Internship report on Agrani Bank Ltd.pdf

TOPIC

Analysis of Foreign Exchange Operation Agrani Bank Ltd. SUBMITED TO

MD. MUKHLESUR RAHMAN

Assistant Professor Department of Finance University of Dhaka SUBMITED BY

Md. Obydul Hoqe 18-087 Department of Finance University of Dhaka

DATE OF SUBMISSION

15 May, 2016 1|P a g e

Letter of Transmittal 15 May, 2016 MD. MUKHLESUR RAHMAN

Assistant Professor Department of Finance University of Dhaka. Dhaka-1000

SUBJECT: SUBMISSION OF INTERNSHIP REPORT

Dear Sir, As per the requirements of the B.B.A program offered at Department of Finance, University of Dhaka under your supervision, I submit here our report on “Analysis of Foreign Exchange Operation – Agrani Bank Ltd.” that you assigned me to prepare. The final report is based on data from various sources and basis on relevant findings. I believe that the knowledge and experience that I gained will be of great importance both for future courses and work lives. The report is totally for the educational purpose for completing my B.B.A requirement .No part of this report will be reproduced for use in any other form of publication in the future without your written permission. I will be available for any clarification, if required.

Sincerely, Md. Obydul Hoqe Roll: 18-087 Sec: A

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TABLE OF CONTENTS

Chapter

1

2

3

4

Contents

Page

Executive Summary

4

Introduction

5

Company Background

9

2.1

Mission, Vision & Moto

10

2.2

Strategic Objectives

11

2.3

Hierarchy of Agrani Bank Ltd.

12

2.4

Top Management- ABL

13

Financial Performance – ABL

13

3.1

Five years Balance sheet –ABL

15

3.2

Graphical presentation of performance

17

3.3

Key Ratios: ABL

18

Foreign Exchange Operation - ABL

23

4.1

Foreign Exchange Services- ABL

24

4.2

Customer

25

4.3

Foreign Exchange Functions- ABL

26

4.4

Import Department – ABL

27

4.5

Export Department

31

4.6

Documents Used in Foreign Exchange

35

4.7

Letter of Credit (L/C)

37

4.8

Foreign Remittance Department

44

4.9

Impact on Global Economy of Foreign Exchange Performance

50

5

Statistical Analysis of Foreign Exchange Business

53

6

Survey Analysis of Employees

61

7

Conclusion & Reference

80

References and Appendices

83

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EXECUTIVE SUMMARY

Agrani Bank Limited, a leading commercial bank with 931 outlets strategically located in almost all the commercial areas throughout Bangladesh, overseas Exchange Houses and hundreds of overseas Correspondents, came into being as a Public Limited Company on May 17, 2007 with a view to take over the business, assets, liabilities, rights and obligations of the Agrani Bank which emerged as a nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. Agrani Bank Limited started functioning as a going concern basis through a Vendors Agreement signed between the ministry of finance, Government of the People's Republic of Bangladesh on behalf of the former Agrani Bank and the Board of Directors of Agrani Bank Limited on November 15, 2007 with retrospective effect from 01 July, 200 Agrani Bank Limited has earned full confidence of importers and exporters of the country by conducting its foreign trade related activities successfully through 40 authorized dealer branches across the country. For performing the international trade related business skilfully, the bank has a large network of 328 foreign correspondents in the several countries of the world. Besides this, the bank is maintaining 41 nostro accounts with the world reputed banks. Foreign remittance is one of the contributing factors to the running of wheels of our national economy. The inflow of foreign remittance through different channels of ABL was tk, 12,980 crore in 2014. This has been possible because of bringing all the branches under wide internet coverage, establishing its own exchange houses in different countries, and having linkages with a good number of foreign exchange houses abroad. Agrani Bank Limited has earned full confidence of importers and exporters of the country by conducting its foreign trade related activities successfully through 40 authorized dealer branches across the country. For performing the international trade related business skilfully, the bank has a large network of 328 foreign correspondents in the several countries of the world. Besides this, the bank is maintaining 41 nostro accounts with the world reputed banks. The total export business handled by the bank amounted to tk. 7845 crore as of December 31, 2013 which is 3.46% of national figure. From 2012 to 2013, export is decreasing than others previous years. Major export items were readymade garments, shrimps, tea & non-traditional items

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HAPTER 1: INTRODUCTION

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1.1 Introduction In this chapter describes the origin of the report, objective of the report, scope and the limitations of the report.

1.2 Origin of the report The Department of Finance offers B.B.A program which requires submitting an internship report on a specific topic determined by the internship supervisor .The report under the headline “Analysis of Foreign Exchange Operation- Agrani Bank Ltd.”

1.3 Objective of the report To complete the Internship as per requirement of B.B.A program offered at Department of Finance, University of Dhaka. To present an overview of foreign exchange division of ABL To appraise performance of foreign exchange division of ABL To appraise foreign exchange activities of’ ABL To know about what kinds of risk the bank is facing in the foreign exchange transaction To develop practical knowledge about foreign exchange operation of banks in Bangladesh To have an overall concept about foreign exchange activities relating to import, export, outward and inward remittances, buying and selling of foreign commission etc. come under the purview of foreign exchange business To identify problems of foreign exchange division of ABL 1.4. Scope of the report •

Annual Report – Agrani Bank Ltd. (2014-2010)

•

Agrani Bank website

•

Bangladesh Bank

•

And various articles, Relevant books Newspaper, Journals etc.

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1.5 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 overall process of methodology is given below: A. Selection of the topic: The topic of the study was suggested 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. This report is mainly prepared by the secondary sources of information and some few primary sources of information like – Primary data Discussion with officials of The Agrani Bank Ltd. Face to face conversation with the clients Expert’s opinions and comments Direct involvement in the foreign exchange activities in ABL Direct Observation Questioning the concerned persons Secondary data Annual Report ABL ABL website Credit rating report of ABL by CRISL (Credit Rating Information and Services Limited) Periodicals published by Bangladesh Bank Monthly reports and published documents Office circular and other published papers, documents and reports Daily summary sheet Various type of statement Various register books Various printed form Relevant books Newspaper, Journals etc. 7|P a g e

C. Collection of data: Primary data has been collected by observing and discussing with the Bank official. D. Classification, Analysis, Interpretations and Presentation of data: Some graphical tools are used in this report for analyzing the collected data and to classify those to interpret them clearly. E. Findings of the study: The collected data were scrutinized very well and pointed out and shown as findings. Recommendations are also made for the improvement of the current situation. F. Final report preparation: On the basis of the suggestions of my honorable supervisor, some corrections were made to present the report in this form. 1.6 Limitation •

Time constrain

•

Lack of knowledge

•

Lack of comprehension of the respondents

•

Dependence on the primary sources

•

Limited books, publications, Facts and figures etc.

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HAPTER 2: COMPANY OVERVIEW

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Agrani Bank Limited, a leading commercial bank with 931 outlets strategically located in almost all the commercial areas throughout Bangladesh, overseas Exchange Houses and hundreds of overseas Correspondents, came into being as a Public Limited Company on May 17, 2007 with a view to take over the business, assets, liabilities, rights and obligations of the Agrani Bank which emerged as a nationalized commercial bank in 1972 immediately after the emergence of Bangladesh as an independent state. Agrani Bank Limited started functioning as a going concern basis through a Vendors Agreement signed between the ministry of finance, Government of the People's Republic of Bangladesh on behalf of the former Agrani Bank and the Board of Directors of Agrani Bank Limited on November 15, 2007 with retrospective effect from 01 July, 2007. Agrani Bank Limited is governed by a Board of Directors consisting of 12 members headed by a Chairman. The Bank is headed by the Managing Director & Chief Executive Officer; Managing Director is assisted by Deputy Managing Directors and General Managers. The bank has 11 Circle offices, 34 Divisions in head office, 62 zonal offices and 931 branches including 27 corporate and 40 AD (authorized dealer) branches. The Bank continued to grow steadily in all major areas. Deposits increased by 10.11 percent in 2014 and reached Tk. 38,392 crore from Tk. 34,868 crore in 2013. Total loans and advances in 2014 was TK. 23,509 crore as against Tk. 20,297 crore in 2013, with a growth of 15.82 percent over the previous year. The Bank’s profit also continued to grow. The profit before amortization, provision and tax rose by 0.94 percent to Tk. 1,073.95 crore in 2014 from Tk. 1,063.93 crore in 2013. 40 th As a result, the capital surplus of Tk. 8.33 crore in 2013 reached a capital surplus of Tk. 111.75 crore in 2014 even after covering capital requirement. The inflow of foreign remittance through different channels of ABL was tk, 12,980 crore in 2014. This has been possible because of bringing all the branches under wide internet coverage, establishing our own exchange houses in different countries, and having linkages with a good number of foreign exchange houses abroad. ABL will take more steps through organizing remittance fair to make expatriate Bangladeshis aware of our remittance activities. To face the banking challenges all branches have been digitalized through introducing T24 online banking software, increasing number of ATM booths so that it can meet the ever changing demand of the customers. During the year, ABL’s total deposits was Tk. 38,392 which was Tk. 34,868 crore in 2013, loans and advances was Tk. 23,509 crore which was Tk. 20,297 crore in 2013, operating profit was Tk. 1,074 crore at the end of 2014, which is the highest among the State Owned Commercial Banks (SCB). Bank’s total assets have also increased to Tk. 49,487 crore from Tk. 44,416 crore i.e. 11.42 percent increase in a year time. Import and export was Tk. 15,741 crore and Tk. 8,345 crore respectively. Remittance reached to Tk.12, 980 crore from 12,657 crore with 2.55 percent growth over the preceding year. From 2012 to 2014 ABL secured first position in earning foreign remittance among the SCBs. In the year 2014, Net Interest Margin was Tk.118.59 crore which is positive figure among the three big SCB’s. Export of ABL in 2014 was Tk. 8,345 crore than 7,845 crore of 2013 with a growth rate of 6.37 percent. In the year 2014, the Treasury utilized Bank’s Fund prudently and ensured maximum 10 | P a g e

benefit. For strong credit and better Balance Sheet management, the multinational bank Standard Chartered Bank of UK allowed ABL 100 million US Dollar soft loan for three years. ABL is trying to adapt strategies to the changing business environment by launching different products at different times, controlling operating expenses, diversifying our credit programs to more profitable areas, inventing new avenues in SME financing, manpower business, Islamic banking, green banking, increasing branches of our overseas exchange houses and establishing new subsidiary company as part of expanding business capacity of the Bank. During the year 2014, ABL made significant progress in different areas. It drew out the strategies in the areas of capital strengthening, risk management, strong ICC, asset quality, product development, business diversification, technological integration and up gradation, SME and agri-financing in line with the national policies. Credit Rating of ABL from 2007 to 2013 has been affirmed ‘AAA’ in long term, ‘ST-1’ in the short term as a government entity and ‘A-’ as Stand Alone Basis by the Credit Rating Information Services Limited (CRISL) which demonstrates strong financial soundness and reputation of the Bank. 2.1 MISSION, VISION & MOTO

Mission: To operate ethically and fairly within the stringent framework set by our regulators and to assimilate ideas and lessons from best practices to improve our business policies and procedures to the benefit of our customers and employees. Vision: To become the best leading state owned commercial bank of Bangladesh operating at international level of efficiency, quality, sound management, excellent customer service and strong liquidity. Motto: To adopt and adapt modern approaches to stand supreme in the banking arena of Bangladesh with global presence. 2.2 STRATEGIC OBJECTIVES

Winning at least 6.50 percent share of deposits and 5.50 percent share of loans and advances of Bangladeshi market. Gaining competitive advantages by lowering overall cost compared to that of competitors. Overtaking competitors by providing quality customer service. Achieving technological leadership among the peer group. Strengthening the Bank’s brand recognition. Contributing towards the economic well-being of the country by focusing particularly on remittance, SME and agricultural sectors. 11 | P a g e

2.3 HIERARCHY OF AGRANI BANK LTD.

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2.4 TOP MANAGEMENT

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HAPTER 3: FINANCIAL PERFORMANCE

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3.1 FINANCIAL PERFORMANCE

Five years Balance sheet –ABL:

Five Years Income statement- ABL:

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Capital Measures (As per Basel II)

2014

2013

2012

2011

2010

Total Risk Weighted Assets

25,326

21,370

21,455

21,411

19,326

Core Capital (Tier-I)

1,552

1,212

(1,320)

1,688

1,163

Supplementary Capital (Tier-II)

1,092

933

-

665

616

Total Capital

2,644

2,145

(1,320)

2,353

1,779

Tier-I Capital Ratio

6.13%

6.00%

-

8%

6%

Tier-II Capital Ratio

4.31%

4.00%

- 6%

3%

3%

Total Capital Ratio

10.44%

10.00%

11%

9%

Table 3.1: Capital Measures (Basel II) 2010-2014

Credit Quality

2014

2013

2012

2011

2010

Non-Performing Loans (NPLs)

3,966

3,580

5,380

2,149

2,102

Provision for Unclassified Loans

325

-

254

293

230

Provision for Classified Loans

1,930

-

3,212

942

834

Table 3.2: Credit Quality 2010-2014

Share Information

2014

No. of Shares Outstanding

2013

2012

2011

2010

20,72,29,404 20,72,29,404 9,91,29,404

9,01,17,640

5,46,52,400

No. of Shareholders

11

12

12

12

12

Dividend - Bonus Share

-

-

-

10%

10%

Net Asset Value per Share (Taka)

191

172

72

288

288

Table 3.3: Share Information 2010-2014 16 | P a g e

Key Operational Datas

2014

2013

2012

2011

2010

Forex Business

37,066

36,449

37,482

44,869

30,332

i. Import

15,741

15,947

16,963

26,877

16,792

ii. Export

8,345

7,845

8,838

9,310

6,443

iii. Remittance

12,980

12,657

11,681

8,682

7,097

Guarantee Business

1055

794

515

442

527

Branches

921

899

889

876

867

Employees

13,414

14,005

13,890

12,085

11,900

NOSTRO A/C with Foreign Banks

38

43

43

43

38

Exchange Houses (Remittance)

61

56

52

52

41

Foreign Correspondents

328

396

429

419

419

Number of Subsidiary Companies

6

6

6

4

4

Table 3.4: Key Operational Indicators 2010-2014

3.2 GRAPHICAL PRESENTATION OF PERFORMANCE

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3.3 KEY RATIOS: ABL

Sl. No.

Particulars

2014

2013

Profitability and performance ratios 1

Net profit ratio

4.74%

22.00%

2

Cost to income ratio

74.24%

74.15%

3

Return on assets

0.40%

2.04%

4

5.02

25.39%

5

Return on Equity (after amortization, provision & tax) Non-interest expenses to total assets

1.77%

1.76%

6

Non-interest income to total assets

3.70%

3.86%

7

Interest margin to total assets

0.24%

0.28%

8

Earnings per share (Taka)

9.58%

91.28

9

Net asset value per share (Taka)

191

172

10

Cost of fund

9.58%

10.41%

11

Return on investment

8.54%

7.43%

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Sl. No. 1

Particulars

2014

2013

Current ratio

1.19

2.21

2

Debt to total assets ratio

0.92

0.92

3

Loans & advances to deposit ratio

63.21

58.21%

4

Loans & advances to total assets ratio

47.50

45.70%

5

Provision to total loans & advances

9.68%

9.47%

Capital adequacy ratio

10.44%

10.04%

i. Tier I Capital

6.13%

5.67%

ii.Tier II Capital

4.31%

4.37%

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HAPTER 4: FOREN EXCHANGE OPARATION

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Foreign remittance is one of the contributing factors to the running of wheels of our national economy. The inflow of foreign remittance through different channels of ABL was tk, 12,980 crore in 2014. This has been possible because of bringing all the branches under wide internet coverage, establishing its own exchange houses in different countries, and having linkages with a good number of foreign exchange houses abroad. Agrani Bank Limited has earned full confidence of importers and exporters of the country by conducting its foreign trade related activities successfully through 40 authorized dealer branches across the country. For performing the international trade related business skilfully, the bank has a large network of 328 foreign correspondents in the several countries of the world. Besides this, the bank is maintaining 41 nostro accounts with the world reputed banks. Import and export was Tk. 15,741 crore and Tk. 8,345 crore respectively. Remittance reached to Tk.12,980 crore from 12,657 crore with 2.55 percent growth over the preceding year. From 2012 to 2014 ABL secured first position in earning foreign remittance among the SCBs. In the year 2014, Net Interest Margin was Tk.118.59 crore which is positive figure among the three big SCB’s. Export of ABL in 2014 was Tk. 8,345 crore than 7,845 crore of 2013 with a growth rate of 6.37 percent. In the year 2014, the Treasury utilized Bank’s Fund prudently and ensured maximum benefit. For strong credit and better Balance Sheet management, the multinational bank Standard Chartered Bank of UK allowed ABL 100 million US Dollar soft loan for three years.

4.1 FOREIGN EXCHANGE SERVICES- ABL

ABL is rendering various kinds of services in international transaction of their clients. Some are described below: 1. L/C Opening: The importers of Bangladesh give an L/C to exporters of foreign country to give the assurance of payment. ABL is opening L/C in favor of their clients.

2. Export processing: When exporter’s foreign document comes to ABL, ABL collect payment from foreign bank for its party. ABL purchase bill if their party need early cash. 3. Back to Back and Local L/C: In against of export L/C ABL give the facility to open Back to Back and Local L/C 4. Dollar sale and purchase: ABL sale dollar against passport. The rate of exchange is given by Bangladesh Bank which is changed every day.

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5. Loan facilities: Loan facility is given to clients to help in foreign exchange. Different types of loan facility are given below•

CC

•

LTR

•

LIM

•

Sanction of L/C

4.2. CUSTOMERS:

ABL is a well-known bank is foreign exchange business. It is helping the business and people working abroad from the very beginning. The parties of ABL in foreign exchange are as follows, Serial No.

Kinds of parties

1.

Importers of bicycle parts

2.

Importers of chemical

3.

Importers of fresh fruits

4.

Importers of parts & capital machinery

5.

Importers of garments accessories

6.

Exporters of garments items

7.

People working abroad

8.

Resident & Non – resident Bangladeshis

9.

Government parties working abroad

10.

People travelling from Bangladesh and to Bangladesh

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4.3. FOREIGN EXCHANGE FUNCTIONS- ABL

Import: Opening of letter of credit (L/C) Advance bills Bills for collection Import loan and guarantees Export: Pre-shipment advances Purchase of foreign bills Negotiating of foreign bills Export guarantees Advising/ confirming letters-letter of credit Advance for deferred payments exports Advance against bills for collection Remittances: Issue of DD, MT, TT etc. Payment of DD, MT, TT etc. Issues and enhancement of traveler’s cheque. Sale and enhancement of foreign currency notes. Non-resident accounts.

Agrani Bank Ltd.

Foreign Exchange Department

Import Department

Export Department

Remittance Department 26 | P a g e

4.4. IMPORT DEPARMENT – ABL

Import is the flow of goods and services purchased from one country to another. Hence, import of merchandise essentially involves two things: bringing of goods physically into the country and remittance of foreign exchange towards the cost of the merchandise and services connected with this to the importer. In case of import, the importers are asked by their exporters to open letters of credit so that their payment against goods is ensured. ABL provides different services to the importer of Bangladesh. 4.4.1 IMPORT PROCEDURES:

ABL provides different services to the importer of Bangladesh. To get import facility the party must have following requirements-

Current deposit Account (CD) IRC (Import registration certificate) Mortgage TIN Number. Insurance policy Performa Invoice / Indent. Membership certificate from a recognized Chamber of Commerce and Industry or Town Association or registered Trade Association. Letter of Credit Authorization (LAC) Form properly filled in quintuplicate signed by the importer. L/C application duly signed by the importer. One set of IMP Form. Insurance Cover Note with money receipt. A bank account with the branch. Import Registration Certificate (IRC). Tax Payer’s Identification Number (TIN). VAT Registration Certificate (for Commercial Importers). In case of public sector, attested photocopy of allocation letter issued by the allocation authority, Administrative Ministry or Division specifying the source, amount, purpose, validity and other terms and conditions against the imports. Any such documents as may be required as per instruction issued/to are issued by the Chief Controller of Imports & Exports (CCI&E) from time to time.

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Import Business For the very beginning the bank has embarked on extensive foreign exchange business with a view to facilitating international trade transactions of the country. The bank has BDT 15947 crore import financing as of December 31, 2013 which is 5.96% of national figure. Here from 2009 to 2011, the amount of it is increasing, but next two years these are decreeing. Import mainly confined to consumer goods, capital machineries and industrial raw materials. Year 2009

Amount of Import (BDT in core) 7753

2010 2011 2012 2013

16792 26877 16963 15947

Table: Imports

Import

7753

15947

2009 2010 2011 2012 2013

16792 16963 26877

Graph: 4.1.2 Import Business

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Source: Agrani Bank Annual Report 2011-2014 4.4.2 IMPORT FINANCING SECTORS- ABL

Agrani Bank is the major financer of import business in our country. In extend credit, grant and other facilities, Agrani Bank finances to the following sectors: Machinery and transport equipment. Petroleum and petroleum products. Textile, yarn, fabrics, article and related products. Chemicals and iron and steels. Cereal and cereal preparations. Dairy products and eggs. Other including loans and grants.

4.4.3 IMPORT FINANCING SYSTEM- ABL

Registration of import. Income tax registration certificate. Partnership deed in the case of partnership concern. Certificate of registration with the register of joint stock companies. Articles and memorandum of association in the case of limited companies. Nationality certificate and bank certificate. Ownership documents in place of business. Trade license from the relevant authority. Survey clearance from the relevant authority. Other documents prescribed in the import policy

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4.4.4 IMPORT SCRUTINY

The import bills consist of the following documents and the order of their scrutiny should be as below: Forwarding schedule of negotiating bank. Bill of exchange. Invoice. Bill of lading Insurance documents. Certificate of origin. 4.4.5 IMPORT BILLS RETIREMENT:

Banker will prepare and pass retirement vouchers. Importer will deposit the claim amount. Certifying invoices and entry in the register. Endorsement in the bill of exchange and transport documents i.e. Bill of Lading. At the end of the total procedure, taking the retirement of import bills or clearing certificate from the bank, the importer will clear the goods from the port through the clearing and forwarding agent. On the other hand, completing the above all steps the issuing bank will prepare "foreign exchange transaction schedule" and send one copy to international division of head office and another one copy to reconciliation. 4.4.6 RISK OF IMPORT FINANCING

In the trade - there are so many risk factors involved. In banking sector, the bank faces risk basically from loans and advances and foreign exchange. In this section, I will discuss the risk of import financing. There may be abrupt changes in socio-economic or political situation in the buyer's country or in the seller's country. Even the exchange value of currencies of the two countries had gone so much down that they were not acceptable or exchangeable in international market. More over the importer or the exporter may not be able to comply with the terms of credit for some reasons. Agrani Bank has to consider following risk in financing the import procedure:(a) Commercial risk Violation of the requirement of letter of credit authorization or letter of credit. Import against indent and Performa invoice. (b) Political risk Sudden outbreak of war, revolution, coups or civil disobedience in the seller's country. Imposition of restriction on remittance. Imposition of trade embargo or blockade. New import restriction on the buyer or cancellation of the license. Additional handing transport or issuance charges due to interruption or diversion of voyage, which can't be recovered from the buyer. 30 | P a g e

(c) Informational risk There may be informational risk inherent in import financing on the importer because of shortage of required information. So it is much harder to judge the financial strength, reputation and integrity of a seller or buyer who is thousands of miles away and belongs to a different culture.

4. 5 EXPORT DEPARTMENT

Export is the process of selling goods and services to the other countries. Creation of wealth in any country depends on the expansion of production and increasing participation in international trade. An exporter is who exports the goods to another customer whether in domestic country or in abroad. In exporting the stipulated goods, he may require financing. So export financing may be required at two stages: a) Pre- shipment credit b) Post shipment credit a) Pre- shipment credit Pre shipment credit is the credit which is given to finance the export activities of an exporter for the actual shipment of goods. The purpose of each credit is to meet the working capital needs from the procuring of raw materials to the transportation of goods for the export of the foreign country. b) Post shipment credit: There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Agrani bank may finance against export documents ensuring the following: Export documents comply with the credit terms. Party’s past performance is satisfactory. Any other security in case of exporting under contract.

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Fig: Total Export by ABL source- ABL Annual Report

4.5.1 EXPORT PROCEDURES- ABL

There are a number of formalities which an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows: Obtaining Export Registration Certificate (ERC). Securing the Order. Signing of the Contract. Receiving the Letter of Credit. Endorsement on EXP. ABL permit 50% to 70% loan against mortgage. Other loan facility are – 1. Back to back- 75% of export L/C 2. Cash credit-90% in FDBP 3. Packing credit (PC)- 90% of export L/C Export advance & loan facility is sanctioned by head office. According to the prospect of party they take the loan decision, (TK. In millions) Content

2010

2011

2012

2013

2014

Export

46234.6

55790.42

76465.62

76240.77

95359.45

Source: Annual Report of ABL 2011

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EXPORT BUSINESS

The total export business handled by the bank amounted to tk. 7845 crore as of December 31, 2013 which is 3.46% of national figure. From 2012 to 2013, export is decreasing than others previous years. Major export items were readymade garments, shrimps, tea & non-traditional items. Year

2009

Amount of Export (core in BDT.) 4461

2010 6443 2011 9310 2012 8838 2013 7845

10000

9310

8000

8838

7845

6443

6000 4000

4461

2000 0 2009

2010

2011

2012

2013

Figure: Export Business of ABL 2009-2013

4.5.2 EXPORT FINANCING SECTORS- ABL

Export financing can play a vital role in the development process of Bangladesh. With earning on export, we can meet our import bills. The export trade is always encouraged because the major portion of foreign exchange earnings is derived from export. Because of shortage of adequate capital exporters have to come in contact with commercial bank and financial institution to get finance from them. Agrani Bank as a commercial bank provides certain facilities to the exporters to boost up export earnings. The traditional and non-traditional sectors in which Agrani Bank provides export-financing facilities are as follows: Ready Made Garments in all sorts. Jute manufactures. Jute - raw and Mesta. Fish and Prawns. Hides, Skins and Leather. Tea and Fertilizer etc.

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4.5.3 EXPORT FINANCING SYSTEM- ABL

Bangladesh as a developing country depends mainly on foreign exchange earnings for its development activities. The major portion of foreign exchange earnings is derived from export obviously, to boost export; government provides certain incentives to the exporters namely: Export financing. Development financing. Export credit Guarantee Scheme. Export performance benefits. Duty drawback. Rebate on duty and tax. Income tax rebate. Insurance premium rebate. Conditional cash subsidy to garments industry etc.

4.5.4 RISK OF EXPORT FINANCING

While there are many advantages to exporting, it is not without risk. Indeed, there are often factors present in international market, which makes foreign exchange substantially more risky than domestic ones, including the credit risk of non-payment or non-acceptance of the merchandise by the buyer. For international sales, these risks are far more pronounced than they are domestically. For these reasons, Agrani Bank also accompanied with elements of uncertainty some which are as follows: (a) Commercial risk Insolvency of overseas buyer, which results in non-realization of export proceeds. Failure of the buyer to retire credit already accepted by him / her in case of stance bill within stipulated period. Willful negligence of the importer to accept of pay bill or to accept goods for no fault of exporter. (b) Political risk Sudden outbreak of war revolution or civil disobedience in buyer's country. Imposition of restrictions on remittance on any government action in the buyer's country which may block or delay payment. Imposition of trade embargo or blockade against any country. New import restriction on the buyer or cancellation of the license. Additional handling transport or insurance charges due to interruption or diversion of voyage, which cannot be recovered from buyer. 34 | P a g e

Bankrupt or closure of a bank or stoppage of operation of a bank may hamper repatriation of exports proceeds of letters of credit opened by such a bank. Any other cause of loss occurring outside the exporter's country beyond the control of importer or exporter. (c) Informational risk: Often credit information on the importer is not available or at best sketchy because buyers and sellers live in different socio-economic and political environment. It is much harder to judge the financial strength, reputation, integrity of a buyer who is thousands of miles away and belongs to a different culture. (d) Pre-shipment export credit risk: Pre-shipment export credit risk involves the following additional risks: There may be diversion of fund because of low interest rate. Uncertainties relating to non-availability of new materials may hamper processing of exportable products. The exporter may not be able to make shipment within the stipulated time due to power failure, strike, natural calamities etc. The materials under back-to-back letter of credit may not reach well in time to allow the exporter to process goods within the expiry date of original export letter of credit.

4.6 DOCUMENTS USED IN FOREIGN EXCHANGE

Letter of Credit (L/C) Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. Bill of Exchange A bill of exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay on demand or on fixed or determinable future time a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Bill of Lading A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constitutes a document that is, or may be, needed to support an insurance claim. 35 | P a g e

Commercial Invoice A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally including the following information: Date, 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 & number. Terms of delivery & payment. Shipment details. Inspection Certificate This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and / or the letter of credit. Performa invoice or indent: Seller’s quotation or agreement is between seller and buyer. In this, the seller declared the rate, quantity, quality, manufacturing and other information about goods and that accepted by buyer.

4.7 LETTER OF CREDIT (L/C)

Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity. Forms of Letter of Credit A letter of credit (L/C) may be two forms. These as follows: i) Revocable letter of credit. ii) Irrevocable letter of credit. Revocable L/C: If any letter of credit can be amendment or change of any clause or cancelled by consent of the exporter and importer is known as revocable letter of credit. Irrevocable L/C: If a letter of credit cannot be changed or amendment without the consent of the importer and exporter is known as irrevocable letter of credit 36 | P a g e

4.7.1 PARTIES OF LETTER OF CREDIT TRANSACTION

Issuing Bank Advising Bank Confirming Bank Reimbursing Bank Negotiating Bank Nominated Bank

4.7.2 PROCEDURE FOR LETTER OF CREDIT OPENING

After completion of the previous particulars, then the party take money and bank give letter of credit to the party by checking the declared particulars of the party. Then one copy sends to the beneficiary / negotiating bank. The beneficiary bank sends the document to exporter. The exporter is the beneficiary bank for shipment of the goods. Then the beneficiary bank sends back to the letter of credit opening bank. The LC opening bank scrutinizes the documents and sends to the importer. When the importer accepts the documents then LC opening bank do lodgment (it is the payment procedure in lodgment voucher). The party goes for customs clearing. After clearing the importer submit the customs "Bill of entry" certificate within four months to the LC opening bank. The LC opening bank matching the documents and report to the Bangladesh Bank within the month of retirement of LC. Then the letter of credit is fully closed. 4.7.3 CLASSIFICATION OF LETTER OF CREDIT AS PER FUNCTION:

LC under cash. LC under loan. LC under grant. LC under wage. Back to back LC.

4.7.4 Required documents for letter of credit opening:

Following documents are need to open LCProposal letter. Application and agreement for irrevocable LC with adhesive stamp of TK.150. Import license. TIN. VAT registration. Indenting certificate. 37 | P a g e

Performa invoice - two copies. LCA (Letter of Credit Authorization) form for industrial consumer. Signature of director of the firm and manager of Agrani Bank. IMP form - Four copies. Money receipts of insurance policy. After preparing the procedure the bank provide offer in prescribed "offering sheet". Approval certificate of Bangladesh Bank on behalf of the importer. 4.7.5 SERVICE PROVIDED BY BANK AGAINST EXPORT L/C

A. Advising of export L/C: The advising bank getting the import L/C sent by the issuing bank located abroad will advise the L/C to the beneficiary without any engagement or responsibly on their part. It will see the following only: a. Authenticity of L/C (Test agreed in case of Telex L/C and signature verified in case air mail L/C. b. Merchandise specified in the L.C is permissible and clauses incorporated in the L/C are not against country’s regulations. B. Add Confirmation of Export L/C: Bank may add additional confirmation to export L/C where there is specific instruction from the L/C issuing bank to do so. Additional confirmation of L/C gives the seller a double assurance of payment. Bank’s requirement of adding confirmation: Issuing Bank should be a reputed bank. Credit line/ Arrangement with the L/C issuing bank. L/C clause are to be acceptable to confirming bank Approval from the competent authority for adding confirmation of export L/C/ Confirmation charges are to be recovered as per rules. C. Negotiating of Export L/C: Documents / papers to be submitted by exporter to bank for negotiation/ collection against export L/C. The exporters submit the documents to bank as per requirement of bank. List of export documents is as follows: a. Export L/C b. EXP Form c. Bill of exchange d. Invoice e. Bill of Lading f. Packing List g. Certificate of Origin 38 | P a g e

h. Inspection Certificate i. Insurance Document j. Weight List k. ERC (Export registration certificate) Bank must scrutinize all the documents stipulated in the credit with reasonable care to ascertain whether they confirm with the terms of the credit, the bank may negotiate and pay the value of export bill to the exporter at: ♠ OD buying rate (Sight Draft) ♠ Usage rate (For DA Bill) ♠ Appropriate rate (For DP Bill) D. FDBC: If the export document is not purchase by ABL it is called Foreign Documentary Bill Collection. At the maturation data of export bill ABL collect the payment for party. The collection process is same as LDBC. Only the postage charge is high. The postage charge is Tk. 800 within SAARC countries within Asia Tk.1500 and outside Asia is Tk. 2000. E. FDBP: If the exporter need money before that the maturation of export document. He/ She can sale it to ABL. It is called Foreign Documentary Bill Purchase. The steps of FDBP are discussed with an example. Let, Tanzim Enterprise is a party of ABL who export shirt to China at $20000/-. In AAA Ventures Ltd. buys it and their bank is Bank of China. The Steps are as follows: a. ABL is receiving a L/C of $ 20000 from Bank of China. b. ABL inform Tanzim Enterprise about L/C c. Tanzim Enterprise what the money right now. So they sale to ABL and get 90% of payment. ABL gives an FDBP No. d. When bill is purchased, ABL creates a FDBP $20000x90%=18,000 will be given to Tanzim Enterprise right now. e. When ABL receive payment from Bank of China, ABL charge Tanzim Enterprise the following costInterest

13%

Postage charge

Tk.800 (SAARC), Tk.1500 (Asia), Tk. 2000 ( Outside Asia)

Expend charge

Tk.250

Handling charge

Tk.500 39 | P a g e

4.7.5 BACK TO BACK AND LOCAL L/C

In against of export L/C, ABL give the facility to open back to back and local L/C. If the exporter exports the garments products as shirt, then he has to also purchase the bottom, logo, tag, yearn etc. for the shirt. And in this case, if the exporter has not enough money to purchase that, then the bank would help the exporter to purchase the accessories by lien of the L/C. There are four parties in back to back L/C or local L/C: Opening / Issuing Bank (ABL)

Benefici ary

Back to Back and Local L/C

Negotia -tion or Advisin g Bank

Applica nt

Figure: Parties of Back to Back L/C or Local L/C

4.8.6 KINDS OF BACK TO BACK L/C

Back to Back L/C can be divided into two types: Foreign and local.

Back to Back L/C

Foreign

Local

Cash L/C

Back to Back L/C

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1. Foreign Back to Back L/C: ABL issue or advice this kind of L/C. It is opened against a master L/C to do business aboard. Payment is given in other country. 2. Local L/C: Local back to back L/C is opened against a master L/C to pay the local businessman. Business within Bangladesh. Local L/C can be divided into two typesa) Cash L/C: It is the L/C normally open for a bank acceptance. No master L/C is needed. Sometime people want a bank guarantee. It is one of them. It can be at sight and may be defer. b) Local back to back: It is used to do business in Bangladesh. It is opened against a master L/C. ABL receive a big amount of profit from back to back L/C. ABL is not a mysterious entity. They are business people just like the importers & exporter. They are in the business of lending money for the purpose of financing attractive proposals. The suggestions they make can save considerable expense and Tim of international businessman. ABL can work as advising bank or issuing bank.

4.7.7 SERVICE PROVIDE BY BANK AGAINST BACK TO BACK L/C:

• LDBC • LDBP Is opened in favor of national’s party: In back to back L/C following limit of loan facilities is given• 90% loan against master L/C is given • 75% can be received opening back to back L/C • Rest 15% is given when bank receive export document. For example against $ 2,00,000 master L/C, $ 1,80,000 loan facilities is given. $1,50,000 is given when L/C is opened $ 30,000 is given after receiving documents. LDBC: Local documentary bill collection is a service of ABL to collect the bill of their party for payment. When ABL is advising bank they can collect payment against the document. When in back to back L/C ABL is advising bank. After the maturation period ABL collect they payment by LDBC

. 41 | P a g e

Steps in LDBC: The procedure is as following: 1. Exporter presents the documents to ABL for collection from importer within 3 days of shipment. The document containsTrack receipt. Commercial invoice. Packing list. Delivery receipt. Country of origin. Bill of exchange. 2. ABL sends the documents to issuing bank for collection. 3. ABL use a controlling no or LDBC No. 4. If back to back L/C is not on sight the issuing bank will not give the payment to ABL on receiving day. So an acceptance is sent to ABL, saying that the payment will be made after maturation period. It may be 90 days, 120 days etc. 5. After that they ABL get payment by pay order. 6. ABL will send the pay order for clearing. 7. After payment is received by ABL through clearing ABL will collect change and give the money to party Charges Advice charge

Tk. 500

Commission

Tk. 730- Tk. 1000

Postage charge

Tk. 20

LDBP: Local documentary bill purchase is a great source of profit for ABL. Here when the export documents comes the party want to get payment without waiting for the maturation date. So ABL, finance for that day and charge interest.

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For example- Cat Textile Mills Ltd. Exports finished shirt to Sweden and buy clothes from M/S Sushi chemicals of Bangladesh. Here Cat Textile Mills Ltd’s bank is AB bank and M/S Sushi chemicals bank is ABL. So in this case the parties involved is as following: Now if Sushi chemicals want to get payment before the bill maturation, ABL can purchase the bill. It is called LDBP. Steps in LDBP: 1. At first a party brings a document of back to back L/C to ABL. The officer cheeks the documents. He/she emphasize on. o o o o

Name of two parties. USD $ or other currency L/C No. Opening data.

Than a number is given (LDBP No) and as advice is sent to issuing bank. 2. Issuing bank sends an ‘advice of acceptance’ to ABL 3. Party makes following documents. o o o o o o o

Bill of exchange. Track receipt. Commercial invoice. Packing list. Delivery challan. Delivery receipt. Country of origin.

5. Next party comes for selling the bill to ABL, with all documents. 6. The party collect the voucher and receive payment, rest of the amount which was not purchased by ABL. ABL cut the cost of party from it.

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4.8 FOREIGN REMITTANCE DEPARTMENT

Agrani Bank Limited has achieved positive growth in remittance business though remittance inflow in our country slowed down last year due to continuous recession in world economy. We received foreign remittance for USD 1,670.40 million in the year 2014 with a growth rate of 2.95 percent out of USD 1,622.58 million of year 2013. Like year 2012 and 2013, in 2014 also Agrani Bank Limited has secured the first place among the State Owned Commercial Banks and stood second among the banks of Bangladesh in bringing in foreign remittance. Our contribution to the national figure of remittance business is 11.28 percent for the year ended on 31 December 2014 and it is the highest in the last five years of ABL. ABL’s easy but instant online remittance distribution system has enabled to achieve this development in this portfolio. Agrani’s contribution in context of global achievement in foreign remittance sector is given below:

To keep the present growth rate up ABL has tied up with six new Foreign Exchange Houses in 2014. Besides, it is good to inform that Agrani Exchange Company (Australia) Pty. Limited a subsidiary of ABL has clicked to operation since November, 2013. At present, the number of ABL’s remmitance business partners along with its own 4 subsidiaries stands at 61. In line with expansion policies ABL has already undertaken a step to open an own remittance house in the largest market of remittance in Saudi Arabia. In addition to that most of our Middle East partners come up with their Web Based live remittance product and that invariably will be a catalyst to the Middle East based remittance flow. Comparative studies of remittance business of different banks have been furnished below: 44 | P a g e

Agreements with multinational Exchange Houses named RIA Financial, a UK based Company, Sigue Global services of USA, Joyalukkas group of Dubai, CBL Money Transfer and UAE Exchange Centre of Malaysia are under process. A huge number of Bangladeshi expatriates prefer to send money through ABL for its better exchange rate and also for its online remittance distribution connectivity with all of its 921 branches having cash payment service over the counter by using Pin Code. To keep remittance flow up, ABL sponsors different incentive programs for its valuable customers. The country wise remittance received by ABL in the year 2014:

Figure: country wise remittance received by ABL in the year 2014

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4.8.1 KINDS OF REMITTANCE

Foreign remittance means the foreign currency coming into the country and going outside the country. Inward foreign remittance increase the country’s image and outward foreign remittance is not very good for country’s economy. The purpose of foreign remittance is to transfer foreign money. ABL plays an important role in foreign remittance transfer. Foreign T/T. Mail Transfer (MT). Foreign demand draft (FDD). Import payment. Travelers cheque. Export cheque. Cash dollars. Credit card (International). 4.8.2 MONEY TRANSFER BY REMITTANCE COMPANY

ABL has contact with online money transfer companies. They have 50:50 profit sharing contracts. The receiver need not to any give chance to bank. The online companies’ areWestern Union. Money gram. Xpress money payment. ABL quick pay. Cash express. Western Union money transfer is very popular in Bangladesh. ABL is first to contract with Western Union. As a result, inward remittance can come to Bangladesh in a minute from anywhere of the world. People can collect from any branch of ABL from Bangladesh. For it the receiver doesn’t need any bank account with ABL and they don’t need to pay money.

4.8.3 MONEY TRANSFER BY EXCHANGE HOUSE

Agrani Bank Limited maintains a strong network with the Overseas Exchange Companies and Banks in different parts of the world ensuring better remittance services for its customers. Agrani Bank has remittance arrangements with different bank and exchange houses in various countries throughout the world. The bank has earned the confidence and reputation as a reliable organization of paying hard earned money of the expertly Bangladesh to their beneficiaries in the country safely and quickly.

46 | P a g e

4.8.4 OUTWARD REMITTANCE

The term "Outward remittances" include not only remittance i.e. sale of foreign currency by TT. MT, Drafts, Travelers Cheque, but also includes payment against imports into Bangladesh and local currency credited to Non-resident Taka Accounts of foreign banks or Convertible Taka Account. Two forms are used for Outward Remittance of foreign Currency such as: IMP Form: All outward remittance on account of imports is done by form IMP. T.M. Form: For all other outward remittances from T.M. is used. 4.8.5 INWARD REMITTANCE

The term" Inward Remittance" includes not only purchase of Foreign Currency by TT, MT, Drafts etc. but also purchases of bills, purchases of Travelers cheque. 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. There are two types of foreign remittance: Mode of Foreign Outward Remittance Mode of Foreign Inward Remittance Foreign Telegraphic Transfer (FTT). Foreign Mail Transfer (FMT). Foreign Demand Drafts (FDD). Travelers Cheque (TC). Foreign Currency Notes

Telegraphic Transfer (TT). Mail Transfer (MT). Foreign Demand Drafts (FDD). Payment Order (PO). Travelers Cheque (TC). Foreign Currency Notes.

Table: Types of Foreign Remittance 4.8.5 MONEY TRANSFER BY EXCHANGE HOUSE:

In abroad Agrani Bank Ltd. owned exchange houses are:•

Bolaka Exchange Pvt. Ltd. Singapore.

•

Golf oversea’s Exchange Co. LLC. Oman.

•

ABL Money Transfer SDN,BHD Malaysia

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Other Banks are: Serial No

Country

Name

01

Australia

National Australia Bank Ltd.

02

Switzerland

United Bank of Switzerland AG (UBS)

03

Germany

Commerzbank A.G

04

Germany

Standard Chartered Bank, GMBH

05

Italy

Unicredito Italiano SPA

06

U.K

Lloyds TSB Bank Plc

07

U.K.

HSBC Bank UK Plc

08

Japan

The Bank of Tokyo-Mitsubishi Ltd

09

Japan

Union De Banques Arabes Et Francaises (UBAF)

10

U.S.A

Bank of America NA

11

U.S.A

JPMorgan Chase Bank

12

USA

HSBC Bank USA

13

U.S.A

Standard Chartered Bank

14

U.S.A

Mashreqbank Psc

15

U.S.A

Citibank NA

16

U.S.A

Citibank NA

17

U.S.A

Wachovia Bank NA

18

Canada

Bank of Nova Scotia

19

Singapore

Standard Chartered Bank

20

Bhutan

Bank of Bhutan

21

India

Standard Chartered Bank

22

India

State Bank of India

23

India

Sonali Bank Ltd 48 | P a g e

24

India

AB Bank Ltd.

25

Nepal

Nepal Arab Bank Ltd

26

Myanmar

Myanmar Foreign trade Bank

27

Pakistan

HSBC Bank

28

Pakistan

United Bank Ltd.

29

Sri Lanka

Standard Chartered Bank

4.8.6 REPORTING & MONITORING OF BANGLADESH BANK:

To full control of foreign Exchange Bangladesh Bank, has many controlling form and information system for all commercial bank. ABL also has to follow it. ABL has many type of reporting form and one IT system to inform Bangladesh Bank about dollar transaction. Declaration Form: 1. IMP form: When import L/C is issued by a bank or ABL, IMP form is needed to keep a record and inform Bangladesh Bank. 2. LCA form: It is 6 copy from 1st copy is used to report Bangladesh Bank. Second copy is to get the delivery of product. Third and fourth copy is for CCI. Now this record kept by Bangladesh Bank. Fifth and Sixth copy is kept in foreign exchange L/C file of ABL.

3. EXP Form: Exp form is used in export like IMP form is used in import. To get Exp for party have to show L/C and contract like preformed invoice commercial invoice etc. Exp form has to be verified by customs and then exporter ships the goods. 4. MT Form: TM form is used to sell cash dollar. When cash dollar is going out Bangladesh Bank need a reporting MT form? 5. C Form: When remittance is coming in Bangladesh a C form given by ABL to Bangladesh Bank. 49 | P a g e

4.8.7 REPORTING BY INTERNET:

1. Foreign currency transaction system: At the month end how much import, export, foreign remittance comes and goes out is reported by this software program. At first the officer will give the posting, then make schedule, checked by foreign exchange head that statement is created and sent to Bangladesh Bank with different colored pages. The month end statements should be submitted within date 5 of a month, wrong posting is punishable worth Tk. 5,00,000 for the Branch and Tk. 10,00,000 for the officer. 2. L/C Monitoring System: It is an everyday program governed by Bangladesh Bank. When L /C is opened foreign exchange officer give the posting in a 3 step L/C monitoring system by internet. All the monitoring, reporting is governed by Bangladesh Bank because foreign has the precise impact on the economy.

4.9 IMPACT ON GLOBAL ECONOMY OF FOREIGN EXCHANGE PERFORMANCE

Economy of Bangladesh is in the group of world’s most underdeveloped economies. One of the reasons may be its underdeveloped banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacles to the process of economic development. Foreign exchange identifies the process of converting domestic currency into international banknotes at particular exchange rates. These transactions present distinct ramifications for the global economy. Foreign exchange rates affect international trade, capital flows and political sentiment. The export position of Bangladesh has reached in a very strong position during 2010-11 where export growth increased by 41.47 percent as compared to the previous year. The export earnings of Bangladesh stood at USD 19,704 million which was 10.20 percent higher than the export earnings in 2011. Significant contributions of knitwear and readymade garments were still continuing to increase the export earnings of Bangladesh. Export Earnings increased 8.40% 6.80% 8.90% 13.80%

24.10% 19.40%

14.60% 15.00%

15.70%

50 | P a g e

Sector of export earnings in FY 2012-13

Export Earnings increased

Sectors

Sectors

Export Earnings Decreased

Petroleum Goods

24.10 %

Tea

42.70 %

Foot wear

19.40 %

Frozen foods

16.20 %

jute Goods

15.70 %

Chemical goods

14.60 %

leather

15.00 %

Raw jute goods

13.40 %

Handicraft Goods

14.60 %

Agriculture goods

11.10 %

Readymade Garments

13.80 %

Engineering Products

8.90 %

knitwear

8.40 %

Ceramic Products

6.80 %

Table: Sector earnings of export As per country wise export observation, USA is the main export product market of Bangladesh and USA sustained the top position among the importing goods of Bangladesh during the FY2012-13. During this period, Bangladesh exported US$ 3,952.74 million in USA, which was 20.06 percent of total export. After USA, European Union kept the second position in exporting goods of Bangladesh, they are: Germany (14.75 percent), UK (10.42 percent) and France (5.37 percent). The total import payment stood at US$ 26,944.50 million by increasing 11.22 percent during FY2011-12. Import growth slowed down recently as import of unimportant goods was discouraged.

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Country wise Import Goods

Countries

Percent out of Total Imported Goods

China

18.98 %

India

13.85 %

Malaysia

6.15 %

Table: Total Imported Goods

Country wise import goods analysis shows that, China stands at first position in terms of import goods. 18.98 percent out of total import has been imported from China. Second and third positions are India 13.85 percent and Malaysia 6.15 percent respectively. Analyzing the category of imported goods, it is observed that, import payment of capital machinery, industrial raw materials decreased by 38.75 percent, 35.52 percent respectively and the major import payment of consumer goods decreased by 36.27 percent. The remittances played a vital role in expediting economic development of the country including reducing unemployment problem, poverty alleviation, boosting up the foreign currency reserve. The lion share of the foreign remittance comes from the countries of Middle East. In this regard, Saudi Arabia has been in top position for the last couple of years. Yet, recently, the inflow of remittance has increased from Malaysia, Singapore, UK, and some other countries. To explore new manpower export markets, the government has undertaken several steps through diplomatic initiatives alongside establishing new labor wings in several countries. There is also an attempt to impart training on various trades to create skilled labor force to meet the demand of labor markets abroad. The amount of remittances by the Bangladeshi expatriates in FY 2010-11 was 10.55 percent to the total GDP and 50.64 percent of total export earnings which was increased by 11.11 percent of total GDP and 52.92 percent of total export earnings. The amount of remittances received by Bangladesh in FY2012-13 was 9.50 percent of total GDP.

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HAPTER 5: STATISTICAL ANALYSIS OF FOREIGN EXCHANGE BUSINESS

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5.1 CORRELATION COEFFICIENT

A correlation coefficient is a statistical measure of co variation between two variables. Covariance is the extent to which a change in one variable corresponds systematically to a change in another. No correlation is indicated if r equals 0. A correlation coefficient indicates both the magnitude of the linear relationship and the direction of that relationship. 5.2 COEFFICIENT OF DETERMINATION

One use of the coefficient of determination is to test the goodness of fit of the model. It is expressed as a value between zero and one. A value of one indicates a perfect fit, and therefore, a very reliable model for future forecasts. A value of zero, on the other hand, would indicate that model fails to accurately model the dataset. If is the mean of the observed data: Y = 1/n ∑Y In this form, R is expressed as the ratio of the explained variance to the total variance. 2

R2 = Explained Variance / Total Variance. Correlation Analysis of amount of foreign exchange business with net profit: Tk. in crore Amount of foreign (xi - x) Net (xi - x)2 (yi - y) (yi - y) 2 exchange profit, xi business, Y i Year

(xi - x) (yi - y)

2009

111

17801

160

25600

-15586

242923396

-2493760

2010

352

30332

401

160801

-3055

9333025

-1225055

2011

250

4869

299

89401

11482

131836324

3433118

2012

-1862

37482

-1813

3286969

4095

16769025

-7424235

2013

905

36449

954

910116

3062

9375844

2921148

ΣX=244 ΣY= 166933

Σ (xi - x)2

Σ (yi - y) 2

Total=

X= 49

= 4472887

= 410237614

(4788784)

=33387

Table: Correlation Analyses 54 | P a g e

Coefficient of determination that is:

Where, n is the number of observations used to fit the model, Σ is the summation symbol, xi is the x value for observation i, x is the mean x value, yi is the y value for observation i, y is the mean y value. = (4788784) / 42836323 = -.1117926 = (.1117) Hence, coefficient correlation is (.1117). Then, Coefficient of determination would be r2. R2 = (.1117) 2 = .01247 Interpretation: The coefficient of determination measures that part of the total variance of Y that is accounted for by knowing the value of X. in this calculation about total net profit and foreign exchange business of Agrani Bank Ltd., r is (.1117); therefore, R2 is .01247. About 1.247 % of the variance in net profit can be explained by the variance in foreign exchange business and vice-versa.

5.3 REGRESSION ANALYSIS

Regression analysis is a statistical process for estimating the relationships among variables. It includes many techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables. More specifically, regression analysis helps one understand how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. In regression analysis, it is also of interest to characterize the variation of the dependent variable around the regression function which can be described by a probability distribution.

55 | P a g e

5.4 REGRESSION EQUATION

Simple regression investigates a straight line relationship of the type. Y=α+βx Where, Y = continuous dependent variable. X = an independent variable And β = Two parameters that must be estimated so that the equation best represents α given set of data. Now I can calculate the sample standard deviation of net profit (x). Sx = √( (xi − x)/n − 1) = √(4472887/5 − 1) = 1057 (tk. in crore) Standard deviation of net profit (Sx) is 1057 crore. Now, I can calculate the sample standard deviation of foreign exchange business: Sy = √( ( − )/ − ) = √(410237614/5 − 1) = 10127 (tk. in crore) Standard deviation of foreign exchange business (Sy) is 10127 crore. Slope of the regression line: b= Where, r = coefficient correlation. Sy = Standard deviation of Y (Dependent variable). Sx= Standard deviation of X (Independent variable). Now the slope of regression line is that: b=r

Sx Sy $%$&'

= (-.1117)( $%(' ) = -1.07018 Next I need to find out the value of ). To do this, I use the value for + that I just calculated as well as the means for the amount of foreign exchange business and the value of net profit. , = Ŷ − ./ = 33387- (-1.07× −49) = 33387-52.43 = 33,335 crore 56 | P a g e

Now, Ŷ = 2 bX = 3333 5 + (-1.07) X Thus, the regression equation is Ŷ = 33335-1.07X. Where, Ŷ = estimated value of Y variable for a selected X value. = Y intercept b = Slope of the line X= any value of the independent variable that is selected. Calculation on regression equation Tk. in crore

Year

Ŷ = , 2 ./

2009

33335-1.07X

111

33216

2010

33335-1.07X

352

32958

2011

33335-1.07X

250

33068

2012

33335-1.07X

-1862

35327

2013

33335-1.07X

905

32367

Value of net Result of regression Profit, X equation

Table: Regression Equations

Regression equation

36000

35327 35000 34000 33216 33000

33068 32958

32367

32000 31000 30000 2009

2010

2011

2012

2013

Graph: 5.4 Regression Equations From this graph, I can see that the slope of regression equation in year 2012 is 35327 crore. It is said that this value of slope is the highest among these. Others are close to one another. It shows upward sloping in regression equation. 57 | P a g e

Calculation on sum of estimating deviation Tk. in crore

Year

Net Profit, Amount of forex xi business, Yi

Ŷ

(Yi - Ŷ)

(Yi - Ŷ) 2

2009

111

17801

33216

-15415

237622225

2010

352

30332

32958

-2626

6895876

2011

250

44869

33068

11801

139263601

2012

-1862

37482

35327

2155

4644025

2013

905

36449

32367

4082

16662724

(Yi - Ŷ )2 = 405088451

Table: Calculation on sum of estimating deviation The standard error of estimate is 11,620 cores. 45.× =√( (6 − Ŷ)7/ − 7) = √405088451/ (5 − 2) = √1350294837 = 11,620 (Tk. in crores) The general equation for any straight line can be represented as Y= 8% 2 8$ X. If I think of this as the true hypothetical line that I try to estimate with sample observations, the regression equation will represent this with a slightly different equation: 9 = .: 2 . X+; The equation means that the predicted value for any value of X ( = n ( ?@ 6@ ) - ( ?@ )( 6@ ) / n ( ?7@ ) – ( ? @ ) 7 And >: = 6 - > ?

58 | P a g e

Where,

A= = ith observed value of the dependent variable. @ ?@ Least-squares computation based on foreign exchange business with net profit: (Tk. in crore) Year

Y

Y7

X

X7

XY

2009

17801

316875601

111

12321

1975911

2010

30332

920030224

352

123904

10676864

2011

44869

2013227161

250

62500

11217250

2012

37482

1404900324

-1862

3467044

- 69791484

2013

36449

1328529601

905

819025

32986345

ΣY= 166933

ΣY 2 5983562911

= ΣX= 244 ?= 49

ΣX 7 = ∑ ?6 = -12935114 4484794

6 =33387 Table: 23 Least-squares computation Here, X = Net Profit and Y= Amount of foreign exchange business. I know that, > = n ( ?@ 6@ ) - ( ?@ )( 6@ ) / n ( ?7@ ) – ( ? @ ) 7 8$= 5 (-12935114) – 40731652 / 5(4484794) - (244)2 = 105407222 / 5(4484794) -59536 =105407222 / 22423970 – 59536 = 105407222 / 22364434 = 4.713162962228331 DEFGE, >: = 6 - > ? = 33387-(4.7131) (49) 59 | P a g e

= 33387-231 = 33156

The formula Ŷ = 8% + 8=