (REER) index based on a trade weighted basket of currencies of major trading partners of Bangladesh and the trends of other important internal and external sector indicators. However, the interbank foreign exchange market sets the exchange rates for customer transactions and interbank transactions based on demand-supply interplay; while the exchange rates for the Bangladesh Bank’s spot purchase and sales transactions of US Dollars with ADs is decided on a case to case basis. Bangladesh Bank does not undertake any forward transaction with ADs. The ADs are free to quote their own spot and forward exchange rates for interbank transactions and for transactions with non-bank customers. 4.5. Different Foreign Exchange rates in Bangladesh: The exchange rates of Taka for inter-bank and customer transactions are set by the dealer banks themselves, based on demand-supply interaction. The Bangladesh Bank is not present in the market on a day-to-day basis and undertakes purchase or sale transactions with the dealer banks only as needed to maintain orderly market conditions. The exchange rates are used as reference rates to purchase or sale transactions for Bangladesh Bank with Government or different International Organization. But USD/BDT buying and selling rates represent previous day interbank market’s highest and lowest exchange rates. Recent Reference Exchange Rates: Currency Buying 15th October, 2009 A. USD/BDT Rates (based on interbank transaction) USD 69.08 B. Cross Rate SEK 10.00 JPY 0.77 GBP 110.35 EUR 103.07 CAD 67.33 AUD 63.15

Selling

69.09 10.00 0.77 110.39 103.12 67.38 63.19

Table 4.1: Recent Reference Exchange Rates SOURCE: www.exchangerates.org.

The graph below shows historical exchange rates between the Bangladeshi Taka (BDT) and the US Dollar (USD) between 4/20/2009 and 10/16/2009.

\ Figure 4.1 Different Exchange rates in Bangladesh SOURCE: www.exchangerates.org. 4.6. Movements of monthly averages of USD/BDT Exchange Rate: Figure 4.2 charts the monthly average nominal exchange rates against the US Dollar for the currencies of Bangladesh and some of its major Asian trading partners over a 12-month period beginning January 2008, taking that month as the base. Bangladesh Taka has remained fairly steady over 2008 without any major fluctuations. However, that cannot be said for other

currencies in Asia which have experienced sharp fluctuations, partly as a result of the ongoing global economic crisis. The Indian Rupee depreciated by about 25 percent over the year as inflows of foreign capital to India fell sharply along with withdrawals of foreign portfolio investments, also resulting in a sharp decline in the stock market. A similar pattern of events occurred in Thailand, though to a lesser extent. As Bangladesh imports a considerable amount of food items from both India and Thailand, the cost of these imports should be considerably cheaper as a result of the depreciation of their currencies. This, along with the sharp fall in global food, oil and commodity prices, has resulted in a significant fall in average inflation rates in Bangladesh. However, such a ‘stable’ exchange rate of the Taka against the US$ might have some important negative implications for export competitiveness. Figure 4.2: Monthly Average Nominal Exchange Rates vs. US$ in 2008 SOURCE: Reserve Bank of respective countries 4.7. Recent Forex outlook of Bangladesh: Fiscal year 2008 has so far been marked by robust growth in Bangladesh’s exports. During JulyNovember 2008, total exports receipts were about US$ 6.54 billion as compared to $5.18 billion over the same period of FY2007, an increase of over 23.36 percent. A sharp upturn occurred after October. Export receipts in October were $867.69 million, while in November they amounted to$1297.47 million, a rise of over 49.5 percent in one month. This brought November 08 export earnings to a level higher (about 13.4 percent) than the same month of the previous year, as seen in Figure 4.3. Figure 4.3: Exports Jul-Nov ‘07 vs. ‘08 SOURCE: Bangladesh Bank, December 2008 Further, from Figure 4.4 and 4.5 we see that robust remittance inflow and satisfactory export performance and a reasonably stable trade balance in recent years have contributed much to maintain a stable exchange rate against US$. Figure 4.4: Remittance Inflow in Bangladesh SOURCE: Bangladesh Bank Figure 4.5: Export and Import for Bangladesh SOURCE: Bangladesh Bank It is also observed in Figure 4.6 that Bangladesh maintained much lower ratio of international reserves to imports compared to other Asian countries which gave Bangladesh Bank enough flexibility to inject sufficient amount of dollar into the foreign exchange market over the periods under consideration. Figure 4.6: Ratio of International Reserves to Imports: The case of Some Asian Countries SOURCE: World Development Indicators, 2008 (World Bank) 4.8. Types of Foreign Trades: There are mainly three types of transactions which lead to foreign exchange. These are:

a) Import b) Export c) Foreign Remittance Figure 4.7: Types of Foreign Trades SOURCE: www.mblbd.com 4.9. Regulations for Foreign Exchange: 4.9.1. Local regulations: our foreign exchange transactions are being controlled by the following local regulations: 4.9.2. Foreign Exchange Regulation Act: Foreign Exchange Regulation (FERA) Act. 1947 enacted on 11th March 1947 in the then British India, provides the legal basis for regulation the foreign exchange. This act was adapted in Pakistan and lastly in Bangladesh. 4.9.3. Guidelines for Foreign Exchange Transaction: This publication issued by Bangladesh Bank in the year 1996 in two volumes. This is a compilation of the instructions to be followed by the Authorized Dealers in transactions relating to foreign exchange. 4.9.4. F.E. Circular: Bangladesh Bank issues F.E. circular from time to time to control the export import business and remittance that is to control the foreign exchange., 4.9.5. Export-Import Policy: Ministry of commerce issues Export Policy and Import Policy giving basic formalities for Import and Export Business. 4.9.6. Public Notice: Some times CCI &E issues public notice for any kind of change in Foreign Exchange Transaction. 4.9.7. Instructions from different ministry: Different ministries of the Govt. sometimes instruct the authorized dealer directly or through Bangladesh Bank to follow something required for the government. 4.9.8. International Regulations: There are also some international organizations influencing our Foreign Exchange transactions. Few of them are discussed bellow: 4.9.8.1. ICC: International Chamber of Commerce is a world wide Non-governmental Organization of thousands of companies. It was founded in 1919. ICC National committees throughout the world present ICC views to their Governments and alert Paris Headquarters about national business concerns. ICC has issued some publications like UCPDC, URC and URR etc., which are being followed by all the member countries. There is also an international Court of Arbitration to solve the international business disputes. 4.9.8.2. WTO: World Trade Organization is another International Trade Organization established on 1st January 1995. GATT (General Agreement on Tariff & Trade) was established on 1st January 1948. After completion of it’s 8th round, the organization has been abolished and replaced by WTO. This organization has vital role in international trade through its 124 member countries.

4.10. Letter of credit: A Letter of credit is a letter issued by a bank (know as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (known as beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter gave been complied with. 4.10.1. Classification of Letter of Credit: In different considerations there are many kinds of L/Cs. Some of them are discussed bellow: 4.10.1.1. Irrevocable L/C: Irrevocable L/C cannot be amended or cancelled without the consent of the beneficiary or any other interested parties. Banks commonly open this type of L/C. 4.10.1.2. Revocable L/C: This kind of L/C can be amended or cancelled by the Issuing Bank, without the consent of the beneficiary or any other interested parties. If it is not indicated in the L/C, whether it is Revocable or Irrevocable, then the L/C to be treated as Irrevocable. 4.10.1.3. Add-confirmed L/C: When a third bank provide guarantee to the beneficiary to make payment, if Issuing Bank fail to make payment, the L/C is called Add-Confirmed L/C. In case of a confirmed L/C a third bank adds their confirmation to the beneficiary, to make payment, in addition to that of Issuing Bank. Confirmed L/C gives the beneficiary a double assurance of payment. 4.10.1.4. Clean Claused: It is a normal claused L/C without third bank’s confirmation. 4.10.1.5. Revolving L/C: It is an L/C where the original amount restores after it has been utilized. How many times and how long, the amount will restore must be specified in the L/C. For example, an L/C opened for USD 1000 and shipment effected for USD 500, now the L/C restored for full value i.e. There is scope to effect further shipment of USD 1000 revolving L/C may be opened to avoid difficulties of opening new L/C. This L/C is not allowed in our present import policy. 4.10.1.6. Transferable L/C: If the word “Transferable” incorporated in an L/C, then the L/C is transferable. The 1st beneficiary can transfer transferable L/C to the 2nd beneficiary. But 2nd beneficiary cannot transfer it further to another beneficiary. Transfer may be done to more than one beneficiary, partially, if not prohibited in the L/C. 4.10.1.7. Restricted L/C: If advising and/or negotiation of an L/C are restricted to a particular bank, the L/C is called a restricted L/C. 4.10.1.8. Green Clause L/C: It is an L/C, where the Issuing Bank authorizes the Negotiating Bank to grant storage facilities to the beneficiary. The special clause was originally written in Green-ink, so the L/C is called Green Clause. In both the case of Red Clause and Green Clause L/C, if the exporter fails to ship the goods the financing bank has the right to demand repayment from the Issuing Bank and that bank would have a similar right of recourse against the applicant.

4.10.1.9. Clean Letter of Credit: This is a commercial letter of Credit, wherein the Issuing Bank does not ask any documents as evidence of execution of the deal under the L/C. Under the said L/C only bill of exchange may be negotiated or may be paid without any supporting documents. Clean Letter of //Credit is not permissible in our import policy. 4.10.1.10. Documentary Letter of Credit: All the commercial letter of credits, where export related documents such as invoice, B/L etc. are required to present with the bill of exchange, is called Documentary Credit. Under this L/C, Bill of Exchange will not be honored without other required documents. 4.10.1.11. Straight Documentary Credit: Under the irrevocable straight documentary credit, the obligation of the Issuing Bank is extended only to the beneficiary, in honoring draft(s)/ documents and usually expires at the counter of the Issuing bank. This L/C. does not authorize any body to negotiate, purchase the documents. This L/C. is available for payment only at the Issuing Bank’s counter, not available for negotiation. 4.10.1.12. Irrevocable Negotiation Documentary Credit: This L/C. is available for negotiation by a nominated bank/any bank and expiring for presentation of document at the offices of Negotiating bank. The Issuing Bank is bound to reimburse the Negotiating Bank, if it negotiates the documents complying with the credit terms. 4.10.1.13. With Recourse and Without Recourse to Drawers: These terms are related with Bill of Exchange. If the L/C allow a Bill of Exchange with recourse to the drawer, that means the Negotiating Bank has the right to claim the amount back, from the drawer, if the B/E is dishonored by, the drawee. And in case of without recourse, the Negotiating Bank has no right to claim the amount back. L/C can be classified according to source of fund: A) Back-to-Back L/C: Back to Back import L/C is backed by another export L/C. where import of the goods to be made to execute the export L/C and payment of Back to Back bills to be made normally from related export process, the import L/C is called Back to Back L/C. A Back-toBack L/C is opened against an irrevocable L/C. The L/C is lien marked with the back-to-back L/C issuing branch. Back to Back L/C may be opened up to 75% of export L/C, (FOB value) and up to 80% where export price is more than USD 60/- per dozen in case of garments industries. B) Cash L/C: Where payment of import bills under L/C is being made from (i) Foreign Currency reserve in Bangladesh Bank or (ii) F.C. account with authorized Dealer, the L/C is called Cash L/C. C) Barter L/C: Where final settlements are being made through commodity exchange between the nations, the L/C is called Barter L/C. According to Payment terms, there are mainly three types of L/Cs such as: a) Sight Credit:

b) Accepted Credit: c) Deferred Payment Credit: 4.11. Documents used in LC operation: The most commonly used documents in foreign exchange are 4.11.1. Bill of Exchange 4.11.2. Bill of Lading 4.11.3. Commercial of invoice 4.11.4. Certificate of origin 4.11.5. Inspection certificate 4.11.6. Packing list 4.11.7. Insurance document 4.11.8. Pro Forma Invoice (PI)/Indent 4.11.1. Bill of Exchange: Bill of Exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating settlement of payments between buyer/importer and seller/exporter at home and abroad. A bill who accepted by the drawer, gives evidence of the claim as made by the drawer as well as testimony to the acceptance the debt by drawer. The payment is done either in accordance with the terms of sale contract or under a L/C opened by the buyer/importer in favor of the seller/exporter. 4.11.2. Bill of Lading: A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constitutes a document that is, or may be, needed to support an insurance claim. The details on the bill of lading include: • A description of the goods in general terms not inconsistent with that in the credit. • Identifying marks and numbers. • The name of the carrying vessel. • Evidence that the goods have been loaded on board. • The ports of shipment and discharge. • The names of shipper, consignee and name ad address of notifying party. • Whether freight has been paid or is payable at destination. • The number of original bills of lading issued. • The date of issuance A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit. 4.11.3. Commercial of invoice: A Commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally includes the following information. Date Name and address of buyer and seller Order or contract number, quantity and description of the goods, unit price and the total Price

Weight of the goods, number of packages, and shipping marks and numbers Terms of delivery and payment Shipment details 4.11.4. Certificate of origin: A certificate of origin is a singed statement providing evidence of the origin of the goods. 4.11.5. Inspection certificate: This is usually issued by an independent inspection company located in the exporting country certifying describing the quality, specification or other aspects of the goods, as called for in the contract and/or the L/C. The buyer who also indicates the type of inspection he wishes the company to undertake usually nominates the inspection company. 4.11.6. Packing list : This is unique document and not combined with other document. This is a listing of the contents of each package cartoon etc. and other relevant information. 4.11.7. Insurance document: Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the agreed manner and extend against fortuitous losses. Insurance document generally contains the following information: The name of the insurer or his agent The name of the ship/carrier The name of assured The subject matter of insurance The peril(s) insured against The date and subscription The valuation 4.11.8. Pro Forma Invoice (PI)/Indent: Pro Forma Invoice / Indent is the sale contract between seller and buyer in import-export business. There is slight difference between indent and Pro forma invoice. The sales contract, which is direct correspondence between importer and exporter, is called Pro forma invoice. There is no intermediary between them. On the other hand, the may be an agent of exporter in importer’s country. In this regard, if the sale contract is occurred between the agent of exporter and importer then it is called indent. Pro Forma Invoice is a form of quotation to a potential buyer, inviting him to buy the goods on stated terms. The should be clearly stated that it is pro forma and if it is accepted the details are normally transferred to a commercial invoice. 4.12. Different accounts related to foreign exchange transaction: In L/C operation different accounts are maintained which are needed for foreign exchange transaction. These are: 4.12.1. Nostro account:

Nostro account means “our account with you”. A Nostro account is a foreign currency account of a bank maintained its foreign correspondents abroad. For example, US Dollar Account of MBL maintained with Citibank, N.A, New York, USA is a Nostro account of MBL. 4.12.2. Vostro account: Vostro account means “your account with us”. The account maintained with foreign correspondent in a bank of a particular country is known as Vostro account. What is the nostro account for a bank in a particular country is a vostro account for the bank abroad maintaining the account thus the account of MBL with Citi Bank N.A, New York is regarded as it’s nostro account held with Citi Bank, while Citi Bank N.A, New York regards it as a it’s vostro account held for MBL. 4.12.3. LORO Account: Loro account means “their account with you”. Account maintained by third party is known as loro account; suppose MBL is maintaining an account with Citi Bank N.A, New York and at the same time Janata Bank is also maintaining a nostro account with Citi Bank N.A, New York. From the point of view of MBL Janata Bank’s account maintained with Citi Bank N.A New York is the loro account. 4.13. Different parties involved Foreign exchange transaction: Normally the following parties are involved to a documentary credit: 4.13.1. Importer: The buyer or the importer is he who initiates the credit. He applies to bank for issue foreign a documentary credit. The obligations between the importer and the issuing bank are governed by the application-cum-agreement submitted by the importer to the bank. He is bound to reimburse the bank, which effects payment or incurred a deferred payment undertaking or has accepted or negotiated under the credit as per terms, and to take up the documents. 4.13.2. Opening Bank: The issuing or opening bank is the importer’s bank and it issues a letter of credit normally pursuant to the terms of sales contract as set out in the application for the credit by the importer. The issuing bank should nominate the bank, which is authorized to pay or to accept drafts or to negotiate, unless the credit allows negotiation by any bank. 4.13.3. Exporter: The seller or exporter is the beneficiary of the credit. The letter of credit is opened in his favor and addressed to him-. The beneficiary has the obligation to make export as per the contract and produce the documents as required by the credit. 4.13.4. The Advising Bank: It is the bank in the exporter’s country (normally the exporter’s bank), which is usually the foreign correspondent of importer’s bank through which the L/C is advised to the supplier. If the

intermediary bank simply advises/notifies the L/C to the exporter part, it is called “Advising Bank”. 4.13.5. The Confirming Bank: If the advising bank also adds its own undertaking to honor the credit while advising the same to the beneficiary, he becomes the confirming bank. In addition, becomes liable to pay for documents in conformity with the L/C’s terms and conditions. The liability of the confirming bank is the primary liability and it is not contingent on the fulfillment of the obligation by the issuing bank. 4.13.6. The Accepting Bank: Accepting bank is the bank nominated in the letter of credit to accept usance bills drawn under the credit. If the bank so nominated accepts the nomination, its responsibility to the beneficiary is not only to accept the drafts drawn but also to make payment on their due dates. 4.13.7. The Paying Bank: Paying bank is a bank in the beneficiary’s country nominated in the letter of credit to make payment against documents to be tendered under the credit. Paying Bank must examine all documents with reasonable care to ascertain that these are drawn in accordance with the terms and conditions of the credit. Figure 4.8: Different banks involved in Foreign exchange transaction 4.13.8. Reimbursing Bank: The issuing bank may indicate in the credit the name of a bank. From whom the paying/negotiating bank can obtain reimbursement. The documents are sent to the issuing bank. The negotiating/paying bank simultaneously makes a claim with the reimbursing bank for the payment effected. Normally the reimbursing bank would be the bank with which the issuing bank maintains an account. 4.13.9. The Transferring Bank: If the L/C is transferable, then the 1st beneficiary of the L/C may transfer the L/C to the 2nd beneficiary, through a bank nominated by the Issuing Bank. This bank is called the Transferring Bank. The international trade can be illustrated by the following diagram: Figure 4.9: A process of international trade CHAPTER- 5 Import 5. Import: Import trade in Bangladesh is controlled under the Import and Export control Act 1950. Authorized Dealer Banks will import the goods into Bangladesh following the import policy, public notice, F.E. circular and other instructions from competent authorities from time to time. The import functions of the branch as far I have understood are discussed bellow:

5.1. Legal Requirements: Import of merchandise into in Bangladesh is related by the Import Policy Order (IPO) announced by the Ministry of Commerce and/or Notifications/Public Notices issued by the Ministry of Commerce and /or C.C.I.&E and Bangladesh Bank. Before entering into an import transaction country’s legal and economic framework to be considered. These include: • Restrictive governmental policies • Exchange regulations • Tariffs and transaction • Reporting to the controlling authorities It is important to have a general understanding of some of the basic legal and economic terminology internationally, within which such trade takes place. Following ICC Publications framework of such terminology & rules governing international trade. • UCPDC, ICC PUB-500 • URR, ICC PUB-525 • URC,ICC PUB-522 • Incoterms 2000 ICC PUB-460 (Revised) 5.2. Import procedure followed by MBL: As an Authorized Dealer, MBL, Main Branch is always committed to facilitate import of different goods into Bangladesh from the foreign countries. Import Section, which is under Foreign Exchange Department of the branch, is assigned to perform this job. And to serve its client’s demand to import goods, it always maintains required formalities that are collectively termed as The Import Procedure. 1. At first, the importer must obtain Import Registration Certificate (IRC) from the CCI&E submitting the following papers: • Up to date Trade License. • Nationality and Asset Certificate. • Tax Indification Number • VAT Registration Number • In case of company, Memorandum & Articles of Association and Certificate of Incorporation. • Bank Solvency Certificate etc. 2. Then the importer has to contact with the seller outside the country to obtain the Pro forma Invoice. Usually an indenter, local agent of the seller or foreign agent of the buyer makes this communication. Other sources are: • Trade fair. • Chamber of Commerce. • Foreign Missions in Bangladesh. • Journals etc. 3. When the importer accepts the Pro forma Invoice, he/she makes a purchase contract with the exporter detailing the terms and conditions of the import. 4. After making the purchase contract, importer settles the means of payment with the seller. And

import procedure differs with different means of payment. The possible means are Cash in Advance, Open Account, Collection Method and Documentary Letter of Credit. In most cases, the Documentary Letter of Credit in our country makes import payment. Purchase Contract contains which payment procedure has to be applied. Different Means of Payment: a) Cash in advance: Importer pays full, partial or progressive payment by a foreign DD, MT or TT. After receiving payment, exporter will send the goods and the transport receipt to the importer. Importer will take delivery of the goods from the transport company. b) Open Account: Exporter ships the goods and sends transport receipt to the importer. Importer will take delivery of the goods and makes payment by foreign DD, MT, or TT at some specified date. c) Collection Method: Collection methods are either clean collection or documentary collection. Again, Documentary Collection may be Document against Payment(D/P) or Document against Acceptance(D/A). The collection procedure is that the exporter ships the goods and draws a draft/ bill on the buyer. The exporter submits the draft/bill (only or with documents) to the remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the draft/bill (with or without documents) and a collection instruction letter to the collecting bank. Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of the draft. The title of goods is released to the importer upon full payment or acceptance of the draft/bill. d) Letter of credit: Letter of credit is the well accepted and most commonly used means of payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon submission of some stipulated documents and fulfilling the terms and conditions mentioned in the letter of credit. 5. Requesting the concerned bank (importer’s bank /issuing bank) to open a L/C(irrevocable) on behalf of importer favoring the exporter/seller. Import section deals with L/C opening and post import financing i.e. LIM & LTR. Now the procedure from opening L/C to disbursement against L/C is given below: 5.2.1. Application for opening L/C: At first, an importer will request banker to open L/C along with the following documents. • An application • Indent or Pro forma Invoice • Import Registration Certificate (IRC) • Taxpayer’s Identification Number (TIN) • Insurance cover note with money receipt • A bank account in MBL, Main Branch • Membership of chamber of commerce 5.2.2. Delivered forms by banker to importer: After scrutinizing above-mentioned documents carefully, officer delivers the following forms to be filled up by importer and the banker should check: a) Whether the goods to be imported is permissible or not. b) Whether the goods to be imported is demanding or not.

The forms are: 5.2.2.1. L/C Application Form (LCAF): L/C Application Form is a sort of an agreement between customer and bank on the basis of which letter of credit is opened. MBL, Main Branch provides a printed form for opening of L/C to the importer. Special adhesive stamp of value Tk.150.00 is affixed on the form in accordance with Stamp Act. Usually the importer gives the following information – • Full name and address of the importer. • Full name and address of the beneficiary. • Draft amount. • Availability of the credit by sight payment/acceptance/negotiation/deferred payment. • Time bar within which the documents should be presented. • Sales type (CIF/FOB/C&F). • Brief specification of commodities, price, quantity, indent no. etc. • Country of origin. • Bangladesh Bank registration number. • Import License/LCAF number. • IRC number. • Account number. • Documents number. • Insurance Cover Note / Policy number, date, amount. • Name and address of Insurance Company. • Whether the partial shipment is allowed or not. • Whether the transshipment is allowed or not. • Last date of shipment. • Last date of negotiation. • Other terms and conditions (if any). • The L/C application must be completed/filled in properly and signed by the authorized person of the importer before it is submitted to the issuing bank. 5.2.2.2. L/C Authorization Form (LCAF): The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against import and used in lieu of import license. The authorized dealers are empowered to issue LCA Forms to the importers as per basis of licensing of the Import Policy Order in force to allow import into Bangladesh. The LCA Forms available with authorized dealers are issued in set of five (05) copies each. First Copy is exchange control copy, which is used for opening of L/C and effecting remittance. Second Copy is the custom purpose copy, which is used for clearance of imported goods from custom authority. Triplicate and Quadruplicate Copy of LCAF are to be sent to concerned area of CCI&E office by authorized dealer/Registration Unit of Bangladesh Bank. Quadruplicate Copy is kept as office copy by authorized dealer/Registration Unit. The Letter of Credit Authorization Form (LCAF) contains the followings –

• Name and address of the importer. • IRC number and year of renewal. • Amount of L/C applied for (both in figure and in word). • Description of item(s) to be imported. • HS Code number. • Signature of the importer with seal. • List of goods to be imported. 5.2.2.3. Import permit form (IMP): • L/C authorization form number. • Date. • Value in Taka. • Registration of LCAF. • Quantity of goods. • Invoice value. • Country of origin. • Port of shipment. • Name of the steamer. • Indentor’s address. 5.2.3. Preparation of L/C by banker: Bank’s officer prepares L/C when above-mentioned forms are to be submitted by customer or importer. Before preparing L/C MBL officer scrutinizes the application in the following manner: 1. The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation. 2. Eligibility of the goods to be imported. 3. The L/C must not be opened in favor of the importer. 4. Radioactivity report in case of food item. Survey reports or certificate in case of old machinery is required. Bank of the importer is called ‘L/C Issuing Bank’. Then issuing bank inform its corresponding bank, called “Advising Bank’ or ‘Confirming Bank” located in exporter’s country to advise and credit forward to the exporter and simultaneously officer makes L/C opening vouchers. 5.2.3.1. Desk work: One debit voucher to be passed. Corresponding credit vouchers to be passed. (margin, commission, postage, stamp, F.F.C. and others.) Liability voucher to be passed.

5.2.3.2. Accounting treatment:

5.2.4. The L/C confirming process:

5.2.5. Forwarding documentary credit by advising or confirming bank: There are usually two banks involved in a documentary credit operation. The issuing bank and the advising bank which is usually a bank in the seller’s country. The issuing bank asks another bank to advise or confirm the credit. If the 2nd bank is simply “advising the credit”, it will mention that when it forwards the credit to seller, such a bank is under no commitment or obligation to pay the seller. If the advising bank is also “confirming the credit”, this mention that the confirming bank, regardless of any other consideration, must pay accept or negotiate without recourse to seller. Then the bank is called confirming bank also. 5.2.6. Submission of necessary documents by exporter to the negotiating bank: As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank. Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. Generally the documents observed in the foreign exchange department are: • Bill of exchange • Commercial invoice • Bill of lading • Certificate of origin • Packing list • Clean Report of Finding (CRF) • Weight list • Insurance cover note • Pre-shipment certificate

5.2.7. The documents sent to the issuing bank through the negotiating bank: The negotiating bank carefully checks the documents provided by the exporter against the credit, and if the documents meet all the requirement of the credit, the bank will pay, accept, or negotiate in accordance with the terms and conditions of the credit. Then the bank sends the documents to the L/C opening bank. Figure5.2: Sending L/C Documents to L/C Issuing Bank 5.2.8. Making the payment of foreign bill through the reimbursing bank: The L/C issuing bank getting the documents checks immediately and if they are in order and meet the credit requirements; it will arrange to make payment against L/C through reimbursement bank and will send the importer the document arrival notice. 5.2.9. Scrutiny of the documents: First of all it must be ensured that full set of documents as mentioned in the L/C has been received. • Documents have been negotiated within the negotiation period. • The Bill of Lading/Air-Way Bill/ Railway receipt is not dated later than the last date of shipment mentioned in the L/C. • The L/C has not been amended or subjected to any special instructions, which might alter the value of L/C. • Import bills include following documents, which are to be scrutinized Bill of Exchange Commercial Invoice Bill of Lading Certificate of Origin Others A) Bill of Exchange: It has to be verified that the bill of exchange has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C. The amount in the bill is identical with that mentioned in the invoice. The amount drawn does not exceed the amount mentioned in the L/C. The amount in words and figures should be same. The bill of exchange should be properly endorsed. B) Commercial Invoice: It has to be verified that the commercial invoice has been properly drawn and signed by the beneficiary according to the terms and conditions of L/C. The beneficiary should properly invoice the merchandise. The merchandise is invoiced to the importer on whose account the L/C is opened. The description of merchandise and the unit price correspond with that given in the L/C.

The import license or IRC number of the importer, indenter’s registration number and number of Letter of Credit Authorization number are incorporated in the Invoice. C) Bill of Lading: First of all it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has to be properly endorsed to the bank. The B/L should include the description of the merchandise according to invoice. The port of shipment and destination, date of shipment and the name of the consignee are in agreement with those mentioned in the L/C. The shipping company or their authorized agents properly sign the B/L. The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time prior to negotiation. C) Certificate of Origin: The Merchandise described in the Certificate is in accordance with the L/C. D) Others: There are some other documents, which are also attached, with the shipping documents like packing list, pre-shipment inspection certificate etc. These documents are also verified carefully before lodgment. 5.2.10. Disposal of Discrepant Documents: If the importer refuses to accept the documents because of discrepancies advised to him, the branch should immediately advise the same to the negotiating bank by telex/cable and dishonored documents will then be handled, according to the instruction of the negotiating bank. If no reply is received regarding disposal of the document, the bank will return the full sets of documents to the presenter by courier service/Registered postal Mail. The branch should cancel the Reimbursement Authorization provided to the Reimbursing Bank while the opening branch of the L/C and/or claim refund of reimbursement with interest from the remitting bank, of any reimbursement which has been made to the negotiating bank. The branch shall reverse the contra liability which has been passed at the time of opening and recover/realize postal and other charges incurred by the bank on his behalf. 5.2.11. Lodgment & Retirement of shipping documents: After scrutinizing the import negotiating document, if no discrepancy are found then it is treated to be accepted after the end of seven banking days following the day of receipt of the document under “Article 1(b) of UCPDC –500”. If any discrepancy is found then the banker inform it to the importer that whether he accept the bills with discrepancies or not. If the importer does not accept, the banker (PBL) informs it to the negotiating bank within seven banking days from the date of receipt of the documents, otherwise it is treated to be accepted and the opening bank (MBL) must bound to pay against the bill and no complain against the bill will be accepted more than 4 banking days following the date of receipt of the documents under article number K1 (d) & article number 14 (c) of the UCPDC-500. 5.2.12. Accounting treatment: The office passes the following vouchers after negotiation. PAD (Payment Against Document) Account Dr. H.O. International Division Account Cr.

Reverse entry is given. Banker’s liability Account Dr. Customer’s liability Account Cr. The shipping documents then stamped with PAD number and entered in the PAD register. As soon as the above formalities are completed, the importer is served with PAD bill intimations for retirement of concerned import documents. 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. Bank prepares cost memo in printed form on account of the concerned party giving detailed read of charges payable. Vouchers passed in retiring documents: L/C margin Account Dr. Party Account Dr. PAD Account Cr. Income Account interest on PAD Cr. Commission on PAD Cr. Miscellaneous earning Cr. After the vouchers are passed, endorsement is made on the back of the bill of exchange as ‘Received Payment’ & bill of leading is endorsed to the effect that ‘Please deliver to the order of M/S’ under two authorized signatures of the bank officials of MBL. Then the documents are delivered to the L/C applicant (importer).But if there is any discrepancy in the documents, the L/C issuing bank send message to the negotiating bank to rectify it under its risks and responsibilities. The certification should be as follows: 1. On the Invoice Certified that the invoice has been drawn under L/C NO……….:…… For USD………….. Mercantile Bank Limited Authorized Signature 2. On the Bill of Exchange Received Payment Mercantile Bank Limited Authorized Signature 3. On the Transport Document Please Deliver to the order of M/s……………………. Mercantile Bank Limited Authorized Signature Figure 5.3: Endorsement certificate SOURCE: Desk work of MBL SELLER 1.Contract BUYER 5. Goods

ADVISING/CONFIRMING BANK ISSUING BANK Figure5.4: Flow chart of L/C Operation 5.2.13. Cancellation of L/Cs: An Irrevocable L/C can not be cancelled without the agreement of the beneficiary and the confirming bank, if any. The branch, at the request of the importer, may approach the L/C advising bank for cancellation of the L/C and such cancellation will only be effective upon consent of the beneficiary advised to the branch through the L/C advising bank. However, the branch may cancel the L/C without the consent of the beneficiary, advising bank and confirming bank, if any, if the L/C expires and the brand”, receives no shipping documents within 15 days” of expiry of the L/C. The branch should send a message to the concerned bank advising; such cancellation and closure of L/C file due to expiry of the same. The branch will then cancel the Reimbursement Authorisation which has been provided to the Reimbursing Bank while opening the L/C. The branch will reverse L/C contra liabilities, refund margin and recover charges from the L/C applicant as per schedule of charges. 5.2.14. Post-import financing: If there is no available cash in importer’s hand, he can request the bank to grant loan against the documents for the purpose of post import finance. There is one form of post import finance available in MBL Main Branch. • LTR (Loan against Trust Receipt). 5.2.14.1. LTR: On the arrival of goods and lodgment of import documents, importer may request the bank for clearance of goods from the port (custom). Proper sanction from the competent authority is to be obtained before clearance of consignment. For giving these types of loan, officer makes loan proposal and sends it to H/O for approval. After getting approval from H/O, bank grants loan in the form of LTR. It’s needless to say that bank only deals with the documents, not with goods & services in case of foreign exchange business. 5.3. Back to back L/Cs: The branch may open back to back import L/C against export L/C received by export oriented industrial unit operating under the bonded warehouse system, subject to observance of domestic value addition requirement prescribed by the NBR/Ministry of Commerce from time to time. The following instructions should be complied with while opening Back to Back Import L/C: (i) The unit requesting for this facility should possess valid IRC, ERC and valid bonded warehouse license. (ii) The branch shall hold the Master Export L/C affixing Bank’s lien stamp thereon and keep in safe for security purpose. (iii) The Master Export L/C should have validity period adequate to cover the time needed for importing inputs, manufacture of merchandise and shipment to consignee. (iv) The Back to Back L/C value shall not exceed the admissible percentage of net FOB value of the relative Master Export L/C (as per prescribed value addition requirement). For computation of net FOB value of a master export L/C, the freight charge, insurance cost and commission if

payable by the exporter shall be deducted from the L/C value. If the freight element is not shown separately, freight certificate from the shipping company or agent should be asked for, (v) The Back to Back import L/C shall be opened on up to 180 days usance (DA) basis, except in case of those opened against Export Development Fund, administered by Bangladesh Bank, in which case the back to back L/C will be opened on sight (DP) basis, (vi) Interest for the usance period shall not exceed LIBOR or the equivalent interest rate in the currency of settlement, (vii) All amendments of the master export L/C should be noted down carefully to rule out chances of excess obligation under the back to back import L/C. (viii) Back to Back L/C can either be local or foreign. Inland BTB L/C denominated in foreign exchange may be opened in favour of local supplier/ manufacturer of inputs against master export L/C and BTB L/C may, in turn, be opened for import of inputs against inland BTB L/C in favour of local supplier/manufacturer under bonded warehouse system up to value limits applicable as per prescribed value addition requirement. 5.3.1. Vouching Procedure: (a) Creation of L/C liability Dr. Customer’s liability on BTB L/C Cr. Banker’s liability on BTB L/C (Applicable rate: B.C Selling rate) (b) Commission & others charges Dr. Customers A/c: Commission for 180 days + FCC + Postal/ Telex Recoveries + Misc. Cr. Income A/c: Commission on L/C foreign. Cr. Income A/c: Postal/ Telex Recoveries. Cr. Income A/c: Miscellaneous earnings (Handling charges, stationery, etc.) Cr. Sundry Deposit A/c: FCC Cr. Other Assets A/c: Stamps in Hand c) Amendment charges i) If the L/C value is increased Dr. Customer’s liability on BTB L/C (for increased amount) Cr. Banker’s liability on BTB L/C Dr. Customers A/c: Commission for increased amount + other charges Cr. Income A/c: Postal /Telex Recoveries Cr. Income A/c: Miscellaneous earnings (Handling charges if any) Cr. Sundry Deposit A/c: FCC ii) If L/C expiry time is extended beyond 180 days Dr. Customers A/c: Commission for further one quarter Cr. Income A/c: Commission on L/C (Foreign) & other vouchers 5.3.2. Acceptance & Lodgment of BTB Import Bill: On receipt of import documents against the L/C, the documents should be subjected to usual scrutiny. If found in order, the customer should be asked to accept the usance bill of exchange. When the bill of exchange is returned by the drawee (i.e. importer) after duly accepted by him, the maturity date of the bill is to be worked out and noted in the PAD register and also in Due Date Diary (MBFx-16). The date of maturity of tie Bill of Exchange is communicated to the

negotiating or collecting bank by telex/ fax. Simultaneously the documents are lodged under ABP (Accepted Bills for Payment). Vouchers to be passed: i) Reversal of L/C liability Dr. Banker’s liability on BTB L/C Cr. Customer’s liability on BTB L/C ii) Creation of Acceptance liability Dr. Customer’s liability on BTB Bills From: Mercantile Bank Limited Cr. Banker’s liability on BTB Bills (Applicable rate: B.C Selling rate) (iii) Vouchers for charges such as Telex/ Postal charges for advising maturity date and others Dr. Party’s Account Cr. Income A/c: Postal/ Telex Recoveries of Back to Back L/C Payment of BTB L/C shall be made at maturity, out of export proceeds. The required foreign exchange, out of repatriated export proceeds, will be set aside in a separate foreign currency account called FC held for BTB L/C. The branch will pay BTB bills according to their maturity within 3 working days from the date of realization of export proceeds. If export proceeds are not available, the ABP liability should be liquidated by grant of SOD (Export). Voucher to be passed: (i) Reversal of acceptance liability Dr. Banker’s liability on BTB bills Cr. Customer’s liability on BTB bills (ii) Out of export proceeds settlement in FC Dr. Exporters F.C held A/c: Bill value with usance interest @ prevailing O.D sight (export) Cr. MBL General A/c: On Nostro A/c @ prevailing OD sight (export) (iii) Out of Export Proceeds settlement in B.D Taka Dr. Experts F.C held A/c Cr. MBL General A/c: On Nostro A/c Dr. MBL General A/c: F.C amount on Nostro Account Cr. Income A/c: Exchange gain on FC Cr. Bills payable A/c: Payment Order Dr. Income A/c: Commission on Pay Order Cr. Income A/c: Postage recoveries (iv) If export proceeds arc not available – settlement in FC Dr. SOD (export) A/c Cr. MBL General A/cCr. Income A/c: Exchange gain on FC (v) If export proceeds are not available – settlement in BD Taka Dr. SOD (export) A/c: Cr. Bills Payable A/c Cr. Income A/c: Exchange gain on FC Cr. Income; A/c: Commission on Pay Order

Cr. Income A/c: Postage recoveries (vi) If export proceeds are not adequate to cover BTB Bill – settlement in FC Dr. Exporters FC held A/c Cr. MBL General A/c Dr. SOD (export) A/c Cr. MBL General A/c Cr. Income A/c: Exchange gain on FC (vii) If export proceeds are not adequate to cover BTB bill – settlement of BD Taka Dr. Exporters F.C held A/c Cr. MBL General A/c Dr. MBL General A/c Dr. SOD (export) A/c: Cr. Income A/c: Exchange gain on FC Cr. Bills payable A/c (export) less PO commission & Postal charges Cr. Income A/c: Commission on Pay Order Cr. Income A/c: Postage recoveries CHAPTER- 6 Export 6. Export: From the very beginning a Commercial Bank like MBL is involved in financing foreign trade apart from financing internal credit requirements in the economy. This involves handling of import business through opening Letter of Credit and Handling of export business. As banking has become very keenly competitive, banks find it convenient to involve in foreign exchange business as lucrative sources of earning income and profit. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through MBL are readymade garments exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers. Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter. 6.1. Export policy: Export policies formulated by the Ministry of Commerce, which provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commoditywise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime. The export-oriented private sector, through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion

bodies set up by the government. 6.2. Export incentives: Encouraging export oriented industries is one of the major objectives of the Industrial Policy, 1991 and as such government ensures all support and co-operation on priority basis as per export policy. Some of the facilities and incentives offered are as follows: a) Financial Incentives: • Restructuring of Export Credit Guarantee Scheme;& convertibility of Taka in current account. • Exporters can deposit 40% of FOB value of their export earnings in own accounts in dollar and pound sterling. • Expansion of export credit period from 180 days to 270 days;50% tax rebate on export earnings; Duty draw back. • Bonded warehouse facilities to 100% export oriented firms. • Duty free import of capital equipment for 100% export oriented firms. b) General incentives: • National Export Trophy to successful exporters; training course on external trade. • Arrangement of international trade fairs, commodity-based exhibitions in the country and participation in foreign trade fairs. • Tax exemption on capital gains from the transfer of shares by the investing company. • Avoidance of double taxation in case of foreign investors on the basis of bilateral agreements. • No restriction in issuing work permits to foreign nationals in Bangladesh. • Facilities for repatriation of invested capital, profits and dividends. • Provision for transfer of shares held by foreign shareholders to the local shareholders/investor with the permission of the BOI and the Exchange Control Department of the Bangladesh Bank. • Treatment of repatriable dividends as new foreign investment. • Allowing long term loan and working capital loan to foreign investors from local commercial banks. • Permanent residentship to a foreign citizen investing a minimum of US$ 75,000 or equivalent amount (non.repatriable) ; similarly citi~hip to any foreign citizen investing US$ ~,000 or transferring US$ 1,000,000 to any recognized Bangladeshi financing institution (nonrepatriable). c) Additional Incentives for Export Oriented/Linkage Industries • Facilities such as special bonded warehouse against back-to-back letter of credit or national import duty and payment of value added tax (VAT) facilities are available. • The system of duty drawback is being simplified and streamlined. Back loan up to percent of the value against irrevocable and confirmed letters of credit/sales agreements available. • With a view to ensuring backward linkages, export oriented industries including export oriented readymade garment industries using indigenous raw materials instead of imported ones, are given additional facilities and benefits at prescribed rates. Similar incentives are extended to the suppliers of raw materials to export oriented industries. • The expert oriented industries are allocated foreign exchange for publicity campaigns and for opening offices abroad. • The entire export earning from handicrafts and cottage industries is exempt from income tax. In case of all other industries, proportional income tax rebate on export earnings is given between

30 and 100 percent. Those industries which export 100 percent of their products are given tax exemption up to 100 percent. • For manufacturing exportable commodities, import of raw materials under the Control List is allowed. • The import of specified quantities of duty free samples for manufacturing exportable products is allowed. The quantity and value of samples an determined jointly by the concerned sponsoring agency and the National Board of Revenue; • The local products supplied to local projects against Foreign exchange international tender are treated as indirect exports and the producer is entitled to all export facilities. • Export oriented industries producing toys, luggage and fashion articles, electronic goods, leather goods, diamond cutting and polishing, jewellery, stationery goods, silk cloth, gift items, cut and artificial flowers and orchid vegetable processing .Aces are 3dentiiied by the government thrust sectors and provided with special facilities through cash incentives, venture capital and other facilities. d) Other incentives: • Assistance in improvement of quality and packaging of exportable items. • Simplification of export procedures etc. e) Remittance Facilities: Remittance of profits of branches of foreign firms/companies, dividends/capital gains, salaries and savings by expatriates, royalty and technical fees, training and consultancy fees, receivables collected by shipping companies and an lines towards freight and passage can be effected through authorized dealers without prior approval of the Bangladesh bank. 6.3. Export procedures followed by MBL: The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950. Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to incorporate on EXP forms and other papers connected with exports. 6.3.1. Registration of exporter: For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Citation/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents: • Nationality and Assets Certificate. • Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company. • Bank Certificate. • Income Tax Certificate. • Trade License etc. 6.3.2. Securing the order: After getting ERC Certificate the exporter may proceed to secure the export order. He can do this

by contacting the buyers directly or through agent. In this purpose the exporter may get help from: • License Officer; • Buyer’s Local Agent; • Export Promoting Organization; • Bangladesh Mission Abroad; • Chamber of Commerce (local & foreign) • Trade Fair etc. 6.3.3. Signing the contract: After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. 6.3.4. Receiving letter of credit: After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit: (1) The terms of the L/C are in conformity with those of the contract; (2) The L/C is an irrevocable one, preferably confirmed by the advising bank; (3) The L/C allows sufficient time for shipment and negotiation. (Here the regulatory framework is UCPDC-500, ICC publication) Terms and conditions should be stated in the contract clearly in case of other mode of payment: • Cash in advance; • Open account; • Collection basis (Documentary/ Clean) (Here the regulatory framework is URC-525, ICC publication) 6.3.5. Procuring the materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. 6.3.6. Shipments of goods: Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C terms, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time. Documents for shipment: • EXP form, • ERC (valid), • L/C copy, • Customer Duty Certificate, • Shipping Instruction, • Transport Documents, • Insurance Documents, • Invoice, • Other Documents, • Bills of Exchange (if required) • Certificate of Origin, • Inspection Certificate,

• Quality Control Certificate, • G.S.P. Certificate, • Phyto-sanitary Certificate. 6.3.7. Final step: Submission of the documents to the Bank for negotiation. 6.4. Export documents checking: 1. General verification: a) L/C restricted or not. b) Exporter submitted documents before expiry date of the credit. c) Shortage of documents etc. 2. Particular verification: a) Each and every document should be verified with the L/C. 3. Cross verification a) Verified one documents to another. 6.5. Discrepancies: After proper examination or checking of a described Export document banker may find following discrepancies: 6.5.1. General: 1. Late shipment 2. Late presentation 3. L/C expired 4. L/C over-drawn 5. Partial shipment or transshipment beyond L/C terms. 6.5.2. Bill of exchange (B/E): 1. Amount of B/E differ with Invoice. 2. Not drawn on L/C issuing Bank. 3. Not signed 4. Tenor of B/E not identical with L/C. 5. Full set not submitted. 6.5.3. Commercial invoice (C/I): 1. Not issued by the Beneficiary. 2. Not signed by the Beneficiary. 3. Not made out in the name of the Applicant 4. Description, Price, quantity, sales terms of the goods not corresponds to the Credit. 5. Not marked one fold as Original. 6. Shipping Mark differs with B/L & Packing List. 6.5.4. Packing list: 1. Gross Wt., Net Wt. & Measurement, Number of Cartoons/Packages differ with B/L. 2. Not market one fold as Original.

3. Not signed by the Beneficiary. 4. Shipping marks differ with B/L. 6.5.5. Bill of lading / Airway bill etc (transport documents): 1. Full set of B/L not submitted. 2. B/L is not drawn or endorsed to the Order of Prime Bank Ltd. 3. “Shipped on Board”, “Freight Prepaid” or “Freight Collect” etc. notations are not marked on the B/L. 4. B/L not indicate the name and the capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L. 5. Shipped on Board Notation not showing name of Pre-carriage vessel/intended vessel. 6. Shipped on Board Notation not showing port of loading and vessel name ( In case B/L indicates a place of receipt or taking in charge different from the port of loading). 7. Short Form B/L. 8. Charter party B/L. 9. Description of goods in B/L not agree with that of Invoice, B/E & P/L. 10. Alterations in B/L not authenticated. 11. Loaded on Deck. 12. B/L bearing clauses or notations expressly declaring defective condition of the goods and/or the packages. 6.5.6. Others: 1. Needed documents not forwarded to buyers or forwarded beyond L/C terms. 2. Inadequate number of Invoice, Packing List, B/L & Others submitted. 3. Short shipment Certificate not submitted. 6.6. Checking: While checking the export documents following things must be taken in consideration. 6.6.1. L/C terms: Each and every clause in the L/C must be complied with meticulously and ensure the following: 1. that the documents are not state; 2. that the documents are negotiated within the L/C validity, It a credit expire on a recognized bank holiday its life is automatically become valid upto the next works day. 3. that the documents value does not exceeds the L/C value. 6.6.2 Draft/Bill of Exchange: Draft is to be examined as under: 1. Draft must be dated 2. It must be made out in the name of the beneficiary’s bank or to be endorsed to the bank. 3. The signature of the drawer must be verified by the negotiating bank. 4. Amount must be tallied with the Invoice amount. 5. It must be marked as drawn under L/C No……Dated…..Issued by………..Bank. 6.6.3 Invoice: It is to be scrutinized to ensure the following: 1. The Invoice is addressed to the Importer 2. The full description of merchandise must be given in the invoice strictly as per L/C.

3. The price, quality, quantity, etc. must be as per L/C. 4. The Invoice must be languaged in the language of L/C. 5. No other charges are permissible in the Invoice beyond the stipulation on the L/C. 6. The amount of draft and Invoice must be same and within the L/C value. 7. If L/C calls for consular invoice, then the beneficiary’s invoice is not sufficient. 8. Number of Invoice will be submitted as per L/C. 9. The shipping mark and number of packing list shown in the B/L must be identical with those given in the Invoice and other documents. 10. The Invoice value must not be less than the value declared in EXP Forms. 11. Invoice amount must be correct on the basis of price, quantity as per L/C. 12. Invoice amount, indicate sale terms/ Incoterms VIZ FOB, CFR, CIF etc. 13. Consular Invoice must be stamped by the local consulate/embassy of the country to which the goods are imported. 6.6.4 Other documents: Beneficiary statement, VISA/Export License issued by EPB, Certificate of Origin, Weight Certificate, Phytosaitary Certificate, Packing List, Inspection Certificate. Certificate of analysis, quality certificate, MCD duly signed and any other documents required by L/C each of these certificates/documents conform to the goods invoice and are relevant to L/C. They will send the documents on collection or they can negotiate under reserve by the request of the exporter or they can seek permission/Negotiation authority from issuing Bank to allow Negotiating Bank to Negotiate the documents despite the discrepancies. L/C issuing Bank will inform the matter to buyer, if the buyer accepts the discrepancies mentioned by Negotiating Bank, issuing bank will authorise the Negotiating bank to negotiate the discrepant documents. 6.7. Export financing: Financing exports constitutes an important part of a bank’s activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract. 6.7.1 Pre-shipment credit: Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes: • Cash for local procurement and meeting related expenses. • Procuring and processing of goods for export. • Packing and transporting of goods for export. • Payment of insurance premium. • Inspection fees. • Freight charges etc.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and unrestricted export letter of credit in form of the followings: ii. Export cash credit (Hypothecation). iii. Export cash credit against trust receipt. iv. Packing credit. v. Back to back letter of credit. 6.7.1.1. Export cash credit (hypothecation): Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. As the bank has got no security in this case, except charge documents and lien on exports L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither r the ownership nor the possession is passed to it. 6.7.1.2 Export cash credit against trust receipt: In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the 3xportable goods remain in the custody of the exporter. He is required to execute a stamped export trust receipt in favor of the bank, he holds wherein a declaration is made that goods purchas4ed with financial assistance of bank in trust for the bank. This type of credit is granted when the exporter wants to utilize the credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank’s custody. This facility is allowed only to the first class party and collateral security is generally obtained in this case. 6.7.1.3. Packing credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and ship the goods. Generally for movement of goods from the hinterland areas to the ports of shipment the Banks provide interim facilities by way of Packing Credit. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Practically except for single transaction, most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a particular period. The drawings are required to be adjusted fully once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export documents. 6.7.1.4. Back to back letter of credit: Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This

L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin. Sometimes there is provision in the export L/C that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened. 6.7.2. Post shipment credit: This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Necessity for such credit arises as the exporter cannot afford to wait for a long time for without paying manufacturers/suppliers. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through: 1. Negotiation of documents under L/C. 2. Foreign Documentary Bill Purchase (FDBP). 3. Advances against Export Bills surrendered for collection. 6.7.2.1 Negotiation of documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods. A slight deviation of the documents from those specified in the L/C may rise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful, prompt, systematic and indifferent while scrutinizing the documents relating to the export. 6.7.2.2. Foreign Documentary Bill Purchase (FDBP): Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. PBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order. For this purpose, PBL maintains a separate register named FDBP Register. This register contains the following information: • Date. • Reference number (FDBP). • Name of the drawee. • Name of the collecting bank. • Conversion rate. • Bill amount both in figure & in Taka. • Export form number. • Export L/C number. 6.7.2.3 Advances against Export Bills surrendered for collection: Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank and

the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill. In addition to the export bill, banks may ask for collateral security like a guarantee by a third party and equitable/registered mortgage of property. 6.8. Realization: When the Export proceeds realized then the following vouchers are passed: Dr. MBL General A/c. (CAD) ID@ OD sight export for BTB and FCAD (Exp) portion (for rest amount) CR. F.C held against BTB L/C @ OD sight export. CR. FCAD (Exp) A/c. (Retention Quota) @ OD sight Intt. For BTB portion DR. MBL General A/c. (FAD) ID @ B. Bank Ready Buying (for purchase amount) CR. FDBP A/C (which was created at the time of import bill purchased) CR. Income A/c. Exchange gains on FBP (difference between B. Bank Ready Buying Rate and OD sight Export Rate). The branch will realize overdue interest as per Bank’s prescribed rate from all export bills after 21 days from the elate of negotiation to the date of realization of proceeds. On realization of proceeds following vouchers to be passed: Dr. MBL General A/c on Nostro A/c for negotiated value Cr. FDBP A/c for negotiated amount in BD Taka Cr. Income A/c Exchange Gain on FDBP Cr. MBL General A/c on Nostro A/c Realized FC value less negotiated FC value @ OD sight export Cr. Exporters FC held A/c FC amount For realization of overdue interest (where export bills are realized after 21 days of negotiation) Dr. Customers A/c for actual overdue interest as per Bank’s prescribed rate Cr. Income A/c Interest on FDBP 6.8.1. Accounting procedure on Collection Basis: (i) Creation of contra liability while sending on collection Dr. Customer’s liability: Outward Foreign Documentary Bills for collection (OFDBC) Cr. Banker’s liability: Outward Foreign Documentary Bills for collection (OFDBC) On realization of proceeds (i) Reversal of contra liability Dr. Banker’s liability: Outward Foreign Documentary Bills for collection (OFDBC) Cr. Customers liability: Outward Foreign Documentary Bills for collection (OFDBC) (ii) Realization vouchers Dr. MBL General A/c on Nostro A/c FC amount up to BTB obligation + 2-4% @ OD sight (Export) buying Cr. Exporters FC held A/c FC amount up to BTB obligation + 2-4% @ OD sight (Export) buying Dr. MBL General A/c on Nostro A/c For balance realized FC amount Cr. Sundry Deposit A/c Courier Service Cr. Sundry Deposit A/c Reserve Margin, if any

Cr. Sundry Deposit A/c Local Agency Commission, if any Cr. Sundry Deposit A/c Income Tax, if any Cr. Packing Credit A/c, if any Cr. Hire Purchase A/c, if any Cr. Lease Finance A/c, if nay Cr. Income A/c Exchange Gain on FDBP (difference between Ready Buying/TT clean & TT (doc) Buying rate on realized F.C value less F.C held amount) Cr. Customers CD A/c in net BD Taka CHAPTER- 7 Remittance 7. Foreign Remittance: Convertibility of Taka in current account transactions symbolized a turning point in the country’s exchange arrangement and exchange rate system. Now the operation of foreign currency accounts have been more liberalized. Funds from this A/Cs are freely remittable to any country according to the needs of A/c holders. 7.1. Remittance flow of Bangladesh and it’s contribution of MBL: MBL is involved with both the form transactions of inward and outward remittance processing service. MBL started its remittance business in Bangladesh since December, 1996. MBL tries their level best to increase the flow of remittance through banking channel. Information provided in (Table-1) shows that remittances from migrant Bangladeshi workers increased significantly from US Dollars 3,061.97 million in FY 2005-06 to US Dollars 3,866.63 million in FY 2007-08. Moreover, the inflow of remittances coming through MBL also increased appreciably from US Dollars 53.95 million in FY 2005-06 to US Dollars 96.93 million in FY 2007-08. In FY 2005-06 the contribution of remittances coming through MBL was 1.76% of total inflow, where as it stood 2.51% of total inflow in the recent FY 2007-08. During 2006-07 remitting amount was US Dollars 3,371.97 million, where as remittance inflow from MBL stood at US Dollar 66.34 million which was 1.97% of total inflow. The following statistics shows that remittance flow to Bangladesh has increased through years as well as the inflow coming through MBL has increased than the past years. Therefore, the percentage of remittance inflow through MBL also shows a gradual increase. Year Foreign Remittance Inflow in Bangladesh (US$ million) Foreign Remittance Inflow through MBL (US$) Foreign Remittance Inflow through MBL (US$ million) Remittance percentage of MBL with total remittance inflow in Bangladesh FY 2005-2006 3,061.97 53,948,160.78 53.95 1.76 FY 2006-2007 3,371.97 66,344,704.83 66.34 1.97 FY 2007-2008 3,866.63 96,930,340.02 96.93 2.51 Table7.1: Comparison of MBL’s remittance inflow with total foreign remittance inflow in Bangladesh Source: Bangladesh Bank and Remittance Department of MBL 7.2 FC Account:

(a) Resident Foreign Currency Deposit (RFCD) Account: Persons ordinarily resident in Bangladesh may maintain foreign currency accounts with foreign currency brought in at the time of their return in Bangladesh from visits abroad. These accounts are termed as RFCD accounts. (b) Non-resident Foreign Currency Deposit (NFCD) Account: Non resident Foreign Currency accounts may now be maintained as long as the account holder desire. Amount brought in by non-resident Bangladeshi can be deposited in FC account any time after to Bangladesh. 7.2.1. Who can Open FC Accounts: The Branch with Authorized Dealership License may, without prior approval of Bangladesh Bank, open foreign currency A/Cs in their books in the name of: (a)Bangladeshi nationals residing abroad (b) Foreign nationals residing abroad or in Bangladesh (c) Foreign firms and companies registered abroad and operating in Bangladesh or abroad (d) Foreign missions/Embassies/UN organizations and their expatriate employees (e) Diplomatic bonded warehouses (duty free shops) (f) Local and Joint venture contracting firms employed to execute projects financed by foreign donors/international donor agencies. (g) Bangladeshi nationals working as employees/consultants in international bodies in Bangladesh and drawing pay and allowances/consultancy fees/honorarium in foreign currency. (h) Merchandise and service exporters (i) Bangladeshi Nationals who are ordinarily resident in Bangladesh may open foreign currency accounts with foreign exchange brought in at the time of their return to Bangladesh from visits abroad. (j) Industrial enterprises in EPZ. 7.2.2. Currency in which FC A/C can be Opened: FC Accounts can be opened either in (a) Pound Sterling (b) USD (c)EURO (d) Japanese Yen 7.2.3. Documents required for Opening FC A/Cs: (a) For Bangladeshi Wage Earners: Photocopy of first 7 (seven) pages of valid passport and visa page/arrival page. Photocopy of employment contract/appointment letter/work permit. Two copies of passport size photograph of each account holder and nominee duly attested. (b) For Foreign National/Company/Firm: Two copies of photograph of account holder for individual and operators of other account holder. Copies of relevant pages of passport for individual and operators of other account holder.

Copy of service contract/appointment letter/work permit, if any for individual. Copies of registration in Bangladesh with Board of Investment / Bangladesh Bank for Foreign Joint Venture Firm. Copies of the Memorandum and Articles of Association/Laws/Bye Laws, etc. or Joint Venture Agreement for Joint Venture Company. 7.2.4. Mode of Operation: Foreign currency accounts opened in the name of Bangladesh nationals working abroad or self employed abroad can now be maintained as long as the account holder desires. Such accounts may also be opened by the eligible persons within six months of their return to Bangladesh. 7.2.5. Deposits: Credit to a foreign currency account may be made against inward remittance of foreign exchange in any form or transfer from another FC account or Non-Resident Taka Accounts of bankers abroad. ADs may also raise credits to such accounts with the proceeds of convertible foreign exchange viz. currency note, travelers’ cheques, drafts, etc. brought into Bangladesh by the account holders while on temporary visit to Bangladesh, provided such foreign exchange in excess of US$ 5000 or its equivalent has been duly declared by them to the customs at the time of their arrival. Portion of repatriated export proceeds of Merchandise/service exporters are allowed to credit to the exporters retention quota account. Foreign exchange earned through business done or services rendered in Bangladesh can not be put into F.C account. 7.2.6. Withdrawals: Payments may be made freely abroad from these FC accounts to the extent of balance lying therein. Local disbursements may also be made freely in Taka from such foreign currency accounts. Funds lying in FC Accounts can be utilized for import of goods and commodities as per instructions issued by the CC1&E and Bangladesh Bank. No payment in foreign exchange may be made to or on behalf of any resident in Bangladesh. FC accounts except foreign diplomats or privileged persons who have specific authority from Bangladesh Bank to accept such payment. 7.2.7. Interests: Ads may pay interest at prevailing Euro Currency Deposit rate if balance in the account is not less than US$ 1000 or Pound Sterling 500 and are maintained for a minimum period of one month. Foreign nationals/companies/firms registered and/or incorporated abroad and A-type industries of EPZ may also open F.C account in the form of Term Deposit (NFCD). 7.2.8. Convertible & Non-Convertible Taka A/C:

The branch with Authorized Dealership License may open convertible Taka Accounts in the names of foreign organizations/foreign nationals viz, diplomatic missions, UN organizations, Non-profit International Bodies, Foreign Contractors & Consultants engaged for specific projects under the government, semi-government, agencies & the expatriate employees of such missions/organizations who are resident in Bangladesh. The accounts may be credited with foreign currencies brought in or remitted from abroad or transferred from a foreign currency A/C or another convertible Taka account. For transfer from another convertible Taka account, the Taka amount from the transferor’s account would be converted into foreign currency for transfer & credit to the recipient account by re-conversion into Taka. No money meeting from a business originating in Bangladesh and otherwise reportable to Bangladesh can be carrier to these accounts. Foreign organizations/their expatriate personnel mentioned above may maintain non-convertible Taka accounts with the branches without prior Bangladesh Bank approval. These accounts may be credited with funds from convertible Taka accounts, with remittance from abroad and with Taka received from authorized sources including interest from STD accounts. These accounts may freely be debited for local expenses. No remittance abroad or transfer to an F.C account/convertible Taka account may be made by debit to a non-convertible Taka account. 7.3. Types of Ramittance: Foreign remittance section of MBL, Main Branch is an integral part of Foreign Exchange Department. And this section of Foreign Exchange Department deals with incoming and outgoing foreign currencies. Therefore on the basis of its function, foreign remittance is divided into two types. These are: 1. Outward Foreign Remittance and 2. Inward Foreign Remittance 7.3.1. Outward Foreign Remittance: Remittances issued by MBL, Main Branch to foreign correspondents to fulfill its customers’ needs are considered to be the Outward Foreign Remittances. The term “Outward Remittance” include not only remittance i.e. sale of foreign currency by TT, MT, Drafts, Travelers cherub but also payment against imports into Bangladesh & Local currency credited to Non-Resident Taka Accounts of Foreign banks or convertible Taka account. It comprises the followings: • FDD Issued • FTT Issued • TC Issued • Endorsement of foreign currencies in the passport. • Sale of foreign currencies. 7.3.1.1. Foreign demand draft (FDD) issued: People have to send money to abroad for various purposes. MBL issues most of the FDD for the purpose of payment of the application fees to the foreign universities. For the issuance of FDD, FORM T/M has to be filled-in duly. This form is filled up under the Foreign Exchange Regulation Act, 1947. This form contains: The purpose of travel, Name of the country where the applicant will go,

Name of the air or shipping company, Passport number, Date and place of issue of the passport are given. This form has to be duly signed by the applicant. In case of application fee, the applicant has to mention the name of the university in whose favor the FDD is issued. MBL charges TK. 400 for each FDD. 7.3.1.2. Traveler’s cherub (TC) issued: MBL issues only American Express Traveler’s Cherub (TC). For TC, customer has to fill up T/M form. He has to fill up the purchase form also. Purchase form has four copies. One copy for American Express Bank, one copy for PBL, and two copy for the customer. For TC MBL charges 1% as commission. 7.3.1.3. Endorsement of cash: Cash foreign currency can also be remitted through the cash endorsement in the passport. In case of endorsing cash in the passport, the requirements are similar to those of Traveler’s Cherub. But according to the foreign exchange Regulation Act, 1947 an individual cannot take more than $1000.00 in cash in a year. That’s why; the concerned officer checks the last voyage of the purchaser. If he/she made any voyage and if he/she purchase dollar at that time, then the officer will deduct the amount and will give the rest to the purchaser. MBL cannot endorse more than $600.00 as cash at a time. For more than $600.00, the customer has to purchase TC. For cash endorsement MBL maintains a separate register. For giving cash foreign currency, MBL charges Tk. 100.00 as service charge. o Forms used for Outward Remittance: Two forms are used for Outward Remittance of Foreign Currency, such as – (a)IMP Form: All outward remittances on account of imports are done by form IMP. (b)T.M. Form: For all other outward remittances form TM is used. o Private Remittance: For the following private purposes, outward remittances are permitted: 1. Family remittance facility. 2. Remittance of Membership Fees/Registration Fees etc. 3. Education. 4. Remittance of Consular Fees. 5. Remittance of Evaluation Fees. 6. Travel. 7. Health & Medical. 8. Official/Semi-Official Visit by the officials of Government/Autonomous Bodies. 9. Seminars and workshops. 10. Foreign Nationals. 11. Remittance for Hajj. 12. Other Private Remittances. o Official & Business Travel: For the following official and business purposes, outward remittance is permitted:

1. Official Visit. 2. Business Travel quota for New Exporters. 3. Business Travel Quota for Importers and Non-exporting producers. 4. Exporters’ Retention Quota. o Commercial Remittance: For the following commercial purposes, outward remittances are permitted: 1. Opening of branches or subsidiary companies abroad. 2. Remittance by shipping companies, Airlines & Courier Service. 3. Remittance of Royalty and Technical Fees. 4. Remittance on account of Training & Consultancy. 5. Remittance of Profits of Foreign Firms/Branches. 6. Remittance of Dividend. 7. Subscriptions to Foreign Media Services. 8. Costs/Fees for Reuters Monitors. 9. Advertisement of Bangladeshi Products in mass media abroad. 10. Bank Changes. 11. Sundries. o Accounting Mechanism: 1. Issuance of Draft, T.T. etc: (a) Against BD. Taka Dr. Cash from Customer or Customers CD/SB Account for F.C Amount @ T.T & OD selling plus amount of charges as per schedule. Cr. Mercantile General A/C Head Office(ID) for FC Amount @ Ready selling for USD & ACUD or at Mid rate of T.T, O.D & T.T clean for other currencies. Cr. Income A/C: Exchange Gain on F.C.(Difference amount) Cr. Income A/C: Commission on T.T./D.D foreign as per schedule of charges. (b) From FC of the Customer Dr. Customers F.C A/C for FC Amount @ Prevailing holding rate of F.C balance. Cr. Mercantile General A/C H.O.(ID) for FC Amount @ Prevailing holding rate. Dr. Customers Taka A/C or cash from Customer for charges as per schedule Cr. Income A/C Commission on T.T./D.D. foreign for charges schedule. 2. Issuance of Travelers Cherub: (a) Against BD. Taka Dr. Cash from Customer or Customers CD/SB Account for F.C. Amount @ T.C. selling plus commission & charges as per schedule. Cr. T.C. Issued @ Ready selling rate. Cr. Income A/C: Exchange Gain on F.C. (Difference amount between T.C selling & Ready selling amount). Cr. Income A/C: Commission on T.C. as per schedule of charges.

(b) From F.C Account of the Customer Dr. Customers F.C. account for F.C Amount @ prevailing holding rate of F.C. balance. Cr. T.C Issued @ prevailing holding rate of F.C balance. Dr. Cash from customer or CD/SB A/C for charges as per schedule. Cr. Income A/C: Commission on T.C as per schedule of charges. (c) Settlement of Travelers Cherub (weekly basis) Dr. T.C. Issued Cr. Mercantile General A/C Head Office (ID) 3. Issuance of F.C. Notes: Dr. Cash from Customer or CD/SB Account for F.C amount @ cash selling rate plus commission & charges as per schedule. Cr. F.C. in hand Account for F.C amount @ cash selling rate. Cr. Income A/C: Commission on F.C as per schedule of charges. 7.3.2. Inward Foreign Remittance: Normally, Inward Foreign Remittance comprises of all incoming foreign currencies. Remittances issued by the correspondent banks situated in the foreign countries and thereby drawn on MBL, Main branch are considered to be its Inward Foreign Remittances. Followings are the Inward Foreign Remittances of MBL, Main branch. a. FDD Payable b. FTT Payable c. TC Payable d. Encashment of foreign currencies endorsed in the passport. e. Purchase of foreign currencies. Two forms as prescribed by Bangladesh Bank are used for purchase of Foreign Currencies such as, EXP Form: Remittances received against exports of goods from Bangladesh are done by form EXP. Form C: Inward remittances equivalent to US$2000.- and above are done by Form “C”. However, declaration in Form C is not Required in case of Remittances by Bangladesh Nationals working abroad. Utmost care should be taken while purchasing Currency Notes, Travelers cherub, Demand Draft & similar Instrument for protecting the bank from probable loss as well as safety of the Bank officials concerned. 7.3.2.1. Purchase of Currency Notes, Travelers cheques, Drafts etc: Following General observations are required in addition to common judgment/intelligent/vigilance of the dealing officers:-

i. Currency Notes to be checked very carefully so as to avoid risk of purchasing counterfeit Notes. ii. While Purchasing Travelers cherub signature of the holder to be obtained on the T/Cs in front of the Bank Officials and should be verified with the signature of the holder already given at the time of issuance of T.Cs. Passport of the seller as well as purchase contract of the T.Cs to be asked for to ensure genuineness/bonafide of the transactions. iii. Drafts should not be purchased under any circumstances unless the holder is a regular/valued customer of the Bank. Indemnity Bond to be obtained for recovering the amount paid in advance to the holder in case of dishonor of the instrument. iv. Private cherub should not be purchased under any circumstances without prior approval of Head Office. 7.3.2.2. Dealing in Foreign Currency Notes & Coins: The Authorized Dealer branches are permitted to deal in foreign currency notes & coinsand may freely buy foreign currency from incoming passengers regardless of nationality and regardless of whether or not a declaration on form FMJ is produced at the time of encashment. If this form is produced, the amount encashed should be endorsed on it. The ADs may also purchase foreign currency notes, coins and other travel instruments freely from Authorized Moneychangers without production of FMJ. The branches with AD license are permitted to dispose of foreign currency notes etc. by way of sales to other ADs and the general public in accordance with the instructions of the Bangladesh Bank. 7.3.2.3. Accounting Mechanism: 1. Encashment of Travelers’ Cherub: (a) For Payment in Taka Counter value Dr. FBP Clean A/C for F.C Amount @ T.C. Buying. Cr. Cash A/C or party’s A/C for payment to customer for F.C Amount @ T.C. Buying less postal charges. Cr. Income A/C: Postage as per schedule of charges. (b) On realization of proceeds in Nostro A/C: Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C Amount @ Ready Buying. Cr. FBP Clean for outstanding amount Cr. Income A/C: Exchange Gain on F.C. (Difference amount between Ready Buying & FBP outstanding amount) 2. Purchase of Foreign Currency Notes (a) For payment in Taka Counter value Dr. F.C in hand Account for F.C Amount @ Cash F.C Buying Cr. Cash A/C or party’s A/C for payment to customer for F.C Amount at same rate. (b) For Credit F.C Account Dr. F.C in hand Account for F.C amount @ Cash F.C Buying Cr. Customers F.C Account @ T.T. clean buying Cr. Income A/C: Exchange Gain on F.C. (The difference amount between above two)

3. Encashment of T.T.: (a) For payment in Taka Counter value Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C Amount @ Ready Buying for USD & ACUD or at Mid rate between T.T., O.D & T.T clean for other currencies. Cr. Customers’ CD/SB A/C or Payment Order for F.C Amount @ Clean Buying less commission and charger as per schedule. Cr. Income A/C: Exchange Gain on F.C. (The difference amount between Ready buying and T.T. Clean buying Amount). Cr. Income A/C: Commission T.T Foreign. (b) For Credit to F.C Account Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C amount @ T.T clean buying. Cr. Customers F.C. Account at the same rate. Dr. Customers CD/SB Account for charges as per schedule. Cr. Income A/C: Commission T.T. Foreign. 4. Purchase & Collection of Foreign Draft: (a) Purchase for payment in Taka counter value Dr. FBP Clean A/C: for F.C Amount @ O.D. Transfer Buying. Cr. Cash A/C: for payment to customer @ O.D Transfer less commission and charges as per schedule. Cr. Income A/C: Commission on F. Bills as per schedule. Cr. Income A/C: Postage as per schedule. (b) On realization of proceeds in Nostro A/C Dr. Mercantile General A/C: Head Office (ID) on Nostro A/C for F.C. amount @ Ready buying for USD& ACUD or at Mid rate between T.T., O.D &T.T clean for other currencies. Cr. FBP Clean A/C for outstanding amount. Cr. Income A/C: Exchange Gain on F.C (The difference amount between above two) (c) For collection without purchase Dr. Customer’s Liability: Foreign bill lodged A/C for F.C Amount @ O.D. Transfer buying Cr. Banker’s Liability: Foreign bills for collection A/C for F.C amount at the same rate. CHAPTER- 8 Analysis & Findings 8.1. Foreign exchange business of MBL: The performance of foreign exchange business of Mercantile Bank Ltd. can be visualized from the following data in Table-8.1. Here, five years data of foreign exchange business are presented. These are off-balance sheet items and showed as contingent liability.

Tk in millions Year Export L/C Import L/C Total Business 2004 15,250.60 20,380.80 35,631.40 2005 17,411.00 28,325.20 45,736.20 2006 24,108.57 33,271.90 57,380.47 2007 34,108.57 42442.80 76,551.37 2008 32,670.10 40380.10 73,050.20 Table-8.1: Foreign exchange business of MBL Source: Annual report, 2008 Figure 8.1: Foreign Exchange Business of MBL In the Table-8.1 it is observed that the foreign exchange business of Mercantile Bank Ltd. has been increasing with the passage of time but last year it is declined. Growth of import and export are decline by 4.85% and 4.21% respectively. 8.2 Foreign exchange income of MBL: Foreign exchange income is a great source of revenue for the bank. This revenue comes in two forms: commission and exchange gain. Here, five years data of foreign exchange income is presented in Table-8.2. In millions Tk Commission Year L/C Export Bill Bill Purchased Accepted Bill OBC, IBC PO,DD, TT, TC Exchange Gain TotalFX Income 2004 100.39 2.00 0.99 4.88 1.53 9.65 96.47 215.91 2005 129.85 3.46 1.55 6.26 2.85 9.89 188.72 342.58 2006 156.51 5.22 1.39 11.16 2.53 8.96 201.06 386.83 2007 196.84 8.33 2.11 18.30 2.26 11.62 254.76 494.22 2008 216.55 11.17 2.64 19.65 3.23 12.35 274.90 540.49 Table 8.2: Foreign exchange income of MBL Source: Annual report 2005, 2006, 2007, 2008 Figure 8.2 : Foreign exchange income of MBL In the Table-8.2 the different sources of income for foreign exchange business are revealed and the income is showing a continuous increasing trend. The most dominant variable in foreign exchange income is exchange gain. This is achieved from both export and remittance business. 8.3. Foreign exchange income, operating income and profit: The foreign exchange income, operating income and profit after tax for five years is presented in Table-8.3. The foreign exchange income has a contribution to operating income as well as to bank’s profit.

In million Tk Year Total FX Income Operating Income Profit 2004 215.91 1592.21 301 2005 342.58 1970.37 389 2006 386.83 1968.83 472 2007 494.22 2401.66 543 2008 540.49 2831.53 619 Table 8.3: Foreign exchange income, operating income and profit Source: Annual report, 2008 Figure 8.3: Operating Income & Foreign exchange income In the Table-8.3, it is shown that along with the increasing trend in foreign exchange income the operating income is also increasing. So, foreign exchange income has a positive effect on operating income as well as profit. Table-8.1, 8.2, 8.3 focuses on the important information of foreign exchange business of Mercantile Bank Ltd.. 8.4. SWOT analysis: The comparison of strengths weaknesses, opportunities, and threats is normally referred to as a SWOT analysis. The central purpose of the SWOT analysis is to identify strategies that align, fit, or match a company’s resources and capabilities to the demands of the environment in which the company operates. To put it an other way, the purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strengths in order to exploit opportunities and counter threats and to correct company weakens. SWOT analysis explains in two broad ways on viewed of organizations environment. These are: a) Internal Environment Analysis: It includes: 1) Strength 2) Weakness b) External Environment Analysis: It includes: 1) Opportunity 2) Threats During my internship period in MBL I have found some aspects relating to the Bank’s strength, opportunity, weakness and threats, which are more or less. I think affecting the bank’s performance in total, which are explained below: 8.4.1. Strengths:

MBL has already established a favorable reputation in the banking industry of the country. It is one of the leading private commercial banks in Bangladesh. The bank has already shown a tremendous growth in the profits and deposits sector. Mercantile Bank Ltd. is maintaining a strong capital base. By the end of December 2008, capital adequacy ratio of the bank was 10.68% that is well above the stipulated requirements of 9%. Earning base in assets of the bank was 88.00%in 2008 as compared to 92.40% in 2007. The ratio indicates efficient utilization of resources to earn revenues. MBL has provided its banking service with a top leadership and management position. The Board of Directors is the skilled person in business world. The top management officials have all worked in reputed banks and their years of banking experience, skill, and expertise will continue to contribute towards further expansion of the bank. MBL has already achieved a high growth rate accompanied by an impressive profit growth rate in 2008. The number of deposits and the loans and advances are also increasing rapidly. MBL has an interactive corporate culture. The working environment is very friendly, interactive and informal. And, there are no hidden barriers or boundaries while communicate between the superior and the employees. This corporate culture provides as a great motivation factor among the employees. MBL has the reputation of being the provider of good quality services too its potential customers. 8.4.2. Weakness: This bank has not any long-term strategies of whether it wants to focus on retail banking or become a corporate bank. The path of the future should be determined now with a strong feasible strategic plan. The bank failed to provide a strong quality-recruitment policy in the lower and some mid level position. As a result the services of the bank seem to be Deus in the present days. Service quality of this bank is good but hot high as the customers want and expectation. The quality of the service at MBL is higher than the Dhaka Bank, Prime Bank or Dutch Bangla Bank etc. But the bank has to compete with the Multinational Bank located here. Some of the job in MBL has no growth or advancement path. So lack of motivation exists in persons filling those positions. This is a weakness of MBL that it is having a group of unsatisfied employees. In terms of promotional sector, MBL has to more emphasize on that. They have to follow aggressive marketing campaign. 8.4.3. Opportunity: In order to reduce the business risk, MBL has to expand their business portfolio. The management can consider options of starting merchant banking or diversify into leasing and insurance sector. The activity in the secondary financial market has direct impact on the primary financial market. Banks operate in the primary financial market. Investment in the Secondary market governs the national economic activity. Activity in the national economy controls the business of

the bank. Opportunity in retail banking lies in the fact that the country’s increased population is gradually learning to adopt consumer finance. The bulk of our population is middle class. Different types of retail lending products have great appeal to this class. So a wide variety of retail lending products has a very large and easily pregnable market. A large number of private banks coming into the market in the recent time. In this competitive environment MBL must expand its product line to enhance its sustainable competitive advantage. In that product line, they can introduce lots of the ATM to compete with the local and the foreign bank. In addition of those things, MBL can introduce special corporate scheme for the corporate customer. At the same time, they can emphasize more on various social activities because it has these opportunities. 8.4.4. Threats: The default risks of all terms of loan have to be minimizing in order to sustain in the financial market. Because default risk leads the organization towards to bankrupt. Mercantile Bank has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination. The low compensation package of the employees from mid level to lower level position threats the employee motivation. As a result, good quality employees leave the organization and it effects the organization as a whole. In recent years, the numbers of private bank is increasing. These banks always pose a threat for others by coming up with new product line, innovative technology, quality services, etc. thus the level of competition rises and create threat for Mercantile bank Ltd. Compared to their private banks of Bangladesh, the compensation of MBL is not so attractive. This poses a threat on the employees of switching to other banks from MBL. Daily basis interest on deposit offered by HSBC. 8.5. Findings: Major findings of the study are: The MBL follows the traditional banking system. The entire banking procedure is not fully computerized. The working environment of MBL is very interactive, informal and attractive. People working here are cooperative to the highest possible extent, according to me. The Foreign Exchange Department is very much Strong. Clauses they use in dealing with the foreign Bank in term of L/C opening and amendment of L/C, are very much expedient to the foreign Bank. It is giving a competitive advantage to the MBL. For this, businessmen like to deal their business with the MBL. The operations of international trade are as per local and international laws, rules, customs and practices. The top executives and officers are very helpful to the clients. Some of our businessmen do not know the exact procedures of international trade. The officers of MBL help them to properly execute their business.

Financing in the international trade is very crucial for the economy as well as it is risky. Sometimes the government imposes restriction to import and export some products. As a result the rate of opening L/C become reduces. MBL provide little assistance in relation with foreign exchange to the small entrepreneur comparing to large business houses. Small entrepreneur has to keep higher margin, sometimes 100%, regarding opening a L/C. The presence of modern data processing and communication equipments is inadequate in MBL. This cause a considerable degree of inefficiency in the bank’s performance, especially in the foreign exchange department. Internal Control System (ICS) of MBL is not up to the standard (as per BAS). Anti money laundering procedures of the bank is very effective. The marketing strategy adopted by the bank is effective but not efficient. The appearance of the bank in the printing media and electronic media has become a matter of fortune. The specialization of the personnel on a particular task is not ensured. It has been found that executives are transferred from one department to another department frequently, from branch to another in every three years without ensuring that they are acquainted with the task. The expansion process of the bank has little match with the modern pace of globalization. Despite being stoned in 1999, the bank has only 41 branches now. Even it does not have branch in many commercially and industrially important places. CHAPTER- 9 Recommendation& Conclusion 9.1. Recommendation: I had the practical exposure in Mercantile Bank Ltd. for just three months, with my little experience in the bank in comparison with vast and complex banking system; it is not so easy to recommend some suggestion to enhance the performance level of the organization. I have observed some shortcomings regarding operational and other aspects of their banking. On the basis of my observation I would like to present the following recommendations: The Branch should move to the fully automated banking system. This will save a lot of time of personnel working here and will increase their and the Bank’s performance thereby. Incase of importing goods the Bank should aware about over invoicing so that nobody can get chance to send money abroad illegally. Incase of exporting goods the Bank should aware about under invoicing so that no body can get chance to avoid Tax, Vat, Duty. MIS cell should be developed through internal, tax e-mail etc. Accounting system of the Bank should be software base. Fund management of the Bank should be more efficient. This will reduce the average cost of working fund.

Productivity measurement should be done from time to time through developing customer services. Stuck up advances should be reduced through more recovery at lower rate of interest. If the bankers can scrutinize the Commercial invoice it will decrease the Money Laundering. The Assistant Commissioners of Tax can contribute more. They must be more careful about invoicing and restricted products. Internal control system MBL to be further strengthened. Mercantile Bank Ltd. Foreign Exchange Department now using only one software and that is “PC BANK”. But recently the bank is taking initiatives for installing new software named ‘TEMONUS T24’. It is very dedicated software. It has real time online banking, ATM facilities and E-banking and lot of more. So I think it will be a great progress for the bank. The bank should introduce new innovative products to attract new potential customers and also keep its existing customer happy. Improve own ATM network and maintain sufficient fund in ATM booth. ATM card facilities are not easy of MBL. So they are losing their many potential customers. So I think MBL should take necessary step to easy their ATM card facilities for their customers. Bank should hold and increase overall satisfaction rate and provide modern service, modern equipment, light behavior, physical facilities and so on. There are more gaps are showing between perception and expectation of the respondents. As soon as possible remove this gap, which are existing between clients and Bank. The bankers must be careful in financing international trade So that, the bank does not fall in bad loss provision sated by BB. Bank should fixed-up specific types of client strategy according to the different character of client. Commission income occupies the major part of the total earnings of a bank and bank’s profitability mainly depends on commission earning capacity, so research and development cell of the bank should put more effort for the purpose of introducing an efficient Foreign Exchange department. Human resource is another sector for the branch to be developed urgently. Human resources in the branch need to be equipped with adequate banking knowledge. They should have basic knowledge regarding money, banking, finance and accounting. Without proper knowledge in these subjects, efficiency cannot be optimized. Bank can arrange sufficient training program on these subjects. Many times, the branch’s photocopier remains out of order. Printers are of obsolete technology. ACs gets out of order frequently. Attention should be given on proper maintenance and replacement of phone, computer, printer fax, machine and photocopier. Bank can introduce more advanced MIS system to mobilize its day to day activities. It will help the employee to do their works more quickly and at the same time maintaining their quality

of work. The management should impart more imphasis on the advertisement of the bank in different electronic and printing media. The Basic goal of the advertisement should be firstly to make people know and understand that the bank is universal one and permits anyone’s access. The spread out mechanism of the bank should be faster and progressive as well. Being established in 1999, the bank has established only 41 branches in ten (10)years. The mode of extension is much slower than other contemporary and equivalent banks. Branches should be opened in every industrial and commercial corner of the country. More products of varied interests should be introduced for the diversified client group. Opportunity in retail banking lies in the fact that the country’s increased population is gradually learning to adopt consumer finance. The greater bulk of our population is of middle classed. Different types of retail lending products would create great appeal to this mammoth class. So a wide variety of retail lending products has a very large and easily pregnable market. I think the Management should employ at least few more employees in Foreign Exchange Department of Main Branch. I have seen from my practical experience that many customers wait for a long time for any service as they see that the some concerned officials are doing their best to meet the requirements of the customers. But as the Foreign Exchange procedure is designed with many small tasks. There is a burning need for some additional employees. The workload in this department is so high that at every quarter in the year MBL places a good number of interns in this division. 9.2. Conclusion: Banking industry in Bangladesh is now on the right track. The banks are contributing much than the previous years for the growth and development of the country. Credit for such contribution by the industry goes to the Bangladesh Bank. Banking industry is much organized because of strong vigilance and supervision of Bangladesh Bank. In the industry, Mercantile Bank is one of the pioneers in many criteria. MBL is committed towards the excellence in the service with efficiency, accuracy and proficiency. Like of most of the commercial banks, foreign exchange department is one of the most important departments of MBL. Perhaps, it is the most important department of the Bank. This department is driving the bank from the front. Through the import, export and foreign remittance operations, this department is making a great contribution to the bank and the economy as a whole. If it is said that this department of the bank is running according to all of the ideal principles of modern foreign exchange business mentioned in the book, it will be exaggerated. Despite problems and weaknesses, it is driving the bank from the front. With an easy to understand operating guidelines, transparent operating procedure and a tem of highly knowledgeable and proficient personnel, this department is expanding and excelling itself day by day. To the gateway to practical professional life an experience at MBL as an internee was a privilege for me. MBL does offer a real practical orientation to the new comers with typical corporate culture. Rather, it offers people like us an environment where the appetite for learning just gets intense. This three months internship orientation with MBL undoubtedly will help me a lot to understand and cope with any typical corporate culture.

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