General Banking and Foreign Exchange Activities of Uttara Bank Limited

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General Banking and Foreign Exchange Activities of Uttara Bank Limited

1.1 Introduction

Modern banks play an important part in promoting economic development of a country. Banks provide necessary funds for executing various programmers underway in the process of economic development. They collect savings of large masses of people scattered throughout the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and make available to commerce and industry for making the requirements. Economy of Bangladesh is in the group of world’s most undeveloped economies. One of the reason may be its under developing banking system. Government as well as different international organizations have also identified that underdeveloped banking system causes some obstacle to the process of economic development. So they have highly recommended for reforming financial sector. Since 1990, Bangladesh Government has taken lots of financial sector reform measurements for making financial sector as well as banking sector more transparent, and formulations and implementations of these reform activities has also been participated by different international organizations like World Bank, IMF etc.

Over the last few years the banking world has been undergoing a lot of changes due to deregulation, technological innovations, globalization etc. These changes also made revolutionary changes of a country’s economy. Present world is changing rapidly to face the challenge of competitive free market economy. It is well recognized that there is an urgent need for better-qualified management and better-trained staff in the dynamic global financial market. Bangladesh is no exception of this trend. Banking sector in Bangladesh is facing challenges from different angles though its prospect is bright in the future. Money and Banking is the center around which all economic science clusters.

The changing and expanding role of banking has made the banking business more complex and competitive. For survival and growth of this, business demands creativity, specialization and knowledge and adoption if new technology. But technology, creativity, specialization all these cannot support a bank to survive unless the services are marked in the right track. For this banks needs experts who will able to run the business even in against the wind.

1.2 Background of the Report

During 28th January 1965, The Eastern Banking Corporation inaugurated its operation in East Pakistan as commercial bank. After 6 months of its inauguration it has got the status of Schedule Bank. It was the first Bengali Owned Commercial Bank. After liberation the Eastern Banking Corporation was changed by name as Uttara Bank Ltd. During 1972 it was taken under national ownership. At that time it’s paid up capital was 69.13 crore and profit figure was 42lac. During September 1995 it was privatized under privatization act. At that time this deposit was 231.03 crore and profit figure was 5.06 up to 2008 its number of branches stands to 198 and it’s paid up capital was 100 million. 95% of its share holder is public and rest of share holds by Government. There are some different year’s deposits, loan, & advances and net profit has been given below.

Year Deposit Loan & Advances (Tk. In cr.) Net profit (Tk. In Cr.)
December 31, 1972 69.13 60.57 .42
December 31, 1995 231.03 226.56 5.06
December 31, 2009 2594.25 2333.18 120.00

The all branches are computerized which has been possible by local (within the organization) computerized analyst. The place, where electricity is not available they are maintaining their activities by generator. And that’s why has got access to enter in the instant Global Economy. For reaching immigrant/non-imrnigranls, sending money to the recipients as well as to invest this money in lucrative sector UBL has established.

1. Non-residence Foreign Currency Deposit (NFCD)

2. Foreign Current Account Deposit (FCAD)

3. Wage Earners Development Bond (WFBD)

4. Home (HRC)

5. Wage Earners Investment (WEIC

3.1. Title of the Report

General Banking & Foreign Exchange Activities of Uttara Bank Limited (Corporate Branch)

3.2. Corporate information of Uttara Bank Ltd

During 28th, January, 1965. The Eastern Banking Corporation inaugurated its operation in East Pakistan as commercial bank. After 6 months of its inauguration it has got the status of Schedule bank. It was the first Bengali Owned Commercial Bank. After liberation the Eastern Banking Corporation was changed by name as Uttara Bank Ltd. During 1972 it was taken under national ownership. At that time it’s paid up capital was 69.13 crore and profit figure was 42lac. During September 1983 it was privatized under privatization Act. At that time this deposit was 231.03 crore and profit figure was 5.06 crore. The bank floated its shares in the year 1984. It has 207 branches all over Bangladesh through which it carries out all its banking activities. The bank is listed in the Dhaka Stock Exchange and Chittagong Stock Exchange as a publicly quoted company for trading of its shares.

The all branches are computerized which has been possible by local (within the organization) computerized analyst. The place, where electricity is not available they are maintaining their activities by generator. And that’s why it has got access to enter in the Instant Global Economy. For reaching immigrant/non-immigrants, sending money to the recipients as well as to invest this money in lucrative sector UBL has established:

· Non-residence Foreign Currency Deposit (NFCD)

· Foreign-currency Current Account Deposit (FCAD)

· Wage Earners Development Bond (WEBD)

· Home Remittance (HRC)

· Wage Earners Investment Cell (WEIC)

UBL has the project of seven days assured payment scheme to serve quickly the foreign remittance sender. On the other hand, it has achieved the membership of Society for Worldwide International Financial Telecommunication (SWIFT) to accurate the international business and banking activities.

3.3 Infrastructure of UBL

  • UBL is one of the largest & oldest private-sector commercial bank in Bangladesh.
  • It operates through 207 fully computerized branches ensuring best possible and fastest service to its valued clients
  • The bank has more than 600 foreign correspondents worldwide.
  • Total number of employees nearly 3,562.
  • The Board of Directors consists of 13 members.
  • The bank is headed by the Managing Director who is the Chief Executive Officer.
  • The Head Office is located at Bank’s own 18-storied building at Motijheel, the commercial center of the capital, Dhaka.


Local office 2
Regional Office 13
Worldwide Affiliates 600
Total Branches 207
Authorized Dealer Branches 38
Computer Lab 1
Treasury and Dealing Room 1
Training Institute 1
Man power 3562
Table 2-I: Infrastructure of UBL


3.4 Vision of the Bank

To be the best private commercial bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity.

3.5 Mission of the bank

  • To build Uttara bank limited into an efficient, market driven, customer focused institution with corporate governance structure.
  • Continuous improvement in their business policies, procedures integration of technology at all levels.

3.6 Goals of the Bank

· Develop a realistic deposit mobilization plan.

· Develop appropriate lending risk assessment system.

· Develop capital plan.

· Develop a system to make good advances.

· Develop a recruitment, compensation training and orientation plan.

· Develop a plan for offering better customers service.

· Develop appropriate management structure, systems, procedures and approaches

· Develop scientific MIS to monitor bank’s activities.

3.7 Objective of the Bank

· Build up a low cost fund base.

· Make sound loans and investments.

· Meet capital adequacy requirement at all the time.

· Ensure 100% recovery of all loans and advances.

· Ensure a satisfied workforce.

· Focus on fee-based Income.

· Adopt an appropriate management technology.

· Install a significant MIS to monitor bank’s activities.

3.8 Board of Director

Chairman Mr. Azharul Islam
Vice Chairman Iftekharul Islam
Directors Mr. Abul Barq Alvi
Col. Engr. M. S. Kamal (Retd)
Mr. Syed A. N. M. Wahed
Mr. Sk. Amanullah
Major General Prof. M. A. Mohaiemen (Retd)
Dr. Md. Rezaul Karim Mazumder
Lt. Col. Dewan Zahedur Rahman (Retd)
Engr. Tofazzal Hossain
Mr. Mohammed Farooq
Mr. Muhammad Quamrul Ahsan
Mr. Asif Rahman
Managing Director Shamsuddin Ahmed
Secretary Md. Fazlur Rahman

Table 2-2: Board of Directors

3.9 Executive Committee

Chairman Mr. Azharul Islam
Vice Chairman Iftekharul Islam
Directors Mr. Abul Barq Alvi
Col. Engr. M. S. Kamal (Retd.)
Dr. Md. Rezaul Karim Mazumder
Lt. Col. Dewan Zahedur Rahman (Retd)
Managing Director Shamsuddin Ahmed
Secretary Md. Fazlur Rahman
Table 2-3: Executive Committee

3.10 Audit Committee:

Chairman Mr. Iftekharul Islam
Members Mr. Abul Barq Alv
Col. Engr. M. S. Kamal (Retd)
Legal Adviser M. Moniruzzaman Khan, Barrister-at- law
Auditors Ata Khan & co. Chartered Accountants
Rahman Mostafa Alam & Co. Chartered Accountants

Table 2-4: Audit Committee

3.11 Business Performance over the Last Few Decades

A comparative overview of deposits, loans & advances and net profit over the last few decades is given below:

Date Deposit

(Tk. In million.)

Loans & Advances

(Tk. In million.)

Net profit

(Tk. In million.)

December 31, 1972 691.30 605.70 4.20
December 31, 1983 2310.30 2265.60 50.60
December 31, 2009 59,387 39451.3 1,105.2

Table 2-5: Comparative analysis over the few decades

3.12 Capital Structure of UBL

The authorized capital of Uttara Bank Limited is Tk 1600 million during the year 2008. But the bank has already got approval from Bangladesh bank to raise its authorized capital from Tk1600 million to Tk3200 million. The paid up capital of the Bank has been increased to Tk 798.6 million from Tk 399.3 million due to declaration of 50% bonus share in 2009. Total No. of share holders was 23,959,776 in year 2009. The Government of Bangladesh held total no of shares 479 worth TK 47,900. Bank & other financial institutions held total 1,013,499 shares worth TK 101,349,900. Remaining private share holders held total 22,943,798 shares worth TK 2,294,379,800. The total equity of the share holders of the bank at the end of the year 2009 stood at TK 3688.8 million and in 2008 stood at TK 2453.5 million.

Particulars 2009 Tk( in millions) 2008 Tk( in millions )
Authorized Capital 1600.00 1,000.00
Issued, Subscribed &

paid-up capital

798.6 399.3
Statutory Reserve 1550.84 550.84
Other reserve 1337.63 1100.86
Retained Earnings 1.71 3.2

Table 2-6: Capital Structure

Figure 2-I : Capital Structure of UBL

3.13 Deposit Performance of UBL

The deposit of the Bank registered an increase of 16.59% during the year 2009consider with previous year. At the close of 2009 total deposit stood at Tk 50,817.0 million against Tk 43,586.4 million in the previous year. The deposit mix comprised Tk1220.41 million as government, Tk 269.20 million as deposit money banks, Tk 360.39 million & Tk 48966.97 million as private deposits. Average deposit per branch stood at Tk 245.49 million at the end of the year 2009 as compared to TK 210.6 million in the previous year. It may be mentioned here that strict compliance of Central Bank Regulations and adherence to Money Laundering Prevention Act 2002 have been ensured while procuring deposits.

Deposit mix of the year 2009 & 2008 was as follows:

Items 2009 Tk (in million) 2008 Tk (in million)
Current & Other Deposit 15570.32 12372.37
Savings bank Deposits 19547.77 17876.53
Fixed Deposits 12164.27 10417.18
Other Deposits 1929.10 1276.98
Bills Payable 1605.52 1643.29

Table 2-7: Deposit Mix of UBL

Figure 2-2: Comparative Deposit Mix of UBL

3.14 Loans and advances

In 2009 UBL registered a steady growth in the in the credit portfolio posting a growth of 13.04%. Total Loans and Advances of the Bank stood at Tk 37,141.3 million during the year as compared to Tk 28,477.4 million of the previous year. Average Loan per branch stood at TK 179.43 million. The Bank is handling its Loan Disbursement Activities more smoothly by implementing separation of responsibilities among loan risk assessment, lending decisions and monitoring functions with a view to improving the quality and soundness of loan portfolio. Sector wise allocation of advances reveals a well diversified portfolio of the bank with balanced exposure in different sectors.

Sector wise position of Loans and Advances as on 31st December 2009:

(Taka in million)

Sectors of Loans & Advances Public Private Total
1. Agriculture 89 89
2. Industrial Lending(Term) 6508 6508
3. Industrial Lending(WC) 984 984
4. Commercial Lending 10.5 16,267.9 16,278.4
5. Special Program 3,656.9 3,656.9
6. Housing 530.4 530.4
7. Lease Financing 392.3 392.3
8. Bills Discounted & Purchased 3,833.3 3,833.3
9. Others 4,859 4,859
Total: Loans & Advances 10.5 37,130.8 37,141.3

Table2-8: Loans & Advances of UBL

Figure 2-3: Sectors of Loan & Advance of UBL

3.15 Export & Import Business

Bank gives paramount importance in its foreign business to ensure profitability. Bank has been continuing to extend special importance on foreign business from beginning of its establishment which is still prevailing during the year. To look after the business and also to ensure prompt service to the import & export, officers having exposure and expertise in Foreign Exchange business have been posted both at Head Office and 38 Authorized Dealer Branches. During the year performance of import business was satisfactory. In 2009 import business stood at Tk 31,146.9 million as compared to the volume of Tk 25,407.9 million 2008. Export Business of the bank increased a little bit during the year 2009. Export Business handled by the Bank during the year 2009 amounted to Tk 15,039.6 million as against Tk 14,784.5 million of the preceding year.

3.16 Foreign Remittance

Uttara Bank Limited has seen successful year in 2008 in terms of expansion of its remittance business with its foreign correspondent and exchange houses. This Bank has drawing arrangement with the Banks and Exchange companies situated at important countries of the world. In the mean time the bank has been able to draw confidence of the Bangladeshi expertise by easy and quick delivery of their hard earned foreign remittance to the payees at home. The volume of the foreign remittance in the year 2009 stood at Tk 36,073.2 million as compared to Tk 29,575.3 million in the preceding year registering an increase of 21.97 percent. On order to keep pace with tome a scheme namely “Express Payment Scheme” has been introduced for inward remittance by using modern equipment. Under this scheme a payee having his account with any branch of UBL gets the proceeds of remittance sent from any part of the world within 2 hours. Besides in order to ensure speedy and improved service the Bank has also introduced “Instant Cash Scheme” for payment of foreign remittance in cash to the customers who have no account with the Bank on submission of Passport/ Driving License/ Voter ID card etc. as identity. Besides there is a scheme named “Instant Draft” as per which under a prior agreement computer printed drafted remitted by the remitted companies and received hare through website is delivered but the International Division of the Bank to the beneficiaries at their home address for payment of money equivalent to foreign currency. Besides, the expatriates can remit their money at low cost, reliably & instantly to the home country through more than 700 correspondent banks worldwide under Swift system.

Foreign Trade that is the Export, Import and Foreign Remittance committed by Uttara Bank Limited over the last 5 Years is illustrated by the following chart. From this chart we can easily infer that more or less there is a steady trend of foreign business has been done over the years.

(Taka in millions)

Year 2005 2006 2007 2008 2009
Export 19865 19684 18133 14785 15040
Import 24889 22735 22631 25408 31147
Foreign Remittance 19,710 27,276 28,728 29,575 36,073

Table 2-9: Foreign Trade over the last 5 years

Figure2-4: Foreign Trade over the last 5 years

3.17 Customer Services

The customer service is the top priority of the bank. The bank’s policy is to make all employees more proactive to the clients irrespective of their socio-economic background. The employees are self-motivated & committed to uphold the slogan “Nourished by the age hold heritage of Bengal”

3.18 Corporate Governance

Uttara Bank has actively & fully adhered to the principles of sound corporate governance. Fairness, Transparency, Accountability and Responsibility are the minimum standard of acceptable corporate behavior. Uttara Bank Limited continues to ensure the compliance of Corporate Governance as per Securities and Exchange Commission rules & regulations.

3.19 Corporate Social Responsibility

Uttara Bank considers socially responsible activities an important part of its culture, identity and business practice. It has a deep commitment, loyalty & a high sense of responsibility to our nation & its people. It conforms to all of the stringent regulations issued by the Government & Bangladesh Bank. Some illustration is given below:

  • Post disaster assistance.
  • Sponsorship in sports.
  • Commercial loan to small & Medium Entrepreneurs.
  • Financing in poverty alleviation sector.
  • Women Entrepreneurs development scheme under SME.
  • Beautification of Dhaka City.
Table 2-10: Highlights on the overall Activities of UBL

3.20 Highlights on the overall Activities of UBL

Particulars 2009




Change in


Paid-up-Capital 798,659,200 399,329,600 100
Total Capital 4,048,371,732 2,746,737,827 47
Capital surplus/(Deficit) 627,910,000 128,924,827 387
Total Assets 58,444,332,118 52,860,332,730 11
Total Deposits 50,816,975,020 43,586,356,057 17
Total Loans & Advances 37,141,342,619 28,477,407,266 30
Total Contingent Liabilities 8,806,887,103 8,830,513,784 -0
Credit Deposit Ratio (%) 73.09% 65.34% 12
Ratio of Classified Loan to total Loans & Advances (%) 7.09% 12.40% -43
Profit after tax & provision 1,138,518,172 409,535,557 178
Amount of classified loan during the current year 617,500,000 1,127,300,000 -45
Provision kept against classified loans 388,219,720 455,901,594 -15
Provision surplus /(deficit) 108,051,720 99,312,441 9
Cost of Fund (%) 4.96% 4.61% 8
Interest earning Assets 45,673,440,549 39,379,899,661 16
Interest non-earning Assets 12,770,891,569 13,480,433,069 -5
Return on Investment (ROI) % 7.02% 6.37% 10
Return on Assets (ROA)% 1.95% 0.77% 153
Income from Investment 784,896,516 921,189,131 -15
Earning per Share (Taka) 142.55 51.28 178
Net income per Share (Taka) 142.55 51.28 178
Price Earning Ratio (Times) 23.81 94.67 -75

Uttara Bank Ltd

3.21 Some Prospects of Uttara Bank Ltd.

  • Uttara Bank is the public limited company now.

· Remittance return in online system.

· The foreign countries can be targeted for more remittance through skilled manpower business.

· More knowledgeable employees are recruited and existing employees are trained in regular basis by Uttara Bank Staff College.

  • Investment Potentiality of Bangladesh.

· Enhancement of Internet and E-mail connectivity that is gearing the speed of income gain.

· Open Position limit enhancement that will let the Bank invest more largely.

· Computer ledger posting and balancing.

· Centralization of Foreign Trade process that will decrease the loss of time.

· Foreign direct investment is increasing in our country.

· Major steps have been taken to make solution of the technical and managerial problems.

· Innovation of foreign exchange products is going on.

· Concentration is being taken to encourage export non-traditional items.

· The growth of import business is increasing day by day.

· On-line banking facilities.

· Enforcement of Anti Money Laundering Act.

· Floating and attractive Exchange Rate.

· Participation is foreign trade fair to exhibit its product.

· Good negotiation is established for increasing export.

· Imported raw material from other countries & established those product based industries.

Chapter – Two
Banking Sector in Bangladesh

2.1 Banking Sector in Bangladesh:


The Jews in Jerusalem introduced a kind of banking in the form of money lending before the birth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancient time Jews used to do money -lending business sitting on long benches.

First modern banking was introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era of banking activities throughout the European Mainland.

In the South Asian region, early banking system was introduced by the Afghan traders popularly known as Kabuliwallas. Muslim businessmen from Kabul, Afghanistan came to India and started money lending business in exchange of interest sometime in 1312 A.D. They were known as ‘Kabuliwallas’.

2.2 Definition of Bank:


Lexicon meaning of bank is the land sloping up along each side if river or canal, the ground near a river, a raised slop at the edge of 5th, but in general meaning bank is a financial institution dealing with money.

According to R.S. Sayer, “A bank is an institution whose debts are commonly accepted in final settlement of others people’s debts.”

According to A.C. Day, “A bank is an organization whose main function is to move for capital formation.”

In fine, the above definitions, we can say that bank is a financial institution that receives saving of people and invest these saving to customer in order to make profit and other monetary transaction with interest.


Sometimes bank and Banking used wrongly as the same terms. But bank and Banking bears the different meaning. The bank is a financial institution doing the business with money. Banking means all functions and activities of a bank i.e. bank mean a financial institution and banking means the function of that institution.

2.3 Objective of Bank:

The main purpose of a bank is to lower transaction costs, lower information costs, create liquidity, and to diversify people’s money in a way they could not do on their own. Their other objective is to make money. They do this by paying the lender (someone with a savings account) x% and then they lend that person’s money out to a borrower (someone with a home mortgage, car loan, etc) for something

Commercial Banking:

The main objective of commercial banks is to maintain higher profitability by maintaining circular and efficient flow of amount of money deposited by the customers and the lenders. Commercial banks contribute to the economic cycle by keeping the money circulation among households, government and corporate businesses the lend money to the economic agents through their various products and services by earning interest income on the borrowed money. Commercial banks design their short term and long term loans and other products to cater to the need of customers while enhancing their own returns. Their objective is to attract more customers and build profitable relationships with the new and existing customersyf the financial system.

Number and Types of Banks

The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions (DFIs).

Sonali Bank is the largest among the NCBs while Pubali is leading in the private ones. Among the 12 foreign banks, Standard Chartered has become the largest in the country. Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial sector. The number of total branches of all scheduled banks is 6,038 as of June 2000. Of the branches, 39.95 per cent (2,412) are located in the urban areas and 60.05 per cent (3,626) in the rural areas. Of the branches NCBs hold 3,616, private commercial banks 1,214, foreign banks 31 and specialized banks 1,177.

Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks.

Bangladesh Banks

Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also Bangladesh Bank (BB) has been working as the central bank since the country’s independence. Its prime jobs include issuing of currency, maintaining foreign exchange reserve and providing transaction facilities of all public monetary matters. BB is also responsible for planning the government’s monetary policy and implementing it thereby.

The BB has a governing body comprising of nine members with the Governor as its chief. Apart from the head office in Dhaka, it has nine more branches, of which two in Dhaka and one each in Chittagong, Rajshahi, Khulna, Bogra, Sylhet, Rangpur and Barisal.

Services (Accounts, FDR, PDS, Deposit Scheme)

Current Account

Generally this sort of account opens for business purpose. Customers can withdraw money once or more against their deposit. No interest can be paid to the customers in this account. If the amount of deposit is below taka 1,000 on an average the bank has authority to cut taka 50 from each account as incidental charge after every six months. Against this account loan facility can be ensured. Usually one can open this account with taka 500. One can open this sort of account through cash or check/bill. All the banks follow almost the same rules for opening current account.

Savings Bank Account

Usually customers open this sort of account at a low interest for only security. This is also an initiative to create people’s savings tendency. Generally, this account is to be opened at taka 100. Interest is to be paid in June and December after every six months. If money is withdrawn twice a week or more than taka 10,000 is withdrawn (if 25% more compared to total deposit) then interest is not paid. This account guarantees loan. Almost all the banks follow the same rules in the field of savings account, except foreign banks for varying deposit. On an average, all the banks give around six percent interest.

Special Services

Some Banks render special services to the customers attracting other banks.


Customers need an Internet access service. As an Internet Banking customer, he will be given a specific user ID and a confident password. The customer can then view his account balances online. It is the industry-standard method used to protect communications over the Internet.

To ensure that customers’ personal data cannot be accessed by anyone but them, all reporting information has been secured using Version and Secure Sockets Layer (SSL).


Home banking frees customers of visiting branches and most transactions will be automated to enable them to check their account activities transfer fund and to open L/C sitting in their own desk with the help of a PC and a telephone.


Electronic Banking Service for Windows (EBSW) provides a full range of reporting capabilities, and a comprehensive range of transaction initiation options.

The customers will be able to process all payments as well as initiate L/Cs and amendments, through EBSW. They will be able to view the balances of all accounts, whether with Standard Chartered or with any other banks using SWIFT. Additionally, transactions may be approved by remote authorization even if the approver is out of station.


Automated Teller Machine (ATM), a new concept in modern banking, has already been introduced to facilitate subscribers 24 hour cash access through a plastic card. The network of ATM installations will be adequately extended to enable customers to non-branch banking beyond banking.


Tele Banking allows customers to get access into their respective banking information 24 hours a day. Subscribers can update themselves by making a phone call. They can transfer any amount of deposit to other accounts irrespective of location either from home or office.


Swift is a bank owned non-profit co-operative based in Belgium servicing the financial community worldwide. It ensures secure messaging having a global reach of 6,495 Banks and Financial Institutions in 178 countries, 24 hours a day. SWIFT global network carries an average 4 million message daily and estimated average value of payment messages is USD 2 trillion.

Swift is a highly secured messaging network enables Banks to send and receive Fund Transfer, L/C related and other free format messages to and from any banks active in the network.

Having SWIFT facility, Bank will be able to serve its customers more profitable by providing L/C, Payment and other messages efficiently and with utmost security. Especially it will be of great help for our clients dealing with Imports, Exports and Remittances etc.

Monitory & Credit Policy

The monetary and credit policy for the financial year that ended in June, 2000 was formulated with the objective of full utilization of domestic resources and rapid economic growth through priorities for agriculture, industry, export, and expansion and strengthening of the private sector, at the same time keeping inflation within tolerable limits. A modern expansionary monetary and credit policy was adopted in order to make good the losses to agriculture, industry, and infrastructure by the devastating floods of 1998. After the flood the economy remained sluggish in the first quarter of 1999-2000 and the private sector demand for credit shrank. In view of this, the Annual Development Program (ADP) was expanded and development activities in the private sector were geared up. As a result, the public sector absorbed credit at an accelerated rate. Though credit to the private sector picked up towards the end of the year, the overall annual growth was smaller than programmed, although gross domestic credit expanded a little faster than projected. Money supply increased by 15.3% in 1999-2000 compared to the expansion of 8.6% in the preceding year.


Narrow Money increased by Tk. 2,631.90 crores or 15.3% to Tk.19881.30 crores in 1999-2000. Of the components of Narrow Money, currency outside banks went up by Tk.1489.40 crores or 17.2% to Tk.10176.00 crores, and demand deposits went up by Tk.1142.50 crores or 13.3% to Tk.9705.30 crores.


Broad Money increased by Tk.11735.70 crores or 18.6% to Tk. 74,762.40 crores in 1999-2000 compared to the increase of 12.8% in the preceding year. Of the components of Broad Money, Narrow Money increased by 15.3% and time deposits rose by 19.9% compared to the increase of 8.6% in Narrow Money and 14.5% in time deposits in the preceding year. The shares of currency outside banks, demand deposits and time deposits in Broad Money stood at 13.6%, 13.0%, and 73.4% respectively on 30th June, 2000 compared to 13.8%, 13.6% and 72.6% respectively on 30th June, 1999. Expansion of credit to the private sector, government sector (net), public sector, and other assets (net), along with a surplus in net foreign assets contributed to the expansion of Broad Money.


Reserve Money increased by Tk.2321.80 crores or 15.7% to Tk.17064.50 crores in 1999-2000 compared to the increase of 8.3% during the preceding year. Of the components of Reserve Money, currency outside banks increased by Tk.1489.40 crores or 17.1% compared to the increase of Tk.533.30 crores or 6.5% during the preceding year. Scheduled banks balances with the Bangladesh Bank increased by Tk.770.90 crores or 15.3% in 1999-2000 compared to the increase of Tk.488.20 crores or 10.8% in the preceding year. Their cash in tills increased by Tk.61.50 crores or 6.0% as against the increase of Tk.103.60 crores or 11.2% in the preceding year. The increase in Bangladesh Bank’s credit to the government (net) by Tk.1,738.10 crores and net surplus in the foreign sector by Tk.1,262.40 crores played the main role in exerting expansionary influence on the Reserve Money. However the decline of Tk.333.60 crores and Tk.44.90 crores in the borrowings by the scheduled banks and other financial institutions respectively along with the fall of Tk.300.20 crores in other assets (net) partly offset the expansionary impact of those sectors.


Total domestic credit increased by Tk.8581.20 crores or 13.6% to Tk. 71,489.00 crores (including adjustment of bonds issued by the government) in 1999- 2000 as compared to the increase of Tk.7267.60 crores or 13.1% in the preceding year. Expansion of credit to the government, private, and public sectors to the extent of Tk.3524.30 crores (31.3%), Tk.4906.10 crores (10.7%), and Tk.150.80 crores (2.5%) respectively contributed to the expansion in total domestic credit in 1999-2000. Credit to the government and private sector had increased by 21.3% and 13.8% respectively, while credit to the public sector declined by 3.7% in the preceding year.


The outstanding level of bank credit (excluding foreign bills and inter-bank items) increased by Tk.5,123.30 crores or 10.3% to Tk.54,646.10 crores in 1999- 2000 as compared to the increase of 12.4% in the preceding year. Of the components of bank credit, advances increased by Tk.4892.70 crores or 10.3% and the bills purchased and discounted went up by Tk.230.60 crores or 11.3%.


Bank deposits (excluding inter-bank items) increased by Tk.11044.70 crores or 18.6% to Tk.70, 278.70 crores in 1999-2000 compared to the increase of 14.2% in the preceding year. Of this increase , time deposits went up by Tk.9,103.80 crores or 19.9% to Tk.54,881.10 crores, government deposits by Tk.723.60 crores or 14.8% to Tk.5,615.20 crores and demand deposits by Tk. 1,142.50 crores or 13.3% to Tk.9,705.30 crores. On the other hand, restricted deposits increased by Tk.74.80 crores in 1999-2000.


Statutory CRR with Bangladesh Bank was lowered for the scheduled banks to 4.0% of their liabilities (demand plus time deposits) (excluding inter-bank deposits) from 5% with effect from 1st October, 1999.


The Bank Rate was lowered from 8.0% to 7.0% on 29th August, 1999 and remained unchanged through 30th June, 2000.

2.4 Historical Background of the banking institutions in Bangladesh

The Banking System

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 concession 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.

Money & Banking Currency Function

At independence the value of the taka, Bangladesh’s unit of currency, was set between 7.5 and 8.0 to US$1. With the exception of FY 1978, the taka’s value relative to the dollar declined every year from 1971 through the end of 1987. To help offset this phenomenon, Bangladesh first used the compensatory financing facility of the International Monetary Fund (IMF–see Glossary) in FY 1974. Despite the increasing need for assistance, the Mujib government was initially unwilling to meet the IMF’s conditions on monetary and fiscal policy. By FY1975, however, the government revised its stance; declaring a devaluation of the taka by 56 percent and agreeing to the establishment by the World Bank of the Bangladesh Aid Group (see Foreign Assistance, this ch.). Between 1980 and 1983, the taka sustained a decline of some 50 percent because of deterioration in Bangladesh’s balance of payments. Between 1985 and 1987, the taka was adjusted in frequent incremental steps, stabilizing again around 12 percent lower in real terms against the United States dollar, but at the same time narrowing the difference between the official rate and the preferential secondary rate from 15 percent to 7.5 percent. Accompanying this structural adjustment was an expansion in the amount of trade conducted at the secondary rate, to 53 percent of total exports and 28 percent of total imports. In mid- 1987, the official rate was relatively stable, approaching Tk31 to US$1.

Chapter – Four
Foreign Exchange Function of Uttara Bank Ltd.

4.1 What is foreign exchange?

The exchange of foreign currency. On the foreign exchange market, foreign currency is bought and sold for immediate (spot) or forward delivery.

4.2 Foreign exchange Department of UBL:

Foreign Exchange is a process which is converted one national currency into another and transferred money from one country to another country. According to Mr.H.E.Evitt “Foreign Exchange is that section of economic science which deals with the means and method by which right to wealth in one country currency is converted into rights to wealth in terms of another country currency”. It involved the investigation of