Foreign Exchange Operation of Jamuna Bank Limited

Main objective of this report is to analysis Foreign Exchange Operation of Jamuna Bank Limited. Other objectives are determine the growth of foreign exchange and make a comparison between earnings of foreign exchange department to other departments. Here also discuss on foreign exchange risk management. Finally recommend for improving existing problems regarding foreign exchange department.

 

Objective of the study:

  • Assessing the foreign exchange business position of Jamuna bank.
  • To determine the growth of foreign exchange in Jamuna Bank.
  • Make a comparison between earnings of foreign exchange department to other departments.
  • To understand foreign exchange risk management.
  • To understand the real management situation and try to recommend for improving existing problems regarding foreign exchange department.

 

Sources of Data

Primary Source

  • Personal Interview – Face-to-face conversation and in depth interview with the respective officers of the branch.
  • Personal observation – Observing the procedure of banking activities followed by each department.
  • Practical work exposures on different areas of the branch.
  • Informal conversation with the clients or customers.

Secondary Sources

  • Annual report (2008& 2009) of Jamuna Bank Ltd.
  • Periodicals Published by Bangladesh Bank.
  • Different publications regarding Banking functions and foreign exchange operation
  • Internet will also be used as a theoretical source of information.

 

About Jamuna Bank Limited

Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 with its Head Office at Chini Shilpa Bhaban (2nd floor, 3rd and 8th floor), 3, Dilkusha, C/A, Dhaka-1000. The Bank started its operation from 3rd June, 2001.

JBL is a highly capitalized new generation Bank started its operation with an Authorized Capital of Tk.1600.00 million which is amended by Tk. 4000.00 million and Paid-up capital of Tk.390.00 million, as of December 2008 Paid-up capital of the bank raised to Tk.1313.27 million and number of branches raised to 54 (Fifty four).More branches and service center is open at commercially important locations during the year 2009.

JBL undertakes all types of banking transactions to support the development of trade and commerce in the country. JBL’s services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units. The bank gives special emphasis on Export, Import, Trade Finance, SME Finance, Retail Credit and Finance to women Entrepreneurs.

To provide clientele services in respect of International Trade it has been established wide correspondent banking relationship with local and foreign banks covering major trade and financial centers at home and abroad.

 

Nature of Business:

  • The principal activities of the bank are providing all kinds of commercial Banking Services to its customers.
  • The other activities of the bank are providing of all kinds of Islamic banking services to its customers.

Vision

To become a leading banking institution and to play a pivotal role in the development of the country.

Mission

The bank is committed to satisfying diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional work-force.

Corporate Slogan: Your partner for growth.

 

Services

Jamuna Bank Limited offers different types of Corporate and Personal Banking Services involving all segments of the society within the purview of the rules and regulations as laid down by the Bangladesh Bank and other Regulatory Authorities.

Deposit Products

All types of Deposit Accounts:

The client can maintain different types of deposit accounts i.e. Current, Savings, STD, FDR and Foreign Currency Accounts according to his necessity and convenience.

Special Deposit Schemes:

  • Ananta Account
  • FD Chamak
  • Abashon Deposit Scheme
  • Student’s Savings Scheme
  • Pension Deposit Scheme
  • Car Deposit Scheme
  • Travel Deposit Scheme
  • Money Multiplier
  • Quarterly Benefit Scheme
  • Daily Profit Savings Account
  • Sangshar Deposit Scheme
  • Easy Account
  • Hi-Fi-FDR
  • Overseas Earner’s Deposit Scheme
  • Household Durable Deposit Scheme
  • Jamuna Bank Paribar
  • Small Savings Scheme
  • Senior Citizen Benefit Scheme
  • Rural Deposit Scheme
  • NRB Gift Cheque
  • Tuition Savings Deposit Scheme
  • Special Services Savings Account for Housewives
  • Mudaraba Hajj Savings Scheme
  • Crorepati Deposit Scheme
  • Education Savings Scheme
  • Millionair Deposit Scheme
  • Lacpati Deposit Scheme
  • Marriage Deposit Scheme
  • Double Growth Deposit Scheme
  • Tripple Growth Deposit Scheme

 

Loan Products

General Loan Facility

Letter of Credit, Bank Guarantee, Cash Credit, SOD, Loan (general) Hire Purchase, Lease Finance, LIM, LTR, Work-order Finance, Export Finance, House Building Loan, LDBP and FDBP.

SME Credit Scheme

  • Double Loan (Double amount of loan of FDR value)
  • Loan for purchase of possession right for shop/business
  • Festival Credit
  • Shop/Business office renovation loan
  • Loan for purchasing capital machinery and vehicle
  • Working capital/Trade Finance
  • Loan for Herbal Industry
  • Loan for Women Entrepreneur

Electronic Products:

  • Real time On-Line any branch banking
  • 24 hours ATM
  • Debit card
  • Credit card
  • Telephone banking
  • SMS banking
  • Internet banking

Retail Credit Products

  • Any purpose lifestyle loan
  • Loan against salary
  • CNG conversion loan
  • Travel loan
  • Consumer loan
  • Household durable loan
  • Study loan
  • JBL Debit and Credit Card
  • Doctors loan
  • Marriage loan

 

JBL Corporate Culture

Employees of JBL share certain common values, which helps to create a JBL culture.

  • The client comes first.
  • Search for professional excellence.
  • Openness to new ideas and new methods to encourage creativity.
  • Quick decision-making.
  • Flexibility and prompt response.
  • A sense of professional ethics.

 

Objectives of JBL

  • To earn and maintain CAMELS rating strong.
  • To become one of the best banks in Bangladesh in terms of profitability and assets quality.
  • To introduce fully automated systems through integration of information technology.
  • To establish relationship banking and improve service quality through development of Strategic Marketing Plans.
  • To develop and retain a quality work force through an effective Human Resources Management System.
  • To pursue an effective system of management by ensuring compliance to ethical norms, transparency and accountability at all levels.
  • To ensure optimum utilization of all available resources.
  • To ensure an adequate rate of return on investment.
  • To maintain a healthy growth of business with desired result.
  • To maintain adequate control systems and transparency in procedures.
  • To keep risk position at and acceptable range (including any off shore balance sheet risks).

Strategies of JBL

  • To rise up Paid up capital and Reserve Fund up to Tk 4000.00 million by June 2011.
  • To manage and operate the Bank in the most efficient manner to enhance financial performance and to control cost of fund.
  • To strive for customer satisfaction through quality control and delivery of timely services.
  • To identify customers credit and other banking needs and monitor their perception towards our performance in meeting those requirements.
  • To review and update policies, procedures and practices to enhance the ability to extend better services to customers.
  • To train and develop all employees and provide them adequate resources so that customer’s needs can be responsibly addressed.
  • To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to all employees in a timely fashion.
  • To cultivate a working environment that fosters positive motivation for improved performance.
  • To diversify portfolio both in the retail and wholesale market.
  • To increase direct contact with customers in order to cultivate a closer relationship between the Bank and its customers.

 

Performance of Jamuna Bank Limited:

Jamuna Bank Limited Ltd. was incorporated as a public Limited company on the 2nd June 1999 under Company Act 1994. The Bank started commercial banking operations effective from 3rd August 1999. During this short span of time the Bank has been successful to position itself as a progressive and dynamic financial institution in the country.

The Bank widely acclaimed by the business community, from small business/entrepreneurs to large traders and industrial conglomerates, including the top rated corporate borrowers from forward-looking business outlook and innovative financing solutions.

Capital:

The bank started with an authorized capital of Tk. 100 million in 1999 and as on 31st December 2005 paid up capital stood at Tk. 878.85 million. The paid up capital stood at Tk. 3373.96 million as on 31st December 2009.

Analysis of capital structure:

Capital structure of Jamuna Bank Limited 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 Jamuna Bank Limited:

Table no-1

Authorized Capital (TK) In MillionYearPaid Up Capital (Tk.) In Million
400020091621.88
400020081313.27
400020071225.71
160020061072.50
16002005429.00

 

Earning Per Share

YearAmount ( Taka )
200546.58
200631.94
20078.04
200838.21
200956.92

 Loans and Advances

YearAmount ( Taka in millions)
200511012
200612797
200716617
200821037
200932288

 

Reserve fund and other reserve:

In the year 2005 the total reserve was tk. 569.99 in million, but in the year 2006, it was increased on tk. 240.89 in million. So in the year 2006 was tk. 810.88 in million, at the year of 2009 it is reached at tk. 2,092.97 in million.

 

YearAmount ( Taka in millions)
2005487.46
2006629.33
2007647.01
20081131.07
2009822.46

 

Deposit:

Deposit is one of the principal sources of fund for investment of commercial banks and investment of deposit is the main stream of revenue in banking business. The total deposit of the bank stood at Tk.41, 546.57 million as on December 2007 against Tk. 35,032.02 million of the previous year which is an increase of 18.60%. This growth rate may be termed as a remarkable achievement for the bank. The present strategy is to increase the deposit base through maintaining competitive rates of profit and having low cost of funds.

Deposit Position of Jamuna Bank Limited:

YearAmount of Deposit ( tk. in Millions)
200942356.20
200827307.94
200720924.02
200617284.81
200514454.13

 

 Investment (General):

Total investment of the bank was tk. 68,609.91 million as on 31st December 2009 against tk. 53,637.68 million as on 31 December 2008 showing an increase of tk. 14,972.23 million with a growth rate of 27.91%. The Bank Follows appropriate Investment Risk Analysis while approving investments to Customer in order to maintain quality of assets.

Investment Activities of Jamuna Bank Limited:

YearAmount (TK In Millions)
20098503.44
20084238.63
20075390.03
20062552.67
20052037.84

 

Export Business:

The total volume of export handled by the bank during 2005 was TK. 31285.37 million compared to TK.  22418.40 Million in the previous year are an increase. As on 31st December, 2009, the Bank handled 33,575 export bills for tk.76, 240.77 million while it was tk. 76,465.62 million in the previous year.

Handling the amount of Export Business:

YearAmount (TK in Millions)
2009 21406.94
200818617.43
200713990.33
200611583.64
20056521.80

 

Five Years Financial Performance at a glance of Jamuna Bank Ltd.   (TK in Million)
Sl. No.Particulars20052006200720082009
01.Authorized Capital1600.001600400040004000
02.Paid-up Capital429.001072.501225.711313.271313.27
03.Reserve Fund487.46629.33647.011131.07822.46
04.Deposits14454.1317284.8120924.0227307.9442356.20
05.Investment2037.842552.675390.034238.638503.44
06.Foreign Exchange Business     
 a) Import Business12151.9015457.6622191.8430311.7146684.73
 b) Export Business6521.8011583.6413990.3318617.4321406.94
07.No. of  Correspondent390643715715735
08.Shareholders’  Equity807.141562.471656.492131.023054.14
09.Total Capital ( Tier I +Tier  II)916.461701.831872.722444.343997.66
10.Total Assets(Excluding Contra)16863.7720157.0226405.4031646.6348730.95
11.Total Contingent liability5445.686574.386409.269169.4714718.95
12.Total  Risk weighted Assets9010.4311506.1715081.0720516.4331170.05
13.Total Fixed Assets106.46137.36174.40609.02681.60
14.Total Income1727.202749.903102.994074.395816.73
15.Total Expenditure1307.262048.582278.793034.193902.48
16.Operating Profit419.94701.32824.211040.201914.25
17.Profit before provision and tax419.94701.32824.201035.871914.25
18.Profit before Tax363.31499.97405.04865.821563.20
19.Profit after tax199.82253.4089.11479.44923.12
20.Dividend     
 a)Cash1.5%
 b)Stock1:41:71:141:4.261:2.66
21.Number of Share of Outstanding4.2910.7312.2513.1316.21
22.Book value per Share188.14145.68135.14164.53245.45
23.Market value per Share391.58431.02266.71523.50
24.Earring per share46.5831.948.0438.2156.92
25.Price earnings ratio12.2653.616.989.20

 

Foreign Exchange Department:

Foreign exchange department deals with foreign currency and the transaction of it. The major jobs of this department are listed below:

  • Letter of Credit (for Export and Import)
  • Dollar/Traveler’s Cheque (TC) Endorsement
  • Foreign Remittance
  • Foreign Currency Account

 

Types of Letter of Credit:

  • REVOCABLE CREDIT:

A revocable credit is a credit which can be amended or canceled by the issuing bank at     any time without prior notice to the seller.

  • IRREVOCABLE CREDIT:

An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be canceled without the agreement of all parties thereto). Provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller

  • REVOLVING CREDIT:

The revolving credit is one, which provides for resorting the credit to the original amount after it has been utilized. How much time it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative.

  • TRANSFERABLE CREDIT:

A transferable credit is one that can be transferred by the original beneficiary in full or in part to one or more subsequent beneficiaries. Such credit can be transferred once only. Fractions of a transferable credit can be transferred separately, provided partial shipments are not prohibited.

  • BACK TO BACK CREDIT:

The back to back credit is a new credit opened on the basis of an original credit in favor or another beneficiary. Under back to back concept, the seller as the beneficiary of the first credit offers it as security to the advising bank for the issuance of the second credit. The beneficiary of the back to back to back credit may be located inside or the out side the original beneficiary’s country.

 

Foreign Exchange Operation (Theoretical Aspects):

 Introduction:

In Jamuna Bank Limited foreign exchange is divided in to two parts according to the major activities:

  • Import oriented foreign exchange activities.
  • Export oriented foreign exchange activities
  • There is also foreign Remittance operation that carryout by the foreign exchange

Import Section:

The function of this section is mainly to deal with various components such as:

  • Letter of Credit (L/C)
  • Payment against Document (PAD)
  • Payment against Trust Receipt (PATR)
  • Loan against Imported Merchandise (LIM)

 

Function of Import Section:

Import procedures:

The procedures, which follows at the time of Import areas, follow —

  • The buyer and the seller conclude a sale contract provided for payment by documentary credit.
  • The buyer instructs his Bank (the issuing Bank) to issue a credit in favor of the seller / Exporter / Beneficiary.
  • The Issuing Bank then send message to another Bank (Advising Bank /Confirming Bank) usually situated in the country of seller, advice or confirms the Credit Issue.
  • The Advising / confirming Bank then informs the seller through his Bank that the Credit has been issued.
  • As soon as the seller receives the credit, if the credits satisfy him the he can reply that, he can meet its terms and conditions, he is in position to load the goods and dispatch them.
  • The seller then sends the documents evidencing the shipment to the „! Bank where the Credit is available (nominated Bank). This can be the ^ issuing Bank or Confirming Bank; Bank named in the Credit as the paying, accepting and Negotiating Bank.
  • The Bank then checks the documents against the credit. If the documents meet the requirements of the credit, the Bank then pay, accept or negotiate according to the terms of credit. In the case of credit available by negotiation, Issuing Bank will negotiate with recourse. The Bank, if other then the issuing bank, sends the documents to the issuing Bank.
  • The issuing Bank checks the document and if they found that the document has meet the credit requirements, they realize to the buyer upon payment of the amount due or other terms agreed between him and the issuing Bank

Payment Procedure of the Import Documents:

This is the most sensitive task of the import department. The officials have to be very much careful while making payment. The task constitute the followings-

  • Date of payment- Usually payment is made within seven days after the documents have been received. If the payment is become differed, the negotiating bank may claim interest for making delay.
  • Preparing sale memo- a sale memo is made at B.C rate to the customer. As the TT & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally an inter branch exchange trading credit advice is sent to ID.
  • Requisition for foreign currency- for arranging necessary fund for payment a requisition is sent to the ID..

 

Export Section:

By the term Export, we mean that carrying of anything from one country to another. On the other hand Banker’s define Export as sending of visible things outside the country for dale. Export Trade plays a vital role in the development process of an Economy. With the Export earning, we meet our Import Bills.

The export trade of the country is regulated by the Import and Export (Control) Act, 1950. There are some formalities, which an exporter has to fulfill before and after shipment of goods. No exporter is allowed to export any commodity from Bangladesh unless he/she is registered with Chief Controller of Export & Import (CCI&E) and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year and this task is generally done by the bank. As per instruction by Bangladesh Bank, the bank has to report respective department of Bangladesh bank by mentioning latest payment.

 

Followings Are Need to Be Examined:

L/C Terms:

Each and every clause in the L/C must be complied with meticulously and ensure the following –

  • Documents are not stale
  • Documents are negotiated within the L/C validity. If credit expires on a recognized bank holiday its life is automatically valid onto the next working day. This is to be stipulated on the documentary schedule.
  • Documents value does not exceed the L/C value.

Draft:

Draft is to be examined as under

  • Draft must be dated
  • It must be made out in the name of the beneficiary bank to be endorsed to the order of the bank
  • Bank must verify the signature of the drawer
  • Amount must be tallied with the invoice amount
  • It must be marked as drawn under L/C No, date, issued by, bank.

Invoice:

It is to be scrutinized to ensure the followings –

  • Invoice is addressed to the importer
  • Full description of merchandise as per L/C
  • Price, quantity, quality must be as per L/C terms
  • Must be language in the language of L/C
  • No other charges are permissible in the invoice beyond the stipulation on the L/C
  • The amount of draft and invoice must be same and within the L/C value
  • Required number of invoice must be submitted
  • Shipping mark and number of packing list must be identical
  • Invoice value must not be less than the value of declared in EXP form.
  • Must be correct on the basis of price, quantity as appear L/C

 Export Procedure:

A person eager to export should make application to obtain ERC from CCI&E office. Then the person should take step for export purpose into the bank for obtaining EXP form. He must submit following documents:

  • Trade license
  • Export Registration Certificate (ERC)
  • Certificate from concerned Government Organization

After satisfaction on the documents the banker will issue EXP form to the exporter. Now exporter will be getting shipping and other documents from the shipment procedure. Exporter should submit all these documents along with letter of indemnity to his bank for negotiation.

 Discrepancy and Industry:

After the shipment of goods, the exporter submits export documents to authorized dealer for negotiation of the same. Here authorized dealer is exporter’s bank. The banker is to ascertain that documents are strictly as per the terms of L/C before negotiation of the export bill; the banker should scrutinize and examine each and every document with great care & must be go through the original L/C in the time of scrutiny. Any kind of lacking can be classified as major or minor. There may be some discrepancies which are removable. If the discrepancies are minor, the export bill against submission of indemnity. Documents with discrepancy should be negotiated. With the permission of the exporter, such documents are to be sent on collection.

Negotiation:

At the time of negotiation the checklist or required documents are as follows –

  • Commercial Invoice 8 copies (4 original)
  • Custom Invoice of Importer’s Country
  • Packing List 8 copies (4 original)
  • Original Certificate of Origin
  • Inspection Certificate by the Agent of Importer
  • Acknowledgement Letter
  • Frightful Letter etc.

All the documents are found strictly as per terms and conditions of L/C i.e. if the documents are free from discrepancies or if the discrepancies are covered by Indemnity of the party, bank has to negotiate the Export Bill for negotiation of cash export bills, the O.D buying rate prevailing on the date of negotiation is applied conversion of the foreign currency into Bangladesh currency. All transactions are reported through F.E.T sent daily to the international division Head Office, Dhaka. On receipt of the F.E.T the head office credits the FBNA Account by debit the balance with foreign Banks abroad Account after the process of the bill is realized. After negotiation of the export bills, the documents are to be sent abroad (normally to the L/C Issuing Bank) as per the instructions of L/C & claim reimbursement of the proceeds from the bank as mentioned in the L/C.

Risk in Negotiation:

If the Bank failed to indemnify any discrepancy in documents prepared by the Exporter and if bank paid the demanded amount, bank will face huge loss. At that time, the Negotiating Bank personally try to contact with party and if they agree to deliver the required documents then the bank may get rid out from huge loss otherwise not. So, Banker-Customer relationship is very important in this regard. Bank need to be very careful at the time of negotiation.

Banks Profit through Negotiation:

A question can arise that if the risks involved there, why banks will go for negotiation. Because –

  • At first, through negotiation bank will earn a certain commission from the party without involving any fund.
  • Bank will earn US$ from reimbursing bank from the foreign and bank is also earning commission from that.
  • If the payment make overdue, on that time branch of the concerned bank will earn interest from that amount.

 

 Back To Back L/C (BTB L/C):

  • Back To Back L/C Opens:

It is a secondary letter of credit opened by the advising bank in favor of a domestic/foreign supplier on behalf of the beneficiary original foreign L/C. As the original letter of credit of bank by import letter, it is called Back-to-Back L/C. The second L/C is opened on the strength of the original L/C for a smaller amount.

  • Back To Back L/C (Foreign):

When the B-To-B L/C is opened in a foreign country supplier it is called B-To-B L/C (Foreign). It is generally payable within 120 days at site.

  • Back L/C (Local):

When the Back-to-Back L/C is opened for local purchase of materials, it is called Back-to-Back L/C (Local). It is generally payable within 90 days at site.

 

Procedures for Back To Back L/C:

  • Exporter should make application for Back to Back LAC
  • Export L/C or Master L/C under is lien
  • Opening of Back to Back L/C
  • Terms and conditions for Back to Back L/C
  • That the customer has credit line facility
  • That L/C is issued as per UCPDC 500
  • That on the Export L/C a negotiating clause is present
  • That there is no provision for blank endorsement of B/L
  • That payment clause is there on the L/C issuing bank ensuring payment

Consideration for Back To Back L/C:

  • Whether client can manufacture within time period
  • The unit price of the finished pro-forma invoice should be considering while allowing margin
  • Consider the expiry date and shipment date
  • Onsite inspection whether manufacturing is carried out

Payment under Back To Back L/C:

Deferred payment is made in case of BTB L/C as 60, 90,120, 180 date of maturity period. Payments will be given after realizing export proceeds from the L/C issuing bank from the abroad.

Reporting of Bangladesh Bank:

At the end of the every month reporting of Bangladesh Bank is mandatory regarding the whole month export operation, the procedures in this respect is as follows —

  • To fill-up the E-2/P-2 schedule of S-l category. The whole month import amount, quantity, goods category, country, currency, etc. all are mentioned. Respective IMP forms are attached with the schedule to fill E-3/P-3 for all invisible payment.
  • Original IMP is forwarded to Bangladesh Bank with mentioning invoice value
  • Duplicate IMP is skipped with the bank along with the bill of entry.

 

Procedure for collection of Export Bill:

There are two types of procedures regarding collection of Export Bill —

  • Foreign Documentary Bill for Collection (FDBC)
  • Foreign Documentary Bill for Purchase (FDBP)

Foreign Documentary Bill for Collection (FDBC):

Exporter can collect the bill through negotiating bank on the basis of collection. Exporter in this case, will submit all the documents to the negotiating bank for collection of bill from importer. The exporter will get money only when the issuing bank gives payment. In this connection bank will scrutinize all the documents as per terms and conditions mentioned in L/C.

Foreign Documentary Bill for Purchase (FDBP):

When exporter sale all the export documents to the negotiating bank is known as Foreign Documentary Bill Purchase (FDBP). In this case, the exporter will submit all the documents to the bank. The bank gives 60-80% amount to the exporter against total L/C value.

Local Document Bill for Purchase (LDBP):

Incoming of L/C customer come with the L/C to negotiate

  • Documents given with L/C.
  • Scrutinizing documents as per L/C terms and conditions.
  • Forward the documents to L/C opening bank.
  • L/C issuing bank give acceptance and forward acceptance letter.
  • Payment given to the party by collection basis or by purchasing documents.

Secure Over-Draft (SOD) Export:

Secured Overdraft is one kind of credit facility enjoying by the exporter from the export section. It is generally given to meet the back-to-back L/C claim. Sometimes it is given to the exporter by force for meet the back-to-back L/C claim due to delay of Master L/C payment.

Packing Credit (PC):

It is one kind of credit sanctioned by the export department to meet the exported goods shipment timely. Packing credit is granted to pay salary, wage& other related factory expenses of processing the imported products. The bank will give the facility after deduction of back-to-back. Here it is to be mentioned that packing credit and the amount of money as packing credit must be mentioned in the documents, otherwise Bank will not grant the packing credit.

 

Foreign Remittance:

Fund transfer from one country to another country goes through a process which is known as remitting process. Suppose a local bank has 200 domestic branches and has the corresponding relationship with a foreign bank say-“X”, maintaining “Nostro Account” in US$ with the bank. Bangladeshi expatriates are sending foreign remittance to their local beneficiary, through that account. Now, when the Bangladeshi expatriates through other banks of different countries remit the fund to their “Nostro Account” with “X”, then the local bank’s Head office international division will receive telex message and the remittance section will record the advice and generate the advice letter to the respective branch of the bank. The branch will first decode the test, verify signature and check the account number and name of the beneficiary. After full satisfaction, the branch transfers the amount to the account of the beneficiary and intimates the beneficiary accordingly. But sometimes complexity arises, if the respective local bank has no branch where the beneficiary maintains his account. Then the local bank has to take help of a third bank who has branch there.

 

Assessment of the Foreign Exchange Business Position of Jamuna Bank Limited:

The performance of foreign exchange business of Jamuna Bank Limited can be visualized from the following data in Table. Here, five years data of foreign exchange business are presented.

 Table: Foreign exchange business    (Tk in million)

YearExport Import RemittanceTotal Business
20056,521.8012,151.901,85720,530.70
200611,583.6415,457.662,19429235.30
200713,990.3322,191.842,50638,688.17
200818,617.4330,311.713,16552,094.14
200921,406.9446,684.733,64571,736.67

RE: Annual report, 2009 and 2008.

 

Description:

From the above table it is observed that, Foreign Exchange Department of Jamuna Bank Limited handled export business worth Tk 21,406.94 million in 2009. In 2008 total export business handled by the Foreign Exchange Department was Tk 18,617.43 million. Thus there was an increase of Tk 2789.51 million in export business handled by the bank, being 14.98 percent over the preceding year. In 2008 there was an increase of Tk 4627.10 million in export business handled by the bank, being 33.07 percent over the 2007. Thus the export business increases but at a decreasing rate.

The total import business handled by the Bank in 2009 was Tk. 46,684.73 million compared to Tk. 30,311.71 million in the preceding year registering a rise of Tk. 16373.02 million being 54.02 percent. In 2008 there was an increase of Tk. 8119.87 million being 36.59 percent. Thus the import business of foreign exchange department grows at an increasing rate.

Remittance business handle by the Bank at the year of 2009 was Tk. 3645 million compared to Tk. 3165 million in the year of 2008 registering a rise of Tk 480 million being 15.17 percent. In 2008 there was an increase of Tk.659 million being 26.30 percent. Thus the foreign remittance business growth in 2009 is not satisfactory compared to the growth in the year of 2008.

The total foreign exchange business handled by the bank in the year of 2009 was Tk. 71,736.67 million, in the previous year it was Tk 52,094.14 million. In the year of 2009 it was increase of Tk.19642.53 million being 37.71 percent. In the Table it is observed that the foreign exchange business of Jamuna Bank Limited has been increasing with the passage of time and import is the dominant sector of foreign exchange business.

 

Comparison between earnings of foreign exchange department to other departments.

Table: Income of foreign exchange department and other departments    (Tk in million)

Particulars200720082009
Income from

Foreign Exchange

425.37413.27460.03
Income from Other Departments

(General banking, Loan and advances etc.)

2677.623661.125356.70
Difference of income between Foreign Exchange and Other Departments2252.253247.854896.67
Total3102.994074.395816.73

 Description:

In 2007 foreign exchange department earned Tk.425.37 million and other departments earned Tk.2677.62 million. In the end of the year other departments of earned Tk.2252.25 million more from the foreign exchange department.

Again in 2008, foreign exchange department earned Tk 413.27 million and other departments of Jamuna Bank earned Tk.3661.12 million. In the end of the year, other departments earned Tk.3247.85 million more from the foreign exchange departments.

Again in 2009, foreign exchange department earned Tk 460.03 million and other departments of Jamuna Bank earned Tk.5356.70 million. In the end of the year, other departments earned Tk.4896.67 million more from the foreign exchange departments.

 

Foreign exchange risk management

Foreign Exchange Risk is the potential change in earnings due to unfavorable movement in exchange rates. The Bank’s foreign exchange risk is considered at a Group level since an effective overview of such risk is a critical element of the Bank’s asset/liability risk management. The Board of Directors defines its risk tolerance levels and expectations for foreign exchange risk management and ensures that the risk is maintained at prudent levels.  Generally, the bank is less exposed to foreign exchange risk as all the transactions are carried out on behalf of the customers against LC commitments and other remittance requirements. The Back Office of Treasury Department is totally segregated from the Front Office and is responsible for currency transactions, deal verification and limit monitoring and settlement of transactions separately. The Bank continuously revalues all foreign exchange positions at market rate as per the guidelines of Bangladesh Bank. All outstanding entries in Nostro Accounts are reviewed on a regular basis and are timely reconciled.

Identification of management problems regarding foreign exchange department

  • Foreign exchange department’s workers are less efficient in prompt dealing.
  • Lack of expertise on remittance activities in the foreign exchange department.
  • Shortage of employee in foreign exchange departments. As a result the existing employees have too much pressure.
  • Presence of chaos in dealings with customers.

 

The findings obtained from the study on Foreign Exchange Business of Jamuna Bank Limited are follows:

  • There are three types of modes of foreign exchange market, which are: Export Finance, Import Finance & Foreign Remittance. Foreign Exchange section of Jamuna Bank Limited Branch does all the operations out of above-mentioned foreign exchange activities vastly.
  • With limited network of branches at home, volume of export-import business including homebound remittances is increased day-by-day.
  • The Bank’s financing of import business increased from Taka 30311.71 million in 2008 to Taka 46684.73 million in 2009 registering growth of 54.02 percent. On the other hand, Bank’s export finance increased to Tk 94 million in 2009 compared to Taka 18617.43 million in 2008 a growth of 14.98 percent.
  • Reuter’s services are being used at the head office for offering the best exchange rates to its customers as well as for other treasury functions.
  • The major part of the foreign exchange departments income come from the import L/C, than export L/C and a negligible part of the income come from the remittance.
  • The time series equation indicates the export business of Jamuna Bank Limited will be increased by Tk.3680.41 million per year.
  • The time series equation indicates that the import business of the bank will be increased by Tk.8391.98 million per year.
  • The time series equation indicates the remittance business of the bank increased by Tk. 454.70 million per year.

 

RECOMMENDATIONS

As an internee of Jamuna Bank Ltd I have some recommendations. These are:

  • Letter of Credit (L/C) opening system for the importer should be easier.
  • The Bank should develop an effective database needed for analyzing Foreign Exchange Business.
  • More specifically, the Bank should develop sectors wise export-financing facilities.
  • Changes in industry trends may directly affect business so that it can no longer completely profitable. Therefore, the Bank should keep information about the environment of each industry in which its customers operate.
  • To attract more clients Jamuna Bank Limited has to create a new marketing strategy, which will increase the total export import business.
  • Attractive incentive-package for the exporter will help to increase the Export and accordingly it will diminish the balance of payment gap of Jamuna Bank Limited.
  • Foreign exchange operations of other banks are more dynamic and less time consuming. Jamuna Bank Limited should take some initiatives to compete with those banks.
  • Today’s and tomorrows business world is more challenging. To face the challenge bankers must have knowledge about different economic and business variable. So the bank must recruit business graduate like BBA and MBA holders in foreign exchange department.
  • For the foreign exchange officials long term training is very essential and may help to gain more efficiency at work.

 

Conclusion:

Jamuna Bank Limited (JBL) is serving the market with almost full range of services. As the number of branches implies, still Bank has limited operation in our country, but it should also be noted that within the next few years from its establishments, it will be achieved higher position in the foreign exchange activities.

The bank is following a certain traditional strategy about foreign exchange and it is doing well. This strategy is quite satisfying customers and it has positive impact on its profit trend. But with this modern age, the bank should improve its foreign exchange operations strategy. If it improve its strategy, than it can attract more customers towards this Bank and it will have more positive impact towards its foreign exchange profit trend.

Foreign exchange is always a prominent site of business for all commercial banks. Country’s economic growth largely depends on this sector. Bangladesh is also economically dependent on foreign exchange business. There are some rules and regulation and other factors (political, economical, demographic) that influences this sector. Government should identify the lacking and take preventive steps to smooth this lucrative path of business.