Analysis of Foreign Exchange Banking Services of The BASIC Bank Limited

Chapter-1

1.1 # ORIGIN OF THE REPORT:

Now a day, education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, an opportunity is offered by Southeast University, for its potential business graduates to get three months practical experience Stamford, which is known, is as “Internship Program”. For the competition of this internship program, the author of the study was placed in a bank namely, “The BASIC Bank Limited”. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience.

This paper is titled “Analysis of Foreign Exchange Banking Services of The BASIC Bank Limited” originated from the fulfillment of the BBA program under Southeast University. For the internship program, each student is attached with an organization. I have prepared this report on BASIC Bank Limited (Dilkusha Branch) and their modern banking operation with foreign exchange procedure where I have worked for three months during my internship;

1.2 # Background of The Study

Any academic course of the study has a great value when it has practical application in the real life. Only a lot of theoretical knowledge will be little important unless it is applicable in the practical life. So we need proper application of our knowledge to get some benefit from our theoretical knowledge to make it more fruitful when we engage ourselves in such field to make proper use of our theoretical knowledge in our practical life, only then we come to know about the benefit of the theoretical knowledge. Such an application is made possible through internship. When theoretical knowledge is obtained from a course of study it is only the half way of the subject matter. Internship implies the full application of the methods and procedures through rich acquired knowledge of subject matter can be fruitfully applied in our daily life. Such a procedure of practical application is known as internship. The case study is titled “Analysis of Foreign Exchange Banking Services of The BASIC Bank Limited”. As a student of BBA this study will be more significant in my practical life. I have worked for three months at Dilkusha Branch of BASIC Bank Limited to complete the internship program as an academic requirement.

1.3 # OBJECTIVES OF THE STUDY

(i) Main Objectives:

· The main objective of the study is to highlight on the major documents used by BASIC Bank Ltd. While dealings with foreign exchange banking to understand how the services are rendered.

(ii) Specific Objectives:

· To identify the documents used in foreign trade of BASIC Bank Ltd.

· To appraise export, import & remittance of the same bank.

· To identify problems of foreign exchange banking of the selected bank.

· To suggest suggestions for improvement of foreign banking of the given bank.

1.4# Scope of the Report

This report will cover Analysis of Foreign Exchange Banking Services of BASIC Bank Limited. It will give a wide view of the different stages of operational procedure of BASIC Bank Limited, starting from the Import, Export and Remittance with total Foreign Exchange Procedures.

1.5# METHODOLOGY OF THE STUDY:

a. Primary Data were collected by the following ways:

· Direct communication with bank officials & clients;

· Exposure on different desk of the bank;

· Observing various organizational procedures.

b. The Main Secondary Sources from Which Data were Accumulated are as follows:

· Annual Report of BASIC Bank Ltd;

· Periodicals published by the Bangladesh Bank;

· Different publications regarding foreign exchange operation;

· From Newspapers and Internet.

· Different Official Records of BASIC Bank Limited.

I have covered both head office and DILKUSHA Branch of BASIC Bank. But the body of the report is prepared in the light of the branch. Only International Department (ID) part is covered in the Head office.

1.6 # LIMITATIONS OF THE STUDY:

Despite all out co-ordination from the bank officials, I faced some limitations. The main problem I faced in preparing the paper was the inadequacy and lack of availability of required data. This report is an overall view of Foreign Exchange Operations of The BASIC Bank Ltd. But there is some limitation for preparing this report. These barriers, which hinder my work, are as follows:

• Difficulty in accessing latest data of internal operations.
• Learning & gathering experience of all the banking functions was really tough.
• Another limitation of this report is Bank’s policy is not disclosing some data and information for obvious reason, which could be very much useful.
• Large-scale research was not possible due to time constraints.
• Non-availability of some preceding and latest data in a systematic way..
• I was placed to this department for only 3 months of time and working like a regular employee hindered the opportunity to put the better effort for the study.

With all of this limitation I tried my best to make this report as best as possible. So readers are requested to consider these limitations while reading and justifying any part of my study.

Chapter: 2

An Overview of Basic Bank Ltd.

2.1# Background of The BASIC Bank:

The BASIC Bank Limited (Bangladesh Small Industries & Commerce Limited) registered under the Companies Act 1913 on the 2^nd of August 1988, started its operations from the 21^st of January 1989. It is governed by the Banking Companies Act 1991. In 2001 the bank has changed its earlier name Bank of Small Industries and Commerce Bangladesh Limited and the changed name has been registered with the Register of Joint Stock Companies.

At the outset, the Bank started as a joint venture enterprise of the Bangladesh Credit Commerce (BCC) foundation with 70 percent shares and Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being non functional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the Bank on 4^th June 1992. Thus the bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. The bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing Small scale Industries (SSI).

BASIC is unique in its objectives. It is a blend of development and Commercial Banks. The memorandum and Articles of Association of the Band stipulate that 50% of loan able funds shall be invested in Small and Cottage industries Sector.

CAPITAL POSITION:

Authorized capital : Tk. 2,000 million

Paid up capital : Tk. 1309.77 million

Total Reserve and Surplus: Tk. 1681.39 million

The Bank is requested to transfer 20 percent of its net profit before tax to Capital Fund as per the Banking Companies Act 1991.

2.2 # Functions:

The Bank offers:

a. Term loans to industries especially to small-scale enterprise.

b. Full-fledged commercial banking services including collection of deposit, short-term trade finance, working capital finance in processing and manufacturing units and financing and facilitating international trade.

c. Technical support to Small Scale Industries (SSIs) I order to enable them to run their enterprise successfully.

d. Micro-credit to the urban poor linkage with Non-Government Organizations (NGOs) its view facilitating their access to the formal financial market for mobilization of funds.

In order to perform the above tasks, BASIC works closely with the clients, the regularly authorities the shareholders (GOB), banks and other financial institution.

<href=”#dataoncorporatestrategy”>CORPORATE STRATEGY

Financing establishment of small units of industries and business and facilitate their growth

Small Balance Sheet size composed of quality assets.

? Steady and sustainable growth.

? Investment in a cautious way.

? Adoption of new banking technology.

2.3 # ORGANIZATIONAL GOALS

? To employ funds for profitable purposes in various fields with special emphasis on small scale industries.

• To undertake project promotion on identify profitable areas of investment.

• To search for newer avenues for investment and develop new products to suit such needs.

• To establish linkage with other institutions which are engaged in financing micro enterprises.

? To cooperate and collaborate with institutions entrusted with the responsibility of promoting and aiding SSI sector.

Organizational Structure:

To achieve its organizational goals, the Bank conducts its operations in accordance with the major policy guidelines laid down by the Board of Directors, the highest policy making body. The management looks after the day-to-day operation of the Bank.

A. BOARD OF DIRECTORS:

As stated earlier the government holds 100 percent ownership of the Bank. The Government of Bangladesh appoints all the Directors of the Board. The secretary of the Ministry of Industries is the Chairman of the Bank. Other Directors of the Bank are high Government and central Bank executives. The Managing Director is an ex-officio member of the Board of Directors. There are at present 7 Directors including the Managing Director.

B. MANAGEMENT:

The management is headed by the Managing Director. He is assisted by the Deputy Managing Director, General Managers and Departmental Heads in the Head office. BASIC is different in respect of hierarchical structure from other banks in that it is much more vertically integrated as far as reporting to the Chief executive is concerned. The Branch Managers of the Bank report direct to the Managing Director and, for functional purpose, to the Heads of Departments. Consequently, quick decision making in disposal of assess is ensured.

2.4 # At a Glance of BASIC Bank Limited

Table:1 At a Glance of BASIC Bank Limited

2.5 # Progress at a Glance (2005-2009)

2.6# Balance Sheet, Profit and Loss Account

Balance sheet

Profit $ Loss Account

2.7 # RESOURCES AND CAPABILITIES

BASIC Bank Limited is well prepared to and capable of meeting the demand for a broad range of banking services. It has got adequate resources, both human and physical, to provide the customers with the best possible services.

Physical and technological resources

A great deal of investment for developing the physical resource base of the Bank has been made. The Bank has its presence in all the major industrial and commercial hubs of Bangladesh in order to cater to the needs of industry and trade. At present, there are twenty-seven conveniently located branches throughout Bangladesh. There are ten branches in the capital city of Dhaka, six in Chittagong and one each in Narayanganj, Narsingdi, Rajshahi, Saidpur, Bogra, Khulna, Jessore, Sylhet, Moulvibazar, Comilla, and Barisal.

Major features of these branches are:

· Fully computerized accounts maintenance.

· Well decorated air conditioned facilities.

· A fully operational computer network which is currently being implemented. The work of Local Area Network (LAN) and Wide Area Network (WAN) installation having reliable and secured communication between the branches and the Head Office is in progress to facilitate any Branch Banking and ATM Services.

· Money counting machine for making cash transactions easy and prompt.

· Fifteen out of twenty six branches are authorized dealers of foreign exchange. This facilitates speedy disposal of transaction of export and import trade.

·

Human Resources

BASIC Bank Limited has a well diversified pool of human resources which is composed of people with high academic background. Also, there is a positive demographic characteristic – most employees are comparatively young in age yet mature in experience. As of December 2003 the total employee strength is 523. The strength is 435 excluding the menial staff. BASIC Bank Limited has been investing its resources with a view to developing an efficient and professional work force. Two approaches are mainly used in this regard.

2.8 # ORGANOGRAM:

CHAIRMAN

Figure:1

Activities:

A. Industrial Credit

BASIC Bank’s services are directed towards the entrepreneurs in the small industries sector. A small industry, as per Industrial policy 1999 approved by the Cabinet, has been defined as an industrial undertaking whose total fixed investment is less than Tk.100 million.

The industrial loan reflected a significant growth of 23.91 percent over the previous year. Total outstanding industrial loans including term and working capital stood at Taka 17,226.40 million at the end of 2009 compared to Taka 13,901.40 million of 2008. Total outstanding term loan stood at Taka 6,206.75 million as on December 31, 2009 compared to Taka 5,055.58 million in 2008 reflecting a growth of 22.77 percent. The outstanding working capital finance extended to industrial units stood at Taka 11,784.08 million at the end of the reporting period compared to Taka 9,525.98 million in 2008. Growth rate here was 23.70 percent. BASIC Bank’s services are specially directed towards promotion and development of small industries. Its exposure to small and medium industries sector accounted for 56.52 percent of the total loans and advances. During the year total of 87 projects were sanctioned term loan. Out of which 26 were new and the rest were under BMRE of the existing projects. As on 31 December 2009, 801 projects were in the portfolio of the bank. The textile sector including garments being one of the major contributors to national economy dominated the loan portfolio of the Bank. Other sectors financed include engineering; food and allied industries; chemicals, pharmaceuticals and allied industries; paper, board, printing and packaging; glass; ceramic; and other non-metallic goods and jute products. Recovery rate of project loan was 90.81 percent.

B. Commercial Credit:

The Bank also supports development of trade, business and other commercial activities in the country. It covers the full range of services to the exporters and importers extending various facilities such as cash credit, export cash credit, packing credit, short term loans, local and foreign bills purchase facilities. As on December

31, 2009 total outstanding commercial loans stood at Taka

9,278.26 million Compared to Taka 7,681.74 million in 2008.

C. Micro Credit:

BASIC Bank launched a Micro Credit Scheme in 1994. Micro Credit Scheme provides for the poor for generation of employment and income on a sustainable basis particularly in urban and suburban areas. The Bank follows three systems of credit delivery.

These___are:

1. Lending to the NGOs who on-lend to their members. At present there are 15 such NGOs. 2. Lending direct to the targets groups or ultimate borrowers under the Bank’s own management.

3. Lending direct to the member-borrowers and NGOs providing nonfinancial services like group formation and monitoring and supervision on exchange for a supervision fee.

At the end of 2008, total amount of Taka 764.46 million remained outstanding as against Taka 680.13 million in 2007. Recovery rate during this period remained at a satisfactory level of 98.00 percent.

(source: Annual Report 2007, BASIC Bank Ltd.)

Figure 2: Trend of Micro Credit

D. Foreign Trade:

The bank achieved substantial growth in export in 2008 and the performance of the bank in import business was also satisfactory. The Bank handled total export business of Taka 27,359.77 million and import business of Taka 22,270.87 million in 2008. The export and import business grew by 28.65 percent and 32.60 percent respectively. Major items of exports were garments, jute products, textile, leather etc. Items of import included mainly industrial raw materials, garments accessories, capital machinery, food items and other essential commodities.

(Source: Annual Report 2007, BASIC Bank Ltd.)

Figure 3: Growth of Import & Export

The Bank become a proud member of SWIFT (Society for Worldwide Interbank Financial Telecommunication) that would pave the way to achieving uninterrupted communication related to banking for international trade business and fund transfer.

E. Other Activities:

The Bank provides services for remittance, underwriting, guarantee, public offering of shares etc. Then also provides funds to investment and leasing companies. Then Bank has recently created a venture capital fund for equity support to innovative but risky projects.

Credit Rating

BASIC Bank Limited

Credit Rating Report (Entity Rating)

Credit Rating Information and Services Limited (CRISL) has assigned AA- (pronounced as double A minus) rating in the long term and ST-1 rating in the short term to the Bank for the year 2009

Banks rated AA- in the long term are adjudged to be of high quality, offer higher safety and have high credit quality. This level of rating indicates a corporate entity with a sound credit profile and without significant problems. Risks are modest and may vary slightly from time to time because of economic conditions

Banks rated ST-1 in the short term are considered as the highest certainty of timely payment. Short-term liquidity including internal fund generation is very strong and access to alternative sources of funds is outstanding. Safety is almost like risk free Government short-term obligations

BASIC Fortune

BASIC Bank Limited has launched a Monthly Deposit Scheme (BASIC Fortune) on April 14, 2009. At present, this scheme is available in the following online branches:

Bangshal, Dhanmondi, Karwanbazar, Uttara, Gazipur Chowrasta, Rajshahi, Rangpur, Saidpur, Comilla, Jessore, Barisal, Chowmuhana, Sholashahar, CEPZ, Dewanhat, Dilkusha, Narsingdi,Sirajganj, Moulovibazar, Mirpur, Babubazar, Tanbazar, Zindabazar, Bogra, Gulshan, Khatunganj, Asadganj, Khulna, Shantinagar, Jubilee Road and Main branch.

2.9 # Performance at a Glance of Dilkusha Branch:

i) Performance of Dilkusha Branch at a glance as on January 31, 2009

Table: 2

Source: Dilkusha Branch, BASIC Bank Ltd.

ii) Deposit of Dilkusha Branch as on January 31, 2009 Table: 3

Source: Dilkusha Branch, BASIC Bank Ltd.

iii) Branch’s Foreign Exchange position as on January 31, 2009 Table: 4

Source: Dilkusha Branch, BASIC Bank Ltd.

Chapter:3

Overall Banking Of Basic Bank

3.1 #GENERAL BANKING

General banking is the starting point of all the banking operations. It is the department, which provides day-to-day services to the customers Main Functions of general banking department are the followings:

1. Accounts Opening Section

2. Accounts Section.

3. Local Remittance Section

4. Collection And Clearing

5. Cash Section

3.1.1 # ACCOUNTS OPENING SECTION

Accepting deposit

Bank is a financial intermediary, which mobilizes fund from surplus unit and allocates it to deficit unit. Surplus unit means the people who have surplus money and willingness to save. Deficit unit means the people who need money for industry, trade, business, or for personal use but don’t have sufficient money of their own for such purposes. Bank mobilizes the fund by accepting deposits from depositors and allocates the fund by providing loan to borrower.

Banker-customer relationship begins with the opening of an account by the customer. Opening of an account binds the same into a contractual relationship. But the selection of customer is very crucial. In fact, fraud and forgery of all kinds start by opening of an account by the customer (s). So, the bank takes extra care in its selection. One of the basic functions of commercial banks is to accept deposits. For accepting deposits both demand and time, BASIC Bank (Dilkusha Branch) offers the following types of accounts-

Types of Accounts with Terms and Conditions

This part covers only following types of accounts-

1. Savings Bank Account

2. Current Account

3. Short Term Deposit (STD) Account

SAVINGS BANK ACCOUNT

This deposit is primarily for small-scale savers. Hence, there is a restriction on withdrawals in a week. Heavy withdrawals are permitted only against prior notice. Some Important Points are as follows-

GENERAL CHARACTERISTICS

As per BB instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability

1. Minimum opening deposit of Tk.5000/= is required;
2. Interest is paid on this account. BASIC offers a reasonable rate of interest for SB A/C.
3. Generally, banks require a 7-day prior notice if the total amount of one or more withdrawals on any date exceeds 25% of the balance of the account unless is given.
4. The number of withdrawals over period of time is limited. Only two withdrawals are permitted per week. If there are more than two withdrawals are made in a week, no interest will be paid on rest amount for that month.
5. Generally householders, individuals and other small-scale savers are the clients of this account

CURRENT ACCOUNT

Current account is purely a demand deposit account. There is no restriction on withdrawing money from the account. It is basically justified when funds are to be collected and money is to be paid at frequent interval. It is most suitable for private individuals, traders, merchants, importers and exporters, mill and factory owners, limited company’s etc. Some Important Characteristics are as follows-

1. A minimum balance of TK.5000 has to be maintained.
2. CD accounts are unproductive in nature as banks loan able fund is concerned. Sufficient fund has to be kept in liquid form, as current deposits are demand liability.
3. Thus huge portion of this fund become non-performing. For this reason banks do not pay any interest to CD Accountholders.
4. There is no restriction on the number and the amount of withdrawals from a current account.

STD (SHORT TERM DEPOSIT) ACCOUNT

Normally various big companies, organizations, Government Departments keep money in STD account. Frequent withdrawal is discouraged and requires prior notice. In BASIC, customers usually give an instruction that their current account will be debited whenever its deposited amount crosses a certain limit and this amount will be transferred to the STD account

COMMON FORMALITIES REQUIRED FOR EVERY ACCOUNT

· Duly filled up Account Opening Form.

· Introducer’s signature on Account Opening Form to be verified by Manager under full signature.

· Two copies of passport size photograph of account opener(s) duly attested by the introducer.

3.1.2# ACCOUNTS SECTION

Accounts department maintains all records of transactions and all types of statement. At the end of transaction hour all concerned section sends vouchers of transactions to this department. Accounts department compares all figures/ amount, contents of transactions with supplementary statement prepared by computer. If any discrepancy arises regarding any transaction then this department reports to the concerned department. Following are the activities of accounts department:

To record all transaction in the cash book.

· To record all transaction in the cash book.

· To prepare daily, weekly, monthly, half-yearly and yearly fund position.

· To prepare all kinds of statements related to Bangladesh Bank, Head office and National Board of Revenue (NBR).

· To prepare monthly salary statement, provident fund statement and administrative expenditure statement.

· To make charges for different types of duty.

3.1.3# LOCAL REMITTANCE SECTION

Cash remitting from one place to another is risky. So, Banks remit funds on behalf of the customer (s) to save them from any awkward happening through network of their branches. There are three modes of remitting funds. These are–

· Pay Order (PO)

· Demand draft (DD)

· Telegraphic Transfer (TT)

· Call Deposit Receipt (CDR).

PAY ORDER (PO)

Pay order is an instrument, used to remit fund within a clearing zone. Unlike cheque, there is no possibility of dishonoring PO. The PO can only be encashed through the branch that has issued the instrument.

PAY ORDER ISSUING PROCESS

For issuing a PO, following formalities are to be maintained. These are-

· Duly filled up the application form by the customer.

· Deposit money either in cash or by cheque with necessary charges.

· Prepare the instrument and make necessary entries in the Bills Payable Register where payee’s name, date, PO no. etc are noted.

· Deliver the instrument to the customer after scrutinized and approved by authority by taking signature of the customer on the counterpart.

DEMAND DRAFT (DD)

DD is called ‘Banker’s Draft’. It is an instrument, issued by a particular branch, drawn on another branch of the same bank, instructing to pay a certain sum of money. It is very popular instrument for remitting fund from one corner of a country to another.

If DD amount is more than Tk.50000/=, a test code is given on IBCA. The a/c treatments will be-

When DD is issued:

Cash/Customer A/C……………………Debit

H/O A/C ‘X’ branch…………………………Credit

Income A/c commission………………..……Credit.

TELEGRAPHIC TRANSFER (TT)

Sometimes the remitter of the funds requires fund immediately. In that case, the banker is requested to remit the funds telegraphically. Different modes are Telegram, Telephone, Telex and Fax. Telegraphic Transfer is the most rapid and convenient but expensive method. The drawer and the payee should have accounts with BASIC bank. TT is issued against cash, cheque, and letter of instruction

3.1.4# COLLECTION AND CLEARING SECTION

Customers do pay and receives bill from their counter party as a result of transaction. BASIC Bank Limited collects the bills on behalf of their customers. Collection mechanisms in BASIC Bank are clearing, Outward Bill For Collection, Inward Bills for Collection.

Clearing

When the bill is within the range of the clearinghouse it is sent for collection through clearing section. As far as safety is concerned customers get crossed cheque for the transaction Crossed check can’t be encashed from the counter; rather it has to be collected through banking channel i.e., clearing. If a client of BASIC Bank received a check of another bank which is located within the clearing range and deposit the instrument in his account at BASIC Bank. Then BASIC Bank will collect the money through clearing house. After received the check BASIC Bank will credit client account. However, the amount is credited in the customer a/c but he will not get the money until the check is honored.

3.1.5 # CASH SECTION

Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the branch. This section deals with all types of negotiable instruments and it includes vault, used as the store of cash, instruments. The vault is insured up to Tk.20 lac. Insured amount yet to be enhanced to Tk. 40 lac. Operation of this section begins when the banking hour starts. Cash officer begins his/her transaction with taking money from the vault, known as the opening cash balance. Vault is kept in a more secured place. The amount of opening cash balance is entered into a register. After whole days’ transaction, the surplus money remains in the cash counter is put back in the vault and known as the closing balance. If the cash stock goes beyond this limit, the excess cash is then transferred to BASIC bank main branch. The main functions of this section are-

1. Cash Receipt

2. Cash Payment

Cash Receipt

Cash receipt procedure is given below-

i. The depositor first fills up the Deposit-in-Slip.

ii. Depositor deposits the money.

iii. Officer receives the money, counts and then enters in the Cash Receipt Register, and finally signs with seal and dates the deposit-in-slip.

Cash Payment

Some important check points for making the payment are as follows-

1. Endorsement

Endorsement is done by putting signature of the drawer on the back of the negotiable instrument for the purpose of negotiation. By ‘blank endorsement’, an order instrument is made as ‘bearer’

2. Crossing

Generally two types of crossing are practiced, namely- General Crossing and Special Crossing. Basically it gives a direction to the paying bank not to pay the check amount over the counter. General crossing includes ‘A/C payee’ crossing only. Drawing two parallel and transverse lines do it. On the other hand, special crossing is like general crossing but in addition bank name is also mentioned. This gives the direction to the same to pay the check only to the banker, whose name appears in the crossing or to his agent.

3.2# 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, especially 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 unfamilia