Bank is the important financial institution in the economy. The economic development of a country depends on the development of banking sector. Today’s modern banks are not only providing traditional banking services but also expanding many financial services.
Foreign Exchange Division occupies an important place in a nation’s economy because of its intermediary role; it ensures allocation of resources and keeps up the momentum of economic activities. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core at the money market in any country. In a developing country like Bangladesh the banking system as a whole has a vital role to play in the progress of economic development.
The internship Program exercises a significant importance as it enables a student to be accustomed with the business activities practically. The student gets the chance to work closely with the people of an organization and learn about the functions, responsibility and corporate culture of that organization. This program enables a student to develop their analytical skills and scholastic aptitudes and to have a real- life orientation of the academic knowledge.
As a student of Department of Business Administration, Dhaka City College, I have conducted my Internship Program in Dutch-Bangla Bank Ltd. Mirpur Circle 10 Branch, one of the reported second generation bank in the growing banking sector in Bangladesh.
Origin of the Report:
The internship program is an integral part of the BBA program that all students have to undergo of National University, Bangladesh. The students are sent to various organizations where they are assigned to one or more project. At the end of the program, the internship is required to place the accomplishment and findings of the project through the waiting of the Internship report covering the relevant topics. During this program, supervisor guides each student.
This report is the result of a 90 days’ (1 December 2010 to 28 February 2011) internship program in Dutch-Bangla Bank Limited (DBBL).
Objectives of the Report:
Objective of the study acts as a bridge between the starting point and the goals of the study. To illustrate the objectives properly & presented into two parts.
To observe the Foreign Exchange operation of the DBBL. Their services and overall banking operation.
To know the Foreign Exchange operation of the DBBL.
To measure the Import, Export & Remittance performance.
To know about the L/C opening process.
To know about the previous & present financial condition of DBBL.
To present my observation & suggestion to the bank.
Scope of the Study:
As a part of internship program, I was required to learn various types of banking tasks which were assigned by the officers of different departments. In this period, I am working with all the departments but basically in a major portion of time I spend in general banking & Foreign exchange departments. Because excess load was always created in this department. But I have also done different types of online related tasks, which helped me to gain practical experience on Electronic banking activities of DBBL, I am also done many tasks like- Pay Order issuing, GL Account maintaining, foreign remittance clearing, etc. This has definitely enriched my practical experience.
For preparing this report primary and secondary data have used. Data have been collected from two sources:
Face-to-face conversation with the respective officer of the branch.
Face-to-face conversation with the clients.
Annual Report of the DBBL.
Periodical published by Bangladesh Bank.
Relevant file study as provided by the officers concerned.
Different procedure manual published by DBBL.
Different books articles etc. regarding Foreign Exchange operations.
Website of DBBL.
Limitations of the Study:
The study was not free of limitations. The limitations faced during the preparation of this report are given below:
Difficulty in communication and gaining accesses to financial sector.
Non-availability of the most required data.
For the restriction to disclose various information of a bank. So for this it was a great difficulty in preparing the report.
Large scale research was not possible due to time constraints.
Non availability of data in a systematic way.
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial banks, two of which were controlled by Bangladeshi interests and three by foreigners other than West Pakistanis. There were fourteen smaller commercial banks. Virtually all-banking services were concentrated in urban areas. The newly independent government immediately designated the Dhaka branch of the State Bank of Pakistan as the central bank and renamed it the Bangladesh Bank. The bank was responsible for regulating currency, controlling credit and monetary policy, and administering exchange control and the official foreign exchange reserves. The Bangladesh government initially nationalized the entire domestic banking system and proceeded to reorganize and rename the various banks. Foreign owned banks were permitted to continue doing business in Bangladesh. The insurance business was also nationalized and became a source of potential investment funds. Cooperative credit systems and postal savings offices handled service to small individual and rural accounts. The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances.
The government’s encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the World Bank to focus their lending on the emerging private manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of scrotal GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking recommended broad structural changes in Bangladesh’s system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987. Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. The problem of credit recovery remained a threat to monetary stability, responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to slightly more than 2 months worth of imports. This represented a 20- percent increase of reserves over the previous year, largely the result of higher remittances by Bangladeshi workers abroad. The country also reduced imports by about 10 percent to US$2.4 billion. Because of Bangladesh’s status as a least developed country receiving confessional loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$6.4 billion, and annual debt service payments were US$467 million at the end of FY 1986.
There are four nationalized commercial banks (NCB), 4 specialized banks, 11 foreign banks, 30 domestic private banks and 4 Islamic Banks currently operating in Bangladesh.
All local banks must maintain a 6% Cash Reserve Requirement (CRR), which is non-interest bearing and
a 13.5% Secondary Liquidity Requirement (SLR). With the liberalization of markets, competition among the banking products and financial services seems to be growing more intense each day. In addition, the banking products offered in Bangladesh are fairly homogeneous in nature due to the tight regulations imposed by the central bank.
Dutch-Bangla Bank is the oldest commercial bank operating in Bangladesh. It has, over the years, created one of the largest networks among all the banks in Bangladesh. Although a trendsetter in offering a various range of products in the market, the product offers of DBBL Bank are quickly imitated by competitors. Substitutes offered by other commercial banks make their way into the market and thereby eat a portion of the margin.
Historical Background of Dutch-Bangla Bank Limited:
Dutch-Bangla Bank started operation is Bangladesh’s first joint venture bank. The bank was an effort by local shareholders spearheaded by Md. Sahabuddin Ahmed (Founder chairman) and the Dutch company FMO.
It is the largest bank in Bangladesh by market capital. 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. DBBL commenced formal operation from June 3, 1996. The Bank is listed with the Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.
From the onset, the focus of the bank has been financing high-growth manufacturing industries in Bangladesh. The rationale being that the manufacturing sector exports Bangladeshi products worldwide. Thereby financing and concentrating on this sector allows Bangladesh to achieve the desired growth. DBBL’s other focus is Corporate Social Responsibility (CSR). Even though CSR is now a clichés, DBBL is the pioneer in this sector and termed the contribution simply as ‘social responsibility’. Due to its investment in this sector, DBBL has become one of the largest donors and the largest bank donor in Bangladesh. The bank has won numerous international awards because of its unique approach as a socially conscious bank.
DBBL was the first bank in Bangladesh to be fully automated. The Electronic- Banking Division was established in 2002 to undertake rapid automation and bring modern banking services into this field. Full automation was completed in 2003 and hereby introduced plastic money to the Bangladeshi masses. DBBL also operates the nation’s largest ATM fleet and in the process drastically cut consumer costs and fees by 80%. Moreover, DBBL choosing the low profitability route for this sector has surprised many critics. DBBL had pursued the mass automation in Banking as a CSR activity and never intended profitability from this sector. As a result it now provides unrivaled banking technology offerings to all its customers. Because of this mindset, most local banks have joined DBBL’s banking infrastructure instead of pursuing their own.
Vision of Dutch-Bangla Bank:
“To become a leading banking institution and play a pivotal role in the development of the country”
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 charm life that abounds with sprit of life and adventures that contributes towards human development.
Mission of Dutch-Bangla Bank:
Dutch Bangla Bank engineers enterprise and creativity in business and industry with a commitment to social responsibility.” PROFIT ALONE” does not hold a central focus in the bank’s operation; because “man does not live by brain and butter alone “.
Core Objective of DBBL:
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 uphold and epitomize its vaunted Marques “Your Trusted Partner”
To earn and maintain CAMEL Rating ‘Strong’
To establish relationship banking and improve service quality through development of Strategic Marketing Plans.
To remain 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 ensure an adequate rate of return on investment
To keep risk position at an acceptable range (including any off balance sheet risk)
The board is comprised of directors having diverse skills, experience and expertise to add value towards better corporate governance of the bank and maximizing value for all stakeholders. The board discharges its responsibilities itself or through various committees. The Board meets on a regular basis to discharge its responsibilities.
The Board is made up of 10 (ten) Directors including a Chairman and five Directors representing shareholders, one independent Director, two Directors from depositors and the Managing Director.
The principle activity of the bank is banking. The banking business includes obtain deposits through account opening, offer credit to corporate organizations, as well as retail and small & medium enterprise, trade financing, project financing, lease and hire purchase financing. The modes of banking include conventional banking. It also performs merchant banking function under the license by Securities and Exchange Commission, Dhaka, Bangladesh.
Product Range of Dutch-Bangla Bank Limited:
The product list of Dutch-Bangla Bank Limited is stated below:
| Products and Services offered by DBBL: |
DBBL-NEXUS Debit card
DBBL-Maestro/Cirrus Debit card
DBBL Credit card
|Various Deposits: |
Loan & Advances:
Important Financial highlights of DBBL for last five years:
(Tk. in million)
|Deposit & others|
|Loans & Advances|
Table 1: DBBL at a glance (2005-2009)
|Book Value per share(Taka)|
|Market Value Per share(Taka)|
|Earning Per share(Taka)|
|Dividend per share(Taka)|
|Return on Equity(Average)|
|Return on Assets(Average)|
|Classified loan as a %of .loan|
|Capital Adequacy Ratio|
|Cost income Ratio|
|Net interest Margin|
|Number of Branches|
|Number of Employees|
Table 2: DBBL at a glance (2005-2009)
Number of Branches:
Capital Structure of DBBL:
Banks generally do their business with other’s fund, so DBBL is in exception. DBBL uses 24% equity and 75% Debt source of capital. The capital structure is following:
|Total Shareholders Equity|
|Long-term Debt ( Fixed Deposit 1 year & above)|
Number of PSO Terminals:
Classified Loan To Total Asset:
(Tk. in million)
(Tk. in million)
Market Capitalization (often market Capital) is measurement of size of a business enterprise (corporation) equal to the share price times the number of shares outstanding of a public company.
Net Profit after Tax:
(Tk. in million)
|Net Profit (after tax)|
Net Profit is equal to the gross profit minus overheads minus interest payable plus/minus one off item for a given time period. Net profit of DBBL Foreign Exchange Branch among all in the month May 2010, is TK. 51,1632.
Special Features of DBBL:
Dutch-Bangla Bank is engaged in conventional commercial banking:
It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of people for channeling the same to the productive sectors of the economy.
For uplifting the standard of living of limited income group of the population, the bank has introduced Consumer Credit Schemes by providing financial assistance in the form of loan to the consumers for procuring household durables, which have had encouraging responses.
The Bank is committed to continuous research and development so as to keep pace with modern banking.
The operation of the bank is computer oriented to ensure prompt and efficient services to the customers.
The Bank has introduced camera surveillance system (CCTV) to strengthen the security services inside the Bank premises.
The Bank has introduced customer relation management system to assess the needs of various customers and resolve any problem on the spot.
No country is self sufficient. So every country has transacted with other country. But the problem is currency, buyer and seller wants to be assured of payment. None of the buyer and seller knows about their credit worthiness and business integrity. In this situation commercial bank play a mediator role providing guarantee for payment to seller and goods to buyer.
Foreign Exchange Department & Trade:
Foreign Exchange Department is the international department of the bank. It deals with globally and facilitates international trade through its various modes services. It bridge between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized dealer (AD). If the branch is AD in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals with foreign currency. This is why this department is called Foreign Exchange Department.
Meaning of Foreign Exchange:
H.E. EVITT defined “Foreign Exchange” as the means and methods by which right to wealth expressed in terms of currency of one country are converted into right to wealth in terms of currency of another country.
The term “Foreign Exchange “has three principal meanings:
Firstly, it is a term used referring to the currencies of the other countries in terms of any single one currency. To a Bangladeshi, dollar, pound, sterling etc. are foreign currencies and as such foreign exchange.
Secondly, the term also commonly refers to some interments used in international trade, such as bill of exchange drafts, traveler’s cheque and other means of international remittance.
Thirdly, the term “Foreign Exchange” is also often referred to the balance in foreign currencies held by a country.
Basis for Foreign Exchange:
Foreign Exchange Regulation Act 1947.
Negotiable Instruments 1882.
Bangladesh Bank Guideline & Circular.
Export & Import Policy.
Uniform Custom & Practice for Documentary Credit (UCPDC) 500.
Local Regulation for Foreign Exchange:
Foreign Exchange transactions are being controlled by following rules & regulations.
Foreign Exchange Regulation Act 1947 for dealing foreign exchange business.
Import & Export Control Act 1910 is for documentary credit.
Export & Import policy issued by ministries of commerce.
Time to time circular issued by Bangladesh bank to control Foreign Exchange.
Public notice issued by CCI & E for any kind of charge in Foreign Exchange transactions. Bangladesh Bank published two volumes in 1996. This is compilation of instructions to be followed by the authorized dealers in transactions related to Foreign Exchange.
Activities of Foreign Exchange Department:
Foreign currency transaction.
Foreign currency transaction:
Foreign currency means buying and selling foreign currency frequently and profit from the price.
Foreign trade can be easily defined as a business activity, which crosses national boundaries. This may be practice between parties or government ones. Trade among national is a common occurrence and normally benefits both the exporter and importer. In many countries, international trade accounts for more than 20% their national incomes.
Department of Foreign Exchange:
There are three departments Foreign Exchange Division.
Import of goods into Bangladesh is regulated by Ministry of commerce and industry interims of the Import and Export and (control) Act 1910, with import policy orders issued by annually and public notice issued from time to time by the office of the chief controller of import and export (CCI&E).
The goods and services sold by Bangladesh to foreign households, businessman and government are called export. The export trade of the country is regulated by the Import and Export Act 1950.
“Foreign Remittance” means purchase and sale of freely convertible foreign currencies as admissible “Foreign Exchange Regulation Act 1947” and “Guidelines for Foreign Exchange Transaction – VOL. 172 of the country”. Purchase of Foreign currencies constitutes inward Foreign Remittance and sale of foreign currencies constitutes outward Foreign Remittance.
Import of goods into Bangladesh is regulated by Ministry of Commerce and Industry interims of the Import and Export (control) Act 1910, with import policy orders issued by annually and public notice issued from time to time by the office of the chief controller of import and export (CCI & E). Through the process of import some vital but which are inadequate in our country products are importer. According to import and export control Act 1910, in the office of the chief controller of import and export provides the registration (IRC) to the importer.
Function of 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)
Loan Against Trust Receipt (LTR)
Loan against Imported Merchandise (LIM)
Letter of Credit:
Letter of Credit is an instrument used by the bank on behalf of the importer at his request in favor of foreign supplier. LC application forms, bill of exchange are the deed for the exporter. It is the main payment method. Mainly there are 5 major components in LC. They are-
Beneficiary / Exporter / Seller.
Applicant / Importer / At the request.
The DBBL basically deals with the Irrevocable L/C, Which cannot be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. It also deals Back to Back L/C, which is the letter of credit provided by bank to bank exporter to importer the raw materials from abroad in order to produce the exportable commodity for the importer.
Payment Against Document (PAD):
The issuing bank starts PAD procedure after getting all documents from the exporter as evidence of exporting goods. Documents required for PAD is mentioned below:
Original (Non-negotiable) bill of Lading.
Certificate of Insurance.
Certificate of Origin.
Bill of Exchange.
Pre-shipment Inspection Certificate.
Clean Report of Findings (CRF).
Loan against Trust Receipt (LTR):
There may be situation where storage of collateral in an independently controlled field warehouse is impractical. An importer may require the goods for further processing or for displaying the merchandise in order to make the final sale. In such cases a financing institution that has a great degree of trust in importer may be willing to release the negotiable Bill of Lading and thereby also the goods to the importer against the signing of trust receipt. After the importer has made his final sale and received the proceeds, he can pay the financing institution that he received as advance.
Loan against Imported Merchandise (LIM):
If the importer does not come to negotiate the shipping documents from the issuing bank then it creates LIM through the bank clears the goods from the port and holds the goods in its go down. Beside the above as soon as the imported goods come to the port the party may fall into financial crisis and request the bank to clear the goods from the port making payment to the exporter. In this case the party later may take the goods partly or fully from the bank by making required payment (if he takes the goods time to time payment will be adjusted simultaneously).
Volume of Import:
It is the overall condition of DBBL in Import. Last Year they helped in import of taka around 53,089 million in our economy.
The goods and services sold by Bangladesh to foreign households, businessman and government are called export. The export trade of the country is regulated by the Import and Export (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import and Export (CC & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CC & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP form and other documents concern with export.
This section negotiates the export document and collects and purchases the export bill. The two types of credit facilities allowed by the bank to the exporter in relation to export credit.
Export finance arises from trade between two trades trading in two different countries. A brief idea of both categories is given below.
When an exporter intends to ship the goods to an overseas buyer he needs fund for purchasing goods to be exported. He may also depend upon the bank for arranging credit for the supply of goods.
Post-Shipment Finance is more concerned with banks than Pre-Shipment Finance. This type of finance starts after the goods has already been shipped.
Function of Export Section:
Export section performs different types of tasks such as:
Back to Back L/C opens.
Foreign Documentary Bill of Collection (FDBC).
Foreign Documentary Bill of Purchase (FDBP).
Local Documentary Bill of Purchase (LDBP)
Packing Credit (PC)
Secured Overdraft (SOD) Export.
Accepted Bill Payable.
Back to back L/C Open:
It is secondary letter of credit opened by the advising bank in favor of a domestic or 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 i.e. maximum 75% is shipped under Lien and 10% under packing credit. There are three types of BTB L/C opened by DBBL.
Back to Back L/C (Foreign):
When the BTB L/C is opened in a foreign country supplier it is called Foreign BTB L/C. It is generally payable with in 120 days at sight.
Back to Back L/C (EDF):
EDF stands for Export Development Fund that is provided by the ADB to Bangladesh Bank export promotion of Third-World-Country like Bangladesh. When the bank is not in a position to support the amount of Back to Back L/C then they apply for loans to the Bangladesh Bank for Back to Back (EDF).
Back to 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 with in 90 days at sight.
Procedure for Back to Back L/C:
Exporter should apply for Back to Back L/C
Export L/C or Master V under is lien.
Opening of Back to Back L/C.
Customer has credit line facility.
On the Export L/C negotiating clause is present.
There is no provision for blank endorsement of B/L.
Payment clause is thereon the L/C issuing bank ensuring payment.
Foreign Documentary Bill of Collection (FDBC):
Exporter can collect the bill through negotiating bank on the basic collection, exporter in this case submit all the documents to the negotiating bank for collection of bill from inspector. 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 of Purchase (FDBP):
When the exporter sale all the export documents to the negotiating bank then it is known as FDBP. In this case exporter will submit all the documents to the bank. The bank gives 60%–80% amount to the exporter against total L/C value.
Local Documentary Bill of Purchase (LDBP):
Incoming of L/C customer with L/C to negotiate.
Documents given with L/C.
Scrutinizing documents as per L/C term & condition.
Forwarding the documents to L/C opening bank.
L/C issuing bank give acceptance & forward acceptance letter.
Payment gives to the party by collection basis or by purchasing.
Packing Credit (PC):
It is one kind of credit sanctioned by the department to meet the exported goods shipment timely. The bank will give the facility after deduction of Back to Back L/C value.
Secured Overdraft (SOD):
Secured Overdraft is one kind of credit facility enjoying by the exporter from export section. It is generally given to meet the back to back L/C claim. Sometime it is given to the exporter by force for meeting the back to back L/C claim due to delay of Master L/C payment.
Volume of Export:
(Tk. in million)
As we can see here the total export of DBBL is at the year of 2009 Tk. 41,162.51 million. At the year of 2010 until May DBBL help in exportation of Tk. 1,098,206 million.
Remittance means sending of fund. The word remittance we understand sending/transferring of fund through a bank from one place to another place which may be within the country or between two countries, one in abroad is called Foreign Remittance.
“Foreign Remittance” means purchase and sale of freely convertible foreign currencies as admissible “Foreign Remittance Regulation Act, 1947” and “Guidelines for Foreign Exchange Transaction- VOL. 172 of the country” purchase of foreign currencies constitutes inward foreign remittance and sale of foreign currencies constitutes outward foreign remittance.
In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of import, export, travel and other purpose. However, specifically foreign remittance means sale and purchase of foreign currencies for the purpose other than export and import.
Types of Foreign Remittance:
Foreign Remittance takes place in two ways:
The remittances which are received from abroad are called inward remittance. When purchases of Foreign currencies constitute inward foreign remittance.
Mode of Inward Remittance:
Telegraphic Transfer (TT).
Mail Transfer (MT).
Foreign Demand Draft (FDD).
Payment Order (PO).
Travelers Chaque (TC).
Foreign Currency Notes.
Remittances which are made from our country to abroad are called outward remittance. Sale of foreign currencies constitutes outward foreign remittance.
Mode of Outward Remittance:
Foreign Telegraphic Transfer (FTT).
Foreign Mail Transfer (FMT).
Foreign Demand Draft (FDD).
Travelers Cheque (TC).
Foreign Currency Notes.
Performance of DBBL in handling foreign remittance:
Name of the Banks
|Total July-June||% share of total||Total July-June||% share of total||Total July-June||% share of total||Total July-June||% share of total||Total July-June||% share of total|
|Bangladesh Krishi Bank|
|Basic Bank Ltd|
|Private Commercial Banks|
|Al-Arafah Islami Bank|
|AB Bank Ltd.|
|Bangladesh Commerce Bank|
|Bank Asia Ltd.|
|BRAC Bank Ltd.|
|Dhaka Bank Ltd.|
|Dutch-Bangla Bank Ltd.|
|Eastern Bank Ltd.|
|EXIM Bank Ltd|
|First Security Bank Ltd.|
|IFIC Bank Ltd.|
|Islami Bank Bangladesh Ltd.|
|Jamuna Bank Ltd.|
|Mercantile Bank Ltd.|
Table 3: Source: Foreign exchange policy Dept. (LDA sec-1), Bangladesh Bank
From this data it is clear that DBBL share is more or less consistent. But if we compare with other bank then it would be clear that many banks who engaged in this business capture more share than that of Dutch-Bangla Bank Ltd.
It is also mentionable that largest volume of remittance comes through the bank which have wide on network. Government commercial banks such as Sonali Bank Ltd. are doing well because they have wide network. In private banks, Islami bank is doing well due to its more branches as well as more customer base.
Another thing we have to consider that remittance comes for cash payment, account credit service. Those banks have wide network they can easily capture this business. Because beneficiary want to go that branch which is near to him.
If we compare with some 2nd generation bank, we found that the performance of DBBL is satisfactory. It is mentionable that some third generation banks recently engaged themselves in this business. The performance in terms of share of total remittance of DBBL does not improve through total volume of remittance handling increase which indicates that other bank are improving.
Online Remittance System (ELDORADO):
ELDORADO is a secure web based and on-line Remittance Payment System. Presently ELDORADO has 8 (eight) member banks having 501 branches all over the country.
Facilities of ELDORADO system:
On-line transactions on real time basis
Fund transfer (inter bank and inter branch)
Direct electronic payment substitutes
- Demand draft
- Telegraphic transfer
- Mail transfer
- Pay order
Fully compliant with all relevant Bangladesh Bank regulations.
Types of transactions:
Payment of foreign remittance in taka
Transfer of inland remittance in taka
Mode of remittance in taka:
Payment of foreign remittance
- Exchange house to bank A/C Pay
- Exchange houses to pay cash for non-account holders
- Exchange houses to “advice and pay”
Transfer of inland remittance:
Customer A/C to Customer A/C transfer
Customer A/C to pay cash for non-account holders.
Customer A/C to advice and pay
Cash deposit by non-account holders to Customer A/C
Cash deposit for cash payment ( both are non-account holder)
Process of Remit fund through ELDORADO:
Step 1: Client will deposits money to exchange housed or any of the 501 branches of member banks within Bangladesh.
Step 2: Beneficiaries get notification by sms/e-mail from ELDORADO system
Step 3: Beneficiary draws the money from his account or receive cash from the branches within Bangladesh.
Member of banks of ELDORADO as on 31st December 2009:
DUTCH BANGLA BANK LTD L.T.D.
MUTUAL TRUST BANK
AL-ARAFAH ISLAMI BANK L.T.D.
FIRST SECURITY ISLAMI BANK
SOCIAL ISLAMI BANK L.T.D
Problem associated with remittance handling:
Whenever remitter send the money, they want beneficiary immediately get the money. The gap between the expectation and reality creates problem. The reason for delay:
Procedural delay for sending TT/DD.
Delay in cheque clearance.
Sometimes exchange house make promise which is not possible to fulfill.
Some exchange house deliberately delays in sending invoice.
Lack of full information.
Some rural branch of different banks deliberately delays in collecting the payment.
Sometime banks simply don’t allow withdrawing cash just for pretending to maintain the minimum balance at the bank branch and so on.
In the no banking days it is not possible to withdraw the cash, which in turn causes delay in reaching money to the person concerned.
Impact of remittance in national economy:
Remittance plays a significant role for the economic development of Bangladesh and it is considered less volatile source of foreign currency compared with and foreign aid. Formal remittances stood at US$ 7.8 billion in 2007-08, which is equivalent to around 10% of GDP. It is extremely hard to measure the informal remittance flow, but these channels are considered to be almost as much as formal remittance. Formal remittances have been growing at over 10% annually since 2000, due to effective government policies encouraging greater efficiency and confidence in formal remittance payment channels. Formal remittances are equivalent to 56% of export values and play a critical role in providing foreign currency and financing the countries trade deficit. The foreign currency aspect of remittances especially important as Bangladesh runs a trade deficit and is currently suffering from a serious foreign exchange crisis. Growth in remittances is likely to be one of the key factors in the medium run in maintaining foreign exchange reserves and thereby maintaining economic stability. The following table shows the comparative position of Remittance, Import payment, Export receipt and Foreign Aid.
|Percentage of GDP in comparison with remittance|
|Comparing Remittance as a percentage of export receipt|
|Comparing Remittance as a percentage of Import payment|
|Percentage of Foreign Aid in comparison with remittance|
Table 4: Source: Economic Relations Division, Ministry of Finance, Statistical Department, Bangladesh Bank, Economic trend Sep-2008
The table clearly depicts that remittance is increasing and the share of remittance in GDP is increasing. In comparison with export receipt during 2000-2001 remittance was only equivalent to 29.10%, but in 2007-2008 this proportion increased to 56.16%. On the other hand in 2000-2001 remittance was only 22.40% of import payment, but in 2007-2008 this proportion increase to 40.66%, although the country’s Foreign Direct Investment (FDI) is increasing, but it is still insignificant comparing with remittance earning.
Impacts of Remittance at house hold levels:
Positive impact of remittance:
Allowing families to meet basic needs.
Opportunities for investing in children’s education, health care etc.
Loosening of constraints in family budget to invest in business or savings.
Social security for elderly.
Boost of local economy.
Negative impact of remittance:
Dependency of remittance.
Neglect of local productive activities by families.
Worth mentioning here is the study of afar et al. (2002). They carried out a cost-benefit analysis among migrant workers in the UAE. On the basis of direct benefits or remittance and cost of migration the author concluded that migration had yielded a benefit- cost ratio 2.88.
Source: International Organization of Migration: Dynamics of Remittance utilization in Bangladesh
The Most Commonly Used Documents in Foreign Exchange:
In Foreign Exchange Department different types of documents are essentially needed. The documents are:
Letter of Credit.
Bill of Lading.
Certificate of Origin.
Bill of exchange.
Import Registration Certificate (IRC).
Letter of Indent.
Tax identification Number (TIN).
Letter of Credit:
Letter of Credit (L/C) can be defined as a “Credit Contract” where by the buyer banks is committed (on behalf of the buyer) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of specified documents, the letter of credit is called documentary Letter of Credit.
Parties involve in Letter of Credit –
Opening bank/Issuing bank.
Advising bank/ Notifying bank.
Paying bank/Reimbursing bank.
Bill of Lading:
Bill of lading is the cardinal document against an import L/C. It is a document of title to goods evidencing its dispatch from the exporting to the importing country. The B/L issued by the shipping company facilitates negotiation of documents. Through it the exporter ensures:
It is clean.
It evidence that the consignment is on board and that bears the date of shipment not after the stipulated date.
It must state the position with regard to how and who has paid or would pay the freight.
It must indicate the port of loading and the name of the port destination.
It must not indicate transshipment unless the term authorizes to do so.
It must bear the description of goods, marks, numbers, gross and net weight. L/C number should also be correctly mentioned.
It must not be stale.
The name of the beneficiary should appear below the name of the shipper with prefix account.
A commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice is a statement containing full detail of goods sipped. The general contents of a commercial invoice used in foreign trade are;
Name and address of the seller and buyer.
Details of goods shipped-quantity, quality, description and value.
Packing details and packing marks.
Price and amount payable by the buyer.
Terms of trade- FOB, CFR, OR, CIF etc.
Details of fright charges, insurance premium and other charges.
Reference to the sale contract in fulfillment of which the shipment is made.
Name of the vessel in which the goods are shipped.
Reference to the license number under which the importer is made.
If the contract is made directly between the buyer and seller then the letter of Proforma invoice is needed. A Proforma invoice contains all the particulars in a commercial invoice. It is distinguishing from the commercial invoice by the words “Proforma invoice” appearing on it. It does not evidence a sale. The Proforma invoice may be required in the following cases:
It may be basis of whish the contract of sale is concluded later.
When the goods are sent on consignment basis, a proforma invoice may be used.
Certificate of Origin:
A Certificate of Origin declares the place of actual manufacturer or the growth of the goods. A country may place restriction on imports from certain countries. Or preferential treatment may be accorded in tariff for imports from certain countries. For both these purposes, certificate of origin become necessary. Usually such certificates are issued by the chambers of commerce or trade associations in the exporting countries.
This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contact and the L/C. The inspection company is usually nominated by the buyer who also indicates the types of inspection he wishes the company to undertake.
Insurance certificate whish is required for the foreign exchange transaction and the insurance certificate document must:
Be that specified in the credit.
Cover the risk specified in the credit.
Be consistent with the other documents in its identification of the voyage and descriptions of the goods.
Be a document issued or signer by an insurance company or its agents, or by underwriter.
Be dated on or before the date of the shipment as evidence by the shipment documents.
Bill of exchange:
A bill of exchange is an instruction by the exporter (drawer) to the importer or the importer’s bank to make of the amount mentioned in it. A bill of exchange is a negotiable instrument and is governed by the Negotiable Instruments Act.
Its date must not be prior to the date of shipment or subsequent to the date of presentation.
Its value must correspond to the value of the invoice and must not exceed the L/C amount.
It must be drawn to the order of a bank.
Packing List is the letter of describing the number of the packets and their size. This document contains full particular of consignment vise- number of bales, price or packages, net and gross weight of each unit, shipping mark etc. which enables the buyer and the shipping company to readily identify and collect the goods.
Import Registration Certificate (IRC):
To import, a person should be competent to be an importer according to Import and Export Act 1910. Chief controller of the import and export provides the registration (IRC) to importer. Applicant has to submit IRC. It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyer and the agent of the sellers.
IRC is two types:
COM (commerce purpose)
IND (industrial purpose)
Letter of Indent:
Many sellers have their agent seller’s country. If the contract of buying is made between the buyer and the agent of seller than the letter of indent is required.
Forwarding Letter is given by the advising bank to the issuing bank, several copies are sent to the issuing bank. All copies including origin should be kept in the bank.
Tax identification Number (TIN):
Recently there has been made a provision to gave a certificate named TIN (tax payers identification number). Taxation department issues this certificate.
The copy mentioning the name of insurance company should be given to the client and remaining copies should be kept in the bank. But if only one copy is given then the photocopy should be kept in the original copy should be given to the bank.
Charges of foreign exchange transaction:
Incase of import:
|Types of service||Period||Rate of charges|
|L/C opening commission under cash (100% cash margin)||1st quarter||.25%|
|for each subsequent quarter||.25%|
|L/C opening commission under cash(below 100% cash margin)||1st quarter||.40%|
|for each subsequent quarter||.40%|
|L/C opening commission under cash (loan/credit/barter)||1st quarter||.40%|
|for each subsequent quarter||.30%|
|L/C opening commission ( back to back, L/C on account of export oriented garments, textile)||1st quarter||.40%|
|for each subsequent quarter||.40%|
1000L/C opening commission for deferred payment1st quarter.50%for each subsequent quarter.50%Minimum1000If L/C is transmitted by mail/ courierIndiaAt actual costOther SAARC countryAt actual costAll other countryAt actual costIf L/C is transmitted by swift 750
Incase of export:
|Types of service||Rate of charges|
|Negotiating commission on export bill in foreign currency||.15%|
|Negotiating commission on export bill in local currency||.15%|
|Advising foreign bank L/C to local beneficiaries||750 Tk.|
|Amendment to above||750 Tk.|
|Transfer of export L/C||750 Tk.|
|Pre advising of export L/C||750 Tk.|
|Adding of confirmation||.20% per quarter|
|Issuance of P.R.C.||500 taka/certificate|
|Document under collection of foreign currency (where buying and selling allowed)||.15%|
|Document under collection of foreign currency (where buying and selling are not allowed)||.15%|
|Collection from foreign of foreign currency||At actual cost plus 300 Tk. to be deducted from collected proceeds|
Incase of inland:
|Types of service||Period||Rate of charges|
|Opening commission||1st quarter||.40%|
|part||@.40% minimum Tk. 1000|
|Advising of I L C||750 taka|
|Inland document under collection in F.C. (Where buying and selling is not allowed)||@.15%|
|Inland document under collection in F.C./T.K. (Where buying and selling is not allowed)||@.15%|
Comparative Analysis of DBBL:
In this analysis, I try to find out the position of our bank comparing with the other banks that are almost same level in banking sector. I consider Dhaka Bank Ltd, Prime Bank Ltd & Southeast Bank Ltd for comparative analysis with Dutch-Bangla Bank Ltd. I try to represent the position of those banks according to their year to year financial information separately in the following by charts as well as the graphs comparing with the amount variation. Here I considered recent five years information.
(Figure in million)
|Dhaka Bank Ltd.|
|Prime Bank Ltd.|
|Southeast Bank Ltd.|
|Dutch-Bangla Bank Ltd.|
After comparing Growth Percentage (%), Dutch-Bangla Bank’s growth percentage is 21% increase than previous year, Southeast Bank’s increase 20%, Prime Bank’s increase 6% but Dhaka Bank’s decrease (30%) than previous year.
So, in import variation Dutch-Bangla Bank’s performance is better between those banks.
(Figure in million)
|Dhaka Bank Ltd.|
|Prime Bank Ltd.|
|Southeast Bank Ltd.|
|Dutch-Bangla Bank Ltd.|
After comparing Growth Percentage (%), Dutch-Bangla Bank’s growth percentage is 3% increase than previous year, Southeast Bank’s increase 11%, Prime Bank’s increase 11% but Dhaka Bank’s decrease (15%) than previous year.
So, in export variation Southeast Bank & Prime Bank both performances are better than Dutch-Bangla Bank Ltd. On the other hand Dutch-Bangla Bank is better than Dhaka Bank Ltd.
(Figure in million)
|Dhaka Bank Ltd.|
|Prime Bank Ltd.|
|Southeast Bank Ltd.|
|Dutch-Bangla Bank Ltd.|
After comparing Growth Percentage (%), Dutch-Bangla Bank’s growth percentage is 6% increase than previous year, Southeast Bank’s increase 56%, Prime Bank’s increase 17% but Dhaka Bank’s decrease (17%) than previous year.
So, in remittance variation Southeast Bank performance is better than other bank. Prime Bank is placed 2nd, Dutch-Bangla Bank is placed 3rd and Dhaka Bank is placed 4th.
Ratio Analysis of DBBL:
Ratio analysis is an analytical tool can be applied to a bank’s financial statements so that management and the external users can identify the most critical problems inside each bank and develop ways to deal with those problems. Some selected ratios are mentioned here to give an insight about Dutch-Bangla Bank Limited.
Return on Equity:
Interpretation: In ROE of DBBL, it is analyzed that ratio is almost equal in every year that the bank is in constant level.
Return on Assets:
Interpretation: In the ROA it is analyzed that the bank’s ROA is in constantly growing which indicating that bank is using its assets effectively than previous year.
Loan Deposit ratio:
|Loan Deposit ratio (%)|
Interpretation: The standard of loan deposit ratio is 85%. The loan deposit ratio of DBBL in 2008 and 2009 is 80.85% and 71.41%, which indicates that DBBL is not in progressive but satisfactory.
Return on Investment:
Interpretation: DBBL’s Return on Investment is 5.87% in 2006 and in 2009 is 14.64%, which indicates that DBBL is making progress and arrange their investment decision in effective way.
Earning Per Share (EPS):
|EPS (In Tk.)|
Interpretation: The EPS of DBBL is not sustainable but EPS of 2009 is higher than 2008, which means that the bank may generate more growth in EPS in the future.
Capital adequacy ratio:
|Capital adequacy ratio (%)|
Interpretation: DBBL’s regulatory capital as on December 31, 2008 stood at Tk. 4,616.00 million. Capital adequacy ratio as on December 31, 2009 was 10.96% as Bangladesh Bank’s minimum requirement of 10%. So that DBBL performance is satisfactory.
SWOT Analysis of DBBL:
While preparing the report, I have learned several activities of FED of DBBL regarding financing, import, export, purchasing bill etc. this activities are summarized below:
The most important factors that have been found to play a significant role in the number of Export L/C in a month at DBBL are Back to Back L/C and Export Cash Credit (ECC). Other than that, Package Credit (PC) also has a big impact on the number of Export L/C in a month.
The original un-standardized equation, with statistically significant and insignificant variables.
In foreign exchange department it is required to communicate with foreign banks and international division of DBBL frequently and quickly.
To make the process easily modern communication media for e-mail, fax, internet etc should be used. But the bank has not so much practice of using these media.
Modern technical equipment such as computer is not sufficient in foreign exchange department. As a result the exchange process makes delay and it is also complicated.
If any wrong information can wrote by officer in IMP form, bank will lost their dealership and must be cancelled.
DBBL faced a challenging position in various competing banks in current market.
The bank should higher export who can understand the future economic situation and can take initiative based on the forecast. Again the bank can achieve success from the economy if they can handle the situation efficiently.
Bank should improve their research centre and training centre to enrich the knowledge regarding Uniform Customs and Practice for Documentary Credit (UCPDC).
I recommend that the bank improve its management of international division who are responsible for handling their foreign exchange related risk.
Again the bank should maintain correspondence relationship with the bank that will them to settle payment and receipt regarding foreign exchange transaction.
The bank should aware about their customer to meet up their demand to maintain their goodwill.
Bangladesh is a developing country. Many people of our country live in many countries. So, it is important to maintain foreign exchange department in every banks.
Foreign exchange department of DBBL should enrich by new technology to make a good competition among the banks.
In conclusion, Dutch-Bangla Bank Limited is one of the most potential Banks in the banking sector. It has a large portfolio with huge assets to meet up its liabilities and management of this bank is equipped with the export bankers and managers in all level of management. So, it is not easy job to find out the drawbacks of this branch. I would rather feel like producing my own opinion about the ongoing practices in Mirpur Circle -10 Branch. Over the last few decades there have taken place dramatic transformation in the realm of foreign exchange and financing of foreign trade. In the wake of these changes the financial experts have developed a whole range of few ideas and techniques on management exchange rates, investment of foreign exchange reserve and opening up the economy. Currently this sector is becoming extremely competitive with arrival of multinational banks as well as technology infrastructure, effectively foreign trade management, higher performance level and utmost customers satisfaction. Again the advent of a new era of information technology has changed the ways banks handle their foreign exchange related transaction. We know that institutional support is necessary for undertaking international trade and foreign exchange business. On the other hand expertise regarding management of exchange rate is essential for successful operation of foreign exchange related transaction. By undertaking these activities efficiently DBBL will be able to maximize their profit and wealth maximization objectives. DBBL undertake and support foreign exchange business and management of exchange rate in different way. But some improvement regarding exchange rate risk minimization is necessary for handling the competition that arise from competitive financial market, as the foreign exchange division of the has an influential effect to the net operating income and net income of the bank. Recently this division has achieved quite success as they have achieved permission to perform most of the foreign exchange related transaction. But rival among local and foreign banks will make the activities of the bank more competitive in the near future. So the banks have performed the foreign exchange transaction in a more innovative way. So Dutch- Bangla Bank Limited has to reengineer its plan and reform the service improvement strategy to retain the higher performance level, customer satisfaction and to compete with challenges.
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