Performance Evaluation of Dutch Bangla bank Limited

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“Performance Evaluation of Dutch Bangla bank Limited”

CHAPTER: 1

ORIGIN OF BANK

Originally the word “BANK” we can easily understand the financial institution that deals with money. But there are different types of banks like; Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Co-operative Banks etc. But when we use the term “Bank” without any prefix, or qualification, it refers to the ‘Commercial banks’. Commercial banks are the primary contributors to the economy of a country. So we can say Commercial banks are a profit-making institution that holds the deposits of individuals & business in checking & savings accounts and then uses these funds to make loans. For these people and the government is very much dependent on these banks as the financial intermediary. As banks are profit -earning concern; they collect deposit at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank.

Banking sector is expanding its hand in different financial events every day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases day by day, they are coming with different innovative ideas & products. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedure.

Thesis program is essential for every student, especially for the students of Business Administration, which helps them to know the real life situation. For this reason a student takes the thesis program at the last stage of the Master’s degree, to launch a career with some practical experience.

OBJECTIVES OF THE REPORT

The initial objective of this report is to obey with the requirement of the DBBL. But the objectives is not limited with in above, behind this study is something broader. Objectives of the study are summarized in the following manner:

· To measure the overall performance of DBBL.

· To apply the critical knowledge in the practical field.

· To make a bridge between the theories and practical procedures of banking day-to-day operations.

· To gain practical knowledge by working in different desks of Local office branch of DBBL.

· To observe the working environment in commercial banks.

· To study existing banker-customer relationship.

· To know the overall functioning of DBBL.

· To have some practical exposures that will be helpful for my future career.

SOURCES OF DATA

In order to make the report more meaningful and presentable, two sources of data and information have been used widely.

The “Primary Sources” are as follows:

§ Face-to-face conversation with the respective officers and staffs of the Branch.

§ Informal conversation with the clients.

§ Practical work exposures from the different desks of the departments of the Branch covered.

§ Relevant file study as provided by the officers concerned.

The “Secondary Sources” of data and information are:

§Annual Report of DBBL.

§Various books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies.

§Different ‘Procedure Manual’, published by DBBL.

§Different circular sent by Head Office of DBBL and Bangladesh Bank.

Data Collection procedure:

In order to collect the data a questionnaire which is a combination of both open ended and close ended has been used. Group discussion and personal interview also used to collect the data.

Data Processing:

In order to process the data MS Excel has been used to analyze the data and to prepare the graphical presentation.

LIMITATIONS OF THE REPORT

1. Limitation the time, between someday, was one of the most important factors to know all activities of the branch and prepare the report.

2. It was very difficult to collect the information from various personnel for their job constraint.

3. Every organization has their own secrecy that is not revealed to others. While collecting data i.e. interviewing the employees, they did not disclose much information for the sake of the confidentiality of the organization.

4. Another limitation of this report is Bank’s policy of not disclosing some data and information for obvious reason, which could be very much useful.

5. Because of the limitation of information, some assumption was made. So there may be some personal mistake in the report

6.Carried out such a study for the first time, so inexperience is one of the main constraints of the study.

CHAPTER -2

HISTORICAL BACKGROUND OF DBBL

Dutch-Bangla Bank Limited (the Bank, DBBL) is a scheduled joint venture commercial bank between local Bangladeshi parties spearheaded by M Sahabuddin Ahmed (Founder & Chairman) and the Dutch company FMO. DBBL 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 the Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

DBBL commenced formal operation from June 3, 1996. The head office of the Bank is located at Sena Kalyan Bhaban (4th floor),195, Motijheel C/A, Dhaka, Bangladesh. The Bank commenced its banking business with one branch on 4 July 1996.

The bank is often colloquially referred to as “DBBL”, “Dutch Bangla” and “Dutch Bangla Bank”.

After instability and frequent management changes in its initial years, DBBL overcame these obstacles to establish itself as a market leader. It has grown its reputation through social work rather than profits. The bank’s conservative nature, long-term strategies, hefty social donations and technology investments have always led to modest but steady profits.

Due to investor confidence, DBBL share prices has steadily climbed in value. In January 2008, DBBL share prices reached Tk. 9,450 .00 in the Dhaka Stock Exchange, setting the record for the highest stock price in the history of Bangladesh. It is also one of the few banks that does not participate in merchant banking (which can lead to sporadic growth). DBBL has branded itself as a trusted bank through its banking practices and social commitments.

Dutch Bangla Bank is the first and only local bank in Bangladesh to have an automated banking system. The bank has spent over Tk. 1 Billion in automation upgrades (first bank in Bangladesh to do so). This automation took place in 2003 whereby services of the bank were available uniformly though any branch, ATM and internet. Banking was a paper based until DBBL, with its wide local network, delivered banking automation and modern banking services to the masses. This effectively introduced the ‘plastic money’ concept into the Bangladeshi society.

MISSION

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”.

VISION

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

CORE OBJECTIVE

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”.

SERVICES AND PRODUCTS

CAPITAL

The bank started with an authorized capital of Tk.400.00 million in 1996 and as on 31^st December 2007 paid up capital stood at Tk. 202.14 million. The total capital stood at Tk.3,399,493,936 as on 31^st December 2007, which was Tk. 2,663,769,538 as on 31^st December 2006. In 2007 Capital surplus Tk. 509,508,290, which was Tk. 279,166,371.

Analysis of capital structure:

Capital structure of DBBL has changed from year to year. The components of the capital structure are paid-up capital; proposed issue of dividend, share premium, statutory reserve, proposed cash dividend, retained earnings and other reserve

Authorized and paid up capital of DBBL:

Capital position of DBBL

Components of capital structure and correspondent contributions:

Figures of different components of the capital structure for the year 2006 and 2007 are shown below.

Tk in million

In the annual report of the year 2006, capital structure did not contain any value for the component of proposed issue of bonus share, but in the annual report of the year 2007, it was mentioned that proposed issue of bonus share was 797.87 million taka. On the other hand proposed cash dividend did not contain any value in 2007, which was 50.53 in 2006.

Capital structure:

Pie chart of capital structure for the base year 2006 and the year 2007 has been shown below.

Figure: Capital structure for the year 2006

Fig: Capital structure for the base year 2007.

The above figures are showing the comparison between different components of capital structure of the base year 2006 and the year 2007. In the base year 2006, there was no proposed issue of bonus share proposed cash dividend and in the year 2007.

DEPOSIT

The total deposit of DBBL Tk. 42110.15 million as on December 31, 2007, which was Tk 40111.54 in 2006. The DBBL remains committed to increasing deposit base by growing low cost personal and business accounts, and thereby lowering the banks over all cost of fund. So the deposit amount of DBBL is increasing year by year.

Deposit Position of DBBL:

Amount of Deposit (Tk In Million)

Deposit in DBBL:

From the above chart we see that the deposit amount of south east bank is higher than other two in 2007. This is a upward slopping .The amount of deposited amount increased year by year.

LOANS AND ADVANCES

The advance portfolio of the bank is well diversified and broad based covering various sectors of the economy. Credit facilities were extended to the private sector for trade, project financing as well as to meet working capital requirements. During the year under review the Bank also extended credit facilities under lease facilities financing as well as syndication arrangements with other Bank and financial institutions.

In 2006 the loans and advance was Tk 28,325.34 million. But in 2007 is stated Tk 28,369.58 million. The interest on loan advance increased in 2007 13.85%,which was 13.80% in 2006.

Loan and Advance Position of DBBL:

Amount (TK. in Million)

From the above table and figure we can say that, customers have a response to the loans & advances department of DBBL. So the position of this department is very good. Loans and Advances of the Bank stood at Tk 28369.58.million as on

31^ST Dec 2007 againstTk.28325.34 million as on 31^st Dec 2006, showing an increase growth rate.

Loans and advances are the core asset of a Bank. The Bank gives emphasis to acquire quality assets and does appropriate lending risk analysis while improving commercial and trade loans to client.

Mode of Advances:

PROFIT AND OPERATING RESULTS

In year 2006 a growth in operating profit of the bank was Tk.5181.15 million and in 2007 the profit reached to 6367.58 million which is more than Tk 1186.43 million than the previous year.

INVESTMENT

At the end of 2007 investment of DBBL is Tk 5909.32 million, which was Tk 5876.52 million. Out of total investment Tk 5887.32 (99.63% of total investment) is concentrated in Govt. Treasury bills and bonds to maintain CRR and SLR of the bank comfortably and use to our surplus fund in a cost effective means. Income from Treasury bills increased 10% to 11.30% in 2007. DBBL invest in over night market, which was Tk 560.00million in 2006 and in 2007 it is Tk 2050.00 million.

Investment Activities of DBBL:

Amount (Tk In Million)

SWIFT SERVICES

The SWIFT services helped the bank in sending and receiving the messages and instructions related to our NOSTRO account operations and L/C related matters. We have brought most of our Branches under SWIFT network. Other Branches will come under the network hopefully by the year 2008. SWIFT: DBBL BD DH

FUNCTIONS OF DBBL

· To maintain all types of deposit A/Cs.

· To make investment.

· To conduct foreign exchange business.

· To conduct other Banking services.

· To conduct social welfare activities.

· To work for continues business innovation and improvements.

VALUES OF DBBL

· To be one DBBL by holding and guiding the following values:

· To have a strong customer focus and to build relationship based on integrity, superior service and mutual benefit.

· To strive for private and sound growth.

· To work as a team to serve the best interests of the organization.

· To work for continues business innovation and improvements.

BRANCHES OF DBBL

DHAKA

HEAD OFFICE

LOCAL OFFICE

BANANI BRANCH

NABABPUR BRANCH

MOTIJHEEL (FOREIGN EXCHANGE) BRANCH

KAWRAN BAZAR BRANCH

SHANTINAGAR BRANCH

UTTARA BRANCH

DHANMONDI BRANCH

MIRPURBRANCH

MOHAKHALIBRANCH

GULSHANBRANCH

DANIA BRANCH

DHAKA EPZ BRANCH

BOARDBAZAR BRANCH

ELEPHANTROAD BRANCH

JOYPARA BRANCH

NAYABAZAR BRANCH

SAVARBAZAR BRANCH

GAZIPUR CHOWRASTA BRANCH

IMAMGONJ BRANCH

BASHUNDHARA BRANCH

MANIKGONJ BRANCH

Narayangonj

NARAYANGONJ BRANCH

B.B.ROAD BRANCH

NETAIGONJ BRANCH

SHIMRAIL BRANCH

Narsingdi

BABURHAT BRANCH

Comilla

COMILLA BRANCH

Chittagong

AGRABAD BRANCH

PATHERHAT BRANCH

HATHAZARI BRANCH

CDA AVENUE BRANCH

KADAMTOLI BRANCH

COX’SBAZAR BRANCH

LOHAGARA BRANCH

Sylhet

SYLHETBRANCH

BISWANATH BRANCH

MOULVIBAZAR BRANCH

GOLAPGONJ BRANCH

Khulna

KHULNA BRANCH

Bogra

BOGRA BRANCH

Barisal

BARISAL BRANCH

Rajshahi

RAJSHAHI BRANCH

Feni

FENI BRANCH

Tangail

MIRZAPUR BRANCH

MANAGEMENT SET UP OF DBBL

HIERARCHY MANAGEMENT SETUP OF DBBL

Management of DBBL:

For any financial and non-financial organization, Management is the most valuable and important resources of any kind of organization. And, a well-organize management provides the organization to reach its ultimate goal. Management means planning, organizing, staffing, directing and controlling of all financial and non-financial resources of an organization. Different aspects of management practice in DBBL are discussed below.

· Planning:

DBBL has done its planning within the purview of the corporate plan. The overall planning approach in DBBL is top-down. Each branch can plan according to the goal imposed by the corporate level. It doesn’t plan independently. And, DBBL has a planning division. This department is mainly responsible for the overall planning.

· Organizing:

DBBL is organized as per the existing business locations. It has nineteen branches, each of which is a separate entity. Each unit is responsible for own performance and a Senior Vice President (SVP) followed by Manager heads each. He is directly responsible for the performance of their unit. Within each branch it is organized functionally.

· Staffing:

The recruitment in DBBL is done in two ways. One as a “Probationary Officer” for the management program and it has a probation period of one year. Another one is non- management level as “Trainee Officers”. Probationary Officer is recruited in officer category and their career path is headed towards different managerial jobs.

· Directing and controlling:

The management approach in DBBL is top-down or authoritative. Information just seeks through lower management layer. Works are designed in such a way that one cannot leave without clearing the tasks as he is assigned for a day. Sitting arrangement in all office is done in a way that the superior can monitor the subordinate all time. Budgeting, rewarding, punishing, etc. are also practiced as control mechanism.

Human Resources Practices in DBBL:

Employees are the core resources of any organization. Without them, one cannot run their organization. And, human resources approach is concerned with the growth and development of people toward higher level of competency, creativity and fulfillment. It helps employees become better, more responsible persons, and then it tries to create a climate in which they may contribute to the limits of their improved abilities. It assumes that expanded capabilities and opportunities for people will lead directly to improvements in operating effectiveness. Essentially, the human resources approach means that better people achieve better results.

CHAPTER-3

GENERAL BANKING

General banking department is the heart of all banking activities. This is the busiest and important department of a branch, because funds are mobilized, cash transactions are made; clearing, remittance and accounting activities are done here.

Since bank is confined to provide the services everyday, general banking is also known as ‘retail banking’. In DBBL Principal Branch, the following departments are under general banking section:

1) Account opening section

2) Deposit section

3) Cash section

4) Remittance section

5) Clearing section

6) Accounts section

ACCOUNT OPENING SECTION:

Account opening is the gateway for clients to enter into business with bank. It is the foundation of banker customer relationship. This is one of the most important sections of a branch, because by opening accounts bank mobilizes funds for investment. Various rules and regulations are maintained and various documents are taken while opening an account. A customer can open different types of accounts through this department. Such as:

1. Current account.

2. Savings (SB) account.

3. Short Term Deposit (STD)

Types of Accounts with Terms and Conditions

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.

Some Important Points are as follows-

· Minimum opening deposit of TK.2000/- is required;

· There is no withdrawal limit.

· No interest is given upon the deposited money;

· Minimum Tk.1000/= balance must always maintain all the time;

Savings (SB) Account:

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

· Minimum opening deposit of Tk.2000/= is required;

· Minimum Tk. 1000/= balance must always maintain all the time;

· Withdrawal amount should not be more than 1/4^th of the total balance at a time and limit twice in a month.

· If withdrawal amount exceed 1/4^th of the total balance at a time no interest is given upon the deposited money for that month.

Proprietorship account:

1. Attested copy of valid Trade license

2. attested copy of passport of the proprietor

3. Company seal and Tin certificate

Partnership account:

1. Partnership letter.
2. Copy of notarized partnership deed certified by all partners or registered partnership deed of join stock companies and firms duly certified by the register of join stock companies and firms.
3. Partnership Resolution signed by all the partners to open account with DBBL indicating type of account and mode of operation.

Club / societies account:

1. Certified copy of registration Certificate
2. Certified copy charter /Bye laws and regulation/Constitution of the relevant organization.
3. Copy resolution of managing committee/Executive committee for opening account with DBBL and operation of account-duty certified by chairmen /secretary.
4. List of members of the managing committee /Executive committee- duty certified by chairmen /secretary.

Private /public limited company account:

1. Memorandum and articles of association duly certified by the register of join stock companies and firms.

2. Certificate of incorporation duly certified by the register of join stock companies and firms.

3. Board resolution duly certified by the Chairman/Sectary of the company.

4. Form XII and schedule X duly certified by the register of join stock companies and firms.

5. Certificate of commencement of business duly certified by the register of join stock companies and firms.

Non-Govt. School/College/University/Madrasa/Muktab:

1. Certified copy of Registration certificate.
2. Copy resolution of managing committee/Executive committee for opening account with DBBL and operation of account-duty certified by chairmen /secretary.
3. List of members of the managing committee /Executive committee- duty certified by a Gazette officer.

Sector Corporation:

1. Certified by relevant Presidential order/ Act of Parliament establishing the corporation.

2. Resolution of board of directors /competent authority to open account with DBBL.

3. Certified list of Board of Directors.

DEPOSIT SECTION

Deposit is the lifeblood of a bank. From the history and origin of the banking system we know that deposit collection is the main function of a bank.

Accepting deposits:

The deposits that are accepted by DBBL like other banks may be classified in to,—

a) Demand Deposits

b) Time Deposits

Demand deposits:

These deposits are withdrawn able without notice, e.g. current deposits. DBBL accepts demand deposits through the opening of,-

a) current account

b) Savings account

c) Call deposits from the fellow bankers

Time deposits:

A deposit which is payable at a fixed date or after a period of notice is a time deposit. DBBL accepts time deposits through Fixed Deposit Receipt (FDR), Short Term Deposit (STD) and Bearer Certificate Deposit (BCD) etc.

While accepting these deposits, a contract is done between the bank and the customer. When the banker opens an account in the name of a customer, there arises a contract between the two. This contract will be valid one only when both the parties are competent to enter into contracts. As account opening initiates the fundamental relationship & since the banker has to deal with different kinds of persons with different legal status, DBBL officials remain very much careful about the competency of the customers.

CASH SECTION:

Banks, as a financial institution, accept surplus money from the people as deposit and give them opportunity to withdraw the same by cheque, etc. But among the banking activities, cash department play an important role. It does the main function of a commercial bank i.e. receiving the deposit and paying the cash on demand. As this department deals directly with the customers, the reputation of the bank depends much on it. The functions of a cash department are described bellow:

Functions of Cash Department:

Cash packing:

After the banking hour cash is packed according to the denomination. Notes are counted and packed in bundles and stamped with initial.

Allocation of currency:

Before starting the banking hour all tellers give requisition of money through “Teller cash proof sheet”. The head teller writes the number of the packet denomination wise in “Reserve sheet” at the end of the day, all the notes remained are recorded in the sheet.

LOCAL REMITTANCE

Carrying cash money is troublesome and risky. That’s why money can be transferred from one place to another through banking channel. This is called remittance. Remittances of funds are one of the most important aspects of the Commercial Banks in rendering services to its customers.

Types of remittance:

• Between banks and non banks customer
• Between banks in the same country
• Between banks in the different centers.
• Between banks and central bank in the same country

The main instruments used by the DBBL of remittance of funds are

· Payment order ( PO)

• Demand Draft ( DD)
• Telegraphic Transfer (TT)

So the basic three types of local remittances are discussed below:

Payment of interest: It is usually paid on maturity of the fixed deposit. DBBL calculates interest at each maturity date and provision is made on that “miscellaneous creditor expenditure payable accounts” is debited for the accrued interest.

Encashment of FDR: In case of premature FDR< DBBL is not bound to accept surrender of the deposit before its maturity date. In order to deter such a tendency the interest on such a fixed deposit is made cut a certain percentage less the agreed rate. Normally savings bank deposit is allowed.

Loss of FDR: In case of lost of FDR the customer is asked to record a GD (general diary) in the nearest police station. After that the customer has to furnish an Indemnity Bond to DBBL a duplicate FDR is then issued to the customer by the bank.

CLEARING SECTION

The amount of Cheques, Pay Order (P.O), and Demand Draft (D.D.) Collection of amount of other banks on behalf of its customer is a basic function of a Clearing Department.

Clearing:

Clearing is a system by which a bank can collect customers fund from one bank to another through clearing house.

Clearing House:

Clearing House is a place where the representatives of different banks get together to receive and deliver cheque with another banks.

Normally, Bangladesh Bank performs the Clearing House in Dhaka, Chittagong, Rajshahi, and Khulna & Bogra. Where there is no branch of Bangladesh Bank, Sonali bank arranges this function.

Member of Clearing House:

DBBL. is a scheduled Bank. According to the Article 37(2) of Bangladesh Bank Order, 1972, the banks, which are the member of the clearinghouse, are called as Scheduled Banks. The scheduled banks clear the cheque drawn upon one another through the clearinghouse.

Types of Clearing:

A) Outward Clearing: When the Branches of a Bank receive cheque from its customers drawn on the other Banks within the local clearing zone for collection through Clearing House, it is Outward Clearing.

B) Inward Clearing: When the Banks receive cheque drawn on them from other Banks in the Clearing House, it is Inward Clearing.

Types of clearing house:

There are two type of clearing house: Those are

A) Normal clearing house

B) Same day clearing house

Normal clearing house:

1) 1^st house: 1^st house normally stands at 10 a.m. to 11a.m

2) 2^nd house: 2^nd house normally stands after 3 p.m. and it is known as return house.

Same day clearing house:

1) 1^st house: 1^st house normally stands at 11 a.m. to 12 p.m

2) 2^nd house: 2^nd house normally stands after 2 p.m. and it is known as return house.

Who will deposit cheque for Clearing: Only the regular customers i.e. who have Savings, Current, STD & Loan Account in the bank can deposit cheque for collection of fund through clearing house.

Precaution at the time of cheque receiving for Clearing, Collection of LBC, OBC & Transfer:

Return house:

Return House means 2^nd house where the representatives of the Bank meet after 3 p.m. to receive and deliver dishonored cheque, which placed in the 1^st Clearing House.

Cheque may be dishonored for any one of the following reasons:

1) Insufficient fund.

2) Amount in figure and word differs.

3) Cheque out of date/ post- dated.

4) Payment stopped by the drawer.

5) ………….Payee’s endorsement irregular / illegible / required.

6) Drawer’s signature differs / required.

7) Crossed cheque to be presented through a bank.

Responsibility of the concerned officer for the Clearing Cheque:

1) Crossing of the cheque.

2) (Computer) posting of the cheque.

3) Clearing seal & proper endorsement of the cheque.

4) Separation of cheque from deposit slip.

5) Sorting of cheque 1st bank wise and then on branch wise.

6) Computer print 1^st branch wise & then bank wise.

7) Preparation of 1^st Clearing House computer validation sheet.

ACCOUNTS SECTION

Bills Collection:

In modern banking the mechanism has become complex as far as smooth transaction and safety is concerned. Customer does pay and receive bill from their counterpart as a result of transaction. Commercial bank’s duty is to collect bills on behalf of their customer.

Types of Bills for Collection

i. Outward Bills for Collection (OBC).

ii. Inward Bills for Collection (IBC).

Outward Bills for Collection (OBC)

OBC means Outward Bills for Collection .OBC exists with different branches of different banks outside the local clearing house. Normally two types of OBC:

1) OBC with different branches of other banks

2) OBC with different branches of the same bank

Procedure of OBC:

1) Entry in the OBC register.

2) Put OBC number in the cheque.

3) “Crossing seal” on the left corner of the cheque & “payees account will be credited on realization “seal on the back of the cheque with signature of the concerned officer.

4) Despatch the OBC cheque with forwarding.

5) Reserve the photocopy of the cheque, carbon copy of the forwarding and deposit slip of the cheque in the OBC file.

Commission for collection:

Inward bills for collection (IBC)

When the banks collect bills as an agent of the collecting branch, the system is known as IBC. In this case the bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill.

CHAPTER-4

FOREIGN EXCHANGE

FOREIGN EXCHANGE STEPS

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 Exchange Department (FED) is the international department Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign countries. So DBBL, Principal branch is an authorized dealer.

There are three kinds of foreign exchange transaction:

1. Import
2. Export
3. Remittance.

IMPORT:

To import, a person should be competent to be and importer’. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. In an international business environment, buyers and sellers are generally unknown to each other. So seller of goods always seeks security for the payment of his exported goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer and exporter is given a legal shape by the banker by ‘Letter of Credit’

. Import Finance

DBBL extends finance to the importers in the form of:

1. Opening of Import L/C
2. Credit against Trust Receipt for retirement of import bills.
3. Short term & medium term loans for installation of imported machineries & production thereof.

4. Payment against document

Letter of Credit:

Definition:

instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain conditions mentioned in the letter gave been complied with.

Parties to the L/C:

Steps for import L/C Operation – 8 steps operation:

Step 1 – Registration with CCI&E:

· For engaging in international trade, every trader must be first registered with the Chief Controller of Import and Export.

· By paying specified registration fees to the CCI&E. the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.

Step 2 – Determination terms of credit:

· The terms of the letter of credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and of destination, nature of credit, expiry date, name and number of sets of shipping documents etc.

Step 3 -Proposal for Opening of L/C:

To have an import LC limit an importer submits an application to department to DBBL. The proposal contains the following particulars:

• Full particulars of the bank account
• Nature of business
• Required amount of limit
• Payment terms and conditions
• Goods to be imported
• Offered security
• Repayment schedule

Step 4 – Application by importer to the banker to open letter of credit:

· For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with the following documents: