Practical General Banking Functioning “Bank Asia Ltd
An Overview of The Principal Activities Of “Bank Asia Limited
1.1 OVER VIEW OF BANK ASIA LIMITED:
Bank Asia Limited (Ltd) has been launched by a group of successful entrepreneurs with recognized standing in the society. The paid up capital of the Bank is 1395 million. The management of the Bank consists of a team led by senior bankers with decades of experience in national and international markets. The senior management team is ably supported by a group of professionals many of whom have exposure in the international market.
Bank Asia Limited is one of the third generation private commercial banks (PCBs), incorporated in Bangladesh on 28 September 1999 as a public limited company under the Companies Act 1994, and governed by the Banking Companies Act 1991. The Bank went for public issue of its shares on 23 September 2003 and its shares are listed with Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd. Bank Asia Limited acquired the business of Bank of Nova Scotia (incorporated in Canada), Dhaka, in the year 2001 and at the beginning of the year 2002, the Bank also acquired the Bangladesh operations of Muslim Commercial Bank Limited (MCBL), a bank incorporated in Pakistan, having two branches at Dhaka and Chittagong and one booth at Dhaka. In taking over the Bangladesh operations, all assets and certain specific liabilities of MCBL were taken over by Bank Asia Limited at book values.
Within a short span of time Bank Asia Ltd has established itself as one of the fast growing local private banks. It has at present a network of Thirty three branches serving many of the leading corporate houses and is gradually moving towards retail banking. Another significant delivery channel is its own as well as shared ATM Network. Bank Asia has a network of 25 ATMs out of which 6 it owns. The other 19 ATMs are shared through ETN with eleven other banks. Since its humble beginning in 1999, it set milestone by acquiring the business operations of the Bank of Nova Scotia in Dhaka, first in the banking history of Bangladesh. It again repeated the performance by acquiring the Bangladesh operations of Muslim Commercial Bank Ltd. (MCB), a Pakistani bank.
In the year 2003 the Bank again came to the limelight with oversubscription of the Initial Public Offering of the shares of the Bank, which was a record (55 times) in our capital market’s history and its shares commands respectable premium.
The asset and liability growth has been remarkable. By Dec 2007 the total asset of the Bank grew to Tk 38436 million, increase of almost 26% comparing to 2006. As of Dec 2007 deposits increased to Tk 30004 million, an increase of 19% over that of 2006, and Loans & Advances reached Tk 28456 million, an increase of 28% over that of 2006. Bank Asia has been actively participating in the local money market as well as foreign currency market without exposing the Bank to vulnerable positions. The Bank’s investment in Treasury Bills and other securities went up noticeably opening up opportunities for enhancing income in the context of a regime of gradual interest rate decline.
Bank Asia Ltd is maintaining its competitiveness by leveraging on its Online Banking Software and modern IT infrastructure. It is the pioneer amongst the local banks in introducing innovative products like SMS banking, and under the ATM Network the Stelar Online Banking software enables direct linking of a client’s account, without the requirement for a separate account.
2.1 VISION STATEMENT OF BANK ASIA LIMITED:
Bank Asia’s vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Our vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty.
2.2 MISSION STATEMENT OF BANK ASIA LIMITED:
To assist in bringing high quality service to our customers and to participate in the growth and expansion of our national economy. To set high standards of integrity and bring total satisfaction to our clients, shareholders and employees. To become the most sought after bank in the country, rendering technology driven innovative services by our dedicated team of professionals.
2.3 CAPITAL STRUCTURE:
Banks generally do their business with other’s fund, so Bank Asia Ltd is not in exception. Bank Asia Ltd uses 24% equity and 75% Debt source of capital. The capital structure is following:
Table 2.1: Capital Structure of Bank Asia Ltd
|Total Shareholders’ Equity||24%|
|Long term Debt (Fixed Deposit 1 year & above)||76%|
Source: Annual Report -2007 of Bank Asia Limited.
Shares Holding by Different Groups:
Most of the shares of Bank Asia Ltd are holding by the Sponsors, which is 51.88%. The second height holds by the General Public, which is 27.48%. The third height holds by Institutions, which is 16.98%. Others are holding by Non Resident Bangladeshis (2.09%), Investment Companies (1.19%) and Foreign Investments (0.38%).
The information of the shares holding by different groups in 2007 is following:
Table 2.2: Shareholding Structure of Bank Asia Ltd.
|Description||No. of Members||Percentage of Share Holding|
|Non Resident Bangladeshis||22||2.09%|
Source: Annual Report -2007 of Bank Asia Limited.
2.5 TRENDS OF BRANCHES EXPANSION:
Bank Asia Ltd starts its journey not for very long. Till now it has only thirty three brunches. But Bank Asia Ltd had twenty nine brunches at end of year 2007.
The Bank had a tendency to open new branches every year; they had an average 20 growth of expansion. So Bank Asia Ltd had a very good branch expansion rate. The expansion rate was 21% during 2003 to 2004, 12% during 2004 to 2005, 26% during 2005 to 2006 and 21% during 2006 to 2007.
The numbers of branches are given bellow:
Table 2.3: Branches expansion of Bank Asia Ltd.
|Years||Number of Branches||Growth Rate of Expansion|
Source: Annual Report -2007 of Bank Asia Limited.
2.6 NUMBER OF EMPLOYEES:
Bank Asia Ltd creates new employment every year by opening new branches and expanding their existing departments. Bank Asia Ltd has a very good Growth rate of Employees the growth rate is increasing dramatically. The growth rate was 21%, 20%, 30% and 35% for the year 2004, 2005, 2006 and 2007 respectively.
The numbers of employees are given bellow:
Table 2.4: Number of Employees of Bank Asia Ltd.
|Years||Number of Employees||Growth rate of Employees|
2.7 ORGANIZATIONAL HIERARCHY OF BANK ASIA LTD:
|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|
2.8 EMPLOYEE PRODUCTIVITY:
The per employee Deposit, Loan & Advances and Non interest income were increased during 2003 to 2006. But during 2006 to 2007 per employee Deposit, Loan & Advances and Non interest income were decreased. It might happen because at that time the growth rate of employee was huge than other years. If we consider the per employee Operating Cost and Operating Profit were very much satisfactory. So we can assume that the productivity of employees is very good.
The per employee productivity information are following:
Table 2.5: Employee Productivity of Bank Asia Ltd.
|Deposit Per Employee||38,210,000||40,700,000||46,600,000||49,110,000||46,950,000|
|Loans & Advances Per Employee||30,000,000||35,830,000||45,010,000||43,210,000||44,530,000|
|Non-interest Income Per Employee||1,019,849||1,129,545||1,294,406||1,325,353||1,298,089|
|Operating Cost Per Employee||941,211||877,504||918,320||1,001,938||1,063,008|
|Operating Profit Per Employee||1,530,000||1,990,000||2,020,000||2,080,000||2,460,000|
Source: Annual Report -2007 of Bank Asia Limited.
2.9 PRODUCTS AND FEATURES:
Ø 2.9.1 SMS Banking
Through SMS facility customers can access their account using their mobile phone from anywhere, anytime at their convenience to know the account position.
SMS Push service
When any amount is debited or credited from client’s account then within 5-10 seconds he/she will get a message. The message includes the beginning balance, the amount debited or credited and the last balance. This facility is only available for Grameen Phone and City cell subscribers.
SMS Pull service
Every registered Grameen Phone and City cell subscribers can check their account balance through this service. They can get a mini statement of last five transactions of their account.
2.9.2 Mobile Banking
“THUMBPAY”…Banking under your thumb…. (For AKTEL)
Bank Asia Limited is proudly announcing the launching of its (M-Banking Product) “THUMBPAY”. It allows customers to access their bank accounts from their Mobile Phone. This latest technology driven product is designed to cater for and facilitate real time banking transactions using a mobile phone. Currently available to AKTEL subscribers only.
“THUMBPAY” will provide Account Balance Query, Prepaid or Postpaid mobile phone bill payment, Fund Transfer, Fund collection (Charity or Relief Fund) services through registered mobile phone.
Customers need to fill up a registration form for “THUMBPAY” service. All branches of Bank Asia are ready to give this service to its valuable clients.
Services available under “THUMBPAY”
1. Account Balance Query
2. Pre-paid Refill
3. Post paid bill Payment
4. Fund Transfer Service
5. Changing Password
Mobile Banking for Grameen and City cell Subscribers
Through SMS facility customers can access account using their mobile phone from anywhere, anytime at their convenience to know the account position.
Ø 2.9.3 Customized Loan
Modern Banking is a result of evolutions driven by changing economic activities and lifestyles. Entering a new millennium, banking needs have become more diverse and exotic than ever before. Bank Asia Ltd. is a new entrant in the private banking scenario of Bangladesh with a promise to fulfil every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service by using the latest technology to make bankable proposals harvest maximum benefits for the customers, the shareholders and the society at large. It is an immense pleasure for Bank Asia to introduce Customized Loan to its customers as a unique Loans plan.
Customized Loan (C.L.)
If customers are in possession of BSP (Bangladesh Sanchay Patra) which will mature within the next 5 years but customers in dire need of funds now, Bank Asia Limited’s Customized Loan (C. L.) can come to their rescue.
All payment is merely the interest during the entire currency of loan, and repays the principal in one lump sum in the last month of maturity of loan.
How much may get
80%- 100% of the face value of the instrument depending on the date of purchase.
Most attractive and affordable rates.
Bank Asia Limited will normally ask for security on the asset that’s due to mature.
All need to provide to the Bank is BSPs supported by some simple documents.
Ø 2.9.4 Bonus Savings Schemes
Modern Banking is a result of evolutions driven by changing economic activities and lifestyles. Entering a new millennium, banking needs have become more diverse and exotic than ever before. Bank Asia Ltd. is a new entrant in the private banking scenario of Bangladesh with a promise to fulfil every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service by using the latest technology to make bankable proposals harvest maximum benefits for the customers, the shareholders and the society at large. It is an immense pleasure for Bank Asia to introduce Bonus Savings to its customers.
Bonus Savings Scheme
Start savings with BONUS SAVINGS SCHEME for a brighter tomorrow. A savings scheme specially designed with future in mind. In these days of fast changing socio-economic environment a practical step would be to build up a strong and reliable financial base upon which can build.
How does it work?
A savings account 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.
Is there any hidden cost
None what so ever and cheque book is also free of change.
How long can you keep it?
As long as wish
Ø 2.9.5 Poverty Alleviation:
Bangladesh is a highly populated developing nation, where 80% of the people living in the rural areas engaged in agriculture sector directly or indirectly for their livelihood. But these people can’t engage themselves with development and production activities due to unavailability of capital. To help these people by engaging themselves in production oriented sector some NGO and Govt. organizations are working together. Beside them Bank Asia as a private commercial bank is highly dedicated to establish rural branches to empower the poor people.
Objectives of the Scheme
The objective is to help people by providing loan facilities to establish fisheries plant, Poultry firm, small and cottage industry, village transport and small engineering workshop as well as to establish computer training centre where electricity supply is available. It will help to create employment opportunities for the unemployed young people.
These lending facilities will be provided through the rural branches in different branch location.
System for providing loan the program will run in the following way:
À Loans for personal who are promoter or investors.
À Loan distribution by making groups of worthless poor people.
Loans for personal who are promoter or investors
Under these system anyone having educational or past experience without any obligation or liability with other organization will be given maximum Tk. 1,00,000 loan. For these purpose he/she need to provide security against the loan facilities.
Loan distribution by making groups of worthless poor people
In primary situation these loan facilities will be provided through established NGO and later on Bank Asia will go for using its own manpower when this program will be expanded.
Tenure for the Loan
Tenure will be minimum 1 year to maximum 3 years depending on the nature of the loan provided.
Loan will be repaid depending on the inflows from investment as well as from other source of income as weekly, monthly or quarterly basis.
Ø 2.9.6 ATM Service
The Bank carries its banking activities through thirty three branches in the country. Bank Asia Ltd customers have access to 21 ATMs as a member of ETN. Under the ATM network the Stellar Online Banking Software enables direct linking of a client’s account, without the requirement of a separate account. The Bank has already set up its own ATM machine at 6 corresponding branches and is also in the process of setting up its own ATM network at every focused point in the city with a view of providing retail banking services.
Ø 2.9.8 Credit Card
Bank Asia Credit Card is accepted more than 3,500 merchant outlets around the country. Our wide range of merchants include hotels, restaurants, airlines, & travel agents, shopping malls and departmental stores, hospitals & diagnostic centres, jewellers, electronics & computer shops, leather goods mobiles & internet service providers, petrol pumps and many more. This number is increasing everyday to cater needs.
Bank Asia Credit Card offers free credit facility up-to 45 days & minimum 15 days without any interest, and can also pay 8.33% of billing amount or current dues every month and thus have the flexibility to plan payments.
Bank Asia MasterCard gives facility to draw cash up to 50% of the credit limit against local MasterCard and can enjoy this facility by using any ATM’s across the country which shows ‘’MasterCard” logo Beside this customers can also withdraw cash from any of our branch.
Ø 2.9.9 Real time Online Banking :
Bank Asia symbolizes modern banking with innovative services in Bangladesh. It has centralized Database with online ATM, SMS and Internet query service. Customers can use credit/debit card facility with ATM. For SMS service customers should have personal cellular phone with at least one account in Bank Asia.
Through Internet Banking customers can access their account to view and print the balance and account statement for last 20 (twenty) transactions.
The account holder can transfer their balance from one account to another account (but the accounts must be owned by the same owner).
Ø 2.9.10 Any Branch Banking
Bank Asia allows its Account holder any Branch Banking through technological support. If a customer deposits money at any branch of Bank Asia then the amount is credited within a moment. This same thing also can be done for the cash withdrawal by check. Because of any branch service the customer can do their balance query.
Ø 2.9.11 Loan Syndication
Syndication loans represent a substantial portion of the commercial and industrial loan portfolios of large banks. A syndicated loan involves two or more banks contracting with a borrower, typically a large or middle market corporation, to provide funds at specified terms under the same credit facility.
The average commercial syndicated credit is in excess of TK100 million. Syndicated credits differ from participation loans in that lenders in syndication participate jointly in the origination process, as opposed to one originator selling undivided participation interests to third parties. In a syndicated deal, each financial institution receives a pro rata share of the income based on the level of participation in the credit.
Additionally, one or more lenders take on the role of lead or “agent” (co-agents in the case of more than one) of the credit and assume responsibility of administering the loan for the other lenders. The agent may retain varying percentages of the credit, which is commonly referred to as the “hold level.”
There is four phases in loan syndication:
ü Post-Launch, and
The syndicated market formed to meet basic needs of lenders and borrowers, specifically:
ü Raising large amounts of money,
ü Enabling geographic diversification,
ü Satisfying relationship banking,
ü Obtaining working capital quickly and efficiently,
ü Spreading risk for large credits amongst banks, and
ü Gaining attractive pricing advantages.
Bank Asia is highly dedicated to provide best level of syndication loan facilities to encourage the industrialization of the country. In this regard Bank Asia Ltd is providing loan facilities to eligible entrepreneurs or promoters.
Ø 2.9.12 Corporate Banking
Bangladesh economy is changing every day. Changes are more and more visible and sometimes it seems they are happening overnight. The economical challenges now a day’s require flexibility and adjustment capacity. To face the challenges and business opportunities Bank Asia delivers cash Management and Lending Solutions match for specific business and requests.
Corporate Banking department manages relationship of multinationals and large corporate clients. In addition corporate banking is focused on providing creative financial solutions to eligible corporate clients in manufacturing bottling and conglomerates. Total banking package covers all the needs of corporate customers. Efficient quality services are Bank Asia Ltd’s trademark.
From its inception of operation, Bank Asia is dedicatedly providing corporate banking operations with eligible corporate clients.
Types of loan facilities under corporate banking facilities are as follows:
a) Working capital financing requirements
1. Credit line
2. Invoice Finance
3. Trade finance
4. Overdraft facilities
5. Account facilities
6. Multi-product loan facility
7. Loans for cheques submitted for collection, for payment orders & discounting of promissory notes.
8. Loans for (pre) financing exports
9. Agricultural loans
a) Term loans
1. Commercial Mortgage
2. Fixed Rate Loans
b) Equity Financing
1. Debt venture
2. Leveraged Finance
3. Project & export finance
5. Housing finance
7. Mining and Metals
d) Corporate & Institutional Services
1. Credit Research
2. 2. Long term Instruments
3. Money markets operations
e) Trade services
3. Letters of Credit
Large Corporate Groups who wish to centralize the management of capital, who has a strong demand in real-time consistency between corporate financial information and Bank’s account, who place importance in working efficiency and have installed financial software system. Lending solutions are customized to cover the financing gaps of the companies thus enabling them to have the necessary liquidity to manage daily operations or to complete their investment plans.
Ø 2.9.13 Locker Facilities
Bank Asia Ltd brings a very user-friendly locker service that is a fine blend of security and confidentiality. At the same time for sheer convenience and further security the bank has also made arrangements for a well appointed rest room where customers can beautify their self, wear their jewellery before they step out for their appointment or they may also take their own time to go through their valuable documents in absolute discretion.
Ideally located to suit
Lockers are made by world famous Godrej Steel Company.Armed with agile guards round the clock. To optimize protection the bank has ensured strong, heat-resistant concrete and steel vaults. Anti-burglary alarm system. Highly advanced, ceiling backed smoke sensor device. Protection against Salt Peter and dampness.
The locker service is accessible on weekdays, i.e., Saturday through Thursday during working hours.
Terms & Conditions
Locker services require a nominal fee payable yearly. Customer friendly rules and regulations modified to suit the widest range of requirements.
Table 2.6: Charges of Locker
|Locker Size||Yearly Charge(Tk)||Security Money(Refundable)|
2.10 INTERNATIONAL TRADE & FOREIGN EXCHANGE:
Bank Asia Ltd had inward remittance growth 55% against national growth of 20.0% in 2007. This year (2007), in association with BURO Bangladesh, a leading NGO (Non Government Organization), we have established arrangement with Western Union, a renowned multinational company with 300,000 agent locations across 200 countries and territories, with a view to handling real–time remittance transactions across the country through our existing twenty nine branches and more than hundred rural and semi urban branches of BURO Bangladesh. Besides, we have already established remittance arrangements with several companies operating abroad and transactions with those companies have been strong.
The import of 2007 of Bank Asia Ltd was 2.8 times larger than 2003 and the export of 2007 was 3.5 times larger 2003. So the expansion of export was grater than the expansion in import. Following are the foreign exchange business information of Bank Asia Ltd:
Table 2.7: Foreign Exchange Business of Bank Asia Ltd.
|Foreign Exchange Business|
Source: Annual Report -2007 of Bank Asia Limited.
According to the graph the import business is increasing at increasing rate and the export business is increasing at a decreasing rate and the inward remittance is increasing at an increasing rate.
2.11 NUMBER OF FOREIGN CORRESPONDENTS OF BANK ASIA LTD:
Bank Asia has established remittance arrangement with fourteen exchange companies covering all the major remittance locations of the world. These relationships are very strong and active. The Bank had correspondence relationships with 355 banks in 106 countries as of end 2007. Total confirmation lines now stands at USD 40.00 million with leading global Banks. The Bank has been using SWIFT communication system for foreign trade for the last couple of years and is connected to REUTERS which aids in properly managing our treasury operation.
The growth rate of number of foreign correspondents is very satisfactory. It means that the expansion of foreign business of Bank Asia Ltd is excellent. After 2004 the growth rate was more than 60% up to 2007.
Following are the numbers of foreign correspond:
Table 2.8: Foreign Correspondents of Bank Asia Ltd.
|Years||Number of Foreign Correspondents||Growth rate of Foreign Correspondents|
Source: Annual Report -2007 of Bank Asia Limited.
Purchasing goods made in another country.
Selling domestic made goods in another country.
3.3 Types of Exporting
? Exporting can be either direct or indirect.
? With direct exporting, company sells to a customer in another country.
? Indirect exporting usually means that the company sells a buyer in the home country
Who in turns exports products?
3.4 Challenges of exports and imports
Two major challenges:
?Lack of information about overseas markets
• Lack of proper financing.
3.4.1 Lack of information about overseas markets
126.96.36.199 Challenges for exporter
• Who is exact buyer?
• Who (customers) will like the product?
• Which company will buy the product?
• What would be the price of the product?
188.8.131.52 Challenges for importers
• Who would be the exact seller?
• Who will give the cheapest price?
• What would be the quality of the product?
3.4.2 Lack of proper financing
• Buyer gives order to exporter.
• Exporter goes to manufacturer.
• Manufacturer needs advance of payment.
• For advance payment, exporter to bank for loan (or letter of credit for import raw materials).
• Bank may provide the loan or not?
So, the whole process is a financial challenge.
3.5 Export Financing
The procedure of export financing may be
• Letter of credit (LC)
• Cash with order
• Open account
3.5.1 Letter of Credit (LC)
• Letter of credit is a financial instrument open by importer.
• LC can be opened in favour of exporter. It gives assurance that the importer is financially solvent.
• Most of the LC is irrevocable. An irrevocable letter of credit means that once exporter
has accepted the credit, the importer cannot alter it without any permission of exporter.
3.5.2 Cash with Order
• The best possible terms for exporter are receiving cash in advance or with orders.
• Pay order
• Bank draft
• A percentage of down payments against the total cost of item can be deposited before
3.5.3 Open Account
• It is possible when there is a very good understanding between exporters and importer.
• The importer may pay the balance periodically or within a certain period of time after
• Open account arrangements on monthly, quarterly and semi annually are most common.
• Third world nations do not allow open accounts, as money fluctuation is very common in developing countries.
• The exporter is not paid until the goods are sold in the overseas market place.
• Rarely used.
• Much risky.
3.6 Preparing Goods for Foreign Shipment
3.6.1 Four major phases need to modify
a) Electrical Standard
Many foreign countries use different electrical standards. This standard includes
– RPM (revolution per minute)
– Voltage (11 OV or 220V)
Exporter needs to change basic electronic standards in context of importer’s countries requirement.
b) Reduction of Freight Charge
• Shipping charges depend on weight and volume basis.
• Weight of product cannot be changed.
• Volume of product can be reduced which may reduce shipping cost.
• For packing, fibreboard with bursting force of less than 275 lbs/ sq. inch is not recommended.
• Second hand box is not recommended for using.
• Allows shipper to identify cargo.
• Marking to be waterproof.
• To mention country of origin.
? Using international standards for hazardous materials
3.7 Export Documentation
Several general types of documents are
? Commercial invoice
? Consular invoice
? Certificate of origin
? Inspection certificate
? Bills of lading
? Insurance certificate
3.7.1 Commercial invoice includes
• Full address of exporter and importer
• Date of order
• Reference number
• Mode of shipment
?Ship ? Highways
? Rail ? Air
• Delivery and payment terms
• Complete description of product
Purposes of Commercial Invoice are
• Commercial invoice is the final bill that allows importer about how to pay to exporter.
• Commercial invoice is needed customs to impose tax.
3.7.2 Consular Invoice
• Consular invoice is as same as commercial invoice
• Basic data is same, but only format is different and it is official format
3.7.3 Certificates of Origin
•Some countries need certificate of origin.
• It can be done by a third party, i.e. Chamber of Commerce.
3.7.4 Inspection Certificate
• Certifying to the quality, quantity and conformity of goods with respect to order.
• Inspection certificate is done when goods are inspected.
• Goods are inspected right before the goods are boarded on the ship.
• Inspection certificate can be issued by shippers or by third party.
3.7.5 Bills of Lading
• A certificate issued by shipping company that they have received the cargo.
• According to the rules of International Chambers of Commerce, only bill of lading is accepted, when it is marked as “CLEAN ON BOARD”.
• “CLEAN ON BOARD” means that shipping company has not changed the cargo in any manner.
3.7.6 Insurance Certificate
• Insurance certificate has become a standard practice in international trade.
• For CIF (Cost, Insurance and Freight), insurance cost by exporter.
• For C&F (Cost and Freight), insurance cost by importer.
• Importer can arrange “open cargo policy” to cover insurance for all the shipment for a
Foreign Exchange is a process, which is converted one national currency into and another and transferred money from one country to other countries.
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’s currency are converted into rights to wealth in terms of another country’s currency. It involved the investigation of the method by which the currency of one country is exchanged for that of another, the causes which rented such exchange necessary the forms which exchange may take and the ratio or equivalent values at which such exchange are affected.”
Foreign Exchange is the rate of exchange in the both countries currency.
4.1 Foreign Trade and Foreign Exchange
International trade refers to trade between the residents of two different countries. Each country functions as a sovereign state with its set of regulations and currency. The difference in the national of the exporter and the importers presents certain peculiar problems in the conduct of international trade and settlement of the transactions arising there form. Such important problems are:
· Different countries have different monetary units.
· Restrictions imposed by countries on import and export goods.
· Restrictions imposed by nations on payment from and into other countries.
· Differences in legal practices in different countries.
4.2 Principles of Foreign Exchange
The following principles are involved in foreign exchange
· The entire system
· The media used
· The monetary unit
4.3 Functions of Foreign Exchange
The bank acts as a media for the system of foreign exchange policy. For this reason, the employee who related of the bank to foreign Exchange, especially foreign business should have knowledge of these following functions
· Rate of Exchange.
· How the rate of exchange works.
· Forward and spot rate.
· Methods of quoting exchange rates.
· Premium and discount.
· Risk of exchange rate.
· Causes of exchange rate.
· Exchange control.
· Exchange Position.
· Intervention money.
· Foreign Exchange transaction.
· Foreign Exchange trading.
· Export and import letter of Credit.
· Non-commercial letter of trade.
· Financing of foreign trade.
· Nature and function of foreign exchange market.
· Rules and regulation used in foreign trade. Exchange arithmetic.
4.4 World Foreign Exchange Market
The world Foreign Exchange Market is very big and getting bigger in everyday in tandem with growth of cross border trade and Investment. Within a space of only 50 years, world exports have recorded a phenomenal growth from $ 57.2 billion in 1950 to 5,431 billion in 1998. Simultaneously, turnover in the world foreign Exchange market has reached a staggering number of nearly $1500 billion per day.
4.5 Bangladesh Foreign Exchange Market & Exchange Control
On the global scale, Bangladesh’s performance in the field of foreign trade and Foreign Exchange is very small, but the picture is getting better. In 1989-1999 the Annual exports receipts crossed 5 billion dollar while import payments reached 8 billion Dollars. Bangladesh workers worked abroad sent the equivalent of $1.7 billion in 1998-1999. In real terms, it is equivalent of $1.7 billion in Bangladesh from all kinds of donors. This growth in foreign trade and remittances has had its impact on the foreign Exchange market. The growing market reflects diversification of foreign exchange transactions aimed at financing customer’s needs, liquidating bank’s own position, risk management and profit caking through sale and purchase of currencies.
One very important feature of foreign exchange business in Bangladesh is the Exchange control administered by Bangladesh Bank under the Foreign Exchange regulation Act, 1947. This act provides the sweeping power to Bangladesh Bank to make the rules and regulations, issues and instructions and oversee the operation of Foreign Exchange Business by Banks and other entities. Bangladesh Bank’s instructions, rules and regulations still govern the entire gamut of foreign Exchange transactions. So the stuff of the Bank carefully read the “Guideline for Foreign Exchange Transactions” issued by Bangladesh Bank and keep themselves abreast of changes made from time to time through foreign Exchange Circular and notification.
4.6 Determination of Exchange Rate in Bangladesh by the Commercial Bank
Exchange rate is the price at which one country’s currencies can be converted into another’s. Exchange rate is determined by the bank in this law that “Buy Low, Sale High”. Exchange Risk is defined as the net potential gains or losses, which can be arise from exchange rate changes to the foreign exchange exposure of a Bank.
4.7 Different Types of Rate
The rate which is applied for selling cash dollar to the customer
• BC (Selling)
BC means Bills for collection. This rate is naturally used for opening L/C. BC selling naturally calculated in this way: Cost of Fund+ Administration Cost+ Margin (Cost of Capital) +TT/DD/Draft Handling Charges.
• TT/OD Rate (Telegraphic Transfer/On Demand Rate).
This rate is uses for selling TT, TC, Draft, etc. it is calculated in this way:
Cost of Fund+ Administration Cost+ Cost of Capital (Margin) + TT/DD/Draft handling, charges.
The rate which is applied for buying cash dollar to the customer
• TT Clean
TT rate is applied for buying foreign currency, bank draft, mail transfer or any other instrument.
• OD Sight
This rate is generally used for Export bill negotiation/foreign Document purchase.
• OD Transfer
Generally, 16days interest loaded. This rate is applied for buying TC/draft/any other instrument. The rate is depends largely on demand and supply. In the world of competition and liberalization, the survival and growth of business enterprise depends significantly, on how well they recognize and mange effectively the exchange risk and exposure.
4.8 Exchange Rate sheets
At the beginning of each day, international Division of Corporate Office will transmit to the branches of the bank exchange rates are to be used for dealing with the customers. Changes in the rates can be made even during the day if there are significant changes in the exchange rate structure. Branches can consult the International Division if they wish to quote a special rate to prevent a particularly valuable existing or potential customer from going to the competitors.
Foreign Exchange Services in
“Bank Asia Limited.”
5. Foreign Exchange Services in “BANK ASIA Ltd”
There are naturally 3 types of services provided by Bank Asia Ltd. They are
5.1 Some General Principles- Dealing in Foreign Exchange
5.1.1 Dealing in the Market
Dealing in the market involves buying and selling foreign currencies against taka or against other currencies on spot or forward basis. Bank Asia operate in the market chiefly to
Ø Replenish its Nostro accounts with overseas correspondents.
Ø Unload the excess position i.e. long position beyond the prescribed open position limit.
Ø Switch currencies for profit taking.
Ø To cover or hedge the risk associated with sale and purchase of currencies.
The bank naturally finds the local interbank market quite attractive to meet its needs. For switching from one foreign currency to another, foreign correspondents normally found quoting competitive rates.
5.1.2 Dealing with the Clients in Bank Asia Limited
Personalized services and professional efficiency of the dealing employee is the key elements in Bank Asia ltd. To built up a satisfied group of client. The employee constantly addresses the special needs of the customers.
5.1.3 Dealing with known Customers
Bank normally deals with known customers having accounts with the branch or another branch of the bank. However the requirement of account relationship may be waived for release for foreign exchange for various kinds of travels and other miscellaneous remittances provided necessary papers are found to be prima facie genuine and sufficient.
5.1.4 Handling of Notes, Drafts, and TCs etc.
The staff of Bank Asia familiarize with the techniques for verifying genuineness of the foreign exchange instruments presented by the clients. International Division equips the branches with descriptive literature and implements now used at the international level for detection of forgery and counterfeiting.
5.1.5 Verification of Reputation and credibility
The bank carefully verify the