Credit Risk Management Of Dutch Bangla Bank Limited
- At the beginning, I would like to express my sincere gratitude to Almighty, the most merciful and beneficial for empowering me to prepare the report within the scheduled time.
- I would like to express my profound gratitude and wholehearted respect to my guide Nusrat Jahan, Department of Finance in BBA, Stamford University Bangladesh for her inspiring guidelines, valuable suggestion, constructive criticism and constant help through out the work and in preparation of this report.
- I also express my warm gratitude and cordial thanks to the management & some officials of Dutch Bangla Bank Ltd(DBBL) who have given me the opportunity to work with them and help a lot by providing the important information and enabling me to prepare this report. I have received their generous help and support.
- I would like to take the opportunity to express my wholehearted gratitude to my fellow friends, near and dear ones who offered encouragement, information, inspiration and assistance during the course of constructing this report.
- Finally, I would like to express my profound gratitude to my family members who have given me the opportunity to accomplish the BBA program and making this report in turn.
- However, the responsibility of errors and omissions in this report, if any, lies in my account.
Dutch Bangla Bank Ltd. is one of the renowned commercial banks in Bangladesh. Dutch-Bangla Bank Limited (the Bank) is a scheduled commercial bank. The Bank was established under the Bank Companies Act 1991 and incorporated as a public limited company under the Companies Act 1994 in Bangladesh with the primary objective to carry on all kinds of banking business in Bangladesh. The Bank is listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.
DBBL- a Bangladesh European private joint venture scheduled commercial bank commenced formal operation from June 3, 1996. The head office of the Bank is located at Senakalyan Bhaban (4th floor), 195, Motijheel C/A, Dhaka, Bangladesh. The Bank commenced its banking business with one branch on 4 July 1996.
Dutch-Bangla Bank believes in its uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in banking that upholds and epitomizes its vaunted marques “Your Trusted Partner”.
The ethos of DBBL for pursuing its activities in social arena has got further momentum with your enthusiasm and support. Dutch-Bangla Bank Foundation (DBBF) is consistently pursuing its objective of being active in those social areas where it is needed most. The Foundation carries out diverse social and philanthropic activities in the field of education, health, conservation of nature, creation of social awareness, rehabilitation of distressed people and such other programs to redress human sufferings. It also promotes different socio-cultural and sports activities. Board of Directors in order to discharge its corporate social responsibilities in a greater perspective continued its contribution amounting to 5.00% of Bank’s profit after charging loan loss provision to Dutch-Bangla Bank Foundation (DBBF).
1.1 Background of study:
All over the world the dimension of Banking has been changing rapidly due to Deregulation, Technological innovation and Globalization. Banking in Bangladesh has to keep pace with the global change. Now Banks must compete in the market place both with local institution as well as foreign ones. To survive thrive in such a competitive banking world, two important requirements are Development of appropriate financial infrastructure by the Central bank and Development of “Professionalism” in the sense of developing an appropriate manpower structure and its expertise and experience. To introduce skilled Banker, only theoretical knowledge in the field of banking studies is not sufficient. As academic course of the study has a great value when it has practical application in real life situation. So, I need proper application of my knowledge to get some benefit from my theoretical knowledge make it more tactful, when I engage myself in my practical life situation. Such all application is made possible through Internship. When theoretical at only the half way of the subject matter full application of the methods and procedures through rich acquired of subject matter can be forcefully applied in my day-to-day life situation. Such a procedure of practical application in known as internship.
1.2. Objective of the report:
1. To know the loan and advance product of Dutch-Bangla Bank Ltd.
2. To know the Credit Grading Rating (CGR) System of DBBL.
3. To know the principles of landing
4. To know the processing system of loan proposal
5. To justification Credit Information Bureau (CIB) Report
6. Processing of loan sanction and disbursement
7. Performing and Non-performing loan justification
Dutch-Bangla Bank Ltd [DBBL] is one of the leading banks in Bangladesh. The report covers the background, functions and mostly the credit management of the bank. The scope of the study is just to acquaint with the credit management scenario of DBBL.
1.4. Methodology of the Study:
This report is mainly prepared by the secondary sources of information and some few primary sources of information like—
· Direct observation.
· Information discussion with professionals.
· Questioning the concerned persons.
The secondary sources of my information are as below-
· Annual reports of DBBL.
· Credit rating report of DBBL by CRISL (Credit Rating Information and Services Limited).
· Desk report of the related department.
· Credit Risk Management manual information.
· Different reference books of the library.
· Some of my course elements as related to this report.
· News paper, web sites etc. were the major sources of secondary date.
And the analytical tools used by be is “Data Analysis” from Microsoft Excel for preparing regression and correlation analysis.
1.5. Research Design
1. Exploratory Research
2. Less chances of error as the sample size is limited here.
3. Exploratory research is more flexible and versatile in nature.
4. It can be conducted by a single researcher with a minimum no of sample size.
1.6. Data collection
Primary sources were officers and manager of Dutch Bangla Bank Limited, Motijheel F. Ex. Branch. Following factors were considered to collect information:
a. Conversation with the bank officers and staffs.
b. Informal conversation with the clients
Secondary information was collected from various books, journals, manuals, and also from the web sites.
1.7. Data analysis
Data analysis will be made based on the respondents answers. Every question will be analyzed with different calculations for the optimum results.
· Limitation of time was one of the most important factors that shortened the present study. Due to time constraints, many aspects could not by discuss in the present study.
· Lack of comprehension of the respondents was the major problem that created many confusions regarding verification of conceptual questions.
· Confidentiality of data was another important barrier that was faced during the conduct of this study. Every organization has their own secrecy that cannot be revealed in publics.
· Rush hours and business was another reason that acts as an obstacle while gathering data.
· As, I had more dependence on the primary sources, so there might be some level of inaccuracy with those collected information.
· Though, adequate verification and cross- checking was used, to minimize the error level.
· Confidential information regarding past profit or product cost, financial information was not accurately obtained. Alike all other banking institutions, DBBL is also very conservative and strict in providing those information. In those cases, I have relied upon some assumptions, which in result have created certain level of inaccuracy. Still, I had tried my best in obtaining that sensitive information, as much as possible.
Reasons for choosing Dutch Bangla Bank:
Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. Specially banking sector fulfills the needs like that. When a student doing his/her internship in a reputed organization, he/she introduced with something creative. These are as follows:
· Introduce with a new culture, which is totally different with the life of student.
· Evaluate themselves with the others’ potential.
· Begin to present him/her with the world of communication.
· Get some practical experiences and gather some knowledge, which is very important for career building.
· Finally motivated towards job and skills.
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign-owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.
The government’s encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the World Bank to focus their lending on the emerging private manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking recommended broad structural changes in Bangladesh’s system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen Bank, begun as a government project in 1976 and established in 1983 as an independent bank. In the late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and to generate productive self-employment without external assistance. Its customers were landless persons who took small loans for all types of economic activities, including housing. About 70 percent of the borrowers were women, who were otherwise not much represented in institutional finance. Collective rural enterprises also could borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The average loan by the Grameen Bank in the mid-1980s was around Tk2,000 (US$65), and the maximum was just Tk18,000 (for construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending operations.
The Grameen Bank extended collateral-free loans to 200,000 landless people in its first 10 years. Most of its customers had never dealt with formal lending institutions before. The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing pattern of bad debts throughout the Bangladeshi banking system, only 4 percent of Grameen Bank loans were overdue. The bank had from the outset applied a specialized system of intensive credit supervision that set it apart from others. Its success, though still on a rather small scale, provided hope that it could continue to grow and that it could be replicated or adapted to other development-related priorities. The Grameen Bank was expanding rapidly, planning to have 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. The problem of credit recovery remained a threat to monetary stability, responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to slightly more than 2 months worth of imports. This represented a 20-percent increase of reserves over the previous year, largely the result of higher remittances by Bangladeshi workers abroad. The country also reduced imports by about 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least developed country receiving confessional loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$6.4 billion, and annual debt service payments were US$467 million at the end of FY 1986.
Central Bank: Bangladesh Bank.
Commercial Bank (State owned):
The Banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks, which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004. The nationalized commercial banks are:
Commercial Bank (Private):
Commercial Bank (Foreign):
- Habib Bank
- National Bank of Pakistan
- Wo Bank
- Bank Alfalah
- Citibank na
- Standard Chartered Bank
- Commercial Bank of Ceylon
- State Bank of India
- Grameen Bank
- Bangladesh Krishi Bank
- Bangladesh Development Bank Ltd
- Rajshahi Krishi Unnayan Bank
- Basic Bank Ltd (Bank of Small Industries and Commerce)
- Bangladesh Somobay Bank Limited(Cooperative Bank)
- Ansar VDP Unnyan Bank
An Organizational Overview of the General Activities
An over view of the organization:
Dutch-Bangla Bank started operation is Bangladesh’s first joint venture bank. The bank was an effort by local shareholders spearheaded by M Sahabuddin Ahmed (founder chairman) and the Dutch company FMO.
From the onset, the focus of the bank has been financing high-growth manufacturing industries in Bangladesh. The rationale being that the manufacturing sector exports Bangladeshi products worldwide. Thereby financing and concentrating on this sector allows Bangladesh to achieve the desired growth. DBBL’s other focus is Corporate Social Responsibility (CSR). Even though CSR is now a clichés, DBBL is the pioneer in this sector and termed the contribution simply as ‘social responsibility’. Due to its investment in this sector, DBBL has become one of the largest donors and the largest bank donor in Bangladesh. The bank has won numerous international awards because of its unique approach as a socially conscious bank.
DBBL was the first bank in Bangladesh to be fully automated. The Electronic-Banking Division was established in 2002 to undertake rapid automation and bring modern banking services into this field. Full automation was completed in 2003 and hereby introduced plastic money to the Bangladeshi masses. DBBL also operates the nation’s largest ATM fleet and in the process drastically cut consumer costs and fees by 80%. Moreover, DBBL choosing the low profitability route for this sector has surprised many critics. DBBL had pursued the mass automation in Banking as a CSR activity and never intended profitability from this sector. As a result it now provides unrivaled banking technology offerings to all its customers. Because of this mindset, most local banks have joined DBBL’s banking infrastructure instead of pursuing their own.
Even with a history of hefty technological investments and an even larger donation, consumer and investor confidence has never waned. Dutch-Bangla Bank stock set the record for the highest share price in the Dhaka Stock Exchange in 2008.
3. Mission and Vision of Dutch- Bangla bank:
3.1Mission of the Dutch-Bangla Bank:
Dutch-Bangla Bank engineers enterprise and creativity in business and industry with a commitment to social responsibility. “Profits alone” do not hold a central focus in the Bank’s operation; because “man does not live by bread and butter alone”.
3.2Vision of the Dutch-Bangla Bank :
Dutch-Bangla Bank dreams of better Bangladesh, where arts and letters, sports and athletics, music and entertainment, science and education, health and hygiene, clean and pollution free environment and above all a society based on morality and ethics make all our lives worth living. DBBL’s essence and ethos rest on a cosmos of creativity and the marvel-magic of a charmed life that abounds with spirit of life and adventures that contributes towards human development.
Dutch-Bangla Bank believes in its uncompromising commitment to fulfill its customer needs and satisfaction and to become their first choice in banking. Taking cue from its pool esteemed clientele, Dutch-Bangla Bank intends to pave the way for a new era in banking that upholds and epitomize its vaunted marques “Your Trusted Partner”. The latest slogan of the bank is “Any time Any where”
The Board is comprised of directors having diverse skills, experience and expertise to add value towards better corporate governance of the bank and maximizing value for all stakeholders. The Board discharges its responsibilities itself or through various committees. The Board meets on a regular basis to discharge its responsibilities.
The Board is made up of 10(ten) Directors including a Chairman and five Directors representing shareholders , one independent Director, two Directors from depositors and the Managing Director.
3.5 Principal Activities
The principle activities of the bank are banking and banking related activities. The banking business includes obtain deposits through account opening, offer credit to corporate organizations, as well as retail and small & medium enterprises, trade financing, project financing, lease and hire purchase financing. The mode of banking included conventional banking. It also performs merchant banking function under the license by Securities and Exchange Commission, Dhaka, Bangladesh.
3.6 Product Range of Dutch-Bangla Bank Limited
The product list of Dutch-Bangla Bank Limited is stated below:
· Savings Deposit Account-with cheque
· Savings Deposit Account-without cheque
· Current Deposit Account
· Short Term Deposit Account
· Foreign Currency Deposit Account
· Resident Foreign Currency Deposit
· Convertible Taka Account
· Non-Convertible Taka Account
· Exporter’s FC Deposit Account (FBPAR)
· Current Deposit Account-Bank
· Short Term Deposit Account-Bank
· Term Deposits
· Monthly Term deposits
· Term Deposit for 3 Months
· Term Deposit for 6 Months
· Term Deposit for 12 Months
· Term Deposit for above 12 Months
Loans & Advances
· Loan against Trust Receipt
· Transport Loan
· Consumer Credit Scheme
· Real Estate Loan (Res. & Comm.)
· Loan Against Accepted Bill
· Industrial Term Loan
· Agricultural Term Loan
· Lease Finance
· Other Term Loan
· FMO Local Currency Loan for SME
· FMO Foreign Currency Loan
· Cash Credit (Hypothecation)
· Small Shop Financing Scheme
· Secured Overdraft (SOD)
· Retail Loan
· SME loan
Other Products/ Services
- Any Branch Banking
- Internet Banking
- SMS Banking
- Alert Banking
- Debit & Credit Card
- Locker Facility
|Deputy Managing Director|
|Senior Executive Vice President|
|Executive Vice President|
|Senior Vice President|
|First Vice President|
|Assistant Vice President|
|First Assistant Vice President|
|Senior Executive Officer|
3.7. Important Financial Highlights of Dutch- Bangla Bank Limited for last five years:
· Number of branches
Table 01: Number of Branches
DBBL started its journey with only 1 branch in 1996. Now it has 80 branches in 2009. At the end of 2010 it will reach over 100. This incretion indicates the progress of DBBL.
Capital Structure of DBBL:
Banks generally do their business with other’s fund, so DBBL is not in exception. DBBL uses 24% equity and 75% Debt source of capital. The capital structure is following:
|Total Shareholders’ Equity||25.02%|
|Long term Debt (Fixed Deposit 1 year & above)||74.98%|
· Number of POS Terminals
Terminal of DBBL is increasing in rapid way after 2007.they starts with 100 terminals but now they are running their Bank with 715 terminals.
· Classified Loan To Total Asset
|Classified Loans (%)||0.15||1.58||2.68||3.26||3.27|
We have seen here that earning per share of DBBL is increasing from 2006.last year it was 3.27%.
· Total Import (Tk. In millions)
It’s the overall condition of DBBL in Import. Last year they helped in import of taka 53089 million in Bangladesh.
Among all Foreign Exchange Branch imported taka 3245585.
· Total Export (Tk. In millions)
Table 04 Total Export of DBBL
As we can see here the total export of DBBL is at the year of 2009 TK.
41,162.51 million. At the year of 2010 until May DBBL help in exportation of TK 1098206.
· Total Capital
(Tk. In millions)
Table 05: Total Capital of DBBL
As we know that a factor of production that is not wanted for it but for its ability to help in producing other goods is known as Capital. So we can see from the table after the year 2005 capital of DBBL is increasing is a rapid way.
· Market Capitalization (Tk. In millions)
· Net Profit After tax (Tk. In millions)
|Net Profit (after tax)||162.80||177.60||210.16||236.35||367.82|
Net profit is equal to the gross profit minus overheads minus interest payable plus/minus one off items for a given time period.Net profit of Dutch Bangla Foreign Exchange Branch among all in the month May,2010 is TK.511632.
3.8 Out look for 2009:
In the business plan and budget 2009, deposit are projected to grow by 55.1% to Taka 80,000.00 million and loans are projected to increase by 31.9 % to Taka 55,000,.00 million. Import and export business are expected to rise by 36.4 % to Taka 60,000.00 million and 44.7% to Taka 58,000.00 million respectively. With better quality of assets, higher net interest income as well as growing non-funded business, healthy growth in operating and after tax profit is expected in 2009.
The above growth will be supported by expansion of branches, ATM network, up gradation of IT and online banking system to provide better and faster customer services. Human resource will be strengthened to improve operational efficiency and productivity. A number of new products and services particularly in SME and Retail segments will be introduced to provide wider choice to customers.
Foreign Exchange Branch of Dutch Bangla Bank is situated at 15 Motijheel, Dhaka-1000. The branch started its journey on 1st march 1996. Present Branch manager is Md Hamidur Huq Khan. This branch consists of 40 Regular officers who are working under three main divisions named General Baking (Cash, Customer Service & Accounts), Foreign Trade & Credit.
The targeted profit for the Branch in the year 2010 is 40 crore & it achieved a profit of 32 crore in the previous year (2010). The targeted deposit in 2010 is 250 crore. The main earning sources of this Branch are the commissions on Bill Discounting & commissions on opening L/Cs, interest on LTR, SOD, and OD etc.
Foreign Exchange Branch is well decorated & well-equipped for its operations. The officers of this Branch are doing their best for providing a best customer services in line with the Banking Policy. The main secrets of this Branch in profit maximization are best dealing with customers, dedication to the work of the executives & officers, good team work & coordination.
Specialty of This Foreign Exchange is Branch is Foreign Dealing. And This is branch is doing its duty with their total deliberation.
3 Departments of Foreign Exchange Branch are:
- General Banking Department
- Foreign Trade Department
- Credit Department
4.1. General banking Department:
Main two activities of General banking of Foreign Exchange Branch Are:
1. Accounts Opening
I. Cash Receipt
II. Cash Payment
3. Pay Order
4. Demand Draft
5. Remittance Collection
4.1.1. Account Opening:
The relationship between the customer & the bank begins with the accounting opening formalities. DBBL. offers different products for its customers according to the needs of time. Different kinds of products fall into some different categories opening procedures.
Documents Needed for Account opening In Foreign Exchange Branch:
18.104.22.168 Various Schemes of DBBL:
Deposit plus Scheme (DPS)
This deposit scheme returns a handsome amount through forced monthly saving without any cut in living style.
PBS provides monthly or quarterly returns for a fixed investment/deposit and pays back the principal amount on maturity. PBS ranges from BDT 50,000/- to BDT 5,000,000/-.
Monthly Benefit before Tax.
Quarterly Benefit Before Tax.
DBBL offers a unique savings scheme for its customers. The scheme returns 1.5 times of the principal’s amount after 1 year through initial deposit and monthly savings. BDTS ranges from BDT 50,000/- to BDT 5,000,000/-.
This scheme creates opportunity for individuals to save for their children’s future education.
Its a savings scheme specially designed with for future & held by subscribers with a minimum balance of Tk. 50,000.00 will attract not only the usual savings interest but a further 10% bonus on interest. There is no hidden cost like issuing cheque book. Customer can keep it as long as they wish.
Pension Plus (PP):
DBBL offers a wide range of loans and advances to suit your needs. Amongst them are the following.
Life Line (a complete series of personnel credit facility)
Loan Against. Trust Receipt
Real Estate Loan (Res. & Comm.)
Loan Against. Accepted Bill
Industrial Term Loan
Agricultural Term Loan
Other Term Loan
FMO Local currency Loan for SME
FMO Foreign currency Loan
Cash Credit (Hypothecation)
Small Shop Financing Scheme
A bank needs efficient utilization & management of cash, which is a precondition to successful survival of it. Banks pay cash to customers & receive money from them on various deposit accounts. So Bank should be careful on the following three issues:
1. Safety: Cash balance must be kept in the strong room under the joint custody of the in-charge of cash department. Insurance for the cash is must for the branch.
2. Customer Satisfaction: The payment of cash to customer when required by them is an important thing to acquire customer satisfaction. Therefore, bank needs sufficient deposits of cash at all times so that it can satisfy the needs of cash of the customer promptly
- Income: The management of cash should be such a lowest possible in order to avoid the loss of opportunity income, along with providing the desired cash payment to the customer.
· Transaction of Cash:
I. Cash Receipt: All cash receipt vouchers shall be received by the Teller, checked with cash tendered and posted in the respective accounts. The teller shall mention receiving serial on the vouchers and put his/her signature also cash Received stamp on it & deliver the vouchers to the department to which it related. The authorized official also signs the receipt vouchers where necessary and return to the teller.
II. Cash Payment: While received cheque for payment across the counter shall be asked to sign on the back of the cheque by the person presenting the cheque after checking carefully the cheque number, date, amount both in words and figures, the drawers and authority signature, stop payment instruction if any, the endorsements and the available balance or drawing power, the Teller will post the cheque in the respective account and will put his signature on the cheque and payment shall be made if the amount is within the delegated power of the Teller after due cancellation of the cheque. If the cheque is beyond the delegated power of the Teller, pass on the cheque to authorized officials for checking and cancellation. The passing officials shall send the check to the Teller after checking and cancellation for payment if the cheque is found otherwise in order.
4.1.3. Pay Order:
Pay Order is known as banker’s Check. Pay order can’t be dishonored. Within district pay order is valid. DBBL to others we do pay order. . In whose favor, the pay order is issued is called the payee It is used to transfer money from one person to another, where the payment through cheque is not acceptable to someone.
4.1.4. Demand Draft:
Demand Draft is also known as Banker’s cheque. Like pay order DD also can’t be dishonored. It is valid out of district. For DBBL to DBBL we do DD only. DD is costly then Pay Order .There is a test number in DD. with which DD is secured. Only manager or sub manager can issue this test number .if test number is wrong then DD wouldn’t be paid.
4.1.5. Remittance Collection:
This function of the banker obviates the individual’s difficulty and the hazards in transportation of physical cash from one place to another. Against deposit of the requisite funds and the payment of the remittance charges the banker undertakes to make the equivalent amount available at a particular place to a named person or his order within or outside the country as per instruction of the remitter. The remittances are effected through Banker’s:
· Demand Draft
· Payment Order
· Mail Transfer
· Telegraphic Transfer
4.2. Foreign Trade Department:
Dutch Bangla Foreign exchange Branch The bank deals in foreign exchange when it is so authorized by the Bangladesh Bank under Section 3 of Foreign Exchange Regulation Act 1947. And it is then known as Authorized Dealer.
The Foreign trade of a country refers to its imports and exports of merchandise from and to other countries under contract for sale.
The main two functions of Foreign Exchange Department of DBBL are:
One of the important functions of commercial bank is to finance export and import trade. As buyers & sellers do not each other & know each other’s country’s rules & regulations. Thus buyers want to be assured of goods and seller to be assured of payments. Commercial banks therefore assure these things to happen simultaneously by opening Letter of Credit guaranteeing payment to seller & goods to buyer. By opening a letter of credit on behalf of a buyer in favor of a seller, commercial banks undertake to make payments to a seller subject to submission of documents drawn in strict compliance with letter of credit terms giving title to goods to buyer. The letter of credit thus, constitutes one of the most important methods of financing foreign trade.
Export plays an important role in regulating the flow of foreign currency into the country. The export is normally executed against letters of credit opened by overseas buyers.
§ Requirements for Export:
1. Registration: Any firm or party desirous of undertaking export trade are required to obtain Export Registration Certificate (ERC) from CCI&E (Chief Controller of Imports & Exports), Government of Bangladesh. For getting ERC followings are submitted along with the application for ERC:
2. Nationality Certificate
3. Trade License from Multiple Authorities
6. Bank Certificate
6. Income tax certificate
§ Export Documents:
As soon as the Bill of Lading, Airway Bill or Truck Receipt is received the exporter would prepare the relevant documents & submit the same for early repatriation of export proceeds. The following documents are normally required for negotiation:
- Bill of exchange: This is sent by the exporter in two or three sets & includes the amount of L/C, date, sight or issuance etc.
- Commercial Invoice: A statement prepared by shipper containing full details of goods shipped. It gives description and price of merchandise, quantity, quality, packing details, name & address of buyer & seller, name of vessels, date of shipment, number of bill of lading etc.
- Bill of Lading: The document evidencing the carriage of goods by sea is the Bill of Lading & is issued by the shipping company or its agent & contains brief description of goods accepted for transport. It is used usually two or three sets. It also includes general description of the goods, marks numbers gross & net weight. Exp numbers should be correctly mentioned in the Bill of Lading.
- Airway Bill: The document evidencing the contract of carriage of goods by air is known as Airway Bill.
- Packing List: A packing list prepared by the exporter serves to indicate the exact nature, quantity & quality of the contents of each package in a shipment. Clearance of goods through customs is also facilitated by packing list.
- Certificate of Origin: It is a document certifying the country of origin of the goods that is it describes where the goods originally produced or manufactured.
- Other Certificate: Some other certificate such as Weight Certificate, inspection certificate by supplier or an independent inspection agency, Certificate of Analysis may be required in the chemical & drugs etc.
The buyer or importer is he who initiates the credit. He applies to the bank for issue of a documentary credit. The applicant is liable to indemnify the bank against all obligations & responsibilities imposed by foreign laws and usages
§ Procedures of Import:
- Contract for Sale:
The transaction originates when the exporter and the importer enter into a contract of sale. The contract covers all important particulars like the description, value and quantity of goods, the due date for shipment, method of payment etc.
- Application for Issuing a Letter of Credit:
The importer would apply on bank’s standard form to his bank for issuing a letter of credit. In addition to recording the full details of the proposed credit, the application also serves an arrangement between the bank and the buyer. The credit application must be clear and precise and generally includes the following items:
- Full name & address of supplier, manufacturer or beneficiary
- Opener’s name & address
- The total amount of credit asked for & whether the credit is a specific credit or a revolving letter of credit and amount of currency
- The type of credit; whether revocable or irrevocable
- The terms of sale, whether the contract is on C&F, CIF or FOB basis
- The risk to be covered under the policy and the amount of insurance
- Brief description of goods including quality, quantity & unit price
- The term of payment; whether on DA (Documents against Acceptance) or PAD (Payment Against Documents)
- Place of shipment, destination and latest date for shipment
- Specific documents like invoice, bill of lading, marine insurance policy, certificate of origin, packing list etc.
- The details of mode of shipment & the documents which are to accompany the Bill of Exchange viz, Airway Bill or Air Consignment Note .
- The date up to which the credit will remain valid & the date the documents should be presented for negotiation.
- Methods of advice credit, whether it should be sent by mail, telecommunicated or electronically conveyed
4.3 Credit Department:
Bank Credit is one type of finance. Bank as a financial intermediary provides finance from surplus unit to deficit spenders which plays an important role in economy because it allows funds to be channeled from those who might otherwise not put them to productive use to those who will in this way can use these funds. Banks accepts deposits from individual & makes loans. The range of services includes import/exp